INFORMATION AS A STRATEGIC RESOURCE
IMPACT ON COMPANYS STRATEGY
Maria Stoyanova Todorova, Management Information Systems
It is impossible to neglect the impact of information and information technologies on the strategy of companies nowadays because of its important role in competition. Since competitiveness is getting stronger and stronger in most of the industries, new competitors are emerging, the environment is also changing and the expectations of clients are continuously altering, managers are those who should not allow themselves to stay indifferent in such situations.
Today, information can no longer be treated as a source of competitive advantage, but a competitive necessity. It penetrates in all aspects of an organization, crosses data processing and information systems department. The information potential can be realized by the means of appropriate management and knowledge of the organizational and cultural aspects. No automatic profits come from investments in information technologies since management has the responsibility for exploitation of the information technology potential. During the last two decades, companies have learned how to manage financial, human and material resources. The changes of the management of these resources depend on the access, processing and means of information. A receipt of information resource management is impossible to be given, neither is desirable because the approach should be structured and flexible and managers are those who should possess it. The managers of an organization should be well informed of the profits of the appropriate information and information technology. The most important questions for them are: What information is needed so that the company can fulfil the set strategic aims? Which skills or products will be an advantage over competitors? What is the current strategy in order to beat competitors? And what information is needed to form it? Successful organizations are those who are learning and adapting and have a flat simple structure and information is inseparable part of their activity. That is why managers should be trained how to use it effectively. Information Resource Management (IRM) defines the way in which the organization will accomplish its business when using different information resources in order to make its short term strategies. This management is unique even for companies with identical products and/ or services. Information Resource Management includes the management of all kinds of data, numbers, texts, images and sounds available in making the proper strategy at a certain moment. This is why managers are responsible for the provisions of the appropriate information concerning the business and decision making.
The IRM wheel
Information impacts on all aspects of the organization: marketing, distribution, production, operations management, management economics, finance, public policy, industry dynamics, office automation, human resource management as shown on the Figure above. The wheel is spinning round and in its center is Information Resorce Management. Information and communication technologies provide continuous information flow, which the organization should use in forming its corporate strategy and accomplishing its management activities in decision making. Of great importance for organizations is their flexible management style. That is why a great quantity of information and its optimal use is needed especially by decision makers in the processes of decision making. The more information is used the better for the company. The better the instrument of using this information the better the decision will be. The better the decision will be the less the risks for the company are. For this reason information is an important resource which should be managed appropriately and thus it increases the company's chances of success. The effective management is day to day even every minute because the environment is changing very fast and it should respond to its quick changes. Consequently short run strategies are needed because of this and long run plans are no longer made. In this sense the planning of information resources is of great value and should satisfy the needs of the organization.
Most of the strategies aim to increase production, to increase sales or to increase profit and these can be achieved by current use of information. For example, a number of the applications of information technologies lead to a great decrease in costs since mediators are eliminated. So distribution costs no longer exist, personnel costs are diminished exclusively and also the deadlines of delivery are lessened to a great extent. As a consequence of this, the prices of the products/ services are decreased substantially which means that people are encouraged to buy more. This eventually increases sales and profit of the company and of course the quantity of production needed should be greater. When production is higher the costs per product or service is less and the profit is higher. The assimilation of information is a challenge for every manager because the participation of information in company management leads to a higher effectiveness and better results in forming the competitive strategy. Managers should pay attention to six basic problems concerning information and its use in organization:
The impact of information is different for different companies and different industries. It may be connected to the marketing and distribution or to the production. Managers are those who decide the need of information and information technologies. If they want to put their company on the marketing axis, information will play a great role in increasing the number of sales, in shaping the product mix, in comparing the products of the competitors, in identifying customers tastes especially when they change frequently. If they want to place their company on the operational axis, information will play a great role if there is a large geographic dispersion in sourcing, a high technology embedded in the product, a long complex process of designing the product, a complex process of administering quality control, etc. Some of the companies, however, have both marketing and operations advantage when using information technologies. For example American Airlines, Manhattan bank and Citibank have differentiated their products and services by the means of effective use of information technology. Those that have not invested in information technologies, have not got the benefits from that. Also, the great companies have invested tremendously and consequently have placed barriers for the others to enter this business. In some cases the impact of information can be limited in both operations and marketing aspect as for example in lumber industry. In defense industry is the impact of information technologies mainly on manufacturing whereas in fashion industry is the information impact concentrated on marketing.
If we compare American Airlines, Manhattan bank and Citibank, we will notice that they have made basic transformations in marketing and operations management. The trick , they have used is to hold a competitive advantage over the others, which can be achieved by current management and optimal use of information technologies. Companies in the field of fashion industry are influenced significantly by IT s. They must track the last tendencies e.g. they should be informed very well so that they can know the changes and can adapt to them. The information in such companies plays a very substantial role in marketing and managers invest in marketing research to obtain it. In short, information has different roles in different firms. In some is it operational, in others marketing mainly. But for all of them, one thing is very important to be the first-to change the rules of the play e.g. the rules of competition and to put the followers under great pressure. The impact of information is significant for some companies. The proper use of information is critical for their existence and success in competition. Such companies are banks, investment mediators and insurance companies. It is evident that the organizational relation between IT management and senior management is exclusively narrow and interdependent. Usually the vice president of the IT department is in the Board of Directors.
