The value of Information technology

Traditionally, most research in strategic IT has focused on the ability of IT to add economic value to a firm by either reducing a firm’s costs or differentiating its products or services (see McFarlan 1984; Porter and Millar 1985; Bakos and Treacy 1986; Wiseman 1988). For example, when Wal-Mart adopted its purchase–inventory–distribution system, it was able to reduce its inventory costs (Ghemawat 1986; Huey 1989; Stalk, Evans, and Shulman 1992). On the other hand, GE was able to differentiate its service support from its competitors by means of its call center technology (Benjamin et al. 1984; Porter and Millar 1985), and Otis Elevator similarly differentiated its service operations thanks to its Otisline system (McFarlan and Stoddard 1986; Balaguer 1990). In all these cases, the judicious use of IT either reduced these firms’ costs of operations or increased their rev- enues by differentiating their products or services, or both, and therefore created value for these firms.

Indeed, there is little doubt that, in a wide variety of circumstances, IT can add value to a firm. However, as suggested earlier, IT adding value to a firm—by reducing costs and/or increasing revenues—is not the same as IT being a source of sustained competitive advantage for a firm. For example, when Wal-Mart adopted its purchase–inventory–distribution system, it gained a competitive advantage over its closest rival, K-Mart. However, K- Mart did not remain idle and developed its own similar system (Steven 1992). With respect to this system, Wal-Mart gained only a temporary, but not sustained, competitive advantage (Barney 1994a). Put another way, Wal-Mart’s purchase–inventory–distribution system was valuable, but value, per se, is a necessary but not sufficient condition for a sustained competitive advantage.

Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.

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