DSS News is a free biweekly newsletter from DSSResources.COM
about computerized Decision Support Systems.
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DSS News
D. J. Power, Editor
July 31, 2005 -- Vol. 6, No. 17
A Free Bi-Weekly Publication of DSSResources.COM
1,175 Subscribers
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Please check the article by Marc Demarest
"Technology and Policy in Decision Support Systems"
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Featured:
* Ask Dan! - Can DSS provide firms with a sustainable
competitive advantage? If so, how?
* DSS Conferences
* DSS News Releases
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Ask Dan!
Can DSS provide firms with a sustainable competitive advantage? If
so, how?
by Dan Power
One of the most common vendor claims for DSS built using business
intelligence tools, business performance management software, data
mining tools, quantitative models and data warehouses is that any
organization that implements the system will gain a competitive
advantage. This claim is rarely tempered with words like may, can or
even should. Such technology optimism creates unrealistic
expectations and in some cases it contributes to technology cynicism.
This question of DSS and competitive advantage is addressed in Power
(2002) and this Ask Dan! response is an expansion of that discussion.
We've all seen the claims: "Gain Competitive Advantage from Business
Intelligence and Ensure Sarbanes-Oxley Compliance," "With Data Mining,
Achieve Competitive Advantage from the Data You Already Have!",
"Executives See Business Intelligence Emerging as Crucial Competitive
Advantage," "Use a DSS for Markdown Management and Profit
Optimization," "Use DSS to Improve Profitability Through Timely
Decisionmaking," and "XYZ Company Gains Competitive Advantage with
Data Warehousing Solution". Some consultants temper the message to
help sell their services -- "A data warehouse can be a competitive
advantage dream or a costly nightmare." A more sophisticated vendor
marketing message explains one way a firm can gain a competitive
advantage -- "Data warehousing can provide a competitive advantage
for organizations by increasing market share through analysis of
customer profiles".
A recent study by Professor Tom Davenport, director of research for
Babson Executive Education at Babson College, reinforces the vendor
hyperbole. According to DMReview.com Online News (April 29, 2005),
Davenport states "The net takeaway of the study is this: The ability
to make business decisions based on tightly focused, fact-based
analysis is emerging as a measurable competitive edge in the global
economy." Further Davenport said "Organizations that fail to invest
in the proper analytic technologies will be unable to compete in a
fact-based business environment." Davenport's conclusions are based
upon interviews with 40 C-level executives and directors at 25
globally competitive organizations. Analytic technologies can provide
organizations a competitive edge.
A lay person's definition of an "advantage" involves having a better
financial position, better resources, more skills or a benefit that
has resulted from a prior course of action. An advantage should help
achieve favorable results when it is exploited competitively. Hoffman
(2000) provides a formal conceptual definition of a sustainable
competitive advantage as "the prolonged benefit of implementing some
unique value-creating strategy not simultaneously being implemented
by any current or potential competitors along with the inability to
duplicate the benefits of this strategy." A sustainable competitive
advantage means an organization does something important much better
than its competitors. For example, firms can gain a differential
advantage from having better information technology and better
information resources. Most strategy researchers agree effective
management and use of information is a valuable asset that can help
gain a sustainable competitive advantage. In some situations, making
better, faster, and more effective decisions can actually create
"decision superiority".
Decision Support Systems of all types create a competitive advantage
when three criteria are met. First, once a 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 a few years to insure an adequate return on
the investment. Even with rapid technology change a 3 year payback is
a realistic goal. Managers who are searching for strategic investments
in information technology for decision support need to keep these
three criteria in mind.
The widespread usage of computer technology has changed the way
companies do business. Information technology has altered
relationships between companies and their suppliers and customers and
even with their 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. Michael Porter (1979) argued that the power of buyers,
the power of suppliers, the threat of new entrants, the threat of
substitute products, and 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 industries. Specific decision
support systems can reduce the power of buyers and/or suppliers.
