IS-enabled sustainable competitive advantage in financial services, retailing and manufacturing

Journal of Strategic Information Systems 13 (2004) 29–59 www.elsevier.com/locate/jsis

IS-enabled sustainable competitive advantage in financial services, retailing and manufacturing Gareth H. Griffithsa,1, Paul N. Finlayb,* a

The Business School, Manchester Metropolitan University, Aytoun Street, Manchester M1 3GH, UK b The Business School, Loughborough University, Ashby Road, Leicestershire LE11 3TU, UK Received 23 August 2002; accepted 16 March 2004 Available online 30 April 2004

Abstract The research reported in this paper identifies those factors that, taken together with Information Systems (IS) augmentations, affect the competitive positioning of businesses. The research focuses on the financial services, retailing and manufacturing sectors, spanning the levels of business information intensity found in the UK. The paper is in two parts. The first deals with the scope and duration of the achievement of IS-enabled enhanced competitive positioning. Around 25% of businesses in the sample were judged to have at least one IS that allowed the organisation to gain competitive advantage, whilst 30% were judged to have at least one IS that nullified a competitor’s advantage. Broadly, all sectors showed the same pattern. The median time that a competitive advantage was held was between 6 and 18 months. The second part of the paper is concerned with the establishment of an IS-enabled opportunity framework, identifying the associated business benefits, the associated changes in competitive position, and the sources of sustainable achievement. Twenty-two factors were identified as being significant in turning a business benefit into a competitive advantage, and seven were identified as significant in converting this competitive advantage into a sustainable one. These factors were overwhelmingly within the internal architecture of the organisation. The findings support the view that sustainable IS-enabled competitive advantage is elusive. q 2004 Published by Elsevier B.V. Keywords: Competitive advantage; Contingency factors; Sustainability; Financial services; Retailing; Manufacturing; Resource-based view of the firm; Survey research

* Corresponding author. Tel.: þ 44-1509-223114; fax: 44-1509-263171. E-mail addresses: [email protected] (P.N. Finlay), [email protected] (G.H. Griffiths). 1 Tel.: þ44-161-247-6057; fax: þ44-161-247-6317 0963-8687/$ - see front matter q 2004 Published by Elsevier B.V. doi:10.1016/j.jsis.2004.03.002

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1. Introduction Until the end of the 1980s, the major source of competitive advantage was seen to lie in industry structure (Porter, 1985). During the 1990s the emphasis in seeking the source of such advantage shifted to internal factors and to what is now referred to as the resourcebased view of the firm (Rumelt, 1987; Barney, 1991; Grant, 1991; Powell and Dent-Micallef, 1997). Firms add value by creating a distinctive capability, establishing a competitive advantage based on that distinctive capability in relevant markets, and maximising the value of that advantage through the firm’s business strategy (Kay, 1995). Information systems (IS) are a resource that could enable a distinct capability to be developed. (See end-note 1 for the reasons for using the term IS rather than others such as IT, and for a definition of IS). There has been considerable theoretical work on the role of IS in creating competitive advantage (Parsons, 1983; McFarlan, 1984; Benjamin et al., 1984; Porter and Millar, 1985; Clemons and Kimbrough, 1987; Clemons and Row 1991; Kettinger et al., 1994) and there are some empirical findings (Cronin et al., 1988; Sabherwal and King, 1991; Powell and Dent-Micallef, 1997; Peppard and Ward, 1998). The literature also identifies a consistent lack of success by organisations in achieving business benefits from their IS investments and in particular the difficulties of obtaining a sustained competitive advantage (Earl, 1989; Booz et al., 1989; Roach, 1991; Clemons and Row, 1991; Earl, 1992; Galliers et al., 1994; Powell, 1996; Powell and Dent-Micallef, 1997). It is recognised (Earl, 1992) that more mature thinking suggests that it is unlikely that IS themselves will result in competitive advantage: rather, changes in IS investment are a component of more extensive changes to a set of business processes. (This is why this research is concerned with IS-enabled change rather than change brought about solely through an IS implementation). Issues involving strategic IS are complex (Earl, 1990; Levy, 1994; McBride, 1998) and there is a need for frameworks to aid executives and planners. Three types of framework have been identified. First, there are awareness frameworks that are helpful in increasing senior management awareness and understanding. Several examples exist (Parsons, 1983; Benjamin et al., 1984; Porter and Millar, 1985; Cash and Konsynski, 1985). Second, there are opportunity frameworks that lead to the identification of firm-specific IS opportunities. Third, there are positioning frameworks such as McFarlan’s (1984) Grid which aid the assessment of the strategic importance of IS. The research described in this paper seeks to establish two things. First, how widespread is the attainment of enhanced competitive positioning (see end-note 2) enabled by IS and how long does this enhancement last. Second, it seeks to establish a positioning framework to help identify firm-specific opportunities for sustainable competitive advantage. This framework has been termed the IS-enabled sustainability framework. The paper is structured as follows. First, the research questions are set out. The development of the IS-enabled sustainability framework is then described. This is followed by a literature review that provides the initial ‘flesh’ on the bones of the framework, producing an initial IS-enabled sustainability framework. The research design and data sources are then described together with the methods of data capture. This is

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followed by the research findings concerning how widespread is the attainment of an enhanced competitive position enabled by IS and how long the enhancement lasts. The rest of the detailed findings are then presented, leading to a validated version of the IS-enabled sustainability framework. A discussion then follows.

