Information Systems (IS) implementation as a source of competitive advantage: a comparative case study

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1 ISBN Information Systems (IS) implementation as a source of competitive advantage: a comparative case study Fernando Hadad Zaidan 1, George Leal Jamil 1, Antonio Jose Balloni 2, Rodrigo Baroni de Carvalho 1 fhzaidan@gmail.com, gljamil@gmail.com, antonio.balloni@cti.gov.br, baroni@face.fumec.br 1 FUMEC University, Minas Gerais, Brazil 2 Center of Information Technology (CTI) SP, Brasil Abstract :In this work, by using the multiple cases study methodology, it was searched the answer for the following question: may one get competitive advantage in the decision making regarding an information systems (IS) implementation? The results presented come from semi-structured interviews carried out with two software houses. In this interview process was verified which companies organizational levels (sotware houses) were focused as system developers. At the end, focusing the analyses of the Resource Based View (RBV) viewpoint, it could be evidenced that an IS implementation requires a multidisciplinary team, with deep knowledge of the organizational processes, and with an improved condition for decision making. Keywords: Decision making, Resource Based View, information systems, system implementation. 1. Introduction Over the years, the organizations become more experienced in the difficult task of decision making during the process of implementing an information systems (Gonçalves, 2007). However, recognizing how to make coherent and consistent decisions is already a great step for strategic success. With the Information Technology (IT) resources decreasing in prices, it was realized the possibility of taking advantage from the computers in several activities, among them, better decision making. Simon (1979) explains that managing is making decisions, and points out three phases in this process: search, creation and selection, being the latter, the activity of choice. He defends the model of administrative man, who makes good decisions, instead of the economic man, who makes excellent decisions. Vroom (2004) elaborates a normative process model which is based in the rational principles, used in the decision making. The effectiveness of a decision is influenced by three groups: quality of the decision making, acceptance or commitment of the subordinate to implement the decision and the required time to make decision. It is proposed a decision model called "tree of decision ". Turban, Rainer and Potter (2005) explain that the "competitive forces

2 98 Proceedings of the CENTERIS 2009 Conference on ENTERprise Information Systems model", proposed by Porter (1989) can demonstrate how the IT will improve the competitiveness of the corporations, analyzing those five forces bargaining power of suppliers, bargaining power of buyers, threats of new entrants, threat of substitutes and rivalry as pressures that could limit plans and future market actions. As an alternative to this theory, comes to light in the nineties the Resource Based View (RBV). Barney (1991) explains that resources are all the assets, capabilities, processes, attributes, information, knowledge, etc., that can be used and are susceptible of control by a company seeking for competitive advantage. They can be divided into three categories: physical capital (technology), human capital (people) and organizational capital (informal planning, control and relations). According to Wernerfelt (1995), the theory of RBV defends the competitive advantage and the choice of a strategy in light of the possession of resources and central competence of a business. The focus of RBV is in the unique resources and competencies of organizations, which are scarcely copied, and, applying this internal analysis to discover, use, build and classify the strategic choices. Prahalad and Hamel (1990) introduced the concept of core competencies, attributing to the IT a cornerstone role for the success of the organizations. There is a difficulty to identify which are the real competencies or capabilities of the companies and if these companies understand which are needed just now or for the future. Kearns and Lederer (2003) based in the RBV model, endorse the IS implementation as resources, that could generate sustainable competitive advantage and promoting the differentiation. The information systems have been created to facilitate the management of the companies, adding the following value to businesses processes: flexibility, automation, end of the redundancies, economy of costs, reduction of the inventories, efficiency, effectiveness and improvement in the quality of the reports, supplying necessary subsidies for making of much more necessary and conscientious decision. Those systems were classified by O'Brien (2004), Turban, Rainer and Potter (2005) and Laudon & Laudon (2007) as: transactions processing systems, collaborative systems, processes control systems, management information systems, decision support systems and executive support system, regarding its application and functionalities. After acquiring or implementing an information system, the organizations have large expectations and anxiety concerning its implementation. Once implemented with the lowest possible cost, is also expected that the system quickly stimulates the performance in its activities. In the face of the previous description, this article aims to analyze if there is competitive advantage provided by an information system implementation, using the Resource Based View Model as a study basis. In addition to the bibliographic research in books and articles, it was made a presentation and discussion about results got from a comparative study of cases accomplished in two different software houses and its information systems. 2. Theoretical background Decision making The organizational decision making has been considered as an art, a talent. Decision making are taken based on the acquired learning such as: the creativity, the intuition, the experience and trial and error. However, it is known that the decision making process is something much more complex, undergoing interferences from internal and external factors as well from stakeholders (decision makers, enablers, analysts etc), involved in the organizational process.

