Information Technology Strategies for Competitive Advantage in Business
Info: 9535 words (38 pages) Dissertation
Published: 24th Aug 2021
Tagged: BusinessInformation Technology
Table of Contents
2.2 Differentiation Through IT
2.4 Customer Lock-In Through IT
4.1 It Enabled Business Transformation Graph
5.1.2 IT Enabled Business Transformation
5.2.2 It Enabled Business Transformation
The world has grown more than enough in the context of information technology in such way that organization work more efficiency to enhance and maximize their daily productivity. Storage devices, data protection, cloud application and faster communication are the main advantages that information technology can provide to our enterprise’s. IT/IS has big impact in computer application on which nearly every work environment is dependent, therefore, since those applications are computerized and widely used, it is advantageous to incorporate IT into our enterprise.
Information technology is categorized into major three group known as operation, financial and strategic system. If the operation and financial system are well integrated may result strategic system for other enterprises, however, it depends on the core business objective of the enterprise. For instance, cloud application and cloud storage are advance technology where most of the organizations are not aware of it, organization don’t consider much about technology even though the applications are flexible to use and cheap to implement, it suitable and fit the business objective of the enterprise depending on the business requirements. the issues come up from organization that there is no aligning between information strategy(IS) and business strategy(BS) which resulted to failure on productivity or IS. However, today some organization seems to pay much attention to align BS and IS to improve organization strategies(OS), thus, helps to organization to improve or reengineering organization process as well as gaining knowledge and experience to sustain the competitive advantage (Lewis and Hilton, 2015).
Through this research, a detailed study will be conduct on of the strategic use of IT applications in achieving and sustaining competitive advantage in business environment. besides, the research will be discussing on how enterprises utilize information technology(IT) to sustain a daily competitive advantage. In other hand, few factors or issues that affecting competitive advantage will be highlighted and discussed in detail as well as how organization react and cope with those issues so they can come with IT solution to enhance those factors. Without going out of scope, the main objective of this research is to justify how information technology (IT) strategies within an organization achieved a sustainable competitive advantage over other industries. Therefore, after research discussion, conclusion will be provided together will suggestion on how to enhance the effectiveness of information technology strategies in business environment. Besides, the researcher select two technological company known as Microsoft and McDonalds Company offer different services and product to mass number of customers. Hence, five’s porter forces and IT-enable business transformation will be used to analyse the mode of their business and they use information technology strategies to strengthen their daily business operation’s and how they manage to sustain competitive with help of information technology(IT).
2.0 Literature Review
The objective of this research was to investigate and discuss how enterprises utilize information technology(IT) to sustain a daily competitive advantage. In other hand, Research have been conduct and determine that there are few factors that can make organizations to sustain and stay in top in business market. According to McGrath, (2013) in said that, always business is looking for a competitive advantage which require identifying a specific target customers with clearly define their demands. Indeed true, organization can archive and stay competitive only when they deliver a high quality and cost effective product or service and performed better that any company products. In other hand, the key factor here is cost of the product or services, the cheaper the product or service is the more customer you get it, therefore to gain competitive, organization has to make sure that their service or product are reliable and perform better than other product, furthermore, they have increase investment, differentiate their service from other industries, be innovative by come with new idea for short period as well as finding a mean to lock-in their customers. Hence the researcher will investigate and discuss on how information technology (IT) help industries to sustain and stay competitive and how they applied IT strategies to achieve competitive advantage.
2.1 Cost Reduction Through IT
Cost reduction through IT is business strategies where most of the organization used to reduce cost of products or services provide and increase profit. According to de Wit and Zuidberg, (2012) said that, in 2014, the air Asia CEO reveal the company business plan that the airline will more attention on reducing the cost in order to improve the profitability. Therefore, so many changes were done to archive organization goal include the implementation of automation of check-in procedure, in other hand, number of staffs who are manually performed check-in have been reduces. Furthermore, the company goal is to lower the overall cost by 7.5 % in 2014 and they really archive that, they manage to reduce the cost by 2.5% within the first two month (de Wit and Zuidberg, 2012). Therefore, while air-Asia improving efficiency of their operation, they manage to obtain competitive advantage over other airlines by reducing the cost of operations as well as cost for customers that lead to stay in top in business market.
