This week we will discuss how IT can create long-term competitive advantage.

Many of you have probably seen Professor Michael Porter’s article on competitive advantage. His famous five forces model specified that any industry faces threats to its survival: Intra-industry rivalry; customers’ bargaining power; suppliers’ bargaining power; the threat of new entrants; and the threat of product substitutes. To compete in this environment, a firm must produce the same goods at a lower cost, or if it has the same cost, it must have and/or a better product (differentiated). To reduce the customer and supplier bargaining power, somehow impose a switching cost on the customers and/or suppliers.

Such a product differentiation can come because either the firm has unique resources (e.g., proprietary technology, access to natural resources) or a scale advantage, or a unique supply chain.

Later Porter emphasized that technology alone cannot be used to achieve competitive advantage as technology can be easily replicated. To achieve a competitive advantage, one must have focus, i.e., cater to specific segments, specific locations, a specific set of products, and specific locations. Nicholas Carr took this point further and pointed out that as technology became ubiquitous, technology could not provide a competitive advantage. His HBR “IT Doesn’t Matter!” made big waves at the time.

As we know now, Porter and others missed the platform effect in discussing IT as a source of competitive advantage.