3 Information Systems (IS) implementation as a source of competitive advantage: a comparative case study 99 The decision making process in the organizations For a conceptual review about the decision making process in organizations, it will be followed three theoreticians: Herbert Simon, Victor Vroom and Chun Wei Choo. According to Simon (1979), the function of the administration is to allow an organizational environment perception in such a way that one individual who is deciding must understand it as allowed by the rationality. Simon depicts three stages for carry on a process of decision making: Search for situations that require decision (activity of intelligence); Creation, development and analysis of the possible courses of action (activity of design or project); Selection of a particular course of action among those available (activity of choice). In this way, Simon (1979) considered the model of administrative man. While the economic man makes excellent choices, the administrative makes choices good enough. In the businesses, the people do not seek the maximum return, but the appropriate return, making the businesses world much simpler. Vroom et al (2004) developed a normative model of processes utilized in the decision making and based on the rational principles. The authors distinguished three groups of consequence that influences in the effectiveness of the decisions making: Quality or rationality of the decision; Acceptance or commitment of the subordinate to implement the decision; Required time to make decision. FIG. 1 shows the decision tree and the decision model, where problem characteristics are presented in form of questions. The movement starts from left side to the right. The path is determined by the response to the question that is in the top of each column. At the end point, the model determines which of the decision processes should have to be used to achieve, in the shortest time possible, a decision of quality, which will be considered acceptable. Figure 1: Vroom decision model. Source: VROOM, 2004, p In his model, denominated organizational knowledge cycle (FIG. 2), Choo (2006) defines three guidelines in relation to the adequate processing of the information and knowledge in the organizational scope: the creation of meaning, the construction of knowledge and the decision

4 100 Proceedings of the CENTERIS 2009 Conference on ENTERprise Information Systems making. The cycle of the knowledge illustrates how the three guidelines can work together to enable the learning and the adaptation of the organization. Figure 2 - Organizational knowledge cycle. Source: CHOO, 2006, p In the cycle of the knowledge, a continuous flow of information is kept among the creation of meaning, the construction of knowledge and the decision making. Thus, the result of the use of the information in one way offers an elaborated context and more resources for the use of the information in other contexts. (Choo, 2006). He identifies four models of decision making in the organizations: Rational Model: the decision making is an act oriented toward the objectives and guided by the problems. The behavior of choice is governed by rules and routines. Procedural Model: in this model, the phases and cycles that give structure to the activities of a decision making (on the strategic, complex and dynamic), will be elucidated. Political model: the policy is considered the mechanism for decision. Players occupying different positions and exercising different degrees of influence, in accordance with the rules and their bargaining power. Anarchic Model: in this model, organizations are considered organized anarchies. Decision making are characterized by problem badly defined and little consistent. The technology is blurring and the processes and standard operating procedures slightly understood. Choo (2006) elucidates that the creation of knowledge generate innovations and organizational skills, making larger the horizon of possible choices in the process of decision making. This conclusion was confirmed by Carvalho (2006), who explains that "in the context of a market characterized by changes and discontinuity, it is fundamental continually to reevaluate the organizational processes to ensure that the decision making has been guided by assumptions still valid (p.58). Uncertainties, risks and confidence

