A distinction came to be drawn between ’sustainable’ and ‘contestable’ competitive advantage (Clemons 1986, Feeny & Ives 1989, Ciborra 1992). The thesis was that many kinds of advantage which can possibly be derived from innovative use of IT result only in ephemeral advantage, which is quickly neutralisable by second- and later-movers. A distinction needs to be made between the sustainability of the original advantage, and of any derived advantage (such as increased market share).
An enhancement to the Porter framework of competitive strategy was the notion of ‘alliance’ (Barrett & Konsynski 1982, Gummesson 1987, EDP Analyzer 1987, Johnston & Vitale 1988, Rockart & Short 1989, Wiseman 1989, Konsynski & McFarlan 1990, Ford 1990, Bowersox 1990). This referred to chains or clusters of organisations which collaborate in order to gain competitive advantage over other, similar organisations, or to neutralise the advantage of one or more competitor organisations.
A further idea which has emerged is that innovation in IT is of strategic importance only if it is compatible with, and preferably leverages upon the company’s existing characteristics and advantages (Beath & Ives 1986, Clemons & Row 1987, Ives & Vitale 1988, Hopper 1990). One particularly important facet of this is the notion of ’strategic alignment’ of IT policies and initiatives with the directions indicated by the corporation’s senior executives (Henderson & Venkatraman 1989, Earl 1989, Broadbent & Weill 1991).
An outline of factors that influence organisation’s strategic goals is summarised in Exhibit 6.
Exhibit 6: Scott Morton’s Five Forces Influencing the Organisation’s Objectives
(Scott Morton 1991)
Organisations are facing the reconceptualisation of the role of information technology in business. Scott Morton proposes five levels of complexity at which reconfiguration can be applied. Exhibit 7 reproduces his schematic:
? evolutionary levels:
o localised exploitation within individual business functions. The primary objectives addressed are local efficiency and effectiveness;
o internal integration between different systems and applications, generally involving not just automation, but also rationalisation, and using a common IT platform. Efficiency and effectiveness are enhanced by coordination and cooperation within the enterprise;
? revolutionary levels:
o business process redesign, involving more thorough re-evaluation of the enterprise value-chain and the production process, and more far-reaching change;
o business network redesign, the reconfiguration of the scope and tasks of the business network involved in the creation and delivery of products and services. Coordination and cooperation extend, selectively, beyond the enterprise’s boundaries; and
o business scope redefinition, involving migration of functions across the enterprise’s boundaries, to the extent of changing the organisation’s conception of the business it is in.
Exhibit 7: Scott Morton’s Five Levels of IT-Induced Reconfiguration
(Scott Morton 1991)
The nature of business governance is conceptualised along a continuum from loosely-coupled (arm’s-length, standard relationships like the classic open-market transactions, with relatively low cost to switch from one participant to another) through to tightly-coupled (unique, specialised relationships with high switching costs). The specific mode of functioning is dictated by the nature of the product, of its exchange and of its criticality, which are dictated by the business strategic thrusts and are independent of the IT.
The nature of IT governance ranges from a common role (i.e. the position occupied by any given player is no different from the position occupied by other player in the network, as in the case of adoption of a common EDI standard) to a unique role (e.g. the positions occupied by the different players are different because of their use of a dedicated, proprietary network, or their offering of specialised, valued-added software or other services on the standard communications network). These two dimensions, which resemble the inter-relatedness and exploitability considerations discussed earlier, are summarised in Exhibits 8 and 9.
Exhibit 8: Scott Morton’s Classification of Governance Modes
(Scott Morton 1991)
Cooperative Supra-Organisational Systems
The original orientation of SIS was towards internal systems. Subsequently, attention switched to cooperation among enterprises. Cooperation may take place along the industry value-chain, across industry segments, or between industries. Cooperation may be relatively informal, situational or short-term in nature and based on mutual understanding, or it may take the shape of a more formalised joint venture or alliance.
Cooperation and alliances are fundamentally competitive in nature, in that teams of corporations with at least some degree of common interest seek to gain an advantage over, or neutralise the advantage of, a single enterprise or another team of cooperating or allied enterprises.