2.2 Differentiation Through IT
Differentiation is another business strategy where industries manufacturing distinctive product or service to set their business apart from competition. Industries that used differentiation strategy can be either highly skilled or they provide a creative products or services or they might have a strong sale force that brings a reputation for their innovation and quality products or service. For instance, the McKesson Corporation has decided to use differentiation strategy by responded the competitive pressure by offering Economost user an integrated software package, the system was installed in warehouse and it provide information of product to stock, how to plan shelf and floor space in the store in order to archive maximum sales (Clemons and Row, 1988). This led to large increases of profitability for the drug store using Economost system. The result was a major structural change in the industry as only the most efficient and effective competitive pharmaceutical remained and keep stay a head of the competition. This prove that IT can be the source of competitive advantage, however, those advantages to be sustainable, industries have to consider more on learning techniques rather adopting IT in order to continuously come up with new ideas, innovations and use those ideas to enhance their system or service for future business competition (Clemons and Row, 1988).
2.3 Innovation Through IT
Innovation is a business strategy where a company invests in the Research & Development (R&D) department to provide a platform for coming up with new products in the market that would attract the customers interest. Becoming a digital leader in the industry helps to set one organization apart from the others in relation with competitive advantage. Due to the fast evolution of technology, it is essential to compete in the market by having skills and talents to cope up with an increasingly complex and ever-changing market. According to Martin (2016), Uber Technologies Inc. was able to revolutionize the transport industry, by giving access to cab-riding public the possibility of booking a cab through the use of a mobile app on their smartphones. Uber implemented this disruptive innovation technique by introducing simplicity and convenience when booking a cab. Through the use of technology, Uber brought a concept of “shared economy” in the cab industry by allowing customers to share the taxi fare.
2.4 Customer Lock-In Through IT
This is a business strategy whereby a company uses Information technology techniques to retain their already existing customers in order to achieve competitive advantage. According to (Amarsy, 2015)Customer lock-in is a business strategy that has enabled industry leaders such as Amazon, Apple, Microsoft, Rolls Royce to retain their customers and outcompete their competitors by utilizing Information technology techniques. For Instance, Mobile technology companies like Apple and Android devices use the concept of ‘Data trap’ to lock-in their customers. Both companies host content and applications on their marketplaces like the AppStore and Google Play Store that can’t be transferred elsewhere (Amarsy, 2015). Hence, to switch from one mobile technology to another, one would have to give up their purchased apps, movies and music tracks. Due to this reason, many customers prefer to use only one between Apple and Android phones as it is inconvenient to switch from one to the other.
3.0 Research Approach
3.1 Companies Profile
During the discussion above the researcher shows that different business strategy with proper aligning IT strategies can bring major change to industries and led them to stay ahead of competition advantage over others. Hence, innovation and creativity play major role in archiving business goal. As for this research, Microsoft Cooperation and McDonalds Company have been chosen to represent an example of companies that use IT strategies to sustain and stay ahead of competitive advantage in business environment.
3.1.1 Microsoft Corporation
Microsoft Corporation is the largest software company founded by Paul Allen and Bill Gate in 1975 (O’Regan, 2012), the company controlled an overwhelming share of the personal computer operating system, cloud storage, office software suite, video game console Xbox, servers etc. Microsoft Company has intense pressure in the software competition over Google and Apple since they introduce operating system in both mobile device and PC. But still Microsoft conquer the market of operating system and software which resulting in more than 90% market share of operating system. Their vison is to create innovative technology that can be accessible to everyone. Therefore, to archive that vision, they decide to reduce the cost of software and service and make sure everyone can afford to use it. By doing so, they manage to lock-in their customer and influence the world to use more their products and service than others (O’Regan, 2012).
Besides that, Microsoft trying to differentiate their service with rivals, for instance, introducing a cloud service known as Microsoft Azure platform which integrated with almost Microsoft office tools, its cost effective, highly secured and reliable with no downtime. It allows industries to outsource their cloud computing and pay for what they have used. In other hand, it cutting down the need of servers, industries can only purchase cloud storage to store and secured their data for future analysis such as big data etc. Hence, this prove that Microsoft use IT strategies to sustain competitive advantage, besides that, the company focus more on learning techniques and doing deep research rather adopting IT in order to continuously come up with new ideas, innovations and use those ideas to enhance their software and service for future business competition (O’Regan, 2012).
