Gaining Competitive Advantage
A Decision Support System creates a competitive advantage if three criteria are met. First, once the DSS is implemented it must become a major or significant strength or capability of the organization. Second, the DSS must be unique and proprietary to the organization. Third, the advantage provided by the DSS must be sustainable for at least 3 years. Even with rapid technology change a 3 year payback is realistic. Managers who are searching for strategic investments in information technology need to keep these three criteria in mind. A competitive advantage means an organization does something important much better than its competitors.
The widespread usage of computer technology has changed the way companies do business. Information technology has altered relationships between companies and their suppliers, customers and rivals. Porter and Millar (1985) discuss two specific ways that information technology can affect competition: by altering industry structures, and by supporting cost and/or differentiation strategies. A common approach used to identify opportunities to change the structure and profitability of an industry is to examine five competitive forces. Michael Porter argued that the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors determines the profitability of an industry. How a company uses information technology can affect each of the five competitive forces and can create the need and opportunity for change. For example, information technology has altered the bargaining relationships between companies and their suppliers, channels, and buyers. Information systems can cross company boundaries. These inter-organizational systems have become common and in some instances they have changed the boundaries of the participating industries. DSS can reduce the power of buyers and suppliers. DSS can erect new barriers that reduce the threat of entrants. DSS can help differentiate products and services and reduce the threat from substitutes. Also, DSS can help managers reduce the cost of rivalry actions and in some cases reduce the need for competitive actions and reactions.
Some firms have no competitive advantage. Firms can achieve a competitive advantage by making strategic changes and firms can lose a competitive advantage when competitors make strategic changes. Information systems and information technologies are changing rapidly and are viewed by many managers as "strategic weapons" for gaining competitive advantage. These systems are also known as Strategic Information Systems.
Many authors have proposed definitions for a Strategic Information System (SIS). For example, Strategic Information Systems have been defined as systems designed to change goals, products, services, or environmental relationships of organizations. Some authors argue that any information system that helps an organization gain a competitive advantage is a Strategic Information System. Both of the previous definitions should guide managers in their search to use technology to support decision making. Decision Support Systems that create changes in products, services or relationships are especially important for gaining an advantage over competitors.
Information systems and information technology play different roles in different industry settings. McFarlan, McKenney and Pyburn (1983) proposed a four quadrant strategic impact model of the strategic relevance of IS/IT (see Table 2.1). Firms in the Factory quadrant are dependent on cost-effective, reliable IT operational support for internal operations. Information systems development emphasizes maintenance and program improvements. Smooth functioning of computerized systems is vital to daily operations. New applications in data warehousing, MIS, and DSS are potentially useful, but not fundamental to the ability of firms in this quadrant to compete.
Table 2.1 Categories of Strategic relevance
In the Strategic quadrant, information systems and information technologies are essential for executing current strategies and operations for firms. Information systems are critical to the survival and competitive position of the firm. In this quadrant, applications under development in DSS will be crucial to future competitive success.
In the Support quadrant, firms that develop innovative DSS are unlikely to gain competitive advantage. Information technology resources are important for applications like accounting and payroll, but the firm is not dependent on technology. Finally, managers who want to use information systems and especially DSS to improve the competitive position of a firm will encounter special challenges in the Turnaround quadrant. These firms are trying to revitalize operations through new systems. These firms have not previously depended on IS/IT and yet new applications may impact the survival of the firm. Transaction processing applications under development are important strategically. DSS projects have had a low priority in these situations, but as some companies innovate with DSS the turnaround may involve catching up in decision support applications.
The strategic impact grid helps managers analyze the firm's current information systems position. Firms in the Strategic quadrant are in the best position to gain advantage from building DSS. Corporations can also use the grid to compare several business units or divisions.