Wednesday, October 8, 2014
According to Tapscott, what in addition to information technology, gives organizations competitive advantage?
In his article "IT: The Engine That Drives Success," Tapscott identifies three factors that make organizations gain competitive advantage; superior information, smart hardware and business model transformation.
The first factor can be called "superior information." In responding to Carr's criticism of information technology, Tapscott takes issue with Carr's definition of IT itself. While Carr initially includes data and information in his definition, he then extrapolates that data is simply a commodity, "endlessly and perfectly reproducible at virtually no cost." Tapscott correctly takes issue with this, noting that "nothing in this universe is as diverse as a byte of data, which can carry information ranging from baby pictures to a digitally signed million-dollar bank transfer. It’s like saying that Shakespeare’s works are a commodity because he uses the alphabet just like everybody else." He correctly differentiates btween the medium and the message, from the content and its delivery mechanism. Tapscott is alluding to the critical role of business intelligence and business anaytics in driving corporate competitiveness under hypercompetition. He points out that not only is data not perfectly commoditized but rather that "nothing is more scarce that the right information at the right time." Tapscott's assertion about the importance of superior information in driving competitive advantage can be summed up as follows:
"Superior IT enables superior information a resource that rivals superior talent in competitive differentiation. High-performing business models are also based on superior information."
The second factor that drives success in organizations is what Tapscott calls "smart hardware," or "the growing technology embedded in consumer products." Tapscott notes that "the physical world is becoming smart and networked" through "ubiquitous broadband and services-based computing." Some have referred to this trend, which began with the use of RFID chips to manage supply chains, and extends to sensors in everything from "automobiles, [to] doors, clothing and coffee cups" as "the internet of things." By taking advantage of this "historic opportunity to integrate IT-enabled services into its products," a company can "differentiat[e] otherwise commodity products to lock out competitors."
Perhaps the most important determinant of corporate competitive advantage that Tapscott identifies is "the role of IT in the new business designs that enable competitive advantage." While Carr accepts that "effective business models can be the basis for competitiveness," he rejects "the role IT plays in creating these new models." Tapscott calls into question this whole line of thought and reconceptualizes it saying, "IT and business models are not discrete factors in strategy; increasingly, they are inseparable." This is what Valacich and Schneider refer to as "technology/strategy fit." Luftman and Kempaiah call it "business/IT alignment." This fit or alignment is the principal concern of business process management. While business strategy should drive IT strategy, increasingly "IT is leading to profound changes in business design not just to new business processes but to the deep structures of the corporation." This is the essential driver of a company's competitive advantage, "focusing on their core cluster of activities where they have unique capabilities and where they create true barriers to replication." The companies that do so "tend to have better products, lower cost structures and better profitability than their vertically integrated counterparts." By using this IT-enabled business process change, a company creates a challenge for its competitors, to duplicate the business model change not just the technology. Tapscott concludes that "companies that successfully alter their business around IT can achieve a significant window of competitive advantage." (Luftmann offers a slight twist on this by saying that "organizations need to recognize that it is not how IT is aligned with the business; it is how IT and business are aligned with each other.")
So how does a company utilize the three drivers that Tapscott identifies; superior information, smart hardware and business model transformation to attain a competitive advantage. Vestas, a sustainable energy company, is doing just that.
"Since 1979, this Danish company has been engaged in the development, manufacture, sale and maintenance of wind power systems to generate electricity. The company has installed more than 43,000 land-based and offshore wind turbines in 66 countries on six continents. Today, Vestas
installs an average of one wind turbine every three hours, 24 hours a day, and its turbines generate more than 90 million megawatt-hours of energy per year—enough electricity to supply millions of households."
"For Vestas, the world’s largest wind energy company, gaining new business depends on responding quickly and delivering business value. To succeed, Vestas uses one of the largest supercomputers worldwide along with a new big data modeling solution to slice weeks from data processing times and support 10 times the amount of data for more accurate turbine placement decisions. Improved precision provides Vestas customers with greater business case certainty, quicker results and increased predictability and reliability in wind power generation."
"Working with IBM, Vestas can increase computational power while shrinking its IT footprint and reducing server energy consumption by 40 percent. “The supercomputer provides the foundation for a completely new way of doing business at Vestas and combined with IBM software delivers a smarter approach to computing that optimizes the way we work,” says [Lars Christian Christensen, vice president, Vestas Wind Systems]. Christensen estimates this capability can eliminate a month of development time for a site and enable customers to achieve a return on investment much earlier than anticipated."
Vestas is just one example of a successful company utilizing superior information, smart hardware and business model transformation to gain a competitive advantage.
WORKS CITED
Carr, N. (2003, May 1). IT Doesn't Matter. Harvard Business Review. pp. 5-12.
Luftman, J. and Kempaiah, R. (September 2007). An Update on Business-IT Alignment: ‘A Line’ Has Been Drawn. MIS Quarterly Executive (6:3).
Tapscott, D. (2004, May 1). IT: The Engine That Drives Success. CIO Magazine , pp. 1-6.
Valacich, J. & Schneider, C. (2012). Information Systems Today, Managing in the Digital World. Upper Saddle River, New Jersey: Prentice Hall.
"Vestas: Turning climate into capital with big data." IBM Big Data Success Story Spotlight. http://www-01.ibm.com/software/data/bigdata/success-spotlight.html (Accessed on September 10, 2012).
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Thanks Tim.
ReplyDeleteI reread your initial post on the subject and I think your take on it is right on the money. Tapscott is pretty much offering a point by point critique of Nicholas Carr's article "IT Doesn't Matter" and as such I think he is raising specific objections to Carr's thesis, his argument and his definitions. Bringing up issues such as superior use of information, the possibilities of smart hardware and the role of IT in business model transformation, is simply a way of rejecting the over-simplifications that Carr presented. Carr suggested that data itself was not a source of competitive advantage, but as you correctly pointed out, superior use of data is. Your example of KFC's recipe is an example of a non-commoditized piece of information giving a firm a competitive advantage that is not duplicable by another firm through the use of information technology. Carr took technology to be ubiquitous and standardized, but Tapscott pointed at smart hardware as a direct refutation of the generalizations that Carr was making and suggested that our concept of what is IT hardware is changing rapidly. But I think perhaps the most important point, and one that we both picked up on, was the role of IT as an enabler of business process change. I took the question to be asking for specific methods that a firm can use to gain competitive advantage in conjunction with information systems as opposed to Carr's use of the term "information technology" as a commoditized generality that does not yield any competitive advantage. Information systems are clearly at the heart of all of Tapscott's propositions. No one would object to that statement. But I think Tapscott himself was problematizing Carr's use of the term "information technology" as some sort of magic bullet to solve all a firm's problems. Others have pointed out that simply using IT to automate bad processes just leads to faster inefficiencies, coupled with ever increasing IT expenditures. So clearly approaching competitive advantage as simply a technology problem that more IT can somehow fix is misguided. As Valacich and Schneider aptly put it, "while the use of technology can enable efficiency and while information systems must provide a return on investment, technology use can also be strategic and can be a powerful enabler of competitive advantage." This would certainly not be the case without an overarching awareness of the competitive forces that Porter describes, namely competitors and new entrants, buyers, suppliers and the threat of substitute products, in addition to the sources of competitive advantage that you mentioned.
Matt