Sophisticated decision support systems can erect new barriers that
reduce the threat of entrants. For example, data and the system for
understanding it becomes a corporate asset that is hard to create for
new entrants. Knowledge in a knowledge-driven DSS may only be obtained
from experience in the industry. A specific DSS can help differentiate
a product or improve service and hence reduce the threat from
substitute products. Also, some DSS can help managers reduce the cost
of rivalry actions by targeting expenditures and in some cases DSS may
reduce the need for competitive actions and reactions.
How can data-driven DSS create an advantage? Using data can create
advantages in many ways including improving customer relationships,
identifying cost-cutting ideas, uncovering new business
opportunities, improving reactions to changes in retail demand and
optimizing selling prices.
Evans and Wurster (1997) argued in a Harvard Business Review article
that the World is in the midst of a fundamental shift in the economics
of information. They think major changes will occur in the structure
of entire industries and in the ways companies compete. The change
that they felt was so important is the widespread adoption of
Internet technologies. Internet technologies have opened wide the
possibilities for innovative web-based decision support systems.
Inter-Organizational DSS can improve linkages with customers and
suppliers. In some situations Group DSS and Groupware can remove time
and location barriers. Specific DSS can help a firm operate seven days
a week, 24 hours a day and without regard to an employee’s or a
customer’s location. In some cases DSS can help integrate a firm’s
operations. Also, inter-organizational, web-based DSS can create
linkages with suppliers or customers that are difficult to overcome.
DSS can potentially help a firm create a cost advantage. DSS can
provide many benefits including improving personal efficiency and
reducing staff needs, expediting problem solving and increasing
organizational control. Managers who want to create a cost advantage
should search for situations where decision processes seem slow or
tedious and where problems reoccur or solutions are delayed or
unsatisfactory. In some cases DSS can reduce costs where
decision-makers have high turnover and training is slow and
cumbersome, and in situations where activities, departments and
projects are poorly controlled.
Also, DSS can create a major cost advantage by increasing efficiency
or eliminating value chain activities. For example, a bank or mortgage
loan firm may reduce costs by using a new DSS to consolidate the
number of steps and minimize the number of staff hours needed to
approve loans. Technology breakthroughs can sometimes continue to
lower process costs and rivals who imitate an innovative DSS may
nullify or remove any advantage.
DSS can potentially create a differentiation advantage. Providing a
DSS to customers can differentiate a product and possibly provide a
new service. Differentiation increases profitability when the price
premium charged is greater than any added costs associated with
achieving the differentiation. Successful differentiation means a
firm can charge a premium price, and/or sell more units, and/or
increase buyer loyalty for service or repeat purchases. In some
situations competitors can rapidly imitate the differentiation and
then all competitors incur increased costs for implementing the DSS.
Finally, DSS can be used to help a company better focus on a
specific customer segment and hence gain an advantage in meeting that
segment’s needs. MIS and DSS can help track customers and DSS can make
it easier to serve a specialized customer group with special services.
Some customers won’t pay a premium for targeted service or larger
competitors also target specialized niches using their own DSS.
According to the resource-based view of firms (Barney, 1991), a
sustainable competitive advantage is achieved by developing existing
resources and creating new resources and capabilities in response to
changing market conditions. Decision support systems often need to be
renewed, recreated and/or created to develop a competitive advantage
that results in superior value creation. DSS are traditionally
associated with secondary value activities in a firm like resource
management, purchasing or inventory management. Conceivably DSS can
be embedded in many primary activities in a firm's value chain.
Competitive advantage may come from or through faster learning,
sustained innovation, reduced cycle times, improved sensitivity to
market needs or from creating an innovative blend of technology and
business practice.