Exhibit 9: Nature of Scott Morton’s IT-Induced Reconfiguration
(Scott Morton 1991)
Level Theme Potential impacts Major objectives Management
implications
One Localised Potentially high Reduced costs Identify
exploitation savings in and/or improved firm-specific
narrow areas of service areas for
business exploitation
Two Internal Integration Elevate IT as a Articulate the
integration offers both strategic resource logic for
efficiency and integration
effectiveness
Three Business Powerful in Reengineer the Strategy – IT
process creating business with IT alignment
redesign differential lever
capabilities in
the marketplace
Four Business Opportunities Create a virtual Articulate the
network for creatively organisation and logic of
redesign exploiting occupy a central network
capabilities position in the redesign for
network the focal firm
Five Business Altering the Identify new Identification
scope business scope business as well of new scope
redefinition both proactively as potential of business
and reactively threats
Transaction cost economics explains the cooperative relationship among enterprises. It sees them as attempts to increase the utilisation of fixed resources, such as productive capacity, managerial capability, and technological know-how, through closer integration of decisions, and hence improved coordination among economic activities that are not jointly owned: economies of scope and scale enable transaction costs to be reduced. Transaction costs consists of coordination costs and transaction risks. Coordination costs are the costs of coordinating decisions and operations among economic activities, in order to improve resource efficiency. This includes costs to establish and operate information channels and decision processes.
Transaction risk is the possibility of opportunistic behaviour by a party to the relationship leading to uncertainty surrounding the level and division of the benefits from the increased integration of decisions and operations. Transaction risk can be divided into three sub-categories:
? transaction-specific capital;
? information asymmetries; and
? loss of resource control.
Traditional transaction-cost theory assumes that increasing explicit coordination requires specialised sunk investments to decrease coordination costs, but that the sunk nature of these investments substantially increases transaction risk.
The application of IT tends to reduce the coordination costs by reducing the costs of accumulating, storing, and communicating information. It is necessary, however, to to mitigate transaction risk as well, e.g. through modularity and replicability of knowledge, open standards, intuitive user interfaces, and interconnection among networks. However, codified information is much easier to duplicate and transfer without any security measures.
IT-facilitated cooperation among enterprises generally takes one of the following forms:
? vertical quasi-integration, whereby existing relationships with customers and suppliers can become more tightly coupled;
? outsourcing, whereby activities previously performed within one enterprise due to high transaction risk may be shifted to third-party providers, in order to benefit from the higher production economics, such as scale and specialisation, of those providers; and
? quasi-diversification, whereby enterprises cooperate across markets or across industries in order to leverage their key resources in new areas, exploiting increased economics of scale and scope in those resources. Relationships with other firms that were previously not possible due to high coordination costs or high transaction risk may become feasible.
Scott Morton (1991) proposes that the scope for cooperation is determined by two factors: the degree of inter-relatedness between its production process and that of its suppliers and customers; and exploitability, by which is meant the extent to which the advantage is sustainable rather than contestable. Different industrial structures according are classified according to their inter-relatedness and exploitability, as in Exhibit 10.
The potential for competitive and cooperative behaviour is dependent on the industry’s position in the scheme. The higher the exploitability and the higher the inter-relatedness of an industry, the greater the scope for competitive SIS. On the other hand, the lower the interrelatedness and the lower the exploitability, the greater the likelihood of co-operative SIS.
A more substantial degree of cooperation is possible. There are circumstances in which the whole of an industry may suspend competition in respect of some aspect of its operations, and pursue a joint strategy of collaboration. Typical examples are the adoption of standards (such as the dimensions and functional characteristics of interfaces between products, or common messaging systems) and of common infrastructure (such as transport containers and network services providers).
Collaboration may be in the interests of the customers, in that it may result in lower costs, higher quality or greater reliability; and of suppliers, in that it may lead to a reduction in the variability of their customers’ demands. It can, of course, be detrimental to the interests of suppliers and/or customers, to the extent that it enables the set of enterprises to exercise market power, or to raise barriers to entry, thereby defend against the entrance of new competitors and hence to permit the emergence of a slothful oligopoly. This requires sufficiently different treatment, that it is deferred until a later section.
Exhibit 10: Scott Morton’s Industrial Structure Classification
(Scott-Morton, 1991)
The Discovery or Invention of Strategic IS
The earlier parts of this paper have focussed on the origins and nature of strategic information systems. This section draws together normative proposals put forward by a variety of authors regarding the way in which organisations can bring strategic information systems into existence, or otherwise exploit IT to achieve competitive advantage.
Porter’s 1980 and 1985 books proposed that the enterprise’s value chain can be used as a framework for identifying opportunities for competitive advantage. A firm’s value activities fall into two broad categories: primary and support. Primary activities are those involved in the physical creation of the product, its marketing and delivery to customers, and its support and servicing after sale. Support activities provide the infrastructure whereby the primary activities can take place. These are linked together to form the enterprise’s value chain.