2. The research questions Two research questions relate to how widespread are the changes in competitive positioning enabled by IS. The remaining five questions concern the development and validation of the IS-enabled sustainability framework. One broad investigative question was How frequently do IS implementations bring changes to competitive position and for how long do the changes persist? The findings from this question provide the base around which to look for the sources of success. If competitive advantage is only achieved in very few cases, then we have a different situation to one where many more achieve it. Furthermore, it is important to identify for how long a change in competitive position could be sustained. In some cases IS will be potentially a strong lever for success and innovation reaps rewards: in others, pioneering IS are unlikely to be cost-effective, and an appropriate strategy might well be to be a follower. Formally, this line of enquiry leads to the first two research questions:

RQ1. What proportions of organisations have implemented IS and gained a competitive advantage or nullified a rival’s advantage? RQ2. What is the duration for which an IS-enabled enhanced competitive advantage is sustained? The overall framework of IS-enabled sustainable competitive advantage considers first the attainment of business benefits. Without these business benefits there can be no such thing as advantage let alone sustainable advantage. These benefits are not restricted to overt, usually market-oriented benefits such as increased sales and profitability: they also include more covert gains such as improvements in the organisation’s internal architecture. This leads formally to research questions 3:

RQ3. What are the business benefits that IS have enabled? With research question 3 answered, what is then required to determine which of these benefits were linked with competitive advantage, and also which were the contextural factors that enabled the benefit to provide this advantage. Knowing these will provide guidance as to how an organisation might direct its IS developments and the associated changes in other capabilities. This leads to research questions 4 and 5:

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RQ4. Which benefits are associated with competitive advantage?

RQ5. Which factors facilitated the turning of a benefit into a competitive advantage? Having determined the benefits that are associated with improved competitive positioning and the context in which this occurred, the next phase is to consider which forms of competitive advantage were sustainable, and what were the factors that provide this sustainability. Knowing these extends and deepens the guidance as to how an organisation might identify its direction for strategic change. This leads on the research questions 6 and 7:

RQ6. Which forms of competitive advantage are sustainable?

RQ7. Which factors facilitated the turning of a competitive advantage into a sustainable competitive advantage? 3. The IS-enabled sustainability framework 3.1. Business benefits, competitive advantage, and sustainability Implementation of IS will lead to change which it is hoped will provide benefits to the business. Business benefits are generally defined by internal comparison with the past (e.g. lower costs, increased revenues, better customer care). The link between IS implementation and business benefits is shown at the left hand side of Fig. 1. That these (internal) benefits do not always materialise as increased profits let alone as a competitive advantage is indicated by the findings regarding investment intensity (Buzzell and Gale, 1987) and from other sources. Thus the search is on for those factors that convert a business benefit to an improved competitive position. Improved competitive positioning can be considered to arise from two sources. First, the firm may simply be better at

Fig. 1. The IS-enabled sustainability framework.

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satisfying customer needs than competitors. In this case the competitors are direct: i.e. if one firm gains market share another firm loses it. Second, change may be induced to the overall context in which the business finds itself (changing the ‘rules of the game’ as modelled, for example by Porter (1980) with his five force model). In this case many of the competitors are indirect—they include the suppliers and buyers and firms providing substitute offers. Thus enhanced competitive position can be viewed both widely and narrowly depending on how the competitors are perceived. The overwhelming concern in this paper is with direct competition and, in the contested markets that were considered in this research, business performance may lead to enhanced competitive position. Competitive advantage may be described as ‘positional superiority based on some combination of differentiation, and/or cost superiority, or through operating in a protected niche’ (Day, 1984, p. 26). Competitive advantage may also be regarded as the ability to earn returns on investment persistently above the average for the industry (Porter, 1985). Competitive advantage will rest on the superior marshalling of the organisation’s resources. Enhanced competitive position is either obtaining a competitive advantage over rivals or nullifying a competitor’s advantage. Where a change leads to an enhanced competitive position, the advantage is of little value if it is only held for a short time (for example, as shown by the data on product replication given by Ohinata, 1994). Thus a major concern with any proposed change is its sustainability. Sustainability depends on three factors: Stability of external factors: No advantage is sustainable in perpetuity as competitors will eventually succeed in imitating it. Even without these attempts at imitation, the increasing pace of technological change shortens the useful life of technological resources and know-how. However, progress isn’t necessarily continuous, sometimes characterised by punctuated equilibria (see for example, Eldrege and Gould, 1972, and, for IS developments, Sabherwal et al., 2001). Transparency: A competitor attempting to imitate what the innovative firm is doing has to understand what is being done and how it is being done. The harder it is for outsiders to understand how the firm does what it does, the lower the confidence the potential imitators have that they understand what is needed and the less likely are they to attempt to copy the innovation (Reed and DeFillippi, 1990). Lippman and Rumelt (1982) postulate the theory of ‘uncertain imitability’—the greater the uncertainty potential entrants feel of how successful businesses ‘do it’, the more inhibited they will be in attempting to follow. Replicability: Once rivals have understood the capabilities needed, they will need to get the resources together to replicate it. If these can be obtained openly in markets, then replicability is relatively easy. This is one reason why standard IS applications don’t give competitive advantage. It is much more difficult to replicate a complex set of capabilities than to copy a simple set. This complexity is an example of what Rumelt (1984) terms an isolating mechanism, permitting a business to survive imitation if it can achieve such a mechanism. These considerations lead to the completion of the outline of the IS-enabled sustainability framework of Fig. 1. Along the top of this exhibit are the benefits enabled by IS whilst along the bottom are the factors that provide competitive advantage and sustainability. (The numbers in the ‘boxes’ in Fig. 1 relate to the similarly-numbered research questions).

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It should be noted that double-headed arrows have been used in Fig. 1 to indicate that when considering IS-enabled effects, thinking about them doesn’t necessarily flow from left to right. Indeed, as Earl (1992) has pointed out, it is often the case that business change is first desired and then investments in IS are incurred in order to obtain the business benefits. Fig. 1 reflects this: thinking about competitive advantage and any associated IS changes can start at any point in this diagram. 4. Developing the IS-enabled sustainability framework Fig. 1 is a diagrammatic representation of the fundamentals of the IS-enabled sustainability framework. What is now required is to flesh out this framework using information already available. This is done in two stages; first by incorporating a model that links market characteristics with the resources of the organisation (Section 4.1), and second, by fitting the results of a literature review on business benefits into this model (Section 4.2). 4.1. The resource-offer framework There is a distinction yet an interplay between the (current) advantages that a firm enjoys in terms of its place in the market and the more substantial resources on which this market position rests. The resource-offer framework devised by Kay (1995) and developed by Finlay (2000) makes this distinction and interplay clear, and this is shown in Fig. 2. The resource-offer framework sees advantage in the market place being dependent on the value-for-money that the product or service provides—the combination of (overall) price and (perceived) value. The offer’s value and price will be dependent on the firm’s cost base and the features it chooses to put into the offer. The firms’ strategic position, however, is based on 4, more fundamental attributes: reputation, structural assets, external relationships, and internal architecture. Reputation is the way whereby markets deal with attributes of offers that customers cannot easily determine for themselves and is reflected in the strength of the brand and/or in the name of the firm. Structural assets are those attributes of the firm that make the present competitive situation other than a level playing field; they include such things as economies of scale and scope, ownership of proprietary standards, and subsidies. Internal architecture includes such things as organisational

Fig. 2. Model of offers and strategic resources.