McDonald’s is an American fast food restaurant chain with its global headquarters in Oak Brook, Illinois. It has over 36,000 restaurants found in 120 countries all over the world, serving 68 million customers each day. It was founded as a barbeque restaurant in 1940 by Richard and Maurice McDonald. In the year 1955, a businessman Ray Kroc joined the company as a franchise agent and bought the company from the McDonald brothers. McDonald’s Corporation, incorporated in the year 1964, operates and franchises McDonald’s restaurants. (reuters,2017).
A McDonalds restaurant is operated by a franchisee, an affiliate, or the McDonalds corporation itself. McDonalds primary products include burgers, french-fries, soft drinks, milkshakes, wrap and desserts. The company has also introduced different menus like salads, fish, smoothies and fruits in response to changing customer tastes in order to lock-in customers. McDonald’s is operating under a new organizational structure starting from July 2015, categorized into four markets based on similar characteristics, challenges, and opportunities for growth. The company segments include U.S. market, International Lead Markets, High Growth Markets and Foundational Market. The U.S. market being the largest in terms of number of restaurants, revenues and operating income; International Leads Market operating in Australia, Canada, France, Germany, and the United Kingdom which includes the most established markets with strong economies; the High Growth Market holding potential of higher restaurant expansion and franchising operates in China, Italy, Korea, Poland, Russia, Spain, Switzerland, and the Netherlands; while Foundational Market being the market which spans over the most diverse geographical area with potential to operate under a largely franchised model. (reuters,2017)
To get clear picture on how Microsoft and McDonalds Companies manage to sustain and stay ahead of competitive advantage though using IT strategies, therefore, reasonable logical methodologies will be used and show how companies move toward the alignment of IS to business strategy. Hence below are scope that will be discussed through analyzation process.
- To understand how, how internal IT solutions facilitate competition in the market.
- To understand more on the impact of the IT system that’s makes Microsoft and McDonalds to stay ahead of others competitor’s.
- To understand the abilities of Information strategy (IS) overwhelmed the challenge’s.
- To understand how innovation pattern, affect strategic direction.
- To Examining tactical alignment of Microsoft and McDonalds Company.
Additionally, any changes made in the business strategy (BS) drive the alignment of organization(OS) as well as Information strategy(IS), therefore, since OS and IS rely on upon BS, strategic alignment is required adoption in other tactical to sustain balance where by all methodology have this balance which is reflected to a common model called information system strategy triangle (IS triangle).
Figure 1: IS Triangle
Source: (Chegg.com, 2017)
Moreover, as mention above that all selected methodology have is reflected to information system strategy triangle (IS triangle). Through this report, the researcher will examine externa and internal factors in order to know how industries archive strategic alignment of BS, IS and OS. Therefore, porter’s five force will be used to measure external factor include weaknesses and strengths of companies (D’Atri and Saccà, 2009). Furthermore, IT-enabled business transformation graph will measure internal factors in order to understand how IS alignment help companies to adopt with business strategy. Therefore, five different levels of IT implementation will be analysed and discusses the outcome, how internal changes help the organization archive strategic alignment of BS, IS and OS.
Despite of that, there are many suitable models that can be used to analyse company internal and external factors, however, the above selected methodologies are more feasible due to the above reason explained and their strong relation to IS. For instance, business model like SWOT and PEST are not legit to evaluate external and internal factors, also the models are lacking this correlation and no enough solution provided by the previous scholar regarding to those model. Hence, to finalize, this report will only focus on IT-enabled business transformation graph and porter’s five forces though different technique like hyper competition will be alluded to in the more thoughtful investigation (D’Atri and Saccà, 2009).
4.1 IT Enabled Business Transformation Graph
Today, any successfully business required IS strategies since it play a big role on shaping tomorrow business operation, to conquer business market, industries have to consider three elements as strategic use of IT applications in achieving and sustaining competitive advantage.
- Keen costs.
- Deliver high product quality.
- dynamic response to customer’s necessities.
Currently, information technology(IT) has a fundamental enabler in producing and sustaining a flexible business network, a methodology like IT enable business transformation graph (BTG) has divided the business into five levels, though these levels are not incremental, therefore, organizations have to analyse and measure their potential benefit of level, if benefit satisfied the business operation, they can skip the level. Furthermore, each level has specific characteristic and provides a range of guideline for archiving maximum potential benefit. Therefore, as potential benefit increase within each level, so does the business operation as well change and the necessity to deliver better value to the customer as well is increased (Venkatraman, 1994).
