Alignment of IT with strategic business
In modern business setups, information technology has become a vital factor in the success of any company. The incorporation of information technology into any business helps in cost reduction, standardization of processes in an organization, promotion of productivity, the improvement of communication among the people within the organization and outside, the enhancement of the levels of handling risks and the implementation of improved strategies for the business. Whenever there is an effective implementation of information technology in a business, it always boosts the strategies for the advancement of the business (Beveridge, 2013).
In the McKesson case, the alignment of information technology is shown in two major areas; the strategy of customer satisfaction and that of cost-cutting. From the case, it has been illustrated that the retailers confess to their preference of McKesson due to the quality of customer experience that they get from there. The use of the technology ensures that retailers get the supplies they want promptly by just a single pass made from the hand-held devices that they have or by capturing the number of the reorder items using a bar-code scanner.
The order is received directly in the national data centre of McKesson and the items delivered on the same day or the following day. The technology also ensures that the ordered items reach the retailers already sorted in the various categories minimizing the labour they need for arranging the inventory. The retailers are also provided with price stickers. The use of technology makes the process to be very simple and fast. In addition, McKesson also provides additional management control information to its Economost customers. All these illustrate quality customer service, which ensures customer loyalty leading to a retention of the customers, which is usually a major strategy for any business (Perlson & Saunders, 2013).
The other indicator of alignment of information technology to the business strategies in the Economost case can be illustrated by how its use has helped in the cutting of costs so as to ensure maximum profitability for both McKesson and the retailers. The retailers do not require much labour for arranging the stock since the stock comes to them already sorted. Without technology, arranging the stock on the shelves usually took a whole day.
The retailers also do not have to incur expenses for storage since they are assured that it does not take more than a day to reorder. One pharmacist is quoted as saying that the cost of space is so high due to the high rental rates in San Francisco Embarcadero. Economost has enabled him to save on the costs Stair & Reynolds, 2013).
For McKesson, the minicomputer used in the Economost system provides labels for bar codes, price tags and information for invoicing which would otherwise need staff to do. McKesson has also been able to reduce its order clerks from 700 to 15 and also cut the number of sales staff in half since embracing the Economost system. The productivity of the available staff has also risen by seventeen per cent due to the use of machine-readable information. The quality of service given to the customer has also resulted in customer loyalty, and this means that McKesson has been enabled to expand its market base, enabling it to benefit from economies of scale. McKesson now incurs lesser costs on labour and order than before, and this helps it in saving and also ensuring profit maximization.
Contribution of information technology to an organization’s competitive advantage
Low-cost production
According to Michael Porter, a company can have two basic types of competitive advantage. The first one is differentiation, and the other is the low cost. In the perspective of the cost, a firm sets itself as the producer with minimal costs. The type of industry a firm operates in will determine its advantage in cost over the others. Some of the methods usually applied include embracing of technology, getting easy or less costly access to raw materials, and finding ways to get economies of scale.
According to the case study, Economost has helped McKesson to reduce its operating costs and become a low-cost producer in the pharmaceutical industry. The cutting of labour costs by a reduction in the number of sales personnel and order clerks has helped McKesson to reduce its costs. The large number of customers served by McKesson also helps it to enjoy economies of scale. Customers always appreciate suppliers from which they can get quality services or products at prices lower than their competitors. This, therefore, gives McKesson a competitive advantage over its competitors (The Institute of manufacturing, n.d., p.15).
Differentiation
The other strategy, differentiation, is a case whereby a company finds ways to stand out from its competitors in the same industry through certain avenues that are highly valued by customers. The case study shows that customers have developed an appreciation of service quality from McKesson. The customers also get additional services like management control information helping the retailers in analyzing their profit margins.
It is also clear that in cases of any defects on the products or any damage on the inventories, McKesson tries as much as possible to deal with the situations promptly. They would handle the customer’s orders with speed, enabling them not to run out of stock or have to keep large inventories. Economost has enabled McKesson to gain customer confidence that has enabled it to get a competitive advantage in the market that it operates within (Leadley & Forsyth, 2004).
How the implementation of Economost will be a barrier to new competitors
A new entrant into the market will have to struggle against McKesson due to the competitive advantages it already has. One of the main disadvantages that new entrants into a market always face is the large economies of scale that the competitors are enjoying because of their establishment in the market. McKesson already has a large economy of scale as it has acquired the confidence of several retailers through efficient services it provides by the use of Economost.
Due to a high number of customers, McKesson is able to reduce its prices as the economies of scale help it in cost reduction. The new entrant will be disadvantaged because it will not be able to match the prices offered by McKesson (Mars Library, 2013).
The other challenge that a new entrant will face is customer loyalty. As illustrated in the previous challenge, the usage of Economost has enabled McKesson to gain customer confidence. This has helped it in uplifting its brands amongst its many customers. A new brand in the market cannot easily compete with one that is already established and has a high rating among customers (Hitt et al., 2008).
A new entrant into the market will also have to invest large capital in its technology to match McKesson in the efficiency in service delivery to the customers. The usage of Economost has enabled McKesson to develop high levels of customer service.
Customers get the right services and products within short periods, and the experts handle properly any of their complaints or enquiries. For someone else or any other companies to be successful in the market, they have to ensure that they offer their customers similar or even better services than McKesson. A new entrant into the market may not be able to afford the capital required to set up a system similar to Economost. It would require some considerable time to raise the capital as well as put in place the strategic information system like Economost.
References
Beveridge, C. (2013). Guidelines for IT Management: Aligning: IT with Business Strategy. Web.
Boderndorf, F. (2003). Introduction to business information systems. Dordrecht, Netherlands: Springer.
Hitt, M., Hoskisson, R., & Ireland, D. (2008). Understanding business strategy: Concepts and cases. Boston, Massachusetts, USA: Cengage Learning.
Leadley, P., & Forsyth, P. (2004). Marketing: Essential principles, new realities. London, United Kingdom: Kogan Page Publishers.
Mars Library. (2013). Barriers to entry: factors preventing startups from entering a market. Web.
Perlson, K., & Saunders, C. (2013). Strategic management of information systems. Hoboken, New Jersey, USA: John Willey & Sons.
Stair, R., & Reynolds, G. (2013). Principles of information systems. Boston, Massachusetts, USA: Cengage Learning.
The Institute of manufacturing. (n.d). Porter’s Generic Competitive Strategies: Ways of Competing. Web.