E-business concentrates on the internal operations within organisations using internet and browsers. In E-business there are the ‘pure plays’ dot.coms which is often the way to reach directly to the consumer. Unless the products are digitizable companies do not exist totally on virtual worlds. Retail, manufacturing industries have the physical appearance of products which over powers the virtual logistics. What many organisations try to implement is a ‘bricks and ‘clicks’ strategy that allows the internet to enter the mainstream of the organisations operations.
The potential benefits of IS/IT are known as E-business and E-commerce which created a tremendous hype of these two concepts. In 1999 it was announced that by implementing an E-commerce strategy it would increase the companies share price. Quoted from (Ward & Peppard, page 6) ‘Subramani and Walden examined the impact of E-commerce announcements by organisations and found that the E-commerce lead to a cumulative abnormal increase in shareholder value. Even changing the companies name to incorporate ‘com’ label had a significant increase in the share price and trading activity’.
- Micro Economic Model IS can be seen as a factor of productions that operates with no limitations and can be substituted for capital & labour. As IS/IT cost decline this is substituted for labour which historically has been a rising cost, but in this model IS/IT should result in less middle managers and clerical workers as IS/IT can substitute the human work force.
- Transaction Cost Theory, this states that firms can grow larger as they can conduct market place transactions internally making it more cheaper than they can with the external market place
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Agency Theory, this can reduce the numbers of internal management costs (Laudon & Laudon 2002, page 76)
Identifying strategic opportunities offered through ICT and how it adds value
The value chain provides a way for managers to assess competitive advantage by determining the strategic advantages and disadvantages of the full range of activities that shape the final offering to the end user. These activities include not only internal activities but external activities (e.g., activities at the supplier, distribution and disposal/recycling levels). In other words, the firm is viewed as part of an overall chain of value-creating processes focused on the customer. The value chain can be used to audit the firm's current activities as well as developing improvements for the future (Management Accounting: Magazine for Chartered Management)
Below is an example of a value chain for an airline industry which looks at the internal environment and how ICT effectively contributes to gaining competitive advantage.
The airline industry became dependant on ICT to create strategies in operational management. ICT was implemented for wide range departments as seen in the value chain. ICT was being used to develop and manage their business model as well as to monitor the external environment like competition, undertake revenue analysis, forecasting etc. With the airline industry being on a large scale it found through internal analysis that ICT was vital when monitoring their SBU’s and what markets they should be penetrating. ICT is currently supporting routes, crew planning, and choice of air craft through the use of ICT (Information Management Journal)
What was found was the value chain operates in a systematic way to provide an analysis of the firm's activities and highlighting the main attributes that will satisfy the customer needs? In addition to customer-focused analysis, it would be beneficial to compare the company’s value chain along with the competitors (Management Accounting: Magazine for Chartered Management)
Following this, the next stage involved the designing and developing of the company’s future value chain. It is vital for the companies to create a new value chain to generate a competitive advantage over their competitor’s value chain. The objective of using the value chain was to build a value package which customers will perceive to be better than those offered by competitors. It is vital when designing such a package that the firm relates the costs of activities to the customer's perception of the value created by them. The Managers can use the value chain to look at customer perception as a way of valuing the customer’s needs and not just relying on their own customer value. This path should be followed on a regular basis and managers should benchmark this against their competitors. By comparing using the value chain it will allow the business to alter their value packages to increase customer expectations (Management Accounting: Magazine for Chartered Management)
(The following has been abstracted from a journal) Segmentation analysis: Analysing the structural characteristics of different industry segments can reveal the competitive advantages or disadvantages of different segments. A firm may use this information to decide to enter, exit or reconfigure a segment, or embark on cost reduction/differentiations (CMA Magazine)
(The following has been abstracted from a journal) Problems with the value chain: Analysing costs and differentiation advantages through the value chain can present significant data problems. Lack of conventional accounting rigor should not deter a manager from championing value chain analysis. It offers an excellent opportunity for collaboration among accounting, engineering, production, marketing, distribution and service professionals in a strategic planning process which can provide insights important for the firm's growth and survival (CMA Magazine)
One criticism of the value chain is it was designed for the manufacturing industry and retail as these both have ‘physical goods’. However even though the value chain is still applied to a large majority of industries it does really represent what the business does or its relationship with customers and suppliers (Ward & Peppard, page 265)
Introduction to e-commerce and how it helps gain competitive advantage
The introduction of the internet will provide a comparative competitive advantage (providing strategic opportunities) these advantages can only be achieved through the success of management identifying the need for change and using the value chain to identify the current position, they can achieve the following:
- Communications: email, customer service, customer focus groups, product feedback from customers;
- Personnel: employee searches, job searches, industry-specific interest groups for professional development;
- Sales/Advertising: low cost marketing and advertising, e-commerce;
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Intelligence: on-line research for tracking competitors and industry trends, information about customers and markets (Wendy Currie, Page 112)
Below are examples of companies and how ICT has allowed them to maintain its leadership in small package delivery service and how it has added value:
UPS (United Parcel Services)
UPS invested $1 billion per year in ICT which currently increased their customer service and at the same time keeping costs low and streamlining its overall operations. The introduction of hand held computers allowed UPS to do the following:
- Drivers could capture customer’s signature, along with pickup, delivery, and time-card information.
- The drivers then connect the DIAD to a transmitter in their trucks and the information about the customer is transmitted to the head office.
- Package and tracking information is then processed and stored in the main frame computers for later use.
- The information can be accessed world-wide as proof of delivery to the customer or respond to customer queries.