Figure 2: IT-enabled Business Transformation Graph
Source: (Venkatraman, 1994)
The first two level of BTG are known as evolution levels, in the first level, existing IT system are decentralized and organization departments are not integrated. Hence when the organization archived cost reduction, they can be boosted by internal integration of systems at level two where organization department, existing IT system and process are integrated customer (Venkatraman, 1994). Therefore, in the evolution levels, the range of potential benefit is low, because only minor change in business process are required. However, as the business grow up, essential change is required in the organization which lead to higher comprehensive benefits. In the revolutionary levels, organization have to come with new IT strategies in order to cope with current technology, therefore business process have to adopted and redesign if necessary, furthermore, reshaping the business network by improving relationship with business partner, customer and supplier and lastly, redefine the scope and analyse what is has to be adjustable in the business process so that organization can deliver better value to the customer (Venkatraman, 1994).
4.2 Porter’s Five Force
Porter’s five forces model, named after Michael E. Porter, is powerful tool for understanding where power lies in a business. It helps you identify and analyse the strength and weaknesses of your current competitive position in the market, and the strength and weaknesses of the position you’re considering moving into (Porter,1979). Understanding where the power lies in an organization, helps it take fair advantage of a strength situation, improve on the company’s weaknesses, and helps avoid taking wrong steps in the business.
Figure 3: Porter’s Five Force
Supplier Power: assesses the control that suppliers hold over your company, whether the company or the supplier dictates the price of supplier’s product, the cost of switching from one supplier to another, uniqueness of supplier’s product and the number of supplier choices. If the supplier holds more control in the above-mentioned aspects, then it’s a weakness for the firm, while if the company holds more power over the supplier then the company is considered to have strength in the supplier power.
Buyer Power: assesses who holds more power between the company and the customers. Questions to ask here are how easy it is for buyers to lower prices, importance of each individual buyer to the business, cost of switching of buyers to the company’s competitors. Dealing with a few but powerful buyers means that they can dictate terms to your company indicating a weakness in the Buyer Power.
Competitive Rivalry: assesses the number and capability of your company’s competitors. Having more power in this area involves having no competitor in the market that can offer customers what you offer. On the other hand, having many competitors, offering equally attractive products and services, then it shows weakness in your organizations competitive rivalry.
Threat of Substitution: evaluates the ability of your company’s customers to find a different way of doing what you do for them. For instance, if your company supply a unique software that automates a certain process, then can customers substitute your software by doing the process manually. If substation is difficult then indicates strength in your organization power while if it’s easy then indicates weak power.
Threat of New Entry: assesses the barriers to entry for competitors to enter your market and compete effectively. if it costs more in time and money, having more protection of your company’s key technologies, having more economies of scale in place, then competitors can hardly enter your market and weaken your position. This will help your company take fair advantage in the market and preserve a favourable position.
5. Critical Analysis
5.1 Microsoft Corporation
5.1.1 Porter’s Five Force
The researcher assumes the influence of the five force to Microsoft company overall as follow below:
- Bargaining power of buyers is high.
- Bargaining power of suppliers is low.
- Threat of new entrants is low.
- Rivalry among existing competitors is high.
- Threat of substitute products or services is moderate.
|Bargaining Power of Customer||Today the world has grown more than enough in the context of information technology in such way that many company offering a highly-advanced platform or operating system. Additionally, those operating systems might be open source such as Linux or commercial like Mac OS. But one way or another those companies are highly compete with Microsoft which lead to increase the bargaining power of buyers. Therefore, to sustain this competitive advantage, Microsoft pursued an offensive IS strategy by introducing another platform known as window server and window azure (O’Regan, 2012). By doing this, Microsoft manage to neutralize the threat and continue dominant the software market. With the IS strategies and business strategy, today Microsoft product can be identified as an important factor that can be used to control buyer bargain power to a certain level. With those implementation, Microsoft has been announced as the second valuable brands in the world with value of $63 billion. This prove enough that, Microsoft has high bargaining power of buyers in the software market and maintain strong competition over other industries (O’Regan, 2012).|
|Bargaining Power of Suppliers||The bargaining power of suppliers is low, its well known that there are so many suppliers or company provide competitive advantage on providing operating system and advance technological product to their customers. Yet, the majority of software market is being dominant by Microsoft with it platform. Besides that, with surprising IS strategies Microsoft manage to come up with three cloud services know as Infrastructure as service(IaaS), platform as service(PaaS) and software as service(SaaS) (Klement, 2016).