5 Information Systems (IS) implementation as a source of competitive advantage: a comparative case study 101 In managerial decisions there are components of uncertainty and lack of knowledge leading individuals to make choices under risky conditions. It is understood that the risk is strongly bound by decisions since it is impossible for individuals to recognize and know all the possibilities and consequences that imply in an act of choice (Passuello; Souza, 2006). However, when studying the decision making processes, it is needed to pay attention to the question of confidence: the relation between risk and confidence is narrow. When accepting a risk, the individual trusts that one choice is the most appropriate and reasonable, even though he has uncertainties on its act. It is known there is reciprocity in the relationship between risk and confidence: trust is present throughout the act which implies risk, and in the act of trust there is always a parcel of risk. External environment In years 1980s, as defended by the school of Michael Porter, the main focus of strategic formulation was the connection between strategy and the external environment. Porter (1989) presented the competitive advantages obtained and supported accordingly to the generic strategies formalized and implemented by the companies. According to the Porter s Theory there is an interactive relationship between the organizations and their external environment, which serve as base for the creation of strategies. He elucidates that the strategic decisions of the organizations should be based on the five competitive forces, which can be summarized into three generic competitive strategies (FIG. 3): leadership in cost; differentiation and focus. Figure 3 - Porter competitive strategies. Source: Adapted from PORTER, Resource Based View (RBV) Opposing the school of Porter, come to light the Resource Based View Theory was remembered and discussed in the nineties. This vision was defended by authors such as: Edith Penrose, Jay Barney, Grover S. Kearners, Albert L. Lederer, Birger Wernerfelt, Nelson and Winter and many others, in works discussed, for instance, in Economics, Administration and Technology Information fields. The neoclassical economic theory, supported by the "growth of the firm" (Penrose, 1959), by the "hierarchy of routines" (Nelson; Winter, 1982) and by the assumptions of the "entrepreneurship" (Shumpeter, 2002), produced the basis of this modern approach of the RBV.

6 102 Proceedings of the CENTERIS 2009 Conference on ENTERprise Information Systems According to Penrose (1959), the company is a set of resources which utilization is organized by an administrative reference framework. This reference frame presents the final products of the organization as representatives of the possibilities for which it can use its set of resources to develop their basic potentialities. Barney (1991) studied a relation between the traditional competitive forces model and the RBV model, evaluating competitive advantage search by an organization. According to Barney (1991), resources are all the assets, organizational processes, attributes, information, knowledge, etc., controlled by the organizations, which make them able to devise and implement strategies to improve their efficiency and effectiveness. For Barney (1991) and Wernerfelt (1995), the RBV is an interpretation model that makes a connection between the organizational resources and the sustainable competitive advantage. The competitive advantage of a resource is one that makes it valuable, rare, irreplaceable and impossible to substitute. Barney (1991) still elucidates, that, in the strategic level, the formal systems are imitable, not rare and do not build competitive advantages. On the other hand, the informal systems are emergent and independent, and this makes them imperfectly imitative, resulting as a resource. Wernerfelt (1995) explains that the analysis of the companies is made under the perspective of the resources, instead of the traditional perspective of products they can deliver (mainly the diversified companies). Resources identification and uses can lead to the higher profits. These propositions indicate that the company's growth involves the balance between the exploitation of the existing resources and the development of new resources. These statements corroborate with the perspectives proposed for Penrose (1959), Nelson and Winter (1982) and Schumpeter (2002). In accordance with Kearns and Lederer (2003), in the light of the model RBV, one may affirm that the strategic alignment of IS and business confirms the IT and IS usage as resources. Therefore, the IS, seen as strategic applications to represent sustainable competitive advantage, may promote this differentiation. Types of decision It is known that the organizational levels are: operational, tactic and strategic. Laudon and Laudon (2007) describe different information needed for each one of these levels in order to support the different types of decisions. The unstructured decisions are those where the decision makers use common sense, capacity of evaluation and cunning in the definition of the problem. The decisions are unusual and not of a routine type, and there are no procedures understood or predefined to take them. The structured decisions, by contrast, are repetitive and characterized by a routine which involves predefined procedures that need not to be treated as new ones. There are decisions classified as semi-structured, and for this case only part of the problem has a clear answer and needs. The structured decisions are more current in lower organizational levels, while unstructured problems are more common in the highest levels of the company (Laudon & Laudon, 2007). The executives of the companies face situations of unstructured decisions, such as: to establish the goals for the next ten years or to make decisions to define in which new market they should compete. Managers of medium level deal with a more structured decision making scenarios, but may contain unstructured components. Operational managers tend to make more structured decisions. Information Systems and Decision Support System (DSS)