The integration of telecommunications, data processing and office automation provides better competitive results. In most companies in America is coordination and control carried out in order to have the three in interaction. The perceiving, development and application of the capabilities of IT s and their control and coordination are factors which identify the effective use of information. The value of information comes from the results of its use. It is an exclusively important resource nowadays since the prospering are the entrepreneurs and entrepreneurs exist thanks to information. If you have the suitable information about the price of certain goods, for example, you can buy and sell at a certain moment and become a millionaire. Information and knowledge can save managers lots of problems and risks. Information about marketing can make short run management work and can solve difficult problems and complex situations. Also, information can improve the relations between the different levels of management. The easy and quick access of information is crucial for the whole company. However, sometimes if someone wants to acquire information he has to pay for that. There is even a market of information for those who want to acquire special information. Managers should be informed about the macro and microenvironment and find that balance in order to survive. To be the first today means to be the first in acquiring and using information everyday. For example in Bulgaria DAEWOO models' quality is not so high as MERCEDES models', but DAEWOO profit can be even bigger than MERCEDES' in Bulgaria. Why, is it so? Because Daewoo marketing specialist looks over car adverts every day. He makes the proper research of his competitors, quality, advantages and prices of cars and then decides what discounts should be made so that Daewoo can sell suitably and it really sells. In this case information is of great significance for the company and for its profit and marketing competitiveness.
Speaking about ITs, we should mention the acceleration in the growth of knowledge in science stimulating a dramatic increase in the number of new products based on new technology. To be the first , ITs have to be renewed continuously because of their short life cycle. Only, pretend that you are sitting in front of a computer and select EIS. Then using the menu you go to management by exclusion and you can see data about sales on your screen that is exclusively different from the other days. This is very important because the executive should find the purpose for it. If the sales have decreased strongly, maybe a competitor has gained a competitive advantage. Of course this information can be extracted without using a computer and it is still called information technology. But now I will not comment what the benefit of computers is. Of course if the area is quite competitive, analysis of the use of information should be made: are there omissions in information or is it poorly used and interpreted. Information begins to be shared within the organization as a corporate resource. Database capabilities begin to be exploited as users value information. Strategy making is related with maintaining comparative strategic advantage and monitoring future as well as interactive planning.
Every organization must have some form of strategic management if it is considering "where is the organization going? And "where should the organization be going? Consideration of these questions is essential, given the changes and uncertainties of the business environment. Conventionally, in 'consultancy speak', the process of strategic management has involved managers answering questions such as: Where is the organization now? Given the external trends, where does the organization want to be? What actions must be implemented to achieve the specified goals? As part of this process, information is gathered and used in management formulating an explicit plan of priorities for action with appropriate allocation of resources that will take the organization forward. Explicit attention must be given to the changing nature and scope of the industry, together with the particular competencies of the organization. Situation analyses are completed, such as SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), as are portfolio analyses to determine an organization's best mix of business and of products and services. Strategy formulation is undertaken at different levels, usually: corporate, business and functional based on information and its interpretation.
Strategy has become an over-used and much-abused terms, being frequently made unnecessarily complicated. At a simple level, the following Figure captures the underlying and interrelated dimensions of any organization's strategy formulation and implementation: business opportunities, organizational competencies and governance (COG).
The essence of strategic management should be action rather than the process of developing the strategy or the document itself, with the ability to cope with uncertainty, devolve responsibility and to retain control. Many managers who devise formal mission statements, specify long-term objectives and prioritize implementation plans, not only waste enormous amounts of time and resources, but also delude themselves into believing that they are managing strategically, even though the strategy is never implemented. While some additional flexibility can always be introduced into this process, if only by last minute revisions, the real business issues and competitive assessments are frequently not examined sufficiently thoroughly. All too often, because of unanticipated changes in the business environment managers are obliged to make hasty decisions, without consideration of their strategic consequences and sometimes in contradiction of the strategy. Criticism of the traditional formal strategic management process could, but should not, be interpreted as abdication of responsibility by management. The essential ingredients are vision, leadership and, increasingly, information which is both useful and actionable. In any event, strategic management is not a separate kind of management at all, it is simply management. Effective day-to-day management requires tight, short-term control, state of the art Management Information and Control systems. Without them there will be little management time for the strategic and there will be no tool to implement it. Such systems provide some short-term order in what is fundamentally a disorderly situation.
As information shifts away , business risks increases. Business can reduce the risk involved by developing effective support strategy expertise. Information resources management plays a very important role in this. Information is quite important regarding the following: merchandise information reporting system (information about sales and margins is used), branch performance monitoring, test market and new product monitoring, supplier performance monitoring, distribution performance monitoring and market research of competitors, repositioning, corporate databases (product portfolio performance, regional sales performance, product portfolio, outlet portfolio), competitor database (current business performance and new business performance), environmental database(projections, social / consumer, change, economic trends, technology trends, international trends, emerging market trends, market characteristics, supply market characteristics, consumer expectations). Managers should have the advantage of being able to identify and analyze strategic options in considerable depth, possibly sooner than competitors and there should be more precise control over the implementation of the selected corporate business strategy.