Larry Greenfield (dwinfocenter.org) states "a firm that expects to
get business intelligence, better decision making, closeness to its
customers, and competitive advantage simply by plopping down a data
warehouse is in for a surprise. Obtaining these next order benefits
requires firms to figure out, usually by trial and error, how to
change business practices to best use the data warehouse and then to
change their business practices. And that can be harder than
implementing a data warehouse."
So is a DSS, especially a data-driven DSS, a business necessity or
does a DSS create a sustainable competitive advantage for some firms
and not for others? Does sustainable competitive advantage result
only from implementing a specific business strategy or can it result
from creating resources like a specific, customized decision support
system and then developing the capability to use the technology to
improve decision making? Are inward focused DSS used by managers more
likely to create an advantage than outward facing DSS for external
stakeholders? Yes, data-driven DSS can create a sustainable
competitive advantage for firms that create a customized system and
the capability to use the system. Outward facing DSS are more quickly
imitated that inward focused systems, but either can potentially
result in a sustainable competitive advantage. In general, a DSS must
be continuously improved and enhanced to sustain any advantage from
the system. Both specific DSS resources and the capability to use
them by a firm must be periodically reviewed.
If a software vendor sales representative claims you'll gain a
competitive advantage from buying the company's software be
skeptical, watch your wallet, and re-read this discussion of DSS and
sustainable competitive advantage. Make sure you understand the
purpose of the proposed DSS, that you have a plan for creating the
capability needed to effectively use the DSS, and that you know what
it really means to develop a sustainable competitive advantage.
For additional information on this topic check Power (2001) in the
DSS FAQ. Your comments and suggestions are most welcome.
References
Barney, J., "Firm Resources and Sustained Competitive Advantage."
Journal of Management, 17 (1), 1991, pp. 99-120.
"Executives See Business Intelligence Emerging as Crucial
Competitive Advantage", DMReview.com Online News,
April 29, 2005, URL
http://www.dmreview.com/article_sub.cfm?articleId=1026818 .
Evans, P. B. and T. S. Wurster, "Strategy and the New Economics of
Information," Harvard Business Review, September-October, 1997.
Greenfield, L., "The Case for Data Warehousing,"
http://www.dwinfocenter.org/casefor.html
Hitt, M. A., R.D. Ireland, and R.E. Hoskisson, Strategic Management
-- Competitiveness and Globalization, 2001
Hoffman, N. P., "An Examination of the 'Sustainable Competitive
Advantage' Concept: Past, Present, and Future,"
Academy of Marketing Science Review [Online] 2000 (4) Available:
http://www.amsreview.org/articles/hoffman04-2000.pdf
and at URL
http://www.vancouver.wsu.edu/amsrev/theory/hoffman04-00.html.
Porter, M. E. and V. E. Millar, "How Information Gives You
Competitive Advantage," Harvard Business Review, July-August, 1985.
Porter, M. E., "How Competitive Forces Shape Strategy," Harvard
Business Review, March-April, 1979.
Power, D. J., Decision Support Systems: Concepts and Resources for
Managers, Westport, CT: Greenwood/Quorum, 2002.
Power, D. J., "What companies have gained a competitive advantage by
building a DSS?" Ask Dan! in DSS News, Vol. 2, No. 10, May 6, 2001.
Wikipedia, "Sustainable competitive advantage,"
http://en.wikipedia.org/wiki/Sustainable_competitive_advantage
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Purchase Dan Power's DSS FAQ book
83 frequently asked questions about computerized DSS
http://dssresources.com/dssbookstore/power2005.html
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DSS Conferences
Upcoming Conferences
1. AMCIS 2005 with SIG DSS mini-tracks in Omaha, Nebraska,
USA, August 11 - 14, 2005. Check amcis2005.isqa.unomaha.edu .
SIGDSS meeting Thursday, August 11 from 5:30 - 7:30PM.
2. Teradata PARTNERS User Group conference, September 18-22,
2005, Orlando, Florida. Check http://www.teradata.com .
