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Engineering LibreTexts

10.1: Does IT Matter?

  • Page ID
    74129
  • Learning Objectives

    Upon successful completion of this chapter, you will be able to:

    • define the productivity paradox and explain the current thinking on this topic;
    • evaluate Carr’s argument in “Does IT Matter?”;
    • describe the components of competitive advantage; and
    • describe information systems that can provide businesses with competitive advantage.

    Introduction

    For over fifty years, computing technology has been a part of business. Organizations have spent trillions of dollars on information technologies. But has all this investment in IT made a difference? Have we seen increases in productivity? Are companies that invest in IT more competitive? In this chapter, we will look at the value IT can bring to an organization and try to answer these questions. We will begin by highlighting two important works from the past two decades.

    Competitive Advantage

    What does it mean when a company has a competitive advantage? What are the factors that play into it? While there are entire courses and many different opinions on this topic, let’s go with one of the most accepted definitions, developed by Michael Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance. A company is said to have a competitive advantage over its rivals when it is able to sustain profits that exceed average for the industry. According to Porter, there are two primary methods for obtaining competitive advantage: cost advantage and differentiation advantage. So the question becomes: how can information technology be a factor in one or both of these methods? In the sections below we will explore this question using two of Porter’s analysis tools: the value chain and the five forces model. We will also use Porter’s analysis in his 2001 article “Strategy and the Internet,” which examines the impact of the Internet on business strategy and competitive advantage, to shed further light on the role of information technology in competitive advantage.