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culture, the quality of the people in the firm, and the way the firm organises itself. External relationships are the links that an organisation has with all its external stakeholders— customers, suppliers, allies, government agencies, etc. At any one time, competitive advantage arises from the use of the superior internal architecture and/or external relationships to enable innovation, providing offers within an already established reputation and benefiting from the ownership of structural assets. 4.2. Literature reviews on business benefits and facilitating factors As a start to ‘filling the boxes’ of the IS-enabled sustainability framework, two linked literature reviews were undertaken to unearth both the benefits and the facilitating factors. The initial list of the business benefits that IS can bring are grouped according to the categories in the resource-offer framework and are listed in Table 1. (Note that New products/services appears twice). The listed items are associated with research question 3. The initial list of the factors associated with IS that have been found to provide Table 1 Business benefits associated with IS (previous work) Value Improved product/service quality Improved level of customer service Price Lower product price

Galliers et al. (1994) Ives and Learmonth (1984) and Wiseman (1985)

Benjamin et al. (1984), McFarlan (1984), and Wiseman (1985)

Features New products/services

Parsons (1983) and McFarlan (1984)

Costs Reduce costs

Synnott (1987) and Cavaye and Cragg (1993)

Reputation Innovation New products/services

Parsons (1983) and McFarlan (1984)

Structural assets External relations Improved links with suppliers/customers Improved external communications

Bakos (1987) and Swatman et al. (1993) Parker and Idundun (1988) and Niederman et al. (1991)

Internal architecture Attract high quality IS staff Encouraged long term planning Improved internal communications Improved quality of decision making information Optimised internal efficiency

Broadbent (1991) and Ross et al. (1996) Galliers et al. (1994) Parker and Idundun (1988) and Niederman et al. (1991) Niederman et al. (1991) and Galliers et al. (1994) Bakos and Treacy (1986), Bakos (1987), Galliers (1987), and Neo (1988)

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Table 2 Factors facilitating a competitive advantage (previous work) Factor

Previous work

Reputation

Kay (1995); Finlay (2000)

Innovation First mover effects Degree of change required Innovative use of IS

Rumelt (1984), Clemons (1986), Vitale (1986), Clemons and Knez (1988), Ives and Vitale (1992), and Kettinger et al. (1994) Keen (1988) Grant (1991), Ives and Learmonth (1984), Kay (1993), Kettinger et al. (1994)

Structural assets Government legislation Monopoly position Trade secrets Restricted expertise Scale advantages High entry costs

Cragg and Finlay (1991) and Kay (1993) Bakos and Treacy (1986), Bakos (1987) and Clemons and Row (1991) Clemons and Row (1991) and Cragg and Finlay (1991) Clemons and Row (1991), Ulrich and Lake (1991) and Ross et al. (1996) Cragg and Finlay (1991) and Kettinger et al. (1994) Porter (1980), Clemons and Kimbrough (1987) and Caves and Ghemawat (1992)

External relationships High switching costs

Bakos and Treacy (1986), Ward and Peppard (1990) and Kettinger et al. (1994)

Internal architecture Complementary resources Cultural factors Flexibility Hidden developments Organisational learning Quality of staff

Clemons and Row (1991), Grant (1991), Barney (1991) and Keen (1993) Leonard-Barton (1992), Hall (1993) and Prager and Overholt (1994) Keen (1988), Bahrami (1992), Scott-Morton (1991), Knoll and Jarvenpaa (1994) and Lederer and Salmela (1996) Lee and Adams (1990) and Kay (1993) Stata (1989), Grant (1991), Leonard-Barton (1992), and Senge (1997) Broadbent (1991), Ulrich and Lake (1991), Ross et al. (1996) and Barnett and Burgelman (1996)

competitive advantage and sustainability (associated with research questions 5 and 7) is set out in Table 2. As broadly expected, Table 1 includes features from all areas of the resource-offer framework, whilst Table 2 only includes those strategic factors associated with the organisation itself—the strategic resources and innovation. The factors in Tables 1 and 2 provide some of the detail in the IS-enabled sustainability framework. The subsequent sections describe the research to augment and refine this framework. 5. Research design and data sources 5.1. Selection of the units of analysis Two major areas of research are the focus for the research design and selection of data sources The first is concerned with the frequency with which IS implementations bring

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changes to competitive position and for how long these changes persist. The second is the establishment of an opportunity framework to help identify firm-specific opportunities for sustainable enhanced competitive positioning. We wished the research to cover a wide range of IS implementations. Information intensity was used as a guide to how such a range could be selected (see end-note 3 for more on information intensity). Information intensity was chosen because this gives some measure of the expenditure—and thus the likely usage of IT/IS in the sectors. (It is important to note that information intensity wasn’t used to chose individual firms: it was simply used to select sectors broadly spanning the full range of sectors). Guided by the levels of information intensity, the focus of interest lay with firms within the finance, retail and manufacturing sectors of the UK economy. IS have become the most important factor for change within the financial services industry in the 1990s (Mintel, 1996). The information intensity in this sector was 2.5% in 1996, the highest of all sectors (Price Waterhouse, 1996). By utilising IS over the last few years, many financial service providers have been able to reduce costs substantially, improve their levels of service, and evaluate methods of gaining an advantage from a static consumer base. The information intensity in the retailing sector was 2.4% in 1996 (Price Waterhouse, 1996). From the 1980s onwards this sector underwent significant change as a result of information technologies that allowed retailers to revolutionise retail competition and redefine the power relationships with their suppliers and customers (Powell and Dent-Micallef, 1997). Developments in IS appear to have been disseminated rapidly throughout the industry. The information intensity in the manufacturing sector was 0.8% in 1996 (Price Waterhouse, 1996), the lowest of all industrial sectors. In contrast to the finance and retailing sectors which were operating nationally or subnationally selling services or consumer products, the manufacturing sector was predominantly selling products into industrial markets and operating internationally. Within each sector the firms chosen for this study had to satisfy two criteria; they had to be familiar with the twin concepts of IS strategy and strategic IS implementation, and to have complete or near complete control over their own IS strategy. Whilst these two criteria were not directly determined, it was assumed that this would be the case for large organisations. This led to all the firms in the sample being either large stand-alone businesses or strategic business units within corporations. An equal number of firms was sought in each sector. The firms were selected from those having an association with Manchester Metropolitan University through its student business placement scheme. This selection built on the access that the authors had with organisations and the ready opportunity that this gave to follow up on the questionnaire responses. Thus a random sample wasn’t sought: the sampling was what is termed ‘convenience’ or ‘opportunistic’. Whilst the potential weaknesses of this approach are well known (see for example, Sproull, 1995), the ‘opportunistic’ approach has been advocated by Buchanan et al. (1988), who point out that fieldwork is permeated with the conflict between what is theoretically desirable on the one hand and what is practically possible on the other. It wasn’t considered likely that there would be any significant link between those companies that had established a link with the university and the way in

