Large numbers of companies are using their information systems as a strategic tool to improve their competitive advantage. Choose one of these companies (Toyota or Wal-Mart) and prepare an essay of 1500 words on: a) how information systems are used strategically by the company to gain a competitive advantage b) discuss if it is possible for the company to maintain this advantage in the future. You are expected to use the competitive forces and/or value chain model in your analysis.
In this essay, Wal-Mart was chosen to be the case to analysis. Firstly, some basic concepts will be mentioned, including business strategy, IS strategy and IT strategy, and Wal-Mart will be introduced briefly. And then this essay aims to discuss how information system are used strategically by company to gain competitive advantage, and if it is possible for company to maintain this advantage in the future.
Business Strategy sets the overall direction for the business. Information System Strategy is the plan an organization uses in providing information services. It defines what information, information systems and IT architecture are required to support the business. Based on a prioritization of needs. Information Technology Strategy: includes how the infrasture and services are to be delivered. (Turban) “Wal-Mart Stores, Inc.
(branded as Wal-Mart) is an American public corporation that runs a chain of large, discount department stores. It is the world's largest public corporation by revenue, according to the 2008 Fortune Global 500.” “Wal-Mart is the largest private employer and the largest grocery retailer in the United States.” (Wikipedia).
To be the industry leader, Wal-Mart must have its own competitive business strategies, the first one I want mention is growth strategies, significantly expanding its capacity, expanding into global markets. By now, Wal-Mart has 3,859 stores and more than 680,000 associates in 15 markets outside the continental U.S. (Walmart). This helps Wal-Mart to expand global market share and enhance their power of competition. With too many stores, they must have large number of customers.
The IT advantages will allow employees to offer their customers a better service, instead of being busy scanning and filling out order forms, they can spend more time with customers. The second one, cost leadership strategy should be the most outstanding competitive strategy of Wal-Mart. The CIO of Wal-Mart has said: to be merchants first and then technologists.
IT acts as the most important role in this strategy and helps Wal-Mart to gain lower price competitive advantage, mainly shows on effective logistics and supply chain. (Aleksandrov) Based on the well developed information system, the CEO of Wal-Mart can get information anytime, where need products, which items are best-sellers, where can get the lowest price products from suppliers, which items can get the most profit and so on. One example is that very few retailers can match the speed and effectiveness with which Wal-Mart deals with inventory stocks
The information system would record each single item when it was being sold, when the amount of stocks reduced at some level, the system will remind store of asking more stocks from headquarters. Headquarters arrange and send goods to the nearest distribution centre and computer system of distribution centre will arrange time and route to the store. All the stores are located around distribution centers, all the trucks have GPS, and control center can know the position of each truck, what goods they carried, how far from destination and so on. Stocks will display on the shelves in the store within 36 hours. (MBSlib)
This can avoid bulges in order cycle and lower inventory cost. With information system, the supply chin become more time and cost-efficient, with savings passed on to customers. In 1970s, Wal-Mart built logistics Management Information System (MIS), which used to deal with system report, speed up operating speed. They adopted Point Of Sales (POS) machine in 1983. In1985. They built Electronic Data Interchange (EDI), all the information is dealt on the computer instead of using paper.
In1986, using Quick Response (QR) to built good partner relationship with suppliers, high frequency distribution with small amount each time, in order to lower risk, stocks and stimulate demand and sales. In 2006, Wal-Mart started using Radio Frequency Identification (RFID), a wireless system used to identify tags and get data in any environment without any workforce. Because this, Wal-Mart can save 8350 billion per year. (MBSlib) Obviously, the primary activities in value chain of Wal-Mart are the strongpoint that can add value to the firms, especially logistics.
“Considering present market conditions and the way in which industry demand fluctuates nowadays, firms willing to remain operationally efficient will become more reliant on supply-chain management, This is one of the main reasons for which Wal-Mart has been capable of growing at an annual rate of 15.4%.”（Aleksandrov） All the technologies used to be the core component of its cost-efficient business strategy, and customers of Wal-Mart can get the low-cost benefit from information system. One way to analyze the strategic potential of IS is to consider their influence on one or more of Porter’s five force model.
