The 20th centuryeconomist Joseph Schumpeter, known as the prophet of innovation, argued thatestablished firms were best positioned to innovate because of the resourcesavailable to them. However, Schumpeter believed that the key agent ofinnovation was the entrepreneur. In order to compete in the eraof dynamic and disrupted digital markets, organisations need to be able to operateat a higher speed. They require to be able to respond quickly to changingmarket conditions, customer preferences or competitor activity. Therefore, theentrepreneur is unable to process all the information manually, and is requiredto use the information technologies. As a result, there is an growing necessityof automatic systems of collecting, processing and storing the data. Aneffective information control, eases the business controlling process, and speeds upthe decision-making process. This essay, will analyse the effects of innovativeinformation systems on businesses, pointing out the main IS required forbusiness prosperity.
Every business hasto pursue a goal. Although, the primarypurpose of a business is to maximize profits for its owners or stakeholderswhile maintaining corporate social responsibility, the profit maximization canbe achieved in different ways. One way of maximizing the profits, is byoptimization of the business process. This can be done with the use ofinnovation in the IT sector. Business can be viewed to exist for the purpose ofcreative expansion. Successful firms like Google manage to align theiractivities towards the purpose of creative expansion from the perspective ofall stakeholders, especially employees.
This validates the growing importanceof innovation as a core principle for corporation survival and success. Also,innovation can be the factor that would distinguish a business from other firmsin the market. Therefore, gaining competitive advantage is critical for organisations. Baltzan andPhillips define competitive advantage as ‘a product or service that an organisation’scustomers value more highly than similar offerings from its competitors’. MichaelPorter’s Five Forces Model is used to measure competition intensity,attractiveness and profitability of an industry or market.
Porter mentions thatin order to complete an industry analysis a firm must examine five competitiveforces, which are competition in the industry, threat of new entrants, power ofsuppliers, power of customers and threat of substitute products. In order tosurvive and succeed, a business must develop and implement strategies toeffectively counter the above five competitive forces. O’Brien and Marakas suggestthat organisations may follow one of five basic competitive strategies, whichare based on Porter’s three generic strategies of cost leadership,differentiation, and focused strategy.
The five competitive strategies are:cost leadership, differentiation, innovation, growth, and alliance. Informationsystems could be a critical enabler of these five competitive strategies. Businessescan use information systems to identify and create new products and services andto develop new markets or to radically change business processes viaautomation. They also can work on new initiatives of establishing online onlybusinesses or operations. At the same time, the Internet and telecommunicationsnetworks provide better capabilities and opportunities for innovation. However,despite the obvious benefits, some businesses or entrepreneurs are reluctant toinvest in information systems innovation. The reason lies within the companyitself. Most companies don’t suffer from lackof initiatives in the IT sector.
It is more often that there are too manyinitiatives, and the firm managers can’t decide which ones to focus on. As aresult, the managers decide to follow the competitors and use the sametechnologies as them. This leaves the firm in a position where it is catchingup, instead of being the one leading the market.
Moreover, the systems used bythe competitor do not always satisfy entirely the needs of the business, whichcreates an obstacle for the efficient use of it. On the other hand, a study byAccenture, a global management consulting company, revealed that nearly half ofentrepreneurs are risk averse when it comes to considering new ideas. Insteadof inventing new products and services, 64 percent of companies focus more onproduct-line extensions. Due to a lack of disciplined approach for innovationrisk management, many companies hesitate to take risks, which in returnjeopardizes the results. Despite the numerousbenefits of information systems and innovations in this sector, there are somedrawbacks of such systems as well. One ofthe problems with information systems is that quality of the systems depends onthe quality of data. If the data is insufficient, incorrect or misplaced, itcan mislead the managers, resulting in faulty decisions being taken. It canalso become ineffective, if it will result in managers requiring additionalinput due to a lot of unimportant information that has been gathered, thusdelaying business decisions.
Secondly,there are security concerns. There have been many cases of hackers, identitythieves or corporate saboteurs targeting and leaking sensitive company data. Such data caninclude vendor information, bank records, intellectual property and personaldata on company management. The hackers distribute the information over theInternet, sell it to rival companies or use it to damage the company’s image.An example of such an attack was the WannaCry hack in 2017. Hackers targeteddevices running Windows operating systems, encrypting the data and demanding300$ to restore it. It has affected 200.
000 devices over 150 countries,including many state organisations such as NHS or Ministries in severalcountries. Thirdly, information systemintegration requires a good amount of cost in a case of software, hardware andpeople. Software, hardware and some other services should berented, bought and supported. Employees need to be trained with unfamiliarinformation technology and software. Therefore, it can involve high costs whichnot many companies are ready to support.
