Coca Cola Company Uses Information Systems to Gain Competitive Advantage - Case Study Example

Heading: Introduction to Business Law Your name: Course name: Professors’ name: Date Introduction Business firms that operate within the same market segment always compete for a larger market share. In order to succeed in business, every organization has to derive ways of outdoing others by gaining a competitive advantage. A business firm can achieve competitive advantage in factors, such as, cost, quality, speed through the competitive plan that it uses. An organization’s success is determined by its competitive advantage. As a result of the competitive advantage gained, an organization can become a market leader by increasing its average returns. Among the strategies used by companies to achieve competitive advantage are the information systems which enhance the realization of firm’s strategic goals and increase productive abilities and performance. Information systems refer to the applications used by a business firm to support and shape its competitive strategy so as to achieve an advantage over other organizations. Hence, organizational managers ought to seek for competitive strategies of involving information technology to increase the company’s services, products and capabilities in order to achieve main advantages over certain market competitive forces. This paper applies Michael Porter’s competitive forces to explore ways in which Coca Cola Company employed information systems to gain competitive advantage. Coca Cola Company is a world’s leading producer of beverage that refreshes its consumers with over 500 still and sparkling brands. In order for any organization to succeed and survive competition in world market, it is vital that it develops plans that confront Porter’s competitive forces. Therefore, this paper will explore these forces determine a company’s position in a competitive organizational setting. These competitive forces are a threat of new entrants, rivalry, threats of new substitutes, bargaining of buyers, and bargaining powers of the suppliers. The paper also discusses ways of countering these forces effectively. Some of the strategies used in this case include innovation, growth, alliance formation, leadership, and differentiation. Then, it will focus on a brief overview of the company before focusing on its application of the strategic competitive forces. It will further demonstrate how it uses information systems in implementing the aforementioned primary competitive plans, especially the use of the internet. Literature search Michael Porter formulated a structure of analyzing competitiveness of a firm. This framework has been beneficial in the development of competitive plans that organizations use in order to increase their competitive margin. Moreover, it shows the application of information technology by business institutions to advance their competitiveness. According to Porter (2008, pp.3-5), the five competitive forces are significant in enabling an organization to realize its position and structure in the market. They also position it in a place with huge profits and little susceptibility to attack. Nonetheless, some managers think that it is only rivalry that affects competition in the market. Porter (2008, pp. 3-5) objects this misunderstanding and illustrates his market forces that include: Rivalry among the available competitors Threat of new entrants Buyers’ bargaining power Suppliers’ bargaining power Threat of substitute services or products The aforementioned forces of competition determine an industry’s structure as well as shaping the industry’s competition. Porter’s model of competitive forces is demonstrated below: Figure1. Porter’s model of competitive forces Adopted form Michel Porter. 2008, p.64 As stated by Porter (2008), the strength of the each of the aforementioned competition forces is affected by factors related to the industry structure. He further argues that the use internet has caused alterations in both market competition nature and business operations. Besides, he asserts that internet does not alter the market forces but it offers a competitive advantage. In fact, Porter (2001, pp.64-65) further says that the internet is a compliment of ancient ways of competition. Therefore, he suggests certain ways in which the use of internet affects competition in the five forces. 1. Rivalry among available competitors: Crain (2010, pp. 8-9) says that competition is influenced when organizational internet applications on the website are accessed by its rivals. This is because their success secrets are revealed to other competitors who might want to adopt them. As a result, the differences that companies have among each other are greatly minimized. In most cases, the internet tends to lower the variable costs in comparison to fixed costs in various organizations; thus, this encourages price discounting as well as competition migration to prices (Crain 2010, pp. 8-9). 2. Threat of new entrants: the use of internet can greatly reduce obstacles to new entrants by increasing the threat of new entrants (Porter 2001, pp.64-65). This force majorly faces industries that deal in digital services and products, or those performing an intermediation role. In addition, internet is instrumental in bringing various competitors, from different geographical areas, to home market with the already existing company. 