Information Systems, Telecommunications, and their effects on Industrial Organization

There is general agreement among academic researchers that information systems can prove strategic if they are well crafted. However, the field currently lacks frameworks that predict which applications might provide lasting benefit and sustainable competitive advantage. Moreover, little has been attempted in analyzing effects on the organization of industry. These effects may, in the long term, prove at least as interesting as effects on individual firms. We present here an initial examination of the effects of information systems and telecommunications on the competitive position of firms. Our intention is to provide guidelines for choosing opportunities that convey sustainable competitive advantage. We present also an initial analysis of predicted changes in the organization of industry. This work draws on field research and on recent work in market economics. INTRODUCTION assessing options and choosing preferred strategies, seem yet more distant. A growing literature attests to the fact that information systems can be used as competitive There are firms that, through well-timed and weapons within the context of a market well-crafted applications, have achieved reduced economy (Clemons, et al., 1984; Clemons and costs or enhanced service for their customers, McFarlan, 1986; Harris, 1985; Ives and Learleading to improved margins or increased month, 1984; Jonscher, 1983; McFarlan, 1984; market share; perhaps they have also gained Petre, 1984; Porter, 1985; Rackoff, 1985; sustainable competitive advantage. Merrill Wiseman, 1985). This literature largely relies Lynch Cash Management Accounts, American on a common and perhaps overworked collecHospital Supply and McKesson Drug Company tion of examples that plausibly demonstrate use distribution systems, and American Airlines and of information systems to gain competitive adUnited Airlines reservation systems are among vantage. Since the authors' tone is generally the most widely-cited examples of such applicaevangelical, the examples selected are those that tions. Many others are known. There have also can be described as major successes. Unhappily, been mistakes, of which very little is written. neither the literature not the oral tradition goes into much depth; both are largely anecdotal. For examples of the benefits of successful straLittle is understood by way of general principles tegic choices and of the costs of mistakes, we or theory about why certain moves work or are look initially to financial services and banking. likely to work, or why others fail. Still less is Cash Management Accounts (CMAs), introknown about the longer-term organizational efduced by Merrill Lynch in the late '70's during a fects on industry of existing or anticipated inforperiod of high inflation and high interest rates, mation systems technologies. Normative and successfully drew billions of dollars out of banks predictive models, which would be valuable for and out of savings and loan institutions. Now,