Bargaining power of suppliers can rise or reduce based on quality of the product or service provides by company. However, buyers can bargain for a lower and they can demand high quality service or product which make limited supplier in bargain with buyers, because supplied afraid when the increase the price customer will switch to another industry due to low switching cost. However, Within Microsoft Company, the bargaining power of supplier is low because of brand loyalty with customer and low switching cost over other company like amazon (Klement, 2016). Therefore, Microsoft software are knowledgeable and intangible product rather than physical product which help them to lock-in their customer and minimizes the number of suppliers required in the organization.
|Threat of New Entrants||The threat of new of entrant is low because of its dominance of the operating system, cloud computing and productivity of software. I required mass of investment, technology and reputation for companies to entering into such operating system competition. For instance, Window 10 operating system and office suite software take almost 95% software market, hence it’s a valuable factor to Microsoft in the sense that there would not be any rivals that is likely to arise in front of the company (Grosse, 2008). To play defensive, Microsoft to strength its new product line to secured and prevent future competition by taking most valuable piece of technology real estate is moved to the automobile navigation system and cell phone. Doing this was a huge advantage to Microsoft because of high switching cost associated with analysis and learning a new operating system that could support cell phone and automobile navigation system while other companies like IBM are trying to shift the market by providing open source platform such as Linux. However, Microsoft still keeps up favourable position that ought to protect itself from future rivalry (Grosse, 2008).|
|Rivalry Among Existing Competitors||Rivalry among the existing competitors is higher even though there are few competitors in software market and the business is growing constantly. It’s well known that operating system, software and cloud computing industry is highly competitive market. Microsoft, IBM and Apple compete with a specific end goal to surpass each other and increase market share. Furthermore, they also contend for the same resources and the same buyers. Each of them follow their own IS strategies to archive their end goal (Fung, 2014). Therefore, since that rate of rivals is higher, Microsoft decide to use an offensive IS strategy by incorporated a low-cost strategy offering the most affordable platform and change the entire market by introducing Xbox 360 as gaming console, its highly quality product with lower price. The mostly target customer are casual gamer and family oriented. Although, there are other rivals such as Sony and Nintendo offer the similar platform, therefore its highly competition since all of them offer the same price and target the same customers. However, in term of differentiation, Nintendo and Sony charge more for their platform which making Microsoft to be more of a direct competitor. Despite the fact that there are higher rivalry levels inside existing players in the business, Microsoft has generally appreciated a predominant position in regard to its rivals (Fung, 2014).|
|Threat of Substitute Products or Services||Within the Microsoft Company, the main threat is not from one of the industries, it’s within its sector as is typical in most of the companies. A threat from substitute may exist if there is an alternative product or service perform same function with higher performance and lower price (Klement, 2016). The presence of open source software is the greater threat to Microsoft company. For instance, currently window Linux is an open source software which currently can substitute windows operating system, result other company within the sectors are start to accept window Linux and pushing to install into their system.
However, this incident was a call to Microsoft, they realize that it’s time to change the game and shift the market to cloud applications (Klement, 2016). To keep close customer relation, Microsoft decide to switching cost to customer by introducing Microsoft Azure platform that can perform several services to customer in cheaper price. Today, 200 million people use azure platform with no any other alternative product or service to substitute. Thus, lead Microsoft to conquer again the software market and stay ahead of its competitors. Therefore, threat of substitute is moderate, the main reason is that substitute of the product can decrease Microsoft market share which is something that Microsoft does not allow to happen. But still, rivals would never be able to archive what Microsoft company could provide. Therefore, based on the analysis, threat of substitute of service is minor issues in Microsoft Company (Klement, 2016).