3. Buyers’ bargaining powers: Here, the internet offers an information center to the potential clients of various products and services made available by the suppliers. In addition, information systems minimize clients’ switching costs; hence enabling them to purchase products from the downstream suppliers (Richard 2010, pp. 291-294). The above facts indicate that information technology is influential in increasing the clients’ bargaining power. 4. Suppliers’ bargaining power: In this case, there are two perspectives caused by the internet on this force. To begin with, information systems improve easy price comparison among sellers by purchasers. As a result, the suppliers’ bargaining power is minimized. On contrast, internet can be used by the suppliers to raise their bargaining power by incorporating their supply chain and joining digital exchanges. Consequently, the suppliers can succeed by raising their switching costs (Crain 2010, pp. 8-9). 5. Threat of substitute services or products: In this case, application of information technology can injure information-based industries because of digitalized data. In relation to the aforementioned facts, it is explicit that the use of internet in business increase rivalry that, consequently, affects the organization’s profitability negatively (Robey, Im, & Wareham, 2008, pp. 23-25). Nonetheless, information systems enhance the availability of information, thus reducing challenges in the marketing, purchasing and distribution of firm’s products. Subsequently, according to Porter (2001, pp.66-67), transaction between sellers and buyers is easier than before in spite of challenges faced by firms in capturing the profits. Imperatively, business managers should develop strategies that cause profitable and sustainable position against the market forces. This implies that an organization should devise a strategy that handles its operations differently from its rivals (Porter, M 2008, pp. 3-5). Porter’s model of five forces is beneficial in the assessment of company’s position in its industry. Various business firms employ the model’s concepts in the analysis of its competition and suggestion of measures that should be taken (Crain 2010, pp. 8-9). In the following section, the paper analyses Coca Cola Company, which is one of the global firms that have fully embraced the use of information technology in achieving its competitive advantage. The company produces and supplies its beverages to large populations in the world. Just like any other business, Coca Cola has faced various threats and pressures from other companies. Some of its competitors include the Pepsi-cola, Rc-cola, and Inca-cola. Others include new entrants, such as, coffee producers, Red Bull, and the Belgium beer. Most of these rivals have managed to market their products through the internet (Crain 2010, pp. 8-9). According to Dessler (2008, pp. 17-20), the company has also faced the competition posed by entrants that have new “look-a-like” products distributed locally and internationally. These products have been so threatening the performance of the Coca-Cola Company that it had moved to the use of information technology in its advertising. These companies also offer competition to Coca-Cola through the reduction of costs and the kind of business models that they have established in e-commerce (Dessler 2008, pp. 17-20). In the following diagram, there are some of the pressures and threats that Coca-Cola Company has experienced, and how various information technology strategies that it has established have shielded it from the competition. Figure 2: Threats and pressures of the companyThe aforementioned facts are constituents of the five competitive forces as demonstrated by Porter, and have largely pressurized the performance of Coca-Cola Company. As a result, it is notable for the company to design profitability and achieve a sustainable place in opposition to these forces. This entailed the introduction of new products and processes that would give it a competitive advantage over its rivals (Hill & Jones 2009, pp. 53-56). Using the five competitive forces, the company devised ways of handling the threats offered by Pepsi-Cola and other companies. Canwell (2005, pp. 56-60), argues that despite remarkable performance of Coca-Cola local and global businesses, the company recently realized a reduction in consumer purchasing power. This is because people complain that its products have a negative effect on human teeth; a serious health factor. The health problem results from the use of sugar in its production. Moreover, addiction of the beverage contributes health problems. Besides, the company has threats from certain new substitutes in the market, such as, coffee, milk, hot chocolate, and tea (Canwell 2005, pp. 56-60). Hill & Jones (2009, pp. 53-60), there is also a reduction in the customers’ buying power due to the price competition between the company and Pepsi-Cola Company. Therefore, the business has been adversely affected in that it has been slowed down. In addition, customers may easily switch from Coca-Cola products to other beverages with minimized costs or