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which they used IS, and thus it was considered that the sample of IS was representative of the sectors under investigation. 5.2. Data sources and capture The unit of analysis was a single IS in a single business It was recognised that some of the research findings would be greatly strengthened through triangulation—in this case obtaining responses from more than one person in the same firm. The obvious choices were an IS manager who would be knowledgeable about the IS and a business manager who would be knowledgeable about its business impact. The main method of data capture was through questionnaire, with slightly different versions of the same questionnaire sent to a pair of IS and business managers in each firm. The second method of data capture was through follow-up interviews with both types of manager. 5.3. Development of the questionnaire The questionnaire used in the survey is reproduced in Appendix A. Its development involved three major phases; namely: pre-test interviews, pilot testing, and reliability testing. This closely followed the methodology described by Straub (1989). 5.3.1. Pre-test interviews The pre-test phase was designed to ensure questionnaire construct and content validity. There were eight different drafts of the questionnaire, although three were only minor variations. The initial draft consisted of an introductory letter and an eight page questionnaire requiring 143 separate responses. This was subsequently felt to be both too long and too complex in structure. A shorter, revised version was thus developed and examined by three academics, three IS Managers, three Business Managers and two IS vendors. This led to a further drastic shortening and removal of confusions as to the definition of the term organisation and this led to the inclusion of a front page explanatory cover sheet. Since the revised version was significantly different from the original, full pre-testing was again undertaken. This time there were nine interviewees: three academics, three IS Managers (from Marks&Spencer Financial Services, Martin Dawes Telecommunications and GEC-Alsthom), three Business Managers (from NWS Bank, Martin Dawes and Carrimat) and two IS vendors (Xerox and Hewlett Packard). In the light of these interviews, several minor amendments were incorporated to produce the final version of the questionnaire. 5.3.2. Pilot testing The pilot interviews and pilot questionnaire responses were aimed at ensuring reliability of the final version of the questionnaire. The pilot interviews/questionnaire responses were highly structured and conducted in the organisations listed in Table 3. In half the organisations the IS Manager was interviewed and a named Business Manager asked to complete the questionnaire: in the other half the procedure was reversed.

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Table 3 Firms participating in the pilot interviews Financial

Retail

Manufacturing

Lloyds Bank (IS) Midland Bank (IS) Bradford and Bingley Bank(Bus) Sovereign Finance (Bus)

C and A (IS) Sainsburys (IS) GUS Mail Order (Bus) Crosley Retail (Bus)

Air Products (IS) Ciba-Geigy (IS) GCN (Bus) Airbags Int (Bus)

IS, indicates those organisations where the IS Manager was interviewed and a named Business Manager asked to complete the questionnaire; Bus, indicates those organisations where the Business Manager was interviewed following the completion of the questionnaire by the IS Manager.

Reliability testing: Cronbach’s alpha was computed on the pilot survey data as a measure of reliability to ensure that the data obtained from the questionnaires did not differ significantly from the data obtained through the pilot interviews (Cronbach, 1951). Cronbach alpha values of 0.8021 and above were noted for all variables except those relating to budgets and two others where the number of responses was low (these questions were optional). Although no precise ranges exist to evaluate Cronbach’s alpha, these values fall in line with those recommended by Van de Ven and Ferry (1979) and Powell and Dent-Micallef (1997) and the ‘0.80 rule-of-thumb test’ offered by Straub (1989). Thus reliability was established. Questionnaire delivery: During their degree course, undergraduates at Manchester Metropolitan University find 12 months’ employment (termed a placement) in firms throughout the UK. Placement students were briefed in person and by letter and each asked to select an appropriate IS Manager within their placement firm who they could ask to complete the questionnaire. In this manner a questionnaire was given to a named IS manager in each of 246 firms. The questionnaire asked the IS manager to focus on one particular IS and, amongst other things, to give the name of a senior business manager who would know of the business impact of this system. When the completed questionnaire was received from the IS manager the student passed it back to the researchers. Then a second questionnaire was sent to the named business manager and they were asked questions restricted to this specified IS. The returned questionnaires from the business managers completed the ‘matched pairs’ of questionnaires to provide triangulation. 5.4. Follow-up Interviews Follow-up interviews were conducted with 30 managers—eight from Financial Services (three IS managers: five business managers), 12 from Retailing (5:7) and 10 from Manufacturing (5:5), reflecting the number of questionnaires returned (see end-note 4). The interviews were conducted over a period of 14 months. More interviews were conducted than anticipated due to lower levels of initial response (particularly from Retailers) and the large number of organisations claiming ‘no relevant system’; i.e. they did not have an IS that gave or nullified competitive advantage. The co-operation rates for interviews was high and 79% of requests resulted eventually in agreement for an interview. The high agreement levels for interviews were probably due