Through the hand held device it has provided added value not only to the company but to the customer. The main value for the company is by being able to keep their existing customers happy by delivery rapid response to customer queries and providing them with a website to access their delivery information and track the product through the website. Strategically it is allowing UPS to stay number one in parcel service even with high levels of competition (E-learning around the world, February 2001)
SouthStream Seafoods
With high competition the only option Southstream had was to invest in ICT. They stated that in order to stay ahead of competition was by investing in CRM (Customer Relationship Management System). The investment would provide valuable to keeping its customers by:
- Broadcasting information about change in market price to customers in order for them to make a more efficient business decision
- It allowed information for sales staff to be on hand about their customers so they could contact them if needed
- They could target those customers who only wanted certain types of fish
- It decreased the time spent dealing with customers on the phone because they had the customers details on file
- Mainly it allowed time to be directed at those customers who made large orders, allowing the company to maximise sales & profits.
The value of ICT allowed the company to compete with competition, target specific customers, allocate more time to the series buyers of their products and improve communication between management, staff and the customer.
The strategic opportunity was enabling them to stand against the competitors and to identify which system would allow them to do so (Hook, Line & Sinker, and February 2000)
It is vital in understanding the potential impact of ICT on products and the market in any development within these two areas. An assessment of the overall business situation in relation to the external environment should be carried out by the business management as an integral part of the business strategy (Ward & Peppard, page 283)
The following model has been designed to consider the contribution of ICT to business now and the future based on the external industry.
Distinctively the model points out that the business needs to be attacking, placing their investment and future developments in the strategic planning. Also the business can place there IS/IT between strategic or High Potential as this is the area providing new developments and a need for change due to competition.
Managers will use this model to align there IS/IT investments strategies according to the external environment. The organisation should be looking at the key operational box which identifies the current IS/IT investments allowing them to look at what they need and where they need to be. The model allows the business to identify where their business needs to be in order to gain competitive advantage.
In respect to the airline industry the model will allow the management to identify the challenges that the airline is faced with in order to achieve strategic objectives. The airline industry needs to develop stronger networks of wealth to survive global competition. As it has stated they need to create new developing IS/IT strategies and using the matrix they can place themselves on the grid with their existing IS/IT developments but then look at where they need to be for the future and whether IS/IT is at the mainframe of the industry and this will allow them to roughly place themselves in the strategy box. This is the attacking part where to survive to gain a competitive advantage they need to heading in this direction.
They know what their internal environment is and what IS/IT they have but by comparing the internal factors with competition they will be able to determine where the competition is and how they need to get their. Competition provides a way of looking at their mistakes and this way you can move around them to succeed where they have not, providing a gain to competitive advantage.
Porters Five Forces model is designed to examine whether IS/IT can affect the nature and degree of impact that force has on determining the future of the industry.
An example of an airline company using five forces illustrates how IS/IT can affect the business and allowing the business to identify where new developments are need to provide new strategies and provide value to the business & customer.
(Ward & Peppard, page 104)
The final stage to look at is the process of looking at the less critical forces to identify whether IS/IT could change the future of an organisation.
While this analysis dates back to the 1980’s the model still is relevant in today’s analysis of external factors.
Companies who succeed in the long term need to lower costs or differentiate themselves from others enabling them to obtain a price premium.
The role of ICT is enabling and supporting each of the fundamental generic strategies of low cost and differentiation (Ward & Peppard, page 107, 108))
Below are a five forces model analysing the impact of competitive forces and potential IS/IT opportunities for an airline industry.
The far right column illustrates how IS/IT allows the company to regain competitive advantage and offer strategic opportunities when implications are applied.
This illustrates how the business is affected by the external factors (competition) and the implications this has on the business but with investment in IS/IT it provides a strategic opportunity in providing new ways of competing against competition, how to keep and develop new customers.
For example it could be on price of tickets, product or service differentiation, looking at trends and looking into niche markets to increase profits.
Recommendation
The airline industry is a rapidly evolving industry which means adapting to change in ICT is critical. As illustrated through this report models have been used to help the internal & external analysis of the business. I recommend that other airlines use similar models to understand the environment they are operating in. The Mcflarans matrix illustrates the external analysis of IS/IT and will help the industry to identify where they need to be. By linking the value chain to this matrix you can see the internal IS/IT position and know where you are going, then the matrix you can place yourself where you are at the present and then identify where your future lies. Ideally the airline industry should always keep on top of their competitors and see what they are doing, look at their value chain and external analysis using five forces or other models and see why they are changing, is it because of internal or external factors. Sometimes it can be beneficial to use the competitors as a way for you to gain where they have not.
References
(John Ward & Joe Peppard (2002) “Strategy Planning for Information Systems”, Wiley, Chichester)
Wendy Currie (2000) “The Global Information Society”, Wiley, Chichester)
Kenneth C. Laudon & Jane P. Laudon (2003), “Management Information Systems”, Prentice-Hall, London
Journals
Journal of Management Accounting Research, Fall92, Vol. 4, p179,
CMA Magazine, Jul/Aug96, Vol. 70 Issue 6, p28
Management Accounting: Magazine for Chartered Management Accountants, Jun94, Vol. 72 Issue 6, p28
D.Buhalis, (2003) Information Management
Case Studies
Angela R. Garber, “Hook Line, and Sinker”, Small Business Computing, February 2000; and www.southstream.com
Samuel Greengard, “United Parcel Services: Ahead Of Time,” IQ Magazine, May/June 2001
G.Nelson, “Wireless Delivers For UPS Overhaul,” Information Week, June 11, 2001