results. What is more, Ferrell, (2010, pp. 314-317) say that the company is experiencing a great threat in form of fake bottling by other companies and individuals in order to make money out of it. This comes from unfair practices, and grows tremendously in the company. As a result, the company has suffered serious losses in that people have switched to other drinks because of the black market effects. This implies the production fake bottling is cheap but harmful to the clients’ health (Ferrell 2010, pp. 314-317). In order to outdo its competitors in the market, the company should put place certain information, operations and financial systems that are will attract and retain as may customers as possible. Some of the ways include use of the internet in the marketing strategies so as to reach its potential clients globally (Culpan 2008, pp.12-15). This can be done through online advertisements and promotions. Moreover, the company should have web-based services that provide a lot of information on the company’s new products and services to a wide range of customers. The company can also achieve its competitive advantage by using the online social sites, such as, Twitter, Yahoo, Google, and Facebook to promote its products. According to Robey, Im & Wareham (2008, pp. 23-25), it is also imperative that the company increases the productivity of its employees by using information systems. What is more, information technology can be used effectively in the company to conduct extensive market analysis by reaching many consumers online. It can also conduct research on the suitable ways of improving, protecting and distributing their products (Porter 2001, pp.66-67). This way, the company will perform effectively through the achievement of a huge competitive advantage. Therefore, the current information technological innovations in the company include operations, system architecture, data warehousing, data centers, and networks. There are information technological applications in customer web services, supply chain, innovation, finance, business planning, and customer relationship management (Robey, Im, & Wareham 2008, pp. 23-25). Use of information technology is beneficial to Coca-Cola in that it will reduce the costs of production because some of the middle managers and clerks are substituted. Porter (2001, pp.66-67 says that it also improves the quality of the services and products offered to the consumers because of enhanced accuracy, efficiency, accessibility, distribution, knowledge and speed. It makes a firm reduce its size due to the minimized transaction costs. It also cuts down internal management cots in a firm. Following the reduced costs of collecting and analyzing information, information systems of the company can allow the reduction of agency costs because of easy management and supervision of a large number of employees (Porter 2001, pp.66-67). Coca-Cola Company management ought to put in place strategies based on information technology in order to gain a competitive advantage. Some of these ways include: a) Coca-Cola should employ innovative information technology applications in order to achieve a greater strategic advantage than other firms and new entrants (Kadir 2009, pp. 7-9). It should provide online services and products to its consumers. Moreover, the company should make its information accessible to clients on the internet. Its operations should be tracked through the use of the information systems. This way, the company will get lasting solutions based on the information systems. b) The company also ought to perceive employment of information systems as a competitive weapon that it or the rivals should use. Porter (2008, pp.79-93) it notes that the company uses it in order to outdo the other organizations in service delivery, and improve its reputation. c) Coca-Cola should also use information technology as a technique that modifies business processes so as to attain competitive advantage (Kadir 2009, pp. 7-9). In order to minimize the costs of managing different branches, the company can use information technology to condense all of them into a single set. Richard (2010, pp. 291-294), says that control of remote stores is also possible with information systems in that it allows the provision of fast communication techniques, and product design based on information technology. d) Collection of information on competitors, products, markets, and environmental changes, is made possible by information technology (Porter 2008, pp. 3-5). This implies that information systems offer competitive intelligence to organizations; therefore, Coca-Cola Company should adapt them in order to make products and services that are more valuable to the consumers. Moreover, it is critical that it monitors its rival’s information so as to enhance its enrichment of market knowledge and management (Richard 2010, pp. 291-294). e) In order to succeed in the creation of new products and services, Coca-Cola Company can invest in information technology. Besides, the firm can diversify its operations, services, and products (Porter 2008, pp. 3-5). f) Robey, Im & Wareham (2008, pp. 23-35), argue that the use of information systems by the company can link it with other trading partners. Therefore, it should effectively and