Information Technology and the Competitive Strategy of Firms

Executive Summary A great deal of business literature over the last decade has focused on the development of an understanding of the sources of competitive advantage in a firm. In that regard, a number of models have been developed to evaluate the relationship between firm resources and sustained competitive advantage. This article examines some of the pertinent literature related to information technology and its impact on the competitive advantage of firms. Three representative types of information technology implementations are reviewed. A description of each type of implementation is given and evaluated against the attributes contributing to sustained competitive advantage in the resource based view of the firm. The article concludes that whether or not information systems can be a source of sustained competitive advantage is dependent on the type of information system being analyzed. Knowledge management systems, combined with an effective knowledge management strategy, appear to provide the greatest potential for an information system to contribute to sustained competitive advantage. Introduction A great deal of business literature over the last decade has focused on the development of an understanding of the sources of competitive advantage in a firm. In that regard, a number of models have been developed to evaluate the relationship between firm resources and sustained competitive advantage (Barney, 1991). The use of information technology and information processing systems in the business enterprise has been growing and changing since the 1970s, and it has been debated as to whether or not information technology can be considered to be a contributing factor in a firm's sustained competitive advantage (O'Brien, 1983; Hayes & Wheelwright, 1984). Many academics and professionals argue that information technology is the key to competitive advantage and present case histories to bolster their arguments (Barua, Kriebel & Mukhopadhyay, 1995; Groom, 2000). This article will examine some of the pertinent literature related to information technology and its impact on the competitive advantage of firms. It will begin with a review of the Porter (1979) Five Forces Model and Wernerfeldt's (1984) resource based view of the firm, and how information technology fits into those models. A distinction will be made between competitive advantage and sustained competitive advantage, and the strategic implications of each. This will be followed by a review of recent trends in information technology, and examples of firms that have integrated information technology into their competitive strategies. The article will conclude with observations and implications for managers involved in the strategic planning process. Strategic Issue to be Addressed In the early 1970s, information technologies focused on the processing and disseminating of vast amounts of data. Nolan (1979) described six stages of data processing growth in an organization. The six stage model starts with Initiation, where basic transaction processing systems such as accounting are introduced, and progress through the Maturity stage, where formal planning and control systems are put in place and computer systems are integrated into the strategic planning processes of the organization. As companies reached this maturity stage, middle and senior management began to recognize that management information systems were becoming the foundation upon which their company relied. Today, most modern firms would find it difficult to separate their identity from the information processing systems that control their processes, facilitate the communications and transactions internal and external to their organization, and support their strategic processes (Jensen and Johnson, 1999). The application of information technology to specific business needs is often viewed as a key component of the business strategy. …