Table 1: Porter’s Five Forces Analysis for Microsoft Company
To conclude, porter’s five analysis shows that Microsoft company has currently dominant the software, operating system and cloud computing, currently, Microsoft use offensive strategy, they are trying to provide high quality product and service in order to gain control over buyer bargain power to a certain level. Furthermore, with competition getting stronger, Microsoft decide to pursed IS strategy in order to differentiate their product their rivals, such as Azure platform, Xbox and Operating system, they are trying to be up-to-date with technology whenever is introduced. Therefore, with respect to the name of the company, innovation and IS strategy, they have secured and maintain the future business and continue to be on top ahead of the competitors.
5.1.2 IT Enabled Business Transformation
The researcher use another methodology known as IT enabled business transformation for deeper internal analysis of Microsoft company.
|Localized exploitation||Many years ago, Microsoft company launched their first version of Window operating system on November 1985 (Bhanver, 2014), which is almost supported with IBM, moreover, during that time, Bill Gate re-united Microsoft company in Washington and made him as CEO of the company and started to gain reputation of being different from other software companies. on the other hand, during that time, the company didn’t use any IS strategy to defence and lock their customer due to some issues occur inside the organization like senior and program manager were reportedly verbally their business strategies that placed the Microsoft company’s long-term interests at risk (Bhanver, 2014). On other hand, Microsoft departments were not well integrated. Therefore, as consequence, Microsoft changed their IS strategy by introducing Office Suite with bundle of applications include Microsoft Excel, Word and Access whereby report and other internal operations was done formally and become dominant software for being used by many companies which create a vast revenue to Microsoft. While the same Apple become the leader in productivity software such as spreadsheet and word processing which has increasing competition between them (Vermaat, 2013).
Therefore, since that rate of rivals is higher, Microsoft decide to use an offensive IS strategy by incorporated a low-cost strategy offering the most affordable platform and change the entire market by introducing a video conferences known as Skype. As outcome, communication within the organization were improved, report created formally and change the entire organization process.
Business process redesign
|Later, research has been conducted by management faced challenges based on storing, recording and structuring information of the company. As significance, Microsoft introduce ERP system for purposely to integrate and connect all department so that all workers can access all relevant information in one access point. Doing so, duplication of process and data is highly minimized. On other hand, with the of ERP system, Microsoft manage to archive just-in-time system, this means, they only produce software that is demanded by customers through the information obtain by suppliers, doing so, they manage to cut down the storage cost and production cost since they only produce the product that is demanded by customers (Gašpar et al., 2012). ERP system give future, present and past effort alongside with analytical tool to investigate more on how to improve the performance of data. Additional, with IS strategy, the management were improved which required small change in business processes, therefore ERP system give a huge impact which required employee new role and responsibility in the management. On other hand, Microsoft realized that customers were more interested in sustainability and reliable products. Thus, the organization turned out to be more client centred and presented the new position of sustainability manager who facilitated all related task. His responsibility is the execution of sustainability measures report to the higher partners, administration and shareholders (Gašpar et al., 2012).|
|Business network redesign||After Microsoft gain reputation for being number one leading software company in world, stakeholder and shareholder become more interested in the new IS strategy used in Microsoft and potential new product development. Dell, IBM, EMC and Intel becomes ideal partners and focused on delivering best-in-class, innovative managed service as well as solution that will extent the whole Microsoft product portfolio. Today, Microsoft company alliances program is comprised of industry leaders in hardware, service, software who give their assets to Microsoft technology centre around the globe. By cooperating to make and drive joint activities and offerings to Microsoft technology centre and their allies give clients with the very latest in value-added services and products during a Microsoft technology centre engagement. By enlarging Microsoft’s capacities, allies help Microsoft to deliver a complete customer solution (Amiri and Koupaee, 2017).|
|Business scope redefinition||To rescope the business, Microsoft use new IS strategy by introducing cloud service solution know as Azure Portal which required a new marketing strategies to lock-in their customers. Compare to classic service, azure portal is cheap, customer only payed for what they have used. On other hand, azure portal was big score to Microsoft company that shift the entire cloud computing market today. Furthermore, Microsoft increase the performance of data, by construct huge data centre purposely to store their product and customer information for future reference. In other hand, those data become more usefully on daily business especial when the conduct an intensive research, they can simply use those data to analyse existing problems. This prove enough that, Microsoft has high bargaining power of buyers and suppliers in the software market which lead them maintain strong competition over other industries (Jorgensen et al., 2014).|
Table 2: IT-enabled Business Transformation Analysis for Microsoft Company
5.1.3 Analysis Summary
To conclude, Microsoft faced a necessity for a business strategy change due to more and more quicker changing market conditions. On these grounds the company used IT and aligned IS strategy to facilitate the business transformation. As a result, Microsoft, pursues now a sustainability approach which also led to new product inventions and market opportunities facilitated by IT.