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to a number of factors: direct approach by researcher rather than a student enhancing credibility, that many had already shown a degree of interest and motivation as they had actively participated in the previous stage and, because this stage was completed towards or at the end of the student work experience placement, respondents felt a degree of gratitude to the University, particularly if they had been impressed with the student’s work. Some of the interviewees also probably felt that they had a ‘good story to tell’ or thought that they could gain valuable insights about rivals from spending time with the researcher. However, a number required up to four contact attempts, which agrees with the call-back work conducted by Groves (1989). Those refusing interviews (8) cited confidentiality (4), time pressures (2) or both (2). At the beginning of each interview, time was set aside to ensure that there was a common vocabulary, particularly relating to terms such as IS, pioneers, organisational flexibility, trade secrets, strategic IS and competitive advantage. Although 25 of the interviewees had completed the questionnaire previously, in many cases this was some time previously and a re-introduction to the topic was required. This introductory element was especially important for the five managers who had previously rejected the opportunity to complete the questionnaire but had later agreed to a confidential interview. Interviewing managers on information strategy was found to be a sensitive subject and it often took time for mutual trust to be established before the true facts and opinions could be discussed openly. The interviews lasted between 55 and 112 minutes with an average of 67 min. All interviews were taped and the transcription time for each hour of material averaged nearly 6 h—closer to May’s (1993) estimate than Patton’s (1980). Of the 30 interviews conducted, 22 were with managers who had originally completed the questionnaire and eight were with questionnaire non-respondents. A description of the interview structure is set out in Appendix B. 5.5. Questionnaire response rates 5.5.1. Survey responses from IS managers Of the 246 questionnaires given to IS managers, 141 were returned. However, 36 had to be discarded, and 40 contained the response ‘no relevant system’—i.e. their organisations did not have an IS that had either provided competitive advantage or nullified the advantage of competitors. This left 65 valid questionnaire responses. Thus the overall usable response rate for detailed analysis was 26% which was similar across sectors—see Table 4. These rates compare with a 21% response rate reported by Powell (1992), the 24% Table 4 IS manager questionnaire response rates

Sent out Returned Useable Usable response rate

Financial

Retail

Manufacturing

Total

73 38 26 28%

83 23 17 25%

90 25 22 29%

246 86 65 26%

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Table 5 Causes of questionnaire non-response Explanation

Confidentiality Inappropriate Personal policy Company policy Bad timing Too many Too complicated Not interested Miscellaneous Total

IS managers

Business managers

Number

%

Number

%

26 11 10 10 7 6 5 2 2 79

33 14 13 13 9 8 6 3 3 100

5 2 7 4 0 5 3 6 5 37

14 5 19 11 0 14 8 16 14 100

in the study by Sethi and King (1994), and the 28% response rates reported in studies by Gomej-Mejia (1992) and Zahra and Covin (1993). However, as 102 organisations (40 from the questionnaire returns and 62 from follow up calls) were found to have ‘no relevant systems’, a response rate of 43% could be claimed from those with at least one ‘relevant system’. The reasons for non-response by IS managers are set out in Table 5—as are those for business managers to be referred to later. The 100% refers to those IS managers who indicated a reason for non-response in their returned questionnaire together with those who were spoken to either face-to-face or by phone and gave their reason. As the achieved sample differed from the selected sample, there was the potential problem of bias in the responses. Some of the sample of non-respondents were questioned using formal follow-up interviews and although this sample was small (8) it was judged from these responses that there was no important difference between questionnaire respondents and non-respondents (but see Table 5). There was little missing data at either the unit or the item level except for responses associated with the company IS spend. 5.5.2. Survey responses from business managers The response rates from the nominated business managers are set out in Table 6. The relatively high level of commitment was probably due to the fact that the business manager knew that he/she had been nominated by a colleague. Table 6 Business manager questionnaire response rates

Sent out Returned Useable Usable response rate

Financial

Retail

Manufacturing

Total

26 10 10 38%

17 9 9 53%

22 9 9 41%

65 28 28 43%

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The reasons for non-response by business managers are listed in Table 5. 5.5.3. Paired responses Only 11% of the usable questionnaires were completed by both the IS manager and the business manager of the same company (19% when only organisations that had relevant systems were considered).

6. Findings relating to the scope and duration of enhanced competitive positioning The first two research questions relate to the scope and duration of enhanced competitive positioning. The findings were answered from the questionnaire responses, adjusted in the light of other information. 6.1. Research question 1: what proportions of organisations have implemented IS and gained a competitive advantage or nullified a rival’s advantage? The 65 responses from IS managers where their organisations had an IS that gave or nullified competitive advantage are summarised in Table 7. The numbers of responses are shown in parentheses and the percentages without parentheses. Actual is the percentage of the respondents that indicated that their organisations had an IS either giving competitive advantage or nullifying that of others. Maximum is the percentage if it is assumed that all of the non-respondents had IS giving or nullifying competitive advantage: minimum is the percentage if it is assumed that all of the nonrespondents were in organisations where there were no IS giving or nullifying competitive advantage. These values have been calculated to help adjust the questionnaire findings in the light of additional information known to the researchers. The percentages for organisations that gained competitive advantage (and those that both gained and/or nullified competitive advantage) have been adjusted, and these adjusted percentages are considered to be the valid findings. Adjustments were made in Table 7 (Numbers) and Percentage of organisations that had at least one IS providing or nullifying competitive advantage (CA)

Organisations gaining CA Actual Maximum Minimum Adjusted and rounded Organisations nullifying CA Actual Actual rounded Organisations both gaining and nullifying CA Actual rounded

