Running Head: Information Technology in the MDCM Inc. Company:
Investing in Information technology is one in which a firm will gain competitive advantage, this case study discusses MDCM inc. company that have faced a decline in its market share and profits as a result of failing to adopt appropriate information technology. Ways in which the strategies can be matched with information technology objectives are discussed include value added chain and those related to porters five force strategy.
The medical device contract manufacturing company (MDCM) was founded in 1972, the company specializes in contract manufacturing of medical devices has subsidiaries in over 35 countries, by working together with consumers the company was able to achieve 42% market share in the US in the year 1974, and by the year 1985 the market share grew to 54%. This growth was attributed to acquisition of smaller companies and also expansion of its operations into other regions in the US. (Harvard Business, 2006)
In the year 1989 to 1990 the company lost 4 of its major consumers and this led to a decline in its profits, profits began to decline as its consumers consolidated and the company lost its pricing power, profits and market share continued to decline until the year 2000 when changes were made to reduce internal costs and also structuring the company to improve efficiency. (Harvard Business, 2006)
Information technology offer firms an opportunity to lower their costs of operation further, opportunities arise in three different ways and they include internal costs, competitive ness and business portfolio, internal costs refers to improvement of the efficiency and effectiveness of an organization therefore reducing costs, competitiveness refers to advantage associated with information technology that result into added competitiveness, and business portfolio refers to an information technology that affect decision made by potential investors.
One of the main objectives is to reduce the production costs associated with the production process of the products, the article highlights internal costs as one of the major problem that result into reduced costs, and some of these problems include:
Networking: – the company lacks a network system that would enable access its subsidiaries
Different legacy systems: – the company has custom legacy system that increase administration costs which include many different custom sales, financial and duty and inspection systems
Operating system: – outdated operating systems for its employees
Email system: – the company lacks a standardized email system
(Harvard Business, 2006)
The other objective is to increase market share, the company was one of the largest medical product manufacturing company and had realized a 53% market share but due to a decline in its competitive advantages the market share declined. For this reason one of the main objectives is to increase market share. (Harvard Business, 2006)
The other objective is to become a market leader in the medical product manufacturing industry, the company should relies through investment in information technology which will add value to its product, increase market share and also increase profits recorded.
The company therefore intends on reducing its internal costs by investing in information technology, this will be achieved through the identification of function areas where information technology will be used in the reduction of costs; this strategy will also be aimed at improving the efficiency and effectiveness in the company.
Matching IT objective with cooperate strategies:
The IT objectives must match with the corporate strategies highlighted above; the following is an analysis of how these strategies will relate to information technology objectives with reference to value chain management and the porters five force strategy.
Value added chain:
According to Rockart (1984)Information technology can be used to create add value to products in order to achieve competitive advantage, there are three ways which this can be achieved and they include improving each function of the value adding chain, this will involve better consumer care, improved efficiency of processes such as order processing and enquiry replies. (Rockart, 1984)
The other way to add value to the product value is through improved links with the suppliers and consumers, creation of the value added chain will influence the switching cost of both the suppliers and the consumers, when information technology is adopted it may lead to increased consumer switching cost and also reduce the company’s supplier switching cost. (Rockart, 1984)
The other way to add value to the products is the introduction of more services and product into the market, for example the introduction of a more efficient way to communicate with consumers will improve the competitive advantage of the company.
Improved link with suppliers and consumers in order to reduce costs and introduction of
Riesman and Porter five force strategy:
Parson also identifies which information technology can be used in order to achieve competitive advantage; these five forces include power of buyer, power of supplier, new entrants, competition and substitution threat. (Porter, 1993)
Substitution of labor:
Substitution information technology for labor is one of the ways in which a firm can gain competitive advantage, MDCM main problem is the existence of custom systems that increase administration costs, introducing information technology will reduce administration costs whereby the firm will not be required to hire labor to undertake tasks that can be performed more effectively and efficiently by the new IT system.
Increased switching costs for the consumer:
The value added IT based information system will increase the consumer switching costs, this is the cost associated with switching from one supplier to another whereby a value added information system will results into increased cost of identifying other suppliers.
Cooperation with rivals:
A shared IT system with rivals will encourage cooperation with rivals, this means that through cooperation the company will gain price power over the consumer and this will improve selling prices of products, and the higher prices will help the company to realize higher profits.
Reduced company switching costs:
The firm will also realize a reduction in switching costs, through its information technology system the firm will be in a better position to identify potential suppliers who may supply products at lower costs; this reduced cost will enable the company gain competitive advantage over its competitors.
Information technology will lead to product innovation, introduction of information technology into the company will help in the improvement of products produced by the company, products produced will be better than those of the competitors and also potential substitutes and therefore the firm will gain competitive advantage.
Sharing of information:
Information technology system put in place will improve information sharing, this will help in improving services to the consumers in two ways and one is that there will be a quick response to enquiries by the consumer and also information sharing across the subsidiaries and various departments will help improve the quality of the products and therefore better meet the needs of the consumer.
MDCM inc was once a market leader in terms of market share but over the years this has changed due to increased internal costs and high competition in the industry, The above discussion highlights the importance of information technology in business strategies, it also shows how the objectives of the company will be matched with the information technology objectives using the five force porter strategies and the value added chain strategy.
Harvard Business (2006) MDCM Inc. strategic IT portfolio management case study, retrieved on 4th December, from http://harvardbusiness.org/product/mdcm-inc-b-strategic-it-portfolio-management/an/KEL172-PDF-ENG
Porter, M. 1993. Competitive strategy, New York: free press
Riesman, H. and Gerstein, M. 1982. Creating competitive advantages with information technology. Business strategy journal, vol (3) (1) page 53 to 60
Rockart, J. 1984. Information technology: strategic approach. Sloan management review, vol 25 (3) page 3 to 14