5.2.1 Porter’s Five Force
The researcher assumes the influence of the five force to Microsoft company overall as follow below:
- Bargaining power of buyers is high.
- Bargaining power of suppliers is low.
- Threat of new entrants is low.
- Rivalry among existing competitors is moderate.
- Threat of substitute products or services is moderate.
|Competitive Rivalry||Currently, the fast food industry is saturated and McDonalds faces tough competition from big names in the industry like Starbucks and Burger King. In case of McDonalds a few factors determine its force of competitive Rivalry. There exist a high number of fast food restaurants of various sizes like Subway, KFC, Nando’s that aggressively market their product and pose a threat to McDonald’s. In addition, customers of McDonald’s can easily switch to other restaurants. Thus, posing a threat to the firm. This shows that McDonald’s faces a strong force of competitive rivalry.
However, McDonald’s has utilized technology effectively to lower cost of production by teaming up with Echelon corporation and using Echelon’s I Lon Internet server to improve their kitchen equipment to lower energy consumption and increase data efficiency. Hence, allowing McDonald’s to be cost leaders in the market (Barra, 2012). In Addition, McDonald’s has interactive kiosks that allow customers to order customized food according to their preferences. (Jackson,2014). This has helped improve the firm’s relationship with customers and increasing the customer’s loyalty.
|Buyer Power||From the Buyer’s power analysis on McDonald’s, it can be deduced that their customers possess a significant amount of power over the company. Customers can easily impose their demand on McDonalds because they can easily switch to other fast-food restaurants. Furthermore, customers have a variety of other fast food restaurants like subway and Wendy’s. In addition, there are other various substitutes to McDonald’s fast food, for instance, bakeries, food outlets, food cooked at home. According to (Trevis team,2016), McDonalds realises that it has been behind its competitors like Starbucks and Dunkin Donuts in digital initiatives and customer reward programs. McDonald’s is working on a reward program that would improve their customer experience and customer loyalty and in return improve sales.|
|Supplier Power||This element of porter’s five forces shows that supplier power is a minor issue to McDonalds. The weak bargaining power of suppliers is due to several factors. As explained by Nielson, (2013) McDonalds has many suppliers to get their raw material and food supplies from. Hence, it weakens the effect of individual suppliers on the firm. In addition, most of its suppliers do not control the distribution network, therefore, they are not a threat to McDonald’s. Similarly, the abundance of materials like potatoes, flour and chicken weakens the power of suppliers over the firm. Therefore, McDonald’s does not need to concentrate more on the suppliers because they already have control over them.|
|Threat of New Entry||Porter’s five forces also analyses new entries in the market as they can impact McDonalds’s market share. An analysis shows that McDonald’s faces a moderate force of new entry due to the following factors. Low switching cost to other fast-food providers means that customers can easily shift to the new entries. Also, the relative moderate cost to start a food outlet means that small and medium sized enterprises can easily establish a new restaurant. Nevertheless, McDonalds has invested a substantial amount of capital, time and resources to build its brand name, something which will be quite difficult for new entries to achieve.
Thus, this element of the Five Forces analysis shows that the threat of new entrants is a considerable issue for McDonald’s. I recommend that McDonalds should continue applying technology within their company to set their firm apart from the rest and have that competitive advantage over companies that try to enter the fast-food industry.
|Threat of Substitution
|This element of Porter’s five forces concentrates on the potential effects of substitutes to the firm. It indicates that substitutes are a major concern to McDonald’s due to the following factors. There exist a high number of substitutes, including home food, local cafeterias and bakeries. In relation, the low switching cost means customers can easily switch to other food producers or fast-food restaurants. Furthermore, high performance-to-cost ratio means that customers can be offered more with less funds by the substitutes. For example, cooking home food is relatively cheaper as compared to ordering McDonald’s meal for five. However, with the help of Information technology, Sixdegs (2014) explains that McDonald’s has provided services like wireless charging, introduction of table service after ordering from the kiosk and ordering kiosks at their restaurants in order to give more flexibility and convenience to their customers and increase the firm’s value. Moreover, McDonald’s is introducing remote drive-through ordering where the customer can order remotely when they are in their car. These unique services will help to increase the firm’s value to the customer and also their fast-serving food services and good hospitality will persuade customers to stick with McDonald’s.|
Table 3: Porter’s Five analysis for McDonald’s
5.2.2 IT Enabled Business Transformation
This research uses BTG model to provide an internal analysis on McDonald’s thus showing how McDonalds has utilized IT to gain competitive advantage.