Finance

Retail

Manufacturing

Total

(23) 46 63 32 40 (13) 26 25 (10) 15

(11) 23 57 13 20 (13) 28 30 (7) 10

(16) 23 40 18 20 (20) 29 30 (14) 15

(50) 30 52 20 25 (46) 28 30 (31) 15

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the light of interviews with respondents and non-respondents, knowledge of the sample frames and evidence from previous studies. The percentages for the financial and manufacturing sectors were placed midway between the minimum and the actual obtained; in retailing the percentage was placed nearer to the actual than the minimum. No adjustments were considered needed to the percentages of organisations that had an IS that nullified competitive advantage, and a rounded value is given. All the findings have been rounded to the nearest 5%. Similar results were obtained across the three sectors with the exception that twice the percentage of respondents in the financial sector claimed that they had IS that allowed them to gain competitive advantage. 6.2. Research question 2: what is the duration for which an IS-enabled enhanced competitive position is sustained? The duration of competitive advantage gained or the time taken to nullify the competitive advantage of rivals are given in Table 8. In the nine cases where rivals had yet to catch up, six had implemented their IS within the last year, one had implemented less than 2 years previously and two companies had implemented 3 years previously. The values in Table 8 indicate that the durations of gained advantage were similar in all three sectors, characterised by a median duration of between 6 and 18 months. This finding, together with the broadly similar findings given in Table 7 indicates that the three sectors are very similar and can be treated as a homogeneous group in the remainder of the analysis. 6.3. Differences between the responses of the IS and Business Managers There were 28 organisations where completed questionnaires were returned by both IS and business managers. Twenty-three IS managers replied that their organisation had an IS Table 8 Duration of competitive advantage Duration of advantage gained

Finance Retail Manufacturing Total IS manager Business (percentages (percentages (percentages (percentages (numbers) manager and (numbers)) and (numbers)) and (numbers)) and (numbers)) (numbers)

,6 months 6–18 months 18–36 months 36–60 months Rivals yet to catch up

13 (3) 30 (7) 22 (5) 9 (2) 26 (6)

36 (4) 46 (5) 0 (0) 9 (1) 9 (1)

25 38 25 0 13

(4) (6) (4) (0) (2)

22 (11) 36 (18) 18 (9) 6 (3) 18 (9)

6 7 4 2 4

11 8 1 0 1

Time before nullifying advantage ,6 months 30 (7) 36 (4) 6–18 months 30 (7) 55 (6) 18–36 months 30 (7) 0 (0) 36–60 months 9 (2) 9 (1)

38 38 25 0

(6) (6) (4) (0)

23 51 21

8 9 4 2

11 9 1 0

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that had given competitive advantage, 17 thought that an IS had simply nullified that advantage of a rival, whilst 12 identified one IS that had given advantage and another that had nullified an advantage. Cronbach tests on the 28 paired returns produced a value of 0.72 which provided a degree of reliability indicating that there was broad agreement between the responses of the IS and business managers to the questionnaire. In the 23 cases where IS managers replied that their organisation had an IS that enabled the organisation to gain competitive advantage, all but two of the business managers agreed. The two managers who disagreed felt that the developments were non-strategic. Overall, the business managers tended to be more conservative regarding the duration of the advantage gained by the IS development. In the 17 cases where IS enabled the organisation to nullify a rival’s competitive advantage, all but three of the business managers agreed with the IS managers that the IS development had achieved this. There was a significant difference ðp ,¼ 0:05Þ between the duration of these advantages as perceived by the IS and business managers, with business managers feeling that the advantages had been held for a lesser time by the rival.

7. The IS-enabled Sustainability Framework 7.1. Research question 3: what are the business benefits that IS have enabled? The benefits that the IS managers associated with the IS are given in Table 9. There are more than 65 responses since multiple benefits were claimed by many organisations. In the offers themselves, around 10% of responses indicated increased value: none suggested price improvements. In the firm’s offer base, no responses concerned the features: almost half were concerned with costs. Around 50% of responses concerned the firm’s strategic resources, with the majority concerned with external relations. Interestingly, there were no mentions of enhanced reputation or innovation per se enabled by an IS. 7.2. Research question 4: which benefits are associated with competitive advantage? The benefits that were seen as providing competitive advantage are listed in Table 10. The interesting point is those benefits listed in Table 9 that weren’t seen as being associated with competitive advantage-and thus not featuring in Table 10. These are Reduced cost of obtaining supplies, Exploited a monopolistic situation, Prevented customers from switching, Provided unique access to customers, retailers, suppliers or distributors, and Enabled use of restricted expertise. Of particular interest is that the exploitation of a monopolistic situation was excluded. 7.3. Research question 5: which factors facilitated the turning of a benefit into a competitive advantage? The factors that helped turn a benefit into a competitive advantage are listed in Table 11 Complementary resources refers to the use of resources internal to the organisation:

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Table 9 Business benefits associated with IS Number of responses Value Improved level of customer service

Percentage

30 30

11 11

Price Features Costs Ability to monitor costs Reduced cost of obtaining supplies Reduced distribution costs Reduced costs of co-ordinating activities Reduced sales and marketing costs Reduced costs of transforming components into finished product Reduced costs (othera)

109 25 21 13 13 18 10 9

41 9 8 5 5 7 4 3

Reputation Innovation Structural assets Increased economies of scale Exploited a monopolistic situation External relations Improved external communications Improved customer loyalty Prevented customers from switching Provided unique access to customers, retailers, suppliers or distributors Internal architecture Improved internal communications Attracted high quality IS staff Enabled use of restricted expertise Total

25 23 2 56 26 10 13 7 45 26 8 11 265

9 9 1 21 10 4 5 3 17 10 3 4 99

a The reduced costs (other) arises where respondents indicated that costs had been reduced but didnot specify their origin.

Exploiting unique access refers to links with resources external to the organisation. Note that Being a pioneer and First mover effects, although linked, are different: Being a pioneer indicates an attitude, whereas First mover effects is a achievement. The items in Table 11 are very similar to those in Table 2 augmented by additional items unearthed in the interviews and from the questionnaire. 7.4. Research question 6: which forms of competitive advantage are sustainable? If sustained advantage is taken to be 36 months or longer, there are three businesses that gained it, all through improved external communications If the criterion for sustainability is reduced to 18 months and longer the picture is a little more complex: five of the financial service firms obtained the advantage through improved external communication, one through improved internal communication and one through improved levels of customer

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Table 10 Benefits that provided competitive advantage Value Improved level of customer servicea Costs Ability to monitor costs Reduced distribution costs Reduced costs of co-ordinating activities Reduced sales and marketing costs Reduced cost of transforming components into finished product Structural assets Increased economies of scale External architecture Improved external communicationsa Improved customer loyaltya Internal architecture Improved internal communicationsa Attracting high quality IS staff a

The forms of competitive advantage that are sustainable for 18 months or longer.

