Information technology now has become the back bone of every business. Investment in IT enabled projects has been increasing. But IT is not used much for strategic thinking
Information technology is not mere computer application .Each organization is now aware of the effects, benefits and implication of information technology in business and also its ability in creating sustainable and maintainable competitive advantages. In business, information technology is used through the value chains of activities which in turn enable the organization to optimize and control function of operations for easy decision making.
Strategic importance of IT lies its ability in developing the concept “value chain” in organization by creating interdependent generic value activities comprising of elements such as suppliers, customers, production, finance etc . IT creates a linkage between these activities through a value chain. It transforms the value chain activities and also the product’s physical components and process either by lowering cost of value activities or by product’s differentiation. IT also transforms the pace of competition itself.
Information Technology can also add value to firm by reducing cost or increasing revenue. Information technology’s ability in adding value to firm is different from its ability as being a source of sustainable competitiveness.
However, Information technology’s potential as a source of sustainable competitive advantage is in dispute and is based on certain assumptions. These assumptions are resulted in emerging two theories.The relationship between Information technology and Sustainable competitive advantage is initially studied by a theory called Create-capture-keep paradigm. It is based on the switching cost of customers. This theory was replaced by resource based theory which explains firm’s ability to use IT to leverage the fundamental resources as advantage as a source of sustainable competitive advantage. Under this theory, when a firm posses same capabilities or resources which competing firm does not possess it constitutes a source of competitive advantage. But if resource immobility incurs cost to the firm or brings disadvantages it does not constitute sustainable competitive advantage. Some times, imitation of IT resources of successful firm with out ambiguity or social complexity also brings sustainable competitive advantage.
Some times, imitation of IT resources of successful firm with out ambiguity or social complexity also brings sustainable competitive advantage.
In any organization, Information technology becomes potential sources of competitive advantages in five ways.
1. When supplier becomes monopolist and IT is unique and essential for customers.-switching cost of customers
2. When capital investment in IT enabled resources increases
3. When technology becomes as proprietary technology.
4 When Technical skills needed to build IT application
5. When Managerial skills developed to understand and exploit IT application to increase business operations.
Every information available in the organization can be effectively converted into the fruitful result and attained sustainable competitive advantage if the following steps are observed.
- Assess existing and potential information intensity of product and process
- Evaluate the likely impact of IT on their industry structure
- Identify the rank of activities that information first affects
- Quantify how information technology brings new business
- Generate a plan of action for taking advantage of IT
Now a day, IT is not at all a supporting system but a way of thinking that contributes substantial competitive advantage having substantial effects and implications in firm’s operations.