3. 2005 NPRA Plant Automation and Decision Support
Conference, October 18-21, 2005, Gaylord Texan Hotel,
Grapevine, Texas. Check npra.org .
4. ACM 8th International Workshop on Data Warehousing and
OLAP (DOLAP 2005), November 4-5, 2005, Bremen, Germany.
Check http://gplsi.dlsi.ua.es/congresos/dolap05/ .
5. Water Management Decision-Support Software Workshop
November 16 - 17, 2005 - Niagara Falls, New York, USA,
Check http://www.ceatech.ca/eventsd.php?eid=1027.
Abstracts due August 26, 2005.
6. Call for Papers: Fourth workshop on e-Business (WEB 2005),
a pre-ICIS workshop sponsored by AIS SIGeBIZ, papers due
August 31, 2005. Workshop URL: www.web-workshop.org
7. Call for Papers: Third Annual Pre-ICIS Workshop on Decision
Support Systems sponsored by AIS SIG DSS, December 11, 2005,
Las Vegas, Nevada. Papers due September 1, 2005. Workshop
URL: mis.temple.edu/sigdss/icis05
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Please tell your DSS friends about DSSResources.COM
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DSS News Releases - July 18 to July 31, 2005
Read them at DSSResources.COM and search the DSS News Archive
07/29/2005 Sarbanes-Oxley third anniversary: by slim margin,
financial executives now say act is "more of a net gain to investors"
than a net loss.
07/28/2005 MicroStrategy wins patent lawsuit against Business
Objects.
07/27/2005 Pennsylvania's Montgomery County completes multi-suite
Lawson implementation ahead of schedule, on budget.
07/27/2005 More companies using enterprise risk management to handle
risks.
07/26/2005 NASA relies on SGI Technology in America's quest to
successfully return to space.
07/25/2005 Milestone of one million online files is imminent for
Stewart's SureClose(R) online transaction management system.
07/25/2005 EMC announces world's largest, fastest and most scalable
high-end storage array.
07/25/2005 One of US's largest school districts implements
VisionTree Software to increase operational efficiency and
instructional effectiveness.
07/25/2005 More than 1,000 appraisers to gather in Orlando for first
annual a la mode technology convention.
07/25/2005 Accurate GPS mapping key to fighting Southern California
wildfires.
07/25/2005 MSN Virtual Earth gives people an immersive way to
search, discover and explore their World online.
07/23/2005 Investing Systems launches new Stock Signal Pro technical
analysis trading software.
07/22/2005 Red Hen Systems' GeoVideo 1.1 expands video support in
the ESRI ArcGIS mapping environment.
07/21/2005 Leading Russian consumer finance bank expands business
using Fair Isaac loan origination system.
07/21/2005 DM Review announces finalists in the 2005 World Class
Solution Awards competition.
07/20/2005 Pittsburgh unveils Big Ben the supercomputer.
07/20/2005 Put a local New York City Guide in your pocket: See the
City's most interesting neighborhoods and learn its history via your
mobile device.
07/20/2005 ILOG's new Optimization Decision Manager software puts
business users in the drivers's seat.
07/20/2005 Intec Telecom Systems chooses Applix TM1 for planning,
budgeting and forecasting.
07/19/2005 Build a better desktop with DesktopX 3.1.
07/19/2005 Orvis standardizes on Business Objects to increase
profitability of its multi-channel retailing operations.
07/18/2005 Microsoft engages academic leaders to help shape future
of computing at sixth annual Microsoft Research Faculty Summit.
07/18/2005 Portugal's TMN chooses Nokia for video sharing.
07/18/2005 Oracle(R) Database 10g release 2 with Oracle Real
Application Clusters on Linux sets new TPC-H 300 gigabyte benchmark
record.
07/18/2005 Redcats USA selects SAS® Enterprise BI Server.
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DSS News is copyrighted (c) 2005 by D. J. Power. Please send your
questions to daniel.power@dssresources.com.
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