How Could a Business Use Information Technology to Increase Switching Costs - Assignment Example

Page 67 Questions 2 & 3. How could a business use information technology to increase switching costs and lock in its s and suppliers? Use Business examples to support your answers. How could a business leverage its investment in information technology to build strategic IT capabilities that serve as a barrier to new entrants into its markets? The use of Information Technology has many advantages. It includes simplifying processes which could have taken vast amount of time and human resources and making business operations efficient. Businesswise, it has the distinct advantage of locking in customers to a particular business. It makes switching cost or consideration of an alternative costly that it discourages customers to switch to another system. The classic example we can cite is SAP procurement system. The program is being used by many big businesses across the globe that includes industry leaders such as BMW, Ericsson, BASF Corp., Audi, Burger King, just to name a few. SAP markets its product to its customers by stating that it could “boost contract spending and and enforce compliance with procurement guidelines” (SAP, 2012). The “contract boost spending” just meant that its potential customers will have more business because it will lock in their clients to their business and will make it extremely costly for them to find an alternative because the present system (using SAP) reduces procurement cost by “automating, simplifying and accelerate the business’ procure to pay process for goods and services (SAP, 2012). It thus emphasize operational efficiency that the consideration of an alternative would be prohibitive in terms of cost, human resource and time spent looking for another supplier because SAP will already streamline the purchase of goods and services. In other words, the system (SAP) will make the products and services exchanged between suppliers and customers to be cost effective or cheap as long as the customer will buy solely from the supplier that uses SAP. To further simplify how informational technology lock in the relationship between the supplier of goods, services or information and its customer, we can further cite the popular computer tablet of Amazon which is the Kindle Fire. Kindle Fire makes a good case of how a supplier locks in or lures its customer it uses this to differentiate itself from its dominant competitor, iPad of Apple. Amazon knows that it has the advantage of deep informational database over Apple which is its online bookstore Amazon and would like to capitalize on this advantage to take away Apple iPad’s market share on the computer tablet business. Instead of offering numerous apps and competing with the technical features of iPad which Amazon knows it cannot measure up, Amazon instead offered numerous books and magazines for free with their Kindle Fire and will sell the same if a customer will purchase them using the iPad. It is short of saying that many books and magazines are free if you buy Kindle Fire and it will cost you a lot if you buy iPad. In addition, Amazon also offer their Kindle Fire way cheaper than Apple’s iPad and market it more as a book and magazine reader to differentiate from iPad. Above all, Amazon also offers unlimited cloud storage for books and magazines for free that was procured from Amazon. In the same vein, the same services of cloud storage will cost a lot if customers will buy it from their iPads because they have to buy the books at premium prices from Amazon which were free with Kindle and they have to pay again if they want to save it in Amazon’s cloud storage. In the examples stated, it showed that informational technology is not just used to make business efficient, but also made as a tool to keep existing customers and make the alternative costly for them. Information technology will not only make switching costs expensive but could also be used as a strategic capability that would serve as a barrier to new entrants into its markets. The classic example we can use to illustrate how companies make IT as a barrier is Apple and Android smart phone operating systems. In the case of Apple, the software or operating system and its hardware is specifically designed as a productivity platform that is exclusively for use of Mac and is distinctively different from the dominant Microsoft. Apple designed its software to prohibit Microsoft from using it including its hardwares that cannot be used by its competitor Microsoft. Apple prides itself to have a better software and hardware compared to its competitor Microsoft and peddle the marketing idea that “Once you go Mac, you cannot go back” implying the better experience of customer who will use Mac that they will no longer go back and use the dominant operating system which is Microsoft. The case of Nokia best illustrates how IT can remove the leading position of a certain industry player. Nokia was the dominant player in the mobile phone industry before 2007 where it made a disastrous mistake of rejecting the idea of Open Handset Alliance which is now the Android operating system the majority of smartphones (Shaughnessy, 2012). Samsung was then not considered a player but seized the strategic IT opportunity presented by the Open Handset Alliance which made it now the leading smartphone manufacturer. Nokia on the other hand is struggling to keep its business when it used to dominate the same market segment before 2007. Questions on page 399/466 (chapter 2 as reference) 3. What is the difference between the ability of a manager to retrieve information instantly on demand using an MIS versus the capabilities provided by a DSS? Information provided by Management Information System (MIS) is a summary of the performance of the whole organization. It is basically a snapshot of the operation of the business to guide and decision makers in their economic decisions and to provide management feedback about the company. Information provided by MIS generally comes in the form of generic reports, sales, orders, staffing and operation schedules etch and provides the decision maker an instant summary of financial performance, staff performance, operational performance, sales performance, etch. The information provided by MIS are generally generated