7 Information Systems (IS) implementation as a source of competitive advantage: a comparative case study 103 System is a set of parts that are constantly interacting, contributing for the solution of various organizational problems, independent of its type or of its use. It is quite difficult to have a system which does not create some kind of information. Laudon & Laudon (2007) It can be said that simple electronic spreadsheets, used in specific applications, are tools to decision support, but, the decision support system (DSS) go beyond, approaching decision making of complex problems. Combined in single and powerful friendly software are datum, flexible tools, capabilities to analyze datums and analytical models for decision support. The DSS use datum supplied by other systems, such as transaction processing systems and management information systems. Laudon & Laudon (2007) Turban, Rainer and Potter (2005) explain that the managers need support from IT for make good decisions, especially using valid and relevant information. The sensitivity analysis, which, as stated by the authors, is the study of how the variation (uncertainty) in the output of a mathematical model can be apportioned, qualitatively or quantitatively, to different sources of variation in the input of a model, is valuable applied over a DSS since it informs how the system is flexible and adaptable to changing conditions found in decision making situations. When users have an entrepreneurial problem, they evaluate their processes and build a DSS. Datums come from a datawarehouse (DW) as well others sources of datums. In accordance with the authors, these data are inserted in the DSS and provide the answers through internal processing and interaction with other systems, as knowledge management, linear programming and web based applications. As problems are resolved knowledge is accumulated for future consultations. (Turban; Rainer; Potter, 2005). Concerning a DSS, Ballou (2006) explains that "when methods capable to make analysis of data as well as organizing and presenting them, are incorporated in a IS, this information system is now able to give users the needed support as it were a decision making system." (p.143). In a IS with a well elaborated project, the users can make use of it not only for the preparation of an initial response to the decision making problem, but also by interacting with these systems, providing outputs which enables a practical solution to the problem. This solution may be compared with those eventually presented by using the optimization procedures methods. In this theoretical frame it was approached that IS are resources for organizations, and the implementation process requires from the managers various decision making. The focus here is about the complex process of IS implementation, analyzing if it results in a source of competitive advantage. 3. The RBV Model as a decision making support for the implementation of an information systems (IS) Process of an IS development. According to Paula Filho (2003), Pressman (2006) and Sommerville (2007) the software process is a set of activities, such as: development, maintenance, acquisition and implantation, which lead to the production of a software product. The organizational processes and the processes of an IS development are in constant improvement. (Pressman, 2006). The software process development can be understood as a structured working method. It has individual and collective management stages with the objective to generate, in a coordinate form, software for a general application.(pressman, 2006). About the process of development of strategic applications, Jamil (2006) describes it as a phenomenon that must be aligned with the business strategy. It allows understanding the process

8 104 Proceedings of the CENTERIS 2009 Conference on ENTERprise Information Systems of software development as complex and manageable fact, of strategic need for the organizations, and that keeps perspective of interaction with the others functions of the enterprise management, as well as the proper decision making. Information System Implementation O'Brien (2004) describes the process of implementation of IS follows the stages of survey, analysis and project of the cycle of development of systems. The implementation is a vital stage in the development of IT to support the systems developed for a company. The FIG. 4 presents that the process of systems implementation encompasses: acquisition, development, tests, report documentation and a series of alternatives conversions, as well as training of the final users and specialists who will work with system. Is there an acute necessity of making decision in all these stages. Implementation activities Acquisition of hardware, software and services Software development or modification Final training user System Report (Documentat ion) Conversion (transition from old to new system) Figure 4 General view of the implementation activities. Source: O'Brien, 2004, p The implementation can be a difficult and prolonged process, with specific deadlines, but crucial for the success of the implementation. The implementation time can be from months until years. There are huge amount of tasks which may depend on diverse factors, such as: size of the company, reworking design processes, availability of resources, etc. During the accomplishment of the implementation, a reasonable set of information will be gotten after the capture, storage and processing of the datums. For easy dissemination, it is important to keep this information available for the members of the implementation team and for the decision making executives which would need them for modifying, if necessary, the route or even the previously established deadlines. Identifying how the RBV model may support a decision making in a process of an IS implementation The biggest contribution of the RBV is to explain that the differences among companies about "long-life profitability" cannot be attributed the different market conditions. According to RBV, such difference is not properly represented by the market participation. (Ubeda, 2006). The organizational assets (in this case including information systems), regarded as assets, being imperfectly movable, inimitable and irreplaceable would turn into sustainable competitive advantage, as other competitors will have extreme strategic difficulties in order to react to its application.