service. Of the four manufacturing firms that obtained sustainable competitive advantage, two did it through improved external communication, one through improved customer loyalty and one through improved levels of customer service. The forms of competitive advantage that were sustainable for 18 months or longer are starred in Table 10. 7.5. Research question 7: which factors facilitated the turning of a competitive advantage into a sustainable competitive advantage? Four factors from the questionnaire returns were found to be statistically significant at 5% confidence levels (Chi squared test) as turning a competitive advantage into a sustainable competitive advantage: Being a pioneer, Complementary resources, Trade secrets, and the Innovative use of IS These items are the starred items in Table 11. Information from interviews: The interviews were geared to augmenting the questionnaire findings by providing an illuminating if less precisely-defined set of factors. The interviews contributed three additional factors that would assist in turning a benefit into a competitive advantage, all elements of the internal architecture. These are Internal communications, Organisational learning, and Flexibility. These factors were also seen as providing sustainability. Internal communications: Sixteen of the 30 interviewees stated that organisations that adopted a culture with open and free communications between all levels were better able to develop strategic IS successfully. Two supporting quotations given in the questionnaires and two in the interviews reflect this view:

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Table 11 The factors that facilitated the turning of a benefit into a competitive advantage Number of citations Citations from the questionnaire returns Reputation Innovation Being a pioneera First mover effects

5 11

Structural assets High entry costs Scale advantages Government legislation

12 4 1

External relations High switching costs Exploiting unique access Internal architecture Innovative use of ISa Restricted expertise Quality of staff Trade secretsa Complementary resourcesa Hidden developments

8 6 15 7 6 5 4 4

Citations in the post-questionnaire interviews Internal architecture Internal communicationsa Organisational learninga Flexibilitya a

16 interviews 13 interviews Nine interviews

The factors enabling a competitive advantage to be sustained for 18 months or longer.

There is big restructuring and emphasis on ‘open’ culture—this helped to make the advantage sustainable (a finance business manager). New systems that previously would never have been implemented successfully can now be approached in a new way and with unexpected positive results (a manufacturing IS manager). Communication is very open—we have frequent coffee break meetings where all the staff attend in order to distribute new information-its very informal really (a retail IS manager). Everyone now says what a loose, informal company this is to work for—quite different from what many of us are used to! (a finance business manager)

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These four of many such quotes illustrate the establishment of appropriate cultures to support strategic IS applications. However, there is still evidence that not all companies have adopted this approach: ‘All decision making is top down which makes us bureaucratic and slow to react’ (a manufacturing business manager) and ‘Unfortunately we’re often the last to know of changes in the business strategy’ (a finance IS manager). Organisational Learning: Thirteen of the interviewees provided insight into the relationship between obtaining a competitive advantage and the role of organisational learning. Typical quotes to support the view that organisational learning is significant are: ‘The only way to improve and compete better is to continuously adapt and learn’ (a retail business manager), and ‘We emphasise learning from what we’ve got wrong and what we’ve done right’ (a manufacturing IS manager). Flexibility: The importance of flexibility was succinctly summed up in the following quotes: “No one likes change. I don’t and the end users certainly don’t, but its the way of the world, particularly the IT world” (a finance business manager), and “Most of our company have embraced client – server technology willingly—some of our older members have required further training, however. Very few can’t make or are unwilling to make the transition” (a manufacturing IS manager). Two IS managers in large banks referred to the importance of flexibility: “The new system has slotted quite easily within our new organisation and evolving culture” and “I’ve been surprised at how well colleagues have accepted the changes”. However, there were some who believed that flexibility was sometimes hard-won: “New systems always cause a degree of concern with users and this one, it is fair to say, is no exception!” (a retail IS manager), and “Flexibility is only viable within fairly well defined boundaries” (a finance business manager, and “The trouble here is that we don’t really know what’s going on. The merger with Lloyds was relatively surprising and made the IT plans at this site look a little silly—we now have to integrate incompatible systems” (an IS finance manager).

8. Discussion 8.1. Summary IS and business managers in 72 businesses either filled in a questionnaire or were interviewed in an exploration of IS-enabled enhanced competitive positioning. The businesses were chosen from three sectors that spanned the range of information intensity in the UK economy: financial services with a high information intensity, retailing with a medium level and manufacturing with a low level. Around 25% of businesses were judged to have at least one IS that allowed the organisation to gain competitive advantage, whilst 30% were judged to have at least one IS that nullified a competitor’s advantage. Around 15% of organisations reported at least one IS that provided competitive advantage and also at least one other that nullified competitive advantage. The median time that a competitive advantage was

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Fig. 3. The IS-enabled sustainability framework.

held was between 6 and 18 months for all the three sectors. Broadly, all the sectors showed the same pattern. The research established an opportunity framework that identifies the factors associated with IS that provide business benefits, competitive advantage, and sustainability. The logic is that IS provide many business benefits, that there are factors that enable these benefits to be associated with competitive advantage, and that some of these allow this competitive advantage to be sustained. The full IS-derived sustainability framework is shown as Fig. 3. Twenty-four business benefits were considered to have been enabled by IS. Of these, 11 were considered to provide competitive advantage. Only four of these benefits were considered to be sustainable; those that improved levels of customer service, improved external communication, improved internal communications, or improved customer loyalty. Twenty-two factors were identified as being significant in turning a business benefit into a competitive advantage, and seven were identified as significant in converting this competitive advantage into a sustainable one. These were being a pioneer, having internal communications, using complementary resources, flexibility, the innovative use of IS, organisational learning, and having a trade secret.

