Starting with following statement: ‘Information technology has changed its orientation from pure operational utility in the 1960s and 1970s to that of a competitive weapon in the 1990s and today.’ (Pollalis, 2003) it can be clearly seen that the last four decades have been highly influenced by the development and spreading of computer related technology.
Computers have become a main commodity in last two decades of the 20th century, and their strategic importance has inclined rapidly. One reason for this could be seen in the overwhelming calculation power, but another and a maybe important asset lies in their ability to transmit and process data with a speed which is outperforming the human abilities at any means.
Still IT (e.g.: a PC) on it self does not have a lot ‘meaning’, since it is only a tool for us humans, therefore we have to create information system (IS) in order to deliver us the all the necessary information we want to derive from it. Thereby it is important to emphasise that not all (e.g. in a company) available information can be processed by every single employee, consequently we have to develop information systems which deliver all the necessary information in a for man or woman manageable amount and structure.
This paper will be therefore discussing information systems and information technologies in relevance of a resource based perspective, including the concepts of core competencies and distinctive capabilities.
In order to do so the paper starts with the transformation of our society into a “network community”, and that the understanding of Strategic Information System Planning has been modified frequently. Moreover it will briefly explain the meaning of SISP and continuously underestimation of the management.
After this the Resource Based Approach (RBA) and how it differs from other management theories will be elaborated, and tied to illustrate the from this resulting competitive advantage. From here a connection to core competencies and its importance for the firms cross boundaries thinking will be drawn.
At the end the resulting strengths for the organisations will be shown, and a few possible risks of not following will be laid out.
The development which we has happened over the recent time, suggests that or society has changed into a network community. This means that the conditions for competition and organising are assumed to be changed fundamentally. The open systems idea which was introduced by Porter (Hafez et al, 2002), has been substituted, by Castells (1996) “network logic of business”, and still in this continuously changing world it can be assumed, that we will not stop there, so we can anticipate on going a (r)evolution into other structures.
In the early 80s, academics started to analyse Information System and emphasised the strategically importance on Information Technology in nowadays organisations. Resulting from these researches a number of models had been presented, and all of them fall short in combining the business and the IT perspectives. Still the strategic planning of information systems have won in significance, and a number of theories in this field have been established; although none of those was capable enough to deal with the both, the business and the IT part for companies. (Kadaras et al, 1998)
Strategic planning of IS and IT:
During the past decades the perception regarding the meaning of IS and IT or strategic information system planning (SISP) has changed frequently. During the 1970s, the primary task of SISP was the improvement of communication between users and their top management, and meanwhile finding ways for IS to develop further.
In the late 1980s this formulation was only extended by the aim of finding organisation wide architecture and seeking other strategic applications within the organisation. (Pun et al, 1998).
Nowadays this has changed slightly as Lederer et al define it (1996:237) as: ‘Strategic information system planning is the process of identifying a portfolio of computer-based applications that will assist an organisation in executing its business plans and realising its business goals.’
In other terms it can be said that in the initial phases of the creation of SISPs the requirements for the future system have to be identified, and since it has a strategic significance these definitions/goals have to be long run orientated.
According to Ledere et al (1996) SISP should be divided in:
1) external environment
2) internal environment
3) planning resources
4) planning process
5) information plan
6) implementation of the information plan
7) alignment of the information plan with the organization’s business plan.
In order to adapt this SISP structure many of our nowadays existing organisations have the problem that they have preferred to made short time decision when the strategic (with long term impacts) managing was demanded. Now they find themselves in a position were they can’t exchange the organisational IS history, from one day to other in order to meet the outline of SISP. Still senior management should spend a significant amount of time with the development of IT and IS networks, which should be done under considerations of a resource based approach, and also fulfilling the basic principles for the foundation of core competence building. (Foss, 1997)
The resource based approach (RBA)
Since most of the economical theories are engaged with looking outside the company the resource based approach tries the need for a fit between the external market context -in which a company operates- and the firm’s internal capabilities
Most other models which try to show how to increase the economical value of organisations are based on the idea, that the firm has either to reduce its costs, or that its products and services have to be differentiated from other competitors. But there have been examples such as General Electric, which has been able to differentiate its service support from its competitors via applying the means of its answer centre technology, and thereby it could cut its costs drastically.
Although the above case shows how IT directly decreased the cost of a company it doesn’t directly show how a competitive and strategically advantages were created. Generally it is understood that a competitive advantage derives when a strategy is implemented, where other competing companies derive a substantial disadvantage, when they try to apply the same strategy (Mata et al: 1995).
Barney (1991) further points out, that the resource based theory only applies when these differences are long lasting.
According to Mata et al (1995) the RBA requires that the company has to implement its IT resources in a wide range of parts of its organisation. For example, if these are done in cost leadership, product differentiation and strategic alliances with other firms, and if other companies have higher costs to achieve the same result than the firm who did it first -which has already implemented these strategy movements- can be seen as having gained a sustained competitive advantage.
In order to see, if a company has a resource based competitive advantage following three requirements have to be fulfilled in this sequence: (Barney, 1991)
1) Is a resource or capability valuable?
2) Is it heterogeneously distributed across competing firms?
3) Is it imperfectly mobile?
