P. Daneshvar, Dr.H.N.Ramesh - “Information Technology and Corporate Strategies in Small and Medium Enterprises” - Article Review

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Date: January 8th 2013
Link: http://www.facultyjournal.com/webmaster/upload/__Paper4.pdf I. Brief description of the article

The article picked is “Information technology and corporate strategies in Small and Medium Enterprises” by Poolad Daneshvar, Research Scholar, Department of Business Administration, University of Mysore, India and Dr.H.N.Ramesh, Director Kuvempu University, PG Center, Kadur, Karnataka, India. It is, to be more precise, a synthesis of different researches about the subject: “How does Information Systems create competitive advantages for the enterprise?” The article, however, focuses on the competitive advantages for the Small and Medium Enterprises (SMEs). The difference between Information Systems (IS) and the Information Technology (IT), from the authors’ point of view is the orientation. If IT is most likely technical and supply oriented, IS is the way business makes use of IT depend on the enterprise’s needs. So IS is more demand oriented and business grounded. In the article, the authors rarely separate these two notions, considering that IS is based on IT and the authors’ point is to present how the application and utilization of information can be used to create competitive advantage. The authors also discussed about why SMEs should seize the opportunities to create competitive advantages brought by the IT/IS development. In fact, the main reason for the creation of many large companies that regroup vertical value chain (from raw material, production to sales and customers services) is the transaction costs between the steps in a value chain, due to information asymmetric and assumption of opportunistic behaviors. When big companies are able to set up a whole value chain, they will gain considerable advantages from cost decrease and from the fact that they avoided, at some stages, the pressure from the suppliers and customers. In order to maximize efficiency, the SMEs can only concentrate in certain activities and thus can only be part of a value chain. These companies were struggling in this competition. However, IT/IS gives SMEs chance to increase their ability to compete by three possible ways (Rockart and Scott Morton): Increase efficiency in operations, create links with customers and suppliers to increase their switching cost, create new products or new services. The authors explain how IT/IS has influence on competitive advantages of the SMEs in three categories: Internal Strategy, Competitive Strategy and Creation of the Competitive Advantages. The authors precise two applications possible of IT/IS on internal strategy. Firstly, applications on the existing activities to increase efficiency and customers’ satisfaction reduce cost, but the authors stated this application is just basic and cannot be considered strategic. From the authors’ point of view, IT/IS should be applied in Management processes. Some model has been set up throughout the last three decades: Business Systems Planning (BSP, Hammer, M.M et al, 1980), Office automation methodology (OAM, Sirbu, M et al, 1984) or also Business Process Re-engineering (BPR) … These models can demonstrate to the managers how their business is working and what kind of result can be expected, BPR can even shows the options. The decision making can be much easier and quick with helps from IT/IS. The most two most usual competition strategy are Cost reducing and Differentiation. However, Porter and Al. have concluded others ways to turn the competition around in the IT/IS era: Use the IT/IS to change the rules of the competition in the industry, create competitive advantages by finding the company’s ability to outperform its rivals, create new business. The authors analyze the competition strategy in two aspects, according to Porter’s study: Value Chain Analysis and Competitive Forces. Value chain is a framework for identify all the activities and analyze how they affect the company’s cost and its value delivered to the customers....
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