|Localized exploitation||McDonald’s opened their first drive-through window in January ,1975 at Sierra Vista, Arizona, U.S.A. Its sales were declining because army soldiers who had a camp nearby were forbidden from wearing their fatigues in public. Hence, to solve this problem, they installed a sliding window into the wall that would allow soldiers and customers to order and pick-up food without leaving their cars. By the end of 1979, McDonald’s had opened drive-through windows at over half of their restaurants in the U.S. This rapidly increased sales of the company. (McDonald’s newsroom, 2015). This transformation helped McDonald’s increase their sales and improve their relationship with the customer by providing fast services.|
Business process redesign
|In 2007, McDonalds decided to shift from traditional way of managing their kitchen to introducing a networking technology in the kitchen that would make kitchen work more efficient. McDonald’s chose Echelon’s Lonworks technology as their provider for networking technology. This technology “smart kitchen” helps to provide communication and data exchange between various kitchen equipment in its restaurants, analyse and lower energy consumption, and reduce maintenance cost. (Jose, 2007). McDonald’s realized that customers disliked over-stayed food and hence introduced this system to help manage their stock according to their customer’s needs.
This system has allowed McDonald’s to lower labour costs since the system is used to gather data and has also reduced data errors in the kitchen. This IS strategy has helped reduced work load of the staff (improved OS) and has in return lowered cost and improved sales (Business Strategy). This system has redesigned the business system of McDonald’s and has surely enhanced their competitive advantage.
|Business network redesign||While McDonald’s was being establishing itself as one of the leading fast-food restaurants in the globe, simultaneously it was making up alliances with big companies in the world in order to cope up with the fierce competition in the fast-food industry. It established alliances with companies like Coca-Cola which is the world-leader seller of cold drinks in the world; thus, improving their reputation in the market while also satisfying their customer’s needs. It has also partnered with companies like Pokémon-go, which attracts kids and their families to visit the restaurant, Hence, increasing their sales. McDonald’s also partnered with Apple pay to improve their customer services by allowing easy pay using the Apple Pay technology by simply holding your iPhone on the payment terminal with your finger at the Touch ID. (Hall, 2014). These partnerships have facilitated the relationship between McDonald’s and stakeholders.|
|Business scope redefinition||McDonald’s understands that change is inevitable in any business, so they decided to redefine their business scope, with the help of digital technology, by introducing personalization in their menu, that is, “moving from Mass McDonald’s to My McDonald’s”. McDonald’s introduced instore kiosks in its French stores, which allows customers to order food and also decide where the they will be seating in the restaurant (table service). This means that now customers have greater flexibility of where they can order food, that is, from counter, kiosk or table. (Sixdegs, 2014)|
Table 4: IT-enabled Business Transformation Analysis for McDonald’s
5.2.3 Analysis Summary
McDonald’s Porter’s five forces analysis illustrates that the company has utilized IT effectively to deal with its threats and to improve its strength to gain competitive advantage and how it has aligned IS with its business strategies to attain competitive advantage over its rivals. On the other hand, the BTG model analyses McDonald’s Internally and proves that it has significantly improved its business by utilizing IT over the years.
This study has analysed Microsoft and McDonald’s, internally by using the IT business Transformation Graph model, and externally by using Porter’s five forces in order to show how these two companies have strategically used IT applications to improve and sustain their competitive advantage and use it as the main tool to facilitate their dominance in their respective industries. The two companies come from two different industries, one from IT industry and the other from fast-food industry, but they have both utilized IT technology over the years to increase their status and improve their competitive advantage. Authors of this paper chose these two different companies to show how IT can help improve a company achieve its business goals, regardless of whether the company is an IT company or not.
This research paper encourages future work on competitive advantage by utilizing other models and providing relevant case studies.
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