Does Technology Provide a Competitive Advantage? (Case Studies)

 

According to Porter & Millar, 2014, “Information technology has a powerful effect on competitive advantage in either cost or differentiation; the technology affects activities themselves or allows companies to gain competitive advantage by exploiting changes in competitive scope.” For the first case study, in 2004 the toy making company Lego was going under and losing $1 million a day. A new CEO was brought in, its IT systems were simplified, and an efficient product development process was applied that made it possible to gain favorable cost savings and quality for the company and its products (Pearlson et al., 2016). Taking a lesson from their plastic toy blocks, they applied a new modularized and standardized IT architecture that allowed their systems to expand quicker, and add capacity and functionality as it was needed. These changes helped Lego’s revenue grow within five years from $16 billion Danish Krone (DKK) to more than $28 billion DKK and almost doubled profit from $3.7 to $7 billion DKK.

In the second case study on data mining, data processing, and data warehousing the results didn’t end up as well as the first study. According to Forbes, 2013, as part of the data processing folklore there was a story where it was said that a retail chain put all of its checkout counter data into a single digital warehouse, and started collecting data. The outcome of this data processing and analysis was a strong correlation between beer and diaper sales. Apparently, according to the urban legend, young fathers would make late night runs to the grocery store to get diapers and pick up Bud Light while they were there. Based off of this analysis, the grocery store moved these two items closer to each other, and sales of the two sky rocketed. This story only had partial truth to it but that didn’t stop it from adding fire to the growing data warehouse industry. Data consultants used it to their advantage stating, “You have tons of transaction data, if you analyze it, you will get wonderful insights into your customers, and sales will shoot up.”

According to informed sources, partially because of this story, American Express spent more than $30 million building a huge data warehouse in Phoenix for its Travel Related Services division (Forbes, 2013). The plan was to target direct-mail pitches at its cardholders, for example, to send offers for skis or ski gear aimed at people who used their AmEx cards at ski resorts. Unfortunately, the results produced were close to worthless (Forbes, 2013). A former AmEx employee stated that the architecture was all wrong. The data provided was what information technology (IT) thought Marketing should know, such as names of cardholders who spent more than $2,000 in ski related purchases between Thanksgiving and Christmas. However, the company couldn’t follow these cardholders over time or test models of future purchasing behavior. Now a consulting firm is evaluating what can be done to save this warehouse, and a smaller one built for Am Ex Financial Services in Minneapolis.

Some lessons learned from these two case studies is that while yes, IT can dramatically impact business results, the technology should be thoroughly researched for previous successes, expected outcomes, and the specific product result. Each of these case studies showed both a win and a loss for management. In the first case Management made a well-informed, well planned, and well executed decision to change how they did business. While the second case showed an uninformed, poorly planned and executed business decision costing the company well over $30 million in loss. The underlying lesson is that Management should work closely with the IT and business departments through this process to make sure the data backs up an expected outcome before making any financial investments.

 

References

Forbes Magazine. (2013, June 6). Diaper-Beer Syndrome. Forbes. Retrieved May 24, 2022, from https://www.forbes.com/forbes/1998/0406/6107128a.html?sh=24340ac96260

Porter , M. E., & Millar, V. E. (2014, August 1). How information gives you competitive advantage. Harvard Business Review. Retrieved May 24, 2022, from https://hbr.org/1985/07/how-information-gives-you-competitive-advantage#:~:text=for%20its%20consequences.-,Creating%20competitive%20advantage,exploiting%20changes%20in%20competitive%20scope. 

Pearlson, K. E., Saunders, C. S., & Galletta, D. F. (2016). Managing and Using Information Systems: A Strategic Approach (6th Edition). Wiley Global Education US. https://coloradotech.vitalsource.com/books/9781119255246