Firstly, medium threat of entry, any company willing to enter this “Discount and Varity” industry (Aleksandrov) would have to consider the major financial implications of such an action if to complete with Wal-Mart at a national model. Secondly, medium to high threat of substitution, many companies sell exactly the same range of items, but at higher prices. The third one I want to mentioned is power of buyers, which is high because many firms offer the same goods and services, but Wal-Mart can be successful is because of providing at lower price. “Everyday low price!”-- Obviously, cost leader strategy is successful.
As can be seen above, IT acts as an important and successful role and be used strategically by Wal-Mart to gain competitive advantages, as a result, Wal-Mart will be able to offer lower priced items and good costumer services, both of which will create brand loyalty, prevent Wal-Mart market share from diminishing. The competitive advantages of Wal-Mart in the future, considering the threat of entry and substitution first, there is a certain risk of entry from a firm which offers diversified goods and does not compete with Wal-Mart in terms in price. Although there is some threat of entry into the “Discount and Variety” industry, this is does not pose a direct threat to Wal-Mart since a different segment of consumers will be targeted by the entrant.
Another risk is its competitors may link together in an effort to stop the retail giant from continuing to expand at such rates, Wal-Mart could enable them to compete against these low-cost innovators by sacrificing short term profits and implementing predatory pricing strategies. (Aleksandrov) Secondly, Berskhire Hathaway’s CEO W. Buffet believes that due to the tight margins of the industry in which Wal-Mart operates and the efficiency with which the retail giant handles its supplier relationships, logistics system and pricing strategies, no other rational company would attempt to challenge their supremacy.
Therefore, according to him, Wal-Mart’s future development will depends on how efficiently the company reacts to the current changes in its business environment. (Aleksandrov) Definitely, this should get benefit from IS, to develop the potential of IT resources to add value to Wal-Mart, such as its global workforce become lager and thus need a relatively faultless information system to manage, and the company’s distribution system will be constantly operated at full capacity, allowing no room for errors. On the other aspect, in order for the competitive advantage to be sustained, the resources, here mainly on IS, must be inimitable, imperfectly mobile, and have low substitutability.
With the development of society, as company become more pervasive and competitors can access to the same technology, and many companies will catch Wal-Mart using the same way, the advantages from IS of Wal-Mart may be become more and more unconspicuous in the future, there is no real “sustained” competitive advantage, but I think Wal-Mart has ability to make a new progress, like develop proprietary technology, maybe focus on other aspects. The CEO of Apple Company has said if there are three IT companies left in the world, these should be Microsoft, Intel and Dell, if two, they must be Dell and Wal-Mart.
A great amount of managerial and IS effort will be needed to ensure that the company’s expansion rate does not ultimately lead Wal-Mart to its end. In conclusion, Wal-Mart uses IT strategically like GPS, MIS, RFID, mainly on logistics and supply chain, in order to gain competitive advantages, such as growth globally, to be the cost leader with good customer services. In the long run, Wal-Mart may face some threat and may not keep these competitive advantages all the time, Wal-Mart should keep alignment of business and IT strategies and make new innovation and progress in IT, like have proprietary technology, let the IT resources become inimitable, imperfectly mobile, and have low substitutability.
- Aleksandrov, N. 2004 Wal-Mart: An analysis of the world's largest company's success over the last decade. Manchester: UMIST.
- MBSlib. n.d. “沃尔玛公司” (“Wal-Mart Company”) http://wiki.mbalib.com/wiki/%E6%B2%83%E5%B0%94%E7%8E%9B%E5%85%AC%E5%8F%B8
- Turban, E. 2009. Information technology for management: transforming organizations in the digital economy. 7th ed. (International student edition). Hoboken, NJ: John Wiley & Sons Inc.
- Walmatr. n.d. “International” http://walmartstores.com/AboutUs/246.aspx
- Wikipedia. n.d. “Wal-Mart” http://en.wikipedia.org/wiki/Wal-Mart