Technology and Competitive Advantage



Authors: Anil Kumar Kartham,
Faculty Associate
ICMR (IBS Center for Management Research).

Does Technology Matter?

Top executives of organizations are increasingly looking at IT as a source of competitive advantage. IT department is becoming an inalienable part of a business enterprise. Chief information officers are part of top management team. But, does IT deserve so much attention? Can it actually deliver strategic value it boasts of? The article discusses the strategic importance of IT.

Strategy decisions in organizations are increasingly getting dependent on technology adoption decisions1. The interdependency of strategy and technology can be traced to the Second World War when globalization & technological development speeded up massive war effort. War effort needed high levels of hierarchical organizational design & control mechanisms. After the war, strategy got integrated with organizational design decisions influenced by the then dominant industrial technologies. Metaphors influence the way an organization functions. People leading organizations choose dominant technologies of their time to coin metaphors for their organizations. They also ensure that tools are developed to support the metaphors that express their views. As the metaphors become popular, they become self-fulfilling prophecies till the technological paradigm is replaced by a new technology. Two dominant metaphors emerged since the Second World War. The First was "strategy as organization." This metaphor was coined to emphasize the necessity of structuring firms for deployment of resources on a global scale. The second was "strategy as network." This metaphor motivated firms to deploy computer systems to manage their complex activities that spanned across the globe.

Strategy as Network

Growth of trade & FDI is reflected well in the expansion of production networks. In yesteryears, production of many final goods was done at one location. Later the manufacturing activity was broken down into separate steps. Each step was conducted at a location that offered lowest cost option. As a result, significant portion of international trade & FDI included exchange and production of parts and components, instead of exchange and production of final consumer goods. Today, globalization of producing individual goods has reached such a level that it is difficult to identify the nationality of products. According to a WTO report published in 1998, of the automobiles produced in the US, US accounts for only 37% of the value added.

Technological progress made in the fields of transport, communications, and data processing has played a key role in FDI inflows & establishment of cross-border production networks. Between early 1980s and mid 1990s, technological improvements led to a 70% decline in sea freight unit costs. Increased reliance on air shipments, growth of express services (over night & two-day delivery) greatly facilitated the shipment of components for processing at different locations. Low-cost of long-distance telephone rates, development of fax machines, and advent of internet have helped MNCs in coordinating production at dispersed locations closely.

Next >>

1] Instinctive Strategy: Organic Organizations Rule, By: Oliver, Richard W., Journal of Business Strategy, Sep/Oct2002, Vol. 23, Issue 5.