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8.2. Implications for theory and practice As with almost all research, the findings reported in this paper are open to questions of generalisability The IS-enabled sustainability framework reported on in this paper, although based on a wide-ranging literature review, has been extended and validated using data on IS from three sectors of the UK economy. These three sectors were chosen to span the range of information intensity found in UK businesses, and the findings were broadly the same across all three sectors. However, it may be that information intensity isn’t an important factor associated with the linking of IS with enhanced competitive positioning. Thus other sectors, and particularly data from other economies (the USA and continental Europe) would increase the generalisability of the findings. A further development should consider the size of the IS augmentation and the size of the business process augmentation that the IS is enabling. It may well be that enhanced competitive positioning is only possible where the associated business process augmentations are greater than a certain size. A further consideration concerning generalisability is that the sample of IS was a ‘convenience’ or ‘opportunistic’ sample. Whilst it wasn’t considered likely that there would be any significant link between those companies selected in this way and the manner in which they used IS, the potential weaknesses of this approach need to be borne in mind. Issues involving strategic IS are complex and there is a need for frameworks to aid executives and planners. The work described in this paper discusses the derivation of an IS-enabled sustainability framework that leads to the identification of firm-specific IS opportunities. The work brings together and augments the strategic advantage literature, that on IS and strategy, and Kay/Finlay resource-offer framework. The findings on both IS-enabled business benefits and IS-enabled enhanced competitive positioning are presented in a way that is accessible to practitioners. Few organisations achieve competitive advantage through the implementation of IS, and fewer gain sustainable advantage. We see the framework being used to help practitioners judge whether it would be appropriate to go ahead with an IS development as a pioneer or to be a speedy second. In particular, the framework will help practitioners to consider the resources that they are likely to need to compliment those they envisage putting into the associated IS.

9. End notes 1. A plethora of terms are in use in the information area (IS, IT, IT/IS, IS/T, etc.) but they are used inconsistently (Avison, 1996). For this reason the term IS has been used throughout this paper and defined as: A system that assembles, stores, processes and delivers information relevant to an organisation (or to society) in such a way that the information is accessible and useful to those who wish to use it, including managers, staff, clients and citizens. Buckingham et al. (1987)

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The terms IT and IS/IT have only been used when quoting and in the references when explicitly IT or IS/IT have been used by the original author(s). 2. Sustainable competitive advantage has been achieved when a firm receives a return on investment that is greater than the industry norm and that persists for a period long enough to alter the nature of industrial competition or the relative strength of the organisation vis a vis its competitors, despite market entry and rivals’ attempts at replication (adapted from Porter, 1985; Clemons and Kimbrough, 1987). Enhanced competitive positioning has been achieved either when a firm has gained a competitive advantage or has nullified the advantage achieved by a rival. 3. Information intensity of an industry is defined as the extent to which products and services of the divisions are dependent on information (Porter and Millar, 1985; Glazer, 1991). Complex products, such as the design of an aircraft, require a great deal more information than those of simple products, such as a table. Moreover, in the operation of complex products/services, the contents of information also increase, as customer requirements become quite specific. In some cases, increasing information contents in the products/services enable customers to order for customized products/services, thus creating the need to capture, store, and manipulate customer-related information (Bhatt, 2000). Information intensity is calculated as the ratio of the IS budget as a percentage of turnover. The average level of information intensity over all sectors of the UK economy in 1996 was 1.8% of turnover. (Note that data for 1996 has been used as the selection of sectors took place in 1997). 4. A pragmatic approach was taken with businesses geographically situated in clusters or within the Greater Manchester area receiving a higher chance of being interviewed. Of these, 40% were from the retail sector specifically in order to boost under-representation from the questionnaire phase. Although this resulted in significant bias in the population of respondents at the interview phase, as the research had developed towards a more qualitative/interpretist stage this was less of a concern than it would have been. Eighty percent of the people who were asked for interview agreed. Attention was directed to those organisations who were most likely to partake in the interview process, e.g. firms where colleagues had contacts or where individual placement students were anxious to maintain contact. From this it was clear that the transition from the population targeted for questionnaires and those receiving an interview was not a random process but it was felt that it did not invalidate the findings.

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Appendix A. Questionnaire

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Appendix B. Interview structure The interviews that followed questionnaire distribution and analysis provided in-depth information about those factors relevant to gaining and sustaining a competitive edge or nullifying a rival’s competitive advantage. They were semi-structured, being loosely based on the survey instrument and the respondent’s comments. Interviewees were encouraged to discuss their opinions. As the IS Manager named the appropriate Business

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Manager a respondent’s opinion could be sought on the previous interviewees’ ideas and on the researcher’s emerging thoughts. Considerable efforts were made to explore the subjective knowledge, opinions, and beliefs of an individual. In addition, both interviewer and interviewee could seek clarification on issues and questions. The interview was preceded by a final check that the interviewee was giving his or her informed consent and understood the style of interview. Again, confidentiality and anonymity were stressed. Descriptive questions were asked at the outset, such as a discussion on the nature of the business, number of IS employees or organisational structure to facilitate interviewer understanding of the organisation and to put the interviewee at ease. A hermeneutic analysis of the results investigated how the statements made by the interviewee were interrelated and contradictions and inconsistencies were noted. Efforts were made to relate individual statements holistically to the larger picture of IS-enabled sustained competitive advantage. The semi-structured interview broadly followed the questions as outlined in the questionnaire. Significant time was spent on discussing the application that was deemed to have created an advantage or nullified that of a rival. The interviews discussed the context, conception and development of the application and a discussion of the business benefits. The nature of the business advantage created (Question 1) and the time the advantage lasted (Question 2) provoked much debate and efforts were made by the interviewer to remain objective and not to influence the interviewee responses. However, occasionally the statements made were vague and considerable attempts were made to clarify the situation or to encourage further elaboration. Similarly in Question 3 on nullification the specific nature of the rival’s advantage had to be gently teased from respondents in order to avoid indistinct responses. Some questions enabled rich data to be gleamed from the ‘process’ as well as the ‘content’ of the responses. For example, Question 8 focussed on the ease of observation of the benefits of the IS development and some reading between the lines of what the interviewee said was required. Observations of the interview process (how they behaved during the interview) gave insights into the content of what was said and confirmed, enriched, and sometimes even contradicted the content of what was stated. Questions 10 and 11 centred upon those factors that facilitated the turning of a benefit into a competitive advantage. Extra probing was required when an interviewee’s views appeared unsound, unconfident, uncertain, confused, doubtful, irrational or illogical or if a respondent contradicted themselves. Towards the end of an interview the respondent’s major points were summarised and they were asked if they had any questions about the research and were thanked for their assistance. Immediately following the interview impressions were noted—things that the tape recorder did not pick up. These notes helped to explore the process of the interview.

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