9 Information Systems (IS) implementation as a source of competitive advantage: a comparative case study Presentation and discussion: the interview results It was chosen two Software Houses established in the city of Belo Horizonte-MG, Brazil. The information systems developed by these firms contemplate all levels: operational, tactical and strategic. Company 1, presented as EA : established in Belo Horizonte since the 1980s, was acquired by a multinational of the sector of IT in years Its portfolio has whole range of IS for most varied sectors. There are professionals working in all areas of development, from help-desk to the software houses. Company 2, presented as EB : Established in 1987, is a multinational company acting in consultancy, e-business, integration of systems, with software house offices in several cities from Brazil. A branch of the company develops specifics (customized) projects for special clients and, for this situation their professionals may or may not be allocated in the customer s office. For the purpose of verifying the perception of interviewees about the IS developed by their enterprises, it was requested an explanation regarding which organizational level are the IS developed by their companies. The TABLE 1 summarized the answers. All companies were characterized as developing IS for all levels of the organizations. These results corroborate with Laudon & Laudon (2007): IS attend different organizational levels and encompass organizational higher management until operational works. Company/Worker TABLE 1 Answers Ea-w1 "We produce all kinds of IS, since production line ISs to BI." Ea-w2 "Yes. In fact more than a level. We have for macro strategies and for more common strategies." Ea-w3 "I believe that is for the operational level, as well as have resources for helping in the decision making (strategic level). There are interesting modes of if showing the information [graphics, tables etc]" Eb-w1 "Yes. They are strategic. The project I am right now is more operational and tactician, but for sure we have products for the strategic level." Eb-w2 "What I operate it is completely for strategic area." Eb-w3 "I believe it is more for the operational level." Source: Research data. Both companies developed systems for all the levels of the organizations levels. Eb-w3 currently does not work in a strategic system project, only operational. Systems to fulfill the strategic goals are a constant in the organizations. This corroborates with the theoretical frame: Stair (1998), O'Brien (2004), Turban, Rainer Jr., Potter (2005) and Jamil (2006). The strategic application in the systems would be in a context of use of the knowledge towards general strategic decision. In other words, the system assists for the quality of a better strategic decision making (CHOO, 2006), and explain the possible mistakes and other scenarios, added for simulation purposes or further studies.

10 106 Proceedings of the CENTERIS 2009 Conference on ENTERprise Information Systems 5. Conclusions This research aimed to describe, using the model of the resource based view, if a IS implementation can be regarded as a source of competitive advantage. Organizations are constantly in state of changes, affecting their strategic planning. Resources of the internal environment, apparently stable, can pass to a turbulent state. Such changes tend to be tragic, because interfere in the standards, norms, processes, structures and even in the strategic goals of organizations. Basing on resource based view model, a research was conducted for the investigation in two software houses of Belo Horizonte, Minas Gerais. Through a semi-structured interview, could be found the three organizational levels in which these firms are working, providing software considered applicable for decision making: operational, tactic and strategic. It has been evidenced that the information, originated by the implementation, is constantly feeding the DSS. However, there is a concern with the quality of the information, often found in dispersed and not reliable sources. It was concluded that the planning of the implementation, where are developed the plans, procedures and mobilized resources, may be benefited by application of RBV model concepts, assisting in the decision making in the implementation of information systems. Although this study has been developed and concluded in order to achieve the objectives initially proposed, it did not have the pretension to deplete the reflections on the subject. It is known that with the interviews in only two software houses, the results gotten are little generalized. It is recommended, however, that the theoretical base applied could be used to expand its conclusions, towards a more comprehensive scenario of its findings. References Ballou, R. H. (2006). Gerenciamento da cadeia de suprimentos / logística empresarial. Porto Alegre: Bookman. Barney, J. (1991). Firms Resources and Sustained Competitive Advantage. Journal of Management, 17(1). Carvalho, R. B. (2006). Intranets, portais corporativos e gestão do conhecimento: análise das experiências de organizações brasileiras e Portuguesas. Belo Horizonte: [s.n.]. Choo, C. W. (2006). A organização do conhecimento: como as organizações usam a informação para criar conhecimento, construir conhecimento e tomar decisões. São Paulo: Senac São Paulo. Davenport, T. H. (2002). Ecologia da informação: por que só a tecnologia não basta para o sucesso na era da informação. São Paulo: Futura. Ferreira, A. B. H. (1999). Novo Aurélio século XXI: o dicionário da língua portuguesa. Rio de Janeiro Nova fronteira. Fleury, A. C. C., & Fleury, M. T. L. (2003). Estratégias competitivas e competências essenciais: perspectivas para a internacionalização da indústria no Brasil. Gestão e Produção, São Carlos, 10(2), Gonçales J. D., & Balloni, A. J. (2007). Implementation of an Information System: Sociotechnical Impacts. Proceedings of 4th CONTECSI, International Conference on Information Systems and Technology Management. Jamil, G. L. (2006). Gestão de informação e do conhecimento em empresas brasileiras: estudo de múltiplos casos. Belo Horizonte: C/arte.

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