Although most of the businesses are imitativerather than innovative, there has been a combination of both observed.Businesses produce imitative products or services, but at the core of theorganisations there are innovative technologies used. There are 3 maininformation systems used in most organisations. The first one is the social media, since the business success lies in its marketing which helpsto identify its target audience first and then observe their needs, trends and potentialdesires. The development of social media, has changed the waypeople interact. Moreover, it has become a powerful tool for businesses. Socialmedia marketing (SMM) allows companies to find consumers, rather than waitingfor a consumer to find the company, like SEO and Google Adwords marketing. Themain advantage of SMM is the targeting possibility.
Unlike the traditionalmarketing, social media allows businesses to target the preferred audience of apromotion, and choose age, gender, location or even interests of the target consumer.The results and reactions to any of the activity of a company on social mediacan be tracked, analysed and used as a reference for further campaigns. Organisationsneed to provide quality content for the potential consumer, because this willultimately lead to brand recognition. Not to mention that social mediaadvertising is more cost efficient than other ways of advertising. However, businesses are not the onlybeneficiaries of social media development. Consumers can easier find productsand services that they might be interested in. Some social media users don’teven realize that it is the company that found them and not vice versa. Inaddition to that, they can always check on a company’s score and opinions ofother former clients, which can be an important decision-making factor.
The second one is customerrelationship systems, since higher level of customer satisfaction is the key tosuccess which cannot be achieved without a quick and reliable customer supportprocess. Business success depends on knowing customer needs, trends, behavioursand satisfaction level. Therefore, effective communication is the key to understandingthe customer demands, problems and their solutions. A customer relationship management (CRM) system usesinformation about customers to gain insight into their needs, wants andbehavioral patterns, in order to provide better service.CRM helps businesses build a relationship with customers that, in turn, createsloyalty and customer retention. At its core, customer relation management issimple.
However, there are many ways in which a customer can interact such aswebsite, email, telephone calls, social media, mail. A CRM system does gatherall the interactions and creates a profile for each individual customer. Ithelps the business learn about its customers, including who they are and whythey purchase, which leads to a better anticipation and fulfillment of theirneeds. In other words, CRM helps businesses build a relationship with customersthat, in turn, creates loyalty and customer retention. Since customer loyalty and revenue are both qualities directlyaffecting company’s revenue, CRM is a management strategy that results inincreased profits for a business. Thethird one is resource management, which plays acrucial role in business success. In large organisations, it is impossible formanagers to administrate all the resources manually.
It may include human,tangible or financial resources. The user-friendly solutions introduced byinformation technology have played a crucial role in automating such complexproblems. Most of the large and mid- sized companies have complex organisationalstructure. They are required to deal with both internal and external stakeholders,therefore, they need to make sure that, right data and information is availableall the time. In order to meet this challenge, Enterprise Resource Planning(ERP) software has been developed. An ERP softwaresolution seeks to track business resources, namely cash, raw materials,production capacity, and the status of business commitments such as orders,purchase orders and payroll. In other words, ERP systems integrate all data andprocesses of an organisation into a unified system.
ERP facilitates the informationflow across various departments. It reduces the operational costs involved inmanually tracking and duplicating the data using the individual & disparatesystem. Additionally, it facilitates error-free transactions and production,thereby enhancing businesses efficiency. The unified databases, allowsemployees to track the actual progress and key metrics straight away, withoutwaiting for other departments to update the data. These 3 resources have proven over time toimprove the performance of a company, given a correct use and administration.Since it combines both, suppliers and customers interactions optimization, itcreates a better image of the business.
If these information systems are usedcorrespondingly, they are more than likely to stimulate the growth of anybusiness. On the other hand, should it not be used accurately, it might turnthe benefit into a drawback, as it has been mentioned above. Therefore, acompany should be ready to commit to using these systems, not just invest andexpect the software to work on its own. In conclusion, it can besaid that modern technologies reshape the business sector. Innovative servicesare created, new ways of customer service are invented. Therefore, only awell-constructed IT infrastructure inside the business will be able to copewith all the changes.
It is impossible to achieve a long-term business successwithout leveraging the benefits of information technology in this digital age. Whena company has an innovative culture, it’ll grow easier, despite the fact thatthe creative process isn’t always simple. Tried-and-tested methods may bereliable, but trying out new things is a worthwhile experiment. The success ofa business in the digital age, completely relies on the effectiveness of the ITsector. Therefore, each entrepreneur should not be afraid to face the change,and start the optimization and innovation process within the business, andsince most companies are imitative, it will stimulate others to follow.