Competitive advantage in either cost or differentiation is a function of this chain. IT is spreading through the value chain, transforming the way value activities are performed and the nature of the linkages among them. It enables an enterprise to better coordinate its activities and thus gives it greater flexibility in deciding its breadth of activities.
Benjamin et al (1984) proposed a strategic opportunities matrix for identifying IT opportunities. They suggested that IT can be used for strategic purposes not only in the marketplace, but also in internal operations. They claimed that most models overlooked the potential strategic impact of applying IT to traditional products and processes, or to changing the firm’s current way of doing business. The techniques associated with environmental scanning (Aguilar 1967) can be applied to this process.
Porter and Millar (1985) then proposed the use of an information intensity matrix to assess IT’s role. The matrix evaluates the information intensity of the value chain against that of the product. They suggested that IT will play a strategic role in an industry that is characterised by high information intensity in both the value chain and the product. Their representation of the matrix is reproduced in Exhibit 11.
Wiseman (1988) broadened the scope of Porter’s model. For Wiseman, competitive advantage is “The dominance of one competitor over another or others in an arena, with factors conducive to its success over a period of time”. An organisation’s competitive space generally comprises many different arenas, which may be independent or linked. The organisation may possess multiple competitive advantages or disadvantages within or among its arenas.
Wiseman combined his generic strategies with Chandler’s growth strategies to produce a ’strategic thrusts’ framework intended as a means of identifying strategic IS. Strategic thrusts are major competitive moves made by a firm. Five are postulated:
? differentiation;
? cost;
? innovation;
? growth; and
? alliance.
They are targeted at suppliers, customers and/or competitors. IT can be used to support or shape the enterprise’s competitive strategy by supporting or shaping competitive thrusts.
Exhibit 11: Porter & Miller’s Information Intensity Matrix
(Porter & Miller 1985)
Wiseman then combined his strategic thrusts framework with an analysis of competitive targets to produce a ’strategic option generator’, depicted in Exhibit 12. The competitive targets are divided into two groups. System (user) targets are those entities involved with using the application; competitive arena targets are those competitors of the enterprise (suppliers, customers, distribution channels, or rival arenas) whose competitive position is affected by the firm’s use of information technology and the thrust it supports or shapes.
Exhibit 12: Wiseman’s Strategic Option Generator
(Wiseman 1988, p.152)
Competitive strategies can be generated through the procedure shown in Exhibit 13. To Porter’s and Wiseman’s contributions, Earl adds the notions of offensive move and defensive reaction; and use of the strategic measures by the enterprise itself or provision to the target.
Exhibit 13: Earl’s Procedure for Generating Competitive Strategies
(Earl 1987)
Wiseman’s five strategic thrusts require closer attention.
(1) Differentiation
The first ’strategic thrust’, differentiation, was discussed earlier.
(2) Cost
Strategic cost thrusts are measures intended to:
? reduce the enterprise’s cost-profile, by reducing or avoiding specific costs;
? help suppliers, distribution channels, or customers reduce or avoid costs, so that the enterprise receives preferential treatment or other benefits; or
? increase the cost-profiles of its competitors.
Economies of scale enable relatively large enterprises to acquire, produce, process, store, ship, or sell products at lower cost per unit than relatively small ones. Important factors in gaining economies of scale include:
? specialisation;
? automation;
? bargaining power;
? experience; and
? failures of proportionality.
At some point, however, diseconomies may set in, due to, for example, increasing bureaucratic inefficiencies, transport charges or lack of local labour.
Economies of Scopeis another form of cost saving. Rather than arising from an expansion in the size of the primary operation, these derive from extension into additional operations which can share the infrastructure costs. Mechanisms include common factors of production, by-products, reuseability, and expertise.
The potential also exists for economies of information whereby relatively knowledgeable firms can acquire, produce, process, store, ship, or sell products at lower average cost per unit than relatively ignorant ones. The sources of information economies run from intelligence on costs, prices, and policies of the enterprise’s strategic targets, to data on economic, social, political, and technological trends affecting its products.
(3) Innovation
Innovation is the adoption of the new products or processes. Product innovation involves the creation of new products, or of new features in existing products, in order to satisfy customer needs or wants which were previously unmet.
Process innovation, on the other hand, improves the efficiency or effectiveness of a process involved in the production or delivery of a product. It generally addresses one or more of the links in an enterprise or industry value-chain. It may involve technological change, organisational change, or often both. An innovation thrust can be aggressive, or employed defensively to imitate or neutralise a competitor’s innovation.