To internalize successfully the usage of information technology in strategic business of a firm, there is need to understand certain basic factors. There is need to understand both the formal and informal business practices of the company. One must also understand the culture, nature, and structures of the organization. There is also the need to understand the information technology applications to put in place and the channels for their delivery. A relationship should also be determined between the business and information technology. The analysis of the impacts that the implementation of the information technology will have on the business strategies is also important. The last factor to consider is the timeline for the implementation of the information technology strategy and the roadmap to use in implementing it. Putting all the above considerations into perspective would result to the success of strategic information system implementation guaranteed (Boderndorf, 2003).
In the McKesson case, there has been association between information technology and business strategies. There is implementation of Information technology in two critical pillars of a business; customer satisfaction and cost cutting. The use of the technology ensures that retailers get the supplies they want promptly and any questions or complaints handled faster and effectively. This has made the retailers to develop confidence in McKesson. Consequently, this means that the retailers are able to provide constant supplies to their customers. McKesson has also been able to reduce costs by being able to cut on physical labor needed, as the usage of the system is able to do multiple activities faster and even more efficiently.
The implementation of Economost has helped in bringing massive changes and impacts on the competitive advantage of McKesson in relation to its competitors in terms of the share of the market and profitability. It also has an effect on the overall industry bringing about changes in concentrations and general profitability. This has resulted in fresh growth and improved the profits in the industry. This demonstrates the effect information technology would have when effectively aligned with the strategic business of an organization as in the case of McKesson (Perlson & Saunders, 2013).
The usage of Economost has a positive effect on McKesson’s customers by making the ordering process simpler and faster using the hand held devices available to the pharmacies. There is direct transmission of orders to McKesson and the required stock delivered the same day or the day after. This has reduced the time spent in the process of ordering or procuring and delivery. With high efficiency in service levels, the pharmacies do not need stock more than what can just fit into their shelves and this helps them in cutting costs in the storage of their stock. The orders also come arranged in cartons according to the shelf arrangement and this means that less labor is required as the items do not need sorting when they reach their destinations. This helps a pharmacy to reduce labor costs, which translates into a higher profit margin.
On McKesson itself, Economost has had an impact of a reduction in the number of order entry clerks and sales personnel. The available sales personnel are also less involved in taking orders but can provide more consultancies to the retailers by giving them crucial information they may need on the products and others services available. The usage of machines in receiving of orders has also made the ordering process more efficient. All these have enabled McKesson to provide more quality service to the retailers making them develop confidence in McKesson. This has enabled McKesson to retain its customers and even expand its market share. A larger market means that McKesson benefits from economies of scale. There has also been cutting of costs due to the minimization of the number of staff required and a reduction in storage costs as Economost ensures that stock moves fast from the manufacturer up to the retailer. The reduction in costs would eventually translate to an increase in profits (Stair & Reynolds, 2013).
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 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 costing 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 labor 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).
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. It is clear that in cases of any defects on the products or any damage on the inventories, McKerson try 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 competitive advantage in the market that it operates within (Leadley & Forsyth, 2004).
How 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 a rating among customers (Hitt et al., 2008).
A new entrant into the market will also have to invest a 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.