If the answer for 1 is no: Then there is a competitive Disadvantage
If the answer for 1 is yes and for 2 is no: Then there is competitive Parity
If the answer for 1 is yes, for 2 is yes and for 3 is no: Then there is competitive Advantage
If the answer for all three is yes: Then there is a sustained competitive Advantage
Core Competencies and distinctive capabilities
According to Prahalad and Hamel it is most important to look at the concept of core competencies, which is stated by Prahalad et al (1990:82) as: ‘Core competencies are the collective learning in the organisation, especially how to coordinate diverse product skills and integrate multiple streams of technology’. In other terms it can be said it is about the harmonisation of the different technologies, organisation of work and the delivery of values. In order to do this the companies abilities in communication, deep involvement, and commitment to work across the ‘visible’ boundaries has to be strengthened. That implies that all the employees of a company, regardless of their hierarchical position or function should be involved. The aim deriving from that is that the skills that create the companies core competencies are not narrowly focused, but that the opportunities for expanding their functional capabilities are strengthened. Unlike the physical assets of an organisation the therby created strength of the organisation does not diminish over time, but instead their power gets intensified and the more often they are used the more new opportunities for the company will be created. (Prahalad et al, 1990)
One of the main misunderstandings within organisations is that their managers mostly talk about the competitive strategy of the organisations business. Thereby they are only focusing on their interfaces to the ‘outside world’ and try to only fix those interfaces; on the other side Prahalad and Hamel suggest that organisation as a whole need better interaction, which means that they have to invest into their internal IS. Although it is quite clear that the investment in this internal strengthening will not show immediate benefits and is therefore it does already exist it is highly like to be cost rationalised instead of being invested in. But exactly this long term perspective is which links it to the overall and long run goals of the company, and therefore it can be understood as an organisational strategy which needed to be invested in.
In order to identify whether an organisation has a well established ability in their core competencies, they have to look if they are having a wide access to their market. This dose not necessary means that they have to go into complete new fields. Instead the firm should look if the main propose of their products can be applied to another topic, hence it is suggested that specialisation is good, but only creating one product is to much specialisation, instead it should be looked if the product can be modified and introduced into a new market, which is associated with the companies business products.
Another advantage of this strategy is, that the company is continuously ‘thinking’ (doing research in new opportunities). The oblivious benefit of this is that it might be easy for competitors to copy a product, but in order to make a progressive development, a deeper understanding of the product in required. Therefore the organisation is in the position to acquire continuously a ‘first mover advantage’ and become a leader in their segment. Deriving from this it can be seen that it is possible for companies to be a leader in a field for some time without having any core competencies. The lag of this will be seen as soon as a new technology arrives at the market, where the company has no understanding of it and therefore has no other choice than copying it and land thereby loosing its position as a leader.
Probably the most famous story about the success of emphasising on core competencies was shown in 90s by the Japanese, who has a strong internal culture. Interestingly it is arguably if it is a good idea to outsource these research departments which mostly benefit. Prahalad argues that it can create a shortcut. Again this could have been studied in the before last decades Japan, which actually also benefited from outsourcing, but on the other side it has to be mentioned, that the Asian culture emphasis on strong relationships between business partners. In contrast to that the western world mainly relies on more superficial business relationships. So it appears that fostering core competencies are an important aim for the top management and should be further encouraged.
A story of failing to rely on their core competencies could be seen in the 70s and 80s where companies which had a strong position in the field of colour TV started to leave the field, because the believed, that this would be an dead end segment, which as we know now developed further in to the colour TV and more recently the plasma screens. Thereby they destroyed what was formally on of their core competencies and ruined further opportunities. So obviously the company did no lack of product or business, but it lacked of a portfolio of competencies. On the other side there are companies which had the excellent core competencies, but simply didn’t succeed due to other such as marketing related reasons. Probably the most famous example for this is the story is the loss of Beta versus VHS. Beta was technological and price wise far more sophisticated, and it core competencies also seemed to be superior. But the simple fact that VHS could make a striking deal with Sony created the total annihilation of a better product (Cusanomo et al, 1992)
Anticipated Problems for the introduction of core competences or distinctive capabilities into SISP:
The transfer of people and attitude can cause a loss of trust, this is due to the fact that humans have inborn resistance against change. In order to counter that problem it is most important to make the whole procedure very transparent for all participated employees. This is particular important for the middle management, since they have the most contact to the workers and therefore it is their responsibility to encourage them
Further can it be anticipated, that it will be very hard for the manager, who has to work through all the data which has been generated during the existence of the organisation. Therefore it is likely that he or she will make the right judgements when it comes to the point of identifying those who promise a sustainable advantage for the company. Especially when it has to be considered the there will be a high degree of complexity behind each of the questionable objects, which likely have been build up over a long time.
It can also be expected t that the person who is going to do the necessary analysis, which will be then suggested to the head of the organisation, has specific interests within the firm. Thereby it is assumed that it is unlikely that the person with the highest positioning the company is going to do the necessary analysis by him or herself. This means he or she (the operating analyst) might not suggest any cuttings which will interfere with degree of power or any other unpleasant reduction. One possibility to avoid this would be to hire an external consultant, which wouldn’t be of substantial disadvantage in terms of having insider knowledge, since the operating area is very large, by which it is assumed that even insider would not have a clear vision of the overall organisation. Although a close work between the consultant and the middle managers would be quite visible especially in order to determine the long term goals of the organisation.
To conclude it is important to say, that every organisation can have a good product and well working or management, but in the business world it is possible that not necessary the best will succeed. Instead there are many external factors, which are on the far outer side of the span of control, which was illustrated with the Beta versus VHS example.
Still in order to have a good working organisation it is important to make the best use of the available resources and the in this paper described tool (SISP) seems to be a very good way to achieve that goal.
Although the implementation in a start up company is beyond all doubt easier than in any existing one, this strategy will demand a continuous update from the companies’ employees, whereby it has to be evaluated if the benefits outperform the costs.