periodically such as yearly financial reports, quarterly sales performance, quarterly operating costs etch and this information became readily available or become an instant after a certain period as their preparation is scheduled. DDS share the same capability of MIS of retrieving information instantly only that information retrieved by DDS are specific, problem oriented and specialized compared to information generated by MIS which are generic, periodic and done on a template. To illustrate their difference, we are going to use the economic performance of a company. From MIS point of view, this can be automatically retrieved at the beginning of the year stating the previous year’s performance of sales minus all the costs including taxes. This is scheduled because it is needed by various stakeholders that include the shareholders, government, regulating authorities, management and employees. The format has the template of Income Statement and therefore generic and pre-specified. DDS on the other hand is specific and can be customized. Using the same example, a decision maker or analyst may want to determine the extent of the effect of the financial crisis to the company. The Income Statement provided by MIS may not provide the information that is needed because what is needed is during a specific period of time. He or she can then make a comparative analysis between the records of sales before and after late quarter of 2008 (when the financial crisis first struck). There, he or she can see the drop in sales and can even plot it using graphs to easily see the decline through a simple DDS software of spreadsheet. 5. In what ways does using an electronic spreadsheet package provide you with the capabilities of a decision support system? In making sound economic decisions, Managers rely on economic data as provided by financial statements, operation details etch to base their economic decisions. But the raw information that is provided by financial statements may be a lot and may not mean anything as managers and decision may just need a specific information to base a certain economic decision. Decision support system such as spreadsheet packages will come in handy in situation like this whereby it allows them to sort and get the information that they need thereby making the plethora of information sensible to the decision maker. The simplest example we can use to illustrate the benefit of using the capabilities of a decision support system is determining the economic performance of a particular sales team for a certain period. Sales information is readily available in the company’s Management Information System (MIS) but it would be impossible to determine the economic performance of a particular sales team just by getting the final figure. Through an electronic spreadsheet package however, economic decision makers can get the information they needed by sorting the information available. In the example stated, he or she can make a search of a particular team and then put delineation on the dates. Say for example, he or she can get the sales performance of a team weekly by just enabling the Auto Sum of the sales performance on the days of the week to get the weekly sales performance. Analysis Exercises Question 1. E-commerce website reviews (chapter 2 as reference) a. Product Since its inception in 1996, Bizrate provide an invaluable insight for shoppers and retailers about the quality and reliability of the myriad of products and retailers online. In a way, Bizrate separates the legitimate retailers from those who are not and distinguishes retailers who sell better product and better service. The feedback and ratings provided by other customers helps potential customers in their decision making process of a certain product (Bizrate, 2012). To illustrate how BizRate.com helps consumers, let us cite iPad as an example. The feedback of the customers about the product was generally excellent whose only consideration was price and bundle extras (keyboard with cover etch.). This translated my interest to the product to finally decide to buy one only that I have to find retailers who would give me value for my money. My initial find was at Gift Store but their 16 GB iPads are heftily priced at $849. So I checked for more retailers until I found Walmart’s online store which only retails at the same iPad for only $499 with good customer reviews which made me decide to buy the iPad from Walmart. b. Auction non-retail business such as ebay also tremendously benefit from BizRate’s web-enabled review system. Through the same customer review and feedback system, potential customers can assess the reliability of the product and the integrity of the auctioneer by checking on the profile scores of the auctioneers. It also serves as a caveat against those auctioneers that have negative feedback scores. And just like Bizrate, the rating system and customer feedback distinguishes those auctioneers with integrity and also helps ebay to weed out undesirable and fraudulent auctioneers by relying on the customer reports. c. DSS provide pertinent information needed by decision makers in evaluating certain economic issues. Through the information provided by DSS, economic dilemmas and evaluation of economic options are better decided because of the availability of critical and relevant information. BizRate on the other hand provide potential customers pertinent information that would help them to decide whether they are going to purchase a certain product or not. It helps them evaluate the manufacturer or sellers claim against the actual experience of its customers and use that information to make their economic decisions to buy or not. In my case, information that was provided by BizRate translated my initial interest towards iPad to a decided economic decision to buy the product. In this manner BizRate is similar to DSS because they provide the end user information necessary in their economic decision making. References SAP (2012). SAP Supplier Relationship Management. Retrieved from http://www.sap.com/lines-of-business/procurement/srm/index.epx Shaughnessy, Haydn (June 15, 2012). Nokias Layoffs, The Euro and the End of The European Dream. Retrieved from http://www.forbes.com/sites/haydnshaughnessy/2012/06/15/nokia-the-euro-and-the-decline-of-the-european-dream/ Read More