Because of the quickly changing environment, the process of strategy formulation transforms from an apparently formal and systematic set of procedures for analysis and planning to an adhoc reaction by the senior management of an organization to perceived problems and information about them. In strategy formulation, managers must consider both information about internal and external forces.
The context in which competitive strategy is formulated
The opportunities and threats in the industry must be considered within the context of the organization's strengths and weaknesses, all of which cannot be divorced from the broader social setting and the leadership and vision of the key people for implementation.
Influenced by the early Harvard Business School strategists Michael Porter illustrates aspects of organizational positioning and the factors affecting an industry's overall profitability. The model of the five forces in competition is used for defining the competitive strategy in an industry. This model has been greatly influential especially in the development of corporate business strategy. Also the model shows how information and communication technologies can influence the kind and strength of competitiveness. Porter used the word industry but he means strategic groups in an industry e.g. enterprises with similar potential and technical level. He thinks that competition is bigger in this group of enterprises.
The influence of information and communication technologies on the different competitive forces shows the direct relation of information with the potential business advantages of the company. This influence is related with the increase of information that is used for decision making and infrastructure support in respect of information technologies. The competitive forces are changing continuously influenced not only by external socio-economic and political factors but also by the changing business structure influenced by the development of information and communication technology. Information about the five factors of Porter's model: suppliers, buyers, substitutes , new entrants and industry competitors is at the heart of the competitive advantage to decrease rivalry which is at the heart of any strategy. In short, information is the center of strategic management and it helps the firm to decide the type of competitive advantage it seeks to attain and the scope within which it will attain it. Being "all things to all people" is a recipe for strategic mediocity and below-average performance because it often means that a firm has no competitive advantage at all.
Understanding risks is the first step to manage them. Understanding is, in turn, a two-phase process-describing in advance and in detail the industry level changes and determining the potential impact of these changes on the company. These views of the future are likely to be cloudy and their probabilities are likely to be rough estimates. But one thing is sure if there is more information there is more chance of predicting what will happen. The estimates of information should be thoroughly considered before a decision is made because it impacts on it. Decision may include raising entry barriers, increasing switching costs, reducing the power of buyers and suppliers, deterring substitute products, lowering costs and increasing differentiation. The outcome over time will be a change in the competitive forces affecting the industry. Further, a company considering a new investment should assess whether it will obtain any sustainable competitive advantage or if a more likely outcome is an extension of the current competitive situation at an increased level of cost. IT software purchased from a nonexclusive source may not confer lasting advantage and IT personnel may take ideas when leaving the company for its competitors. Information about resources and capabilities of competitors, both current and potential, should be considered carefully when making a decision. Consideration of the positive impacts of a new investment on competition forces broad-gauge thinking on potential negative impacts as well. Information is an extremely important resource used for decreasing the bargaining power of buyers and suppliers and threat of new entrants and substitutes and thus decreasing the rivalry. Thus it should be gathered and analyzed carefully.
To show the role of information as a competitive advantage of the company Michael Porter and Victor Millar found a matrix which indicates the effect of information on different industries. The information is identified as a sum of the information content of products and services and the quality and costs for the exchange of information to complete the transaction.
There is no standard source in the economics literature where a theory of business information is systematically set out. Considerable progress has been made on several fronts in recent years, however. Information asymmetries between buyers and sellers are discussed in models of screening and signaling. These models have important applications to insurance markets and professional labor markets. Modern game theory places great emphasis on the question of who knows what about whom, and what it is rational for them to conjecture about each other. Ten there is the modern theory of finance which has a lot of interesting things to say about market response to a flow of news items, and about how markets behave when insiders get to know the news before others.In these and other examples is information at the core of managing business.
Since information is a resource with a limited availability due to its cost and continuous changes in the environment, business people must often reach conclusions about their firms based on insufficient information. Notwithstanding some of these thoughts exist, contemporaries think that access to information should no longer be a "power" issue. The source of power should be in the use of information. A flexible efficient and effective tool of recognising the different types of decisions and their information requirements is requred to be applied by decision makers. Wise husbandry and craft practice are key factors of forming information skills to respond appropriately to new situations and uncertaincies. The outcome of the strategic decisions is often determined by the presence or absence of keen insight and skill in generating, handling and interpreting information. In this context, accurate, complete and relevant information and its proper use improve the quality of decisions and reduce risks to a great extent even though risk always exists for a future event. Interpreting information more precisely leads to better results in decision making and eventually in increased profitability. Pervading the entire organization, information is regarded as an exclusively valuable company resource or asset for strategic planning in the every minute changing environment and thus it should be momentary and should reflect the current situation. In this way more precise decisions will be carried out and the necessary sales revenue attained.