"Otherwise Good:" 3 Ways to Use Information Technology for Competitive Disadvantage
Introduction
Both authors of this chapter are Emeritae Professors. Inger Eriksson is Professor Emerita from Turku University whereas Gary Dickson is Professor Emeritus from two universities, The University of Minnesota and North Carolina State University. We start with these facts simply to demonstrate that both authors have been involved with information technology (IT) for many years and, over these years, have studied the organizational application of IT. These years of involvement and observation have allowed us certain insights regarding the use of IT by organizations, particularly the development and installation of larger, more complex systems that are intended to provide competitive advantage for the enterprise for which they are created. The insights we wish to share with the reader in this chapter are, perhaps, different from what one might expect as they are directed toward achieving results from applications of IT that are precisely opposite what the funders and developers had in mind when they set out. In other words, what we will focus on is achieving competitive DISADVANTAGE through the use of IT.
So, in a sense, we are going to be dealing with the "dark side" of IT application. What we intend to do is to go beyond the context of IT systems failure in which desired benefits are not achieved, or the systems do not work quite as well as intended. We will focus on dramatic and significant failures as our domain of interest. Additionally, we will include a type of systems failure not often encountered in the literature. Such failure is associated with doing things well with IT, except for the small problem that what one is doing is really stupid. In the discussion that follows, we will illustrate our points with specific examples. One of our examples is a hypothetical example because we have been unable to locate tangible evidence for it (but, it is still safe to imagine it really happened). For our other examples there is documentation of what happened. Before going into more detail, it is useful to make some major points early in order that the reader can keep them in mind as they encounter the specific situations.
Our first point, and one that practicing managers in our experience do not want to hear and often deny, is that the underlying cause of disastrous IT applications is managerial not technical. Our second point is that there is nothing new about this managerial failure, it has been happening for virtually the entire 50 years IT has been being applied in organizations. The third point we make is that managers have been and are, by and large, unaware of what they must know and do in relation to IT application in their enterprises. In short, an overwhelming number of managers consider IT as a "magic bullet" that, if used, is always good and always hits its target (see Markus and Benjamin, 1997). Before going on to look at ways to achieve competitive disadvantage using IT (the beneficiary is your competition rather than your enterprise) we will begin by providing a brief background on the general topic of competition and how IT is related.
Achieving Competitive Advantage and the Role of IT
Much of the credit for the understanding of competition in an industry goes to Michael Porter (Porter, 1980, Porter, 1985). One of Porter's key notions is that the intensity of competition in an industry is related to the power of suppliers and customers, the threat of new entrants to an industry, as well as the threat of substitutes. It was not long after Porter's ideas surfaced that his colleagues at Harvard in the IT area began to consider ways IT could be applied to the Porter model (see, McFarlan and McKenny, 1983). In particular the Harvard authors suggested using IT in a competitive situation to: (1) provide barriers of entry to new competitors in the industry; (2) reduce the bargaining power of a firm's buyers and suppliers; (3) reduce the threats of product or service substitutes; and/or (4) build in costs of switching to a competitor (Applegate, McFarlan, and McKenney, 1996). These authors illustrate how IT can be employed for competitive advantage within an industry, and indeed, can even change the basis of competition in the industry.
There are many examples of exploiting IT using those factors in an industry that form the basis of completion. A notable one is how American Airlines and United Airlines developed and used reservation systems (the Sabre and Apollo systems respectively) to gain advantage over other airlines. These efforts were so successful that other airlines operating out of American and United hub cities (such as Dallas, Texas and Denver, Colorado) were virtually driven from the market. How IT can even change the basis of competition in an industry is illustrated by Amazon.com as well as the package delivery industry in which all the players can deliver a package, but it is those who can provide information about the delivery that have become most successful.
The early applications of IT for competitive advantage tended to have an efficiency orientation. This focus is to provide attributes such as lower cost, better service, and the like. More recently, IT applications directed toward competitive advantage have tended more to have an effectiveness focus. In such cases, IT capabilities are provided that allow an enterprise to gain advantage over the competition by operating according to an entirely different paradigm. The "dot.coms" such as Amazon, E-bay, and online brokerage firms represent uses of IT to do things entirely differently through the use of IT. Perhaps a less well known example is how Cisco, the networking equipment manufacturer, was able to exploit the Internet and World Wide Web to connect to their suppliers and buyers. Such use of IT allowed Cisco to change the entire process by which their business is conducted.
There have been many notable examples of how enterprises have benefited through the application of IT for competitive advantage. Several well known examples include:
1. The aforementioned airlines, American and United, using reservation systems to obtain and retain customers. Not only did these systems provide increased efficiency through seat reservations, ticketing, and the like. They also enhanced effectiveness though their ability to locate the 20% of the customers generating 80% of the industry's revenue. Attracting and retaining this set of customers became possible through frequent flyer programs offering incentives in terms of free tickets from flying the airline (which also built in costs of switching to another airline). In addition, data maintained in the reservation system database allowed the airlines to schedule more attractively and according to when desirable customers wanted to fly. Another benefit derived from the data contained in the system was the ability of the airline to price tickets according to future load factors in order to utilize available capacity most profitably (lower capacity flights could have cheaper tickets than those where seats were in short supply).
