Technology Change and Competitive Advantage

Technology Change and Competitive Advantage

Technological change, is the general process of innovation, creation and diffusion of new technologies or practices. It is also called a radicalization of technology, since it tends to bring about significant transformations in a field without the prior consent or input of the target society or group of users. This occurs when, through a series of new processes, some current practices become much more useful and valuable than they were before. It may be caused by one or more of the following events.

Market share is often reduced by technological change. The introduction of new technologies can reduce the market shares of established players. As new products are brought to the market, existing players must either adopt the new technology or lose market share to the newcomers. When this occurs, they will typically try to imitate the newcomers, even if they have to incur costs for doing so. Such is why competitive forces are important in technology change.

In addition, technology change can reduce market shares by changing the focus of competition. New entrants with lower costs can provide a foothold in a particular industry by adopting new strategies that are cost competitive. However, in order to bring down market shares, companies need to adopt strategies that are not only cost competitive but also plausible for achieving the same results. For instance, a company that produces energy drinks can concentrate its efforts on reducing costs by developing a low-cost technology that offers the same taste and quality as the leading brands in the market. On the other hand, a company that extracts oil from oil wells can focus on developing a new process for extracting oil from a much higher volume and a lower pressure source.

Knowledge and information systems are another example of a competitive advantage. Information systems, because they are crucial to conducting business, can be very difficult and expensive to develop. Consequently, smaller, rapidly growing companies can obtain a competitive advantage by investing in research and technology, or by acquiring or designing a superior information system. In addition, such technology can provide a large competitive advantage if it is deployed to control processes such as supply chain management, financial management, inventory control, human resources management, and distribution.

Examples of information systems include manufacturing management, procurement, and supply chain management. Acquisitions, which may include companies buying entire businesses (including factories and assets) from other firms; acquiring smaller firms within the same industry; and “buy-outs,” which involves purchasing smaller firms for less than their value and using the proceeds to finance growth or other activities are all examples of information systems acquisition strategies. On the other hand, acquisitions may also demonstrate a competitive advantage, particularly if the target firms have a technology, knowledge, or customer portfolio that is more lucrative than the target’s competitors. Similarly, buyouts can provide an opportunity for established companies to purchase smaller, fast-growing companies that demonstrate an ability to produce high quality goods at a lower cost than those of their larger competitors.

Therefore, the combination of technology with information systems in all its forms has the potential to provide a significant competitive advantage. As noted above, the most obvious advantage is to those who possess the skills necessary to deploy the technologies. However, given the widespread availability of the technologies, it is not only businesses that can take advantage of these changes. In fact, many of the ” tertiary” or middle-tier firms–namely, broker-banks and financial-advisors–may be particularly well positioned to exploit the opportunities presented by the development of information systems and the accompanying technologies.