FREE online courses on Information Technology - Chapter 4 IT AND CORPORATE
STRATEGY - SUSTAINING A COMPETITIVE EDGE
Once a firm gains an advantage, it finds competitors
developing similar systems. In fact, the competitors' systems may provide more
features or be technologically more sophisticated because the competitor is
building on the experience of the first to come up with a new approach to
business. How does one sustain a competitive edge once having achieved it?
The demands of maintaining an advantage are almost as
significant as those of creating the edge in the first place. In the case of
airline reservation systems, placing the system in travel agencies represented a
major marketing victory for the three or four airlines that gained most of the
invested $1 billion in agency automation via personal computers. The original
reservation systems cost about one-quarter of this new investment. In this
industry, at least, the cost of staying competitive is significantly greater
than the cost of the first strategic advantage use of the technology.
Another way to sustain an advantage is to overwhelm the
competition with technological
leadership. United and American have more than 70 percent of the domestic
market for reservation systems in travel agencies. These firms made large
investments in technology and in developing skilled staff members who could
implement reservation systems. By investing in technology and managing it well,
these two airlines provide significant barriers to entry for other airlines and
vendors of potential reservation systems. (The original United CRS, APOLLO, is
now owned by the consortium of several airlines).
Closely related to technological leadership is continuous innovation. Successful
strategic applications such as the classic American Hospital Supply/Baxter
Health Care order entry system demonstrate continuous innovation. Today, with
this system Baxter offers a service that is the virtual inventory for a
“stockless” hospital. IT and a superb logistics system lets Baxter promise
just-in-time deliveries departments in a hospital.
A final approach to sustaining an advantage is to create high
switching costs. By making it very expensive or inconvenient to switch a
customer's business with you. The airlines CRS vendors have been very clever at
looking in travel agencies. At this point in time, almost all agencies in the
U.S.
are automated. Increases in the number of customers and market share only come
from converting an agency from a competitor's CRS to your own. Each CRS vendor
has created very high switching costs for an agency to convert to a competitor's
CRS.
Simply finding a strategic application of technology and
implementing it successfully is not enough. This approach should provide a short
term competitive advantage, but the innovator must constantly be searching for
ways to sustain an advantage as the
competition tries to imitate its success.