efficiently employ a network that permits a connection with customers, agents, and service providers so as to widen their marketing scope. g) Coca-Cola Company can also reduce operating costs through the employment of information technology. This is because it is less costly to handle some organizational operations online than offline (Robey, Im, & Wareham, 2008, pp. 23-25). h) Information technology is instrumental in the maintenance of a favorable relationship between the buyers and suppliers (Porter 2008, pp. 79-93). As a result, switching costs are built, and thus, it makes it hard for clients to switch to the company’s rivals. Therefore, Coca-Cola Company should apply supervisory system that automatically informs suppliers about the amount of its inventor. This is also assures clients with a consistent supply of products and a minimized management time (Porter 2008, pp. 3-5). The following diagram illustrates a summary of strategic decisions that business managers ought to make in order to establish an information system that helps an organization achieve its competitive advantage. Figure 3; strategic points and information systems In order to gain profitability by industries, it is crucial that firms differentiate themselves from other organizations. According to Porter (2001, pp. 69-70), achievement of competitive advantage is possible through cost reduction, and premium price. Price and cost can be attained through effective operation whereby a firm handles something better than the others. This is enhanced by the use of advanced technologies. In addition, cost and price is achievable by strategic positioning where an organization works differently from its rivals in order to deliver a special value to the clients. As postulated by Porter (2001, pp. 66-70), the internet is instrumental in opening new chances for attaining or strengthening a different strategic positioning. It also improves effectiveness of organizational operations by enhancing the whole value chain through easing and speeding information exchange (Porter, M 2008, 79-93). Nonetheless, it bars firms from maintaining their competitive advantages. Besides, the operational effectiveness of a firm should be higher than the competitors so as to attain a competitive advantage. Conclusion Currently, many firms have used information technology, particularly the internet in an attempt to achieve competitive advantage against one another (Robey, Im, & Wareham, 2008, pp. 23-25). As a result, internet competition has been caused, and this pressurizes the existing firm’s profitability. Because of increased competition, there is a consolidation of companies; thus a decreased rivalry among businesses (Porter (2001, pp.64-65). Internet technologies have increased the number of rivals in business. Customer bargaining power has also increased following their familiarity with technology. This reduces their loyalty to the sellers because of the low switching costs. However, switching costs rise when firms use automated bill paying by financial institutions. Therefore, information systems diminish companies’ profitability by empowering clients. The rising number of digital companies in the world is beneficial in offering clients easier ways of accessing price information and product. Moreover, they enjoy low transaction costs, selling costs, and access to a bigger market, and avoidance of influential channels. (Culpan 2008, pp.12-15) In addition, customers and suppliers will transact directly without middlemen; hence reduction of distribution costs. Because the new technology will allow searching and exchanging of products and information with each other, firms like Coca-Cola should fully employ information systems in their operations. References Canwell, D 2005, BTEC First Business, Nelson Thornes, Cheltenham. Pp.56- 60. Crain, MA 2010, “A Competitive Analysis Business Valuation Services: Five Competitive "Forces" Shape Industry Strategy,” Journal of Accountancy, vol. 210, pp.8-9. http://www.questia.com/PM.qst?a=o&d=5045767881 Culpan, R 2008, “The Role of Strategic Alliances in Gaining Sustainable Competitive Advantage for Firms,” Management Revue, vol. 19, pp. 12-15. Dessler, G 2008, Managing Now, Houghton Mifflin Co., Boston. Pp. 17-20. Ferrell, O 2010, Business Ethics: Ethical Decision Making and Cases, 2009 Update, South-Western Cengage Learning. Mason, OH. Pp. 314-317. Hill, C & Jones, G 2009, Essentials of Strategic Management, South-Western/Cengage Learning, Mason, OH. Pp.53-60. http://www.questia.com/PM.qst?a=o&d=5045028530 Kadir, Y 2009, Basics of Major Strategic (and analytic) Tools Goal Setting and Strategy Process, GRIN Verlag GmbH, München. Pp.7-9. Porter, M 2001, “Strategy and the Internet”, Harvard Business Review Journal, vol. 4, pp. 63-78. Porter, M 2008, “The five competitive forces that shape strategy” Harvard Business Review Journal, vol. 6, Pp.79-93. Porter, M 2008, On Competition, Harvard Business School Pub, Boston, MA. Pp. 3-6. Richard, D 2010, Management, South-Western/Cengage Learning, Andover. Pp.291-284. Robey, D., Im, G., & Wareham, JD 2008, “Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions,” Journal of the Association for Information Systems, vol. 9, pp. 24-25. http://www.questia.com/PM.qst?a=o&d=5046237771 Read More