The Vanishing Advantage

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The Vanishing
Advantage
Carr, Chapter 4
INFS 780
Richard T. Christoph
IT’s Role in Business
 Firms have spent literally billions in
IT development

Sought a competitive advantage
 Pioneers built new systems at great
expense
The PGAITA factor
 Most systems focused on the TPS &
BICARSA
 Paybacks could be huge –

IT and Competitive Advantage
 For many years, firms believed IT
provided an avenue to a sustainable
competitive advantage
Porter describes this as something that
you can do that competitors cannot
easily duplicate
 Carr refers to this as a proprietary
advantage

Proprietary vs. Infrastructural
Advantage
 Proprietary: One firm can “own” or
control the technology

SABRE is a great example
 Infrastructural: Becomes a “cost of
doing business”

Electricity and phone network quickly
became part of the infrastructure.
 Most technologies start as proprietary
and move toward infrastructural
Technologies in Transition
 TIVO – started as proprietary, now
CATV firms are deploying their own
copies
 SABRE – owned by AA, now,
however is a basic, available system
for airline reservations.
 ATM – Provided a short advantage to
owning banks – other banks quickly
caught up
IT & Productivity
 IT has vastly enhanced productivity
 Carr notes that most productivity has
enhanced customers
This means customers see lower prices
 Business do not see higher profits

 If Carr is right, IT does not appear to
yield a sustainable competitive
advantage
Compare with Porter’s 5 Forces
Substitutes
Buyers
What has IT
changed?
Rivalry
Levels
Entrants
Suppliers
Let’s look at RIVALRY
 Usual issues for competition
Warranties and guarantees
 Advertising & special promotions
 Dealer networks
 Product innovation


How does IT impact these?

Doesn’t IT provide better customer
responsiveness for all of these??
Rivalry after IT
 Think about it – consumers benefit
from fast ordering, dealer networks,
lower cost information sharing
Firms, however, must match these
abilities simply to stay in business!
 Firms gain no advantage from using IT
in these ways – but can lose all if they
do not have IT!

 This is a classic infrastructural
situation
Recall that RIVALRY Is
Stronger when:
Many, equal-sized firms
 Slow demand growth

Sales volume built by stealing share
 Switching costs are low
 Exit costs high

 IT lowers switching costs, allows easy
share stealing, makes small firms
compete evenly with large firms
IT Increases Rivalry??
 Can IT be shown to INCREASE
rivalry?
It appears the answer is YES
 Rivalry increases – profits do not
 Customers benefit
 No strategic benefit to the firm

 Again, a classic infrastructural
technology
Technology as an Infrastructure
 Hardware and software moving
rapidly to common standards

Too expensive to develop one of a kind
– and no reward for doing so
 Computational power cheaply and
widely available

No benefit from having the latest
system
When IT was new
 Ah, these were the days. I arrived at
the very end of this period (1977)
Technology itself was a barrier due to
cost (needed special room, power,
operators)
 Software did not exist – you wrote it
 Simple applications cost many
thousands
 Networks were slow (4800bps) and
needed special lines, gear, people

Locking in Advantage
 Firms sought first mover advantage
 One large bank system I installed
included some of the first ATM
machines in SC
 Very complex – we had some 10 leased
lines (20 modems!) and a separate
Series 1 computer moving between
async & bisynch communications
The brief advantage
 My bank moved all operations in-house
(DDA, loan, savings)



Needed a single database, custom software –
all custom written
Built an operations center, hired staff
Total cost was over $2,000,000
 Allowed immediate, rapid growth
 Competitors could match capability in
three years with commercial packages
Bank software now
 All banks must offer ATM access,
single database accounts
 Bank IT has become an
infrastructure
No longer provides competitive
advantage
 IT now offers more RISK than REWARD
 If IT fails, customers upset – if IT works,
customers not impressed

Technology Replication Cycle
 First movers spend huge amounts
 Imitators can usually copy cheaply
 Errors are eliminated as we learn what
works
 Costs drop dramatically
 Followers my benefit more than first
movers
Cost Declines of Computing Power
Cost Declines of Networking Power
http://www.neweconomyindex.org/section1_page13.html
So Costs Decline – so what?
 Costs drop dramatically as
technology moves from proprietary
to infrastructural
Best practices established
 Volume production
 Wide market adoption
 Consider electricity, telephone, VCR,
DVDRW, color TV

Homogenization of Process
 Competitors begin to use the same tools in
the same way to do the same job
 Used to built code to match our business
process
 Now, we match our process to the
software
 Example: ERP systems
 Require firms to adjust to the ERP package
 This reduces opportunity for unique,
system-based competitive advantage
Homogenization of Process
 Carr notes:
 When a company buys a Seibel
software package for CRM, it aslo is
buying the Seibel way of managing
customers.
 An example of this is the Datatel
WebAdvisor system

All public SD schools use it – no one
has an advantage over any other school
What’s a Mother To Do?
 Peter Drucker notes that firms can
tend to be efficient (doing things
well) or effective (doing the right
thing) (firms can rarely do both)

Common software packages promote
efficiency but one firm will not be more
effective than another using the same
package
 Competitive advantage is based on
effective items
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