1. The Vanishing Advantage
Carr, Chapter 4
INFS 780
Richard T. Christoph

2. IT’s Role in Business
Firms have spent literally billions in IT development
Sought a competitive advantage
Pioneers built new systems at great expense
The PGAITA factor
Most systems focused on the TPS & BICARSA
Paybacks could be huge –

3. IT and Competitive Advantage
For many years, firms believed IT provided an avenue to a sustainable competitive advantage
Porter describes this as something that you can do that competitors cannot easily duplicate
Carr refers to this as a proprietary advantage

4. Proprietary vs. Infrastructural Advantage
Proprietary: One firm can “own” or control the technology
SABRE is a great example
Infrastructural: Becomes a “cost of doing business”
Electricity and phone network quickly became part of the infrastructure.
Most technologies start as proprietary and move toward infrastructural

5. Technologies in Transition
TIVO – started as proprietary, now CATV firms are deploying their own copies
SABRE – owned by AA, now, however is a basic, available system for airline reservations.
ATM – Provided a short advantage to owning banks – other banks quickly caught up

6. IT & Productivity IT has vastly enhanced productivity
Carr notes that most productivity has enhanced customers
This means customers see lower prices
Business do not see higher profits
If Carr is right, IT does not appear to yield a sustainable competitive advantage

7. Compare with Porter’s 5 Forces
Substitutes
Suppliers
Buyers
Rivalry
Levels
Entrants
What has IT changed?

8. Let’s look at RIVALRY Usual issues for competition
Warranties and guarantees
Advertising & special promotions
Dealer networks
Product innovation
How does IT impact these?
Doesn’t IT provide better customer responsiveness for all of these??

9. Rivalry after IT
Think about it – consumers benefit from fast ordering, dealer networks, lower cost information sharing
Firms, however, must match these abilities simply to stay in business!
Firms gain no advantage from using IT in these ways – but can lose all if they do not have IT!
This is a classic infrastructural situation

10. Recall that RIVALRY Is Stronger when:
Many, equal-sized firms
Slow demand growth
Sales volume built by stealing share
Switching costs are low
Exit costs high
IT lowers switching costs, allows easy share stealing, makes small firms compete evenly with large firms

11. IT Increases Rivalry?? Can IT be shown to INCREASE rivalry?
It appears the answer is YES
Rivalry increases – profits do not
Customers benefit
No strategic benefit to the firm
Again, a classic infrastructural technology

12. Technology as an Infrastructure
Hardware and software moving rapidly to common standards
Too expensive to develop one of a kind – and no reward for doing so
Computational power cheaply and widely available
No benefit from having the latest system

13. When IT was new
Ah, these were the days. I arrived at the very end of this period (1977)
Technology itself was a barrier due to cost (needed special room, power, operators)
Software did not exist – you wrote it
Simple applications cost many thousands
Networks were slow (4800bps) and needed special lines, gear, people

14. Locking in Advantage Firms sought first mover advantage
One large bank system I installed included some of the first ATM machines in SC
Very complex – we had some 10 leased lines (20 modems!) and a separate Series 1 computer moving between async & bisynch communications

15. The brief advantage
My bank moved all operations in-house (DDA, loan, savings)
Needed a single database, custom software – all custom written
Built an operations center, hired staff
Total cost was over $2,000,000
Allowed immediate, rapid growth
Competitors could match capability in three years with commercial packages

16. Bank software now
All banks must offer ATM access, single database accounts
Bank IT has become an infrastructure
No longer provides competitive advantage
IT now offers more RISK than REWARD
If IT fails, customers upset – if IT works, customers not impressed

17. Technology Replication Cycle
First movers spend huge amounts
Imitators can usually copy cheaply
Errors are eliminated as we learn what works
Costs drop dramatically
Followers my benefit more than first movers

18. Cost Declines of Computing Power

19. Cost Declines of Networking Power

20. So Costs Decline – so what?
Costs drop dramatically as technology moves from proprietary to infrastructural
Best practices established
Volume production
Wide market adoption
Consider electricity, telephone, VCR, DVDRW, color TV

21. Homogenization of Process
Competitors begin to use the same tools in the same way to do the same job
Used to built code to match our business process
Now, we match our process to the software
Example: ERP systems
Require firms to adjust to the ERP package
This reduces opportunity for unique, system-based competitive advantage

22. Homogenization of Process
Carr notes:
When a company buys a Seibel software package for CRM, it aslo is buying the Seibel way of managing customers.
An example of this is the Datatel WebAdvisor system
All public SD schools use it – no one has an advantage over any other school

23. What’s a Mother To Do?
Peter Drucker notes that firms can tend to be efficient (doing things well) or effective (doing the right thing) (firms can rarely do both)
Common software packages promote efficiency but one firm will not be more effective than another using the same package
Competitive advantage is based on effective items