2. American Hospital Supply, a company who substantially increased their market share by connecting hospital purchasing agents online. The system provided two user seductive benefits. First, the ease of ordering by the purchasing agents was much more efficient than using the telephone or mail. Second, hospitals were able to save money using the system by reducing the amount of supplies inventory they had to keep on hand. Being able to quickly enter and receive orders from American Hospital Supply rather than holding safety stock inventory at the hospital level (the system was more effective as well as being more efficient) brought this about.
3. Otis Elevator, a company manufacturing elevators and providing service for their elevators and those of competitors, use IT to centrally dispatch service rather than decentralize the service dispatching to many geographically dispersed dispatch centers. The centralization was much more efficient in terms of service time and use of service resources. Thus Otis, as well as their customers, benefit from the system. The Otis share of the elevator service market increased and their profits improved accordingly. But, the company went one step more and started analyzing repair data for their elevators as well as those of others and was able to further enhance their service to customers by anticipating service difficulties prior to their occurring. This was a capability not offered by the competition for some time (an example of the effectiveness of Otis vis-à-vis their competition).
The reader can likely think of other examples of IT being used by an enterprise to either do something better than the competition or to offer some capability not available from other competitors. But, this is the bright side of using IT for competitive advantage. Is there a dark side? Indeed, can unanticipated consequences lead to using IT for competitive disadvantage? The naïve person would answer, "surely not." These persons would contend that enterprises certainly would not intentionally set out to spend lots of effort and money to not only provide no benefit to themselves but, indeed, to benefit their competition. They might even add, "managers are not so stupid nor are they inept." When it comes to dealing with technology and, in particular information technology, our experience causes us to, " Do not be so sure."
Using IT for Competitive Disadvantage: The 3 Ways
Essentially we can identify three conditions under which the employment of IT can have results that can be classed as "unintended consequences." In this instance, providing competitive advantage to the competition. To begin, we will simply identify a few such situations generally. Later, following the presentation of a model detailing the nature of poor IT employment, we will go into each of the examples below which highlight each "way" of disadvantageous IT use.
1. A Company bets its future on the development and successful implementation of an ERP (Enterprise Resource Planning) system. It loses the bet when the system fails. The company goes bankrupt and is acquired by a competitor.
2. A Company's attempt at using IT to promote relationships results in a large embarrassment.
3. A Company with a long and prestigious history in their one line of business is undone virtually overnight when a substitute product, enabled by IT, enters the market.
Our three ways of achieving the above outcomes employing IT is explained in three ways which are:
1. Doing Good Things Badly. In this instance, the enterprise sets out to do something with IT that is a good idea and should provide competitive advantage. Unfortunately the enterprise, for a truly astounding number of reasons, ends up doing things so badly in developing and/or implementing the IT application that it ends up hurting them rather than helping them. This is, by far, the most frequent way to achieve competitive advantage using IT.
2. Doing a Bad (or Stupid) Thing and Doing it Well. Under this condition, an enterprise does something with IT that is, simply, a dumb idea. Unfortunately, they do it well and end up with a result that should have been anticipated and avoided had level headed managers evaluated the application and what would be its result. This outcome, generally we think, tends to occur when one (or just a few) managers get overzealous regarding IT and its application. In some cases, they may be acting due to the hype of a new technology or, in other cases, may be trying to push good applications too far.
3. Burying One's Head in the Sand Regarding IT. In such cases, managers tend to be unfamiliar with the implications of IT or simply tend to ignore IT all together. Under this scenario, an enterprise can be "blindsided" by IT. What we mean is that managers think they are not in the IT business or that IT will not be a major factor in what they believe to be their competitive environment.
Below we present a simple model that explains the relationship of Ways 1 & 2 above of yielding negative unintended consequences from the employment of IT for competitive advantage.
Poor
Good
The Quality Of What Is Proposed To Be Done With IT In The Enterprise
(see, Sauer, 1993)
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While this story can be neither confirmed nor refuted, just suppose it did really happen.
In the late 1960s, the airline industry in the United States took advantage of new technical advances in computing (notably data communications and direct access storage devices) to build the first online reservation systems. The Sabre system by American Airlines and the Apollo system from United are two notable examples. The early implementations of the systems were primitive by today's standards. Being limited, especially by the amount of secondary storage capacity available on the early disk drives, the systems could only tell that a passenger had a seat on a flight, not the specific seat. Later in the 1970s, as technical capability grew, the systems were expanded to be able to reserve specific seats and to ticket an entire itinerary involving several flights.
It was during the late 1970s and 1980s that the capabilities and features of an airline's reservation system became one basis of competition in the airline industry. Essentially, airlines began to compete based on what their reservation systems could offer passengers. However, it was not until the middle of the 1980s that airlines really started to exploit features of their information technology for competitive advantage that went beyond such clerical features as seat assignment, ticketing, and the like. Sometime during this period someone at an airline that had invested heavily in developing a leading edge reservation system had a really great idea. Asking questions such as this may have triggered this idea--
"Hey look, we have all this data in our online files about who is flying where and when, why not make use of this data to find out who our best flyers are, where they want to go and when, and try to use our technology to lock the best customers into our airline? If we do this before our competition, we can move a whole bunch of the most attractive flyers over to flying with us and, at the same time, make it less desirable to fly with other carriers."