Investment in Information Technologies

Introduction

While every company recognizes the importance of investing in information technologies, its strategic importance has recently been on the decline, which means that businesses have to reevaluate the way they approach the topic of IT investment. Since every competitor in each business category has the same technologies, a problem arises of whether it is necessary to invest in IT because the risks that this resource poses are larger compared to the advantages it may provide to the business. Investing in IT has become a financial burden for many businesses, which led many of them to reduce their spending and let competitors take the lead; however, underestimating the importance of it is as dangerous as spending too much on it. This paper will be focusing on exploring the need of investing in IT while accounting for the possible cuts in operational expenses.

Information Technologies and Business Optimization

The topic of investing in information technologies has been highly debated due to the shifting importance of such technologies in achieving a sustainable competitive advantage, which points to the strong financial performance of companies that can outperform industry averages. In turn, when competitors want to take the competitive advantage from their rivals, they use such strategies as cutting costs and prices, as well as increasing a range of available features. For the purpose of discussion, it is important to differentiate between information technologies and information systems; while the latter can exist independently, the former is a part of IS and therefore represents tools that businesses use for achieving competitive advantages on both operational and strategic levels. However, there is some skepticism regarding the use of IT for achieving competitive advantage nowadays.

As early as in 2003, Nicholas Carr wrote a Harvard Business Review article “It Doesn’t Matter,” in which he explained that the opportunities associated with IT were narrowing down with each year while the risks of overspending were continuously growing. Carr (2003) stated that “the key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously” (p. 49). However, despite the skepticism that many experts have with regards to investing in IT, there are still reasons not to give way to competitors and to continue to spend money on such technologies. According to McAfee and Brynjolfsson (2008), investing in IT will be not only beneficial for computer companies but also for traditional industries “not because more products are becoming digital but because more processes are” (para. 4).

For example, when entrepreneurial companies have a better idea of how to use technologies for completing the necessary business processes, they have higher chances of scaling up and therefore dominating the industry. Conversely, a competitor that can use information technologies to optimize business processes can be successful in capturing a market share. This means that in the race for information technologies, winners of market shares can come and go fast, and it will take an investment to compete against each other. If to provide examples of companies using IT for optimizing their business operations and winning market shares, CVS, Otis, and Cisco have all been successful. The management has invested time and effort into examining their work methods, making improvements based on the identified issues, and using the available information networking systems for gaining competitive advantage.

Information Technologies and Improved Performance

Investing in information technologies is important because the links between competitive dynamics and the use of technologies have dramatically strengthened. Such solutions as enterprise content management, enterprise resource management, or customer relationship management have gained widespread popularity as practical tools for doing business successfully. McAfee and Brynjolfsson (2008) reported that from the mid-1990s, corporate investments into information technologies skyrocketed – “from about $3,500 spent per worker to about $8,000 in 2005 […]; at the same time, annual productivity growth in U.S. companies roughly doubled, after plodding along at about 1.4% for nearly 20 years” (para. 8). This points to the strong link between the use of information technologies and the successful performance of companies. With the development of enterprise information technologies, not only large corporations such as CVS can improve their operational processes but also smaller companies that choose to invest their budgets into IT. When such companies reach success, their advantage over competitors is likely to encourage them to make bolder decisions to prevent customers from switching to their competitors. This will lead to the rising performance of companies that invested in IT, leaving those who lack technological solutions behind.

Abandoning Information Technologies Means Failure

The question of why companies need to continue investing in information technologies despite the need of cutting operational costs have always received contrasting answers: while some suggested that IT eats companies’ budgets, others emphasized the importance of continuing to invest in them despite the possible implications. According to Choudhury (2017) from CNBC, the emergence of new businesses that successfully use it to become successful encouraged their rivals to reconsider their attitudes; “for example, the emergence of Netflix and a host of other online and mobile streaming services have forced legacy media businesses to reconsider how they approach their customers” (para. 6). The argument in favor of the use of IT for improving operations is supported by the lack of success that companies have when they refuse to embrace new technologies.

For instance, with the introduction of video streaming services that allow customers to watch movies or TV shows without the need to rent their physical copies, the formerly successful rental chain Blockbuster failed. This shows that those who let rivals take the lead will not be successful despite the possible benefits of cutting costs. The example of Netflix will also show that the use of it is necessary for optimizing their financial transactions. When companies adopt technological solutions, they are highly likely also to implement financial technologies in order to make their operations consistent within the entire company. This also leads to banks losing their monopoly over the way in which businesses conduct their financial transactions. Disruptors that use technologies (such as Netflix) use new ways of receiving or sending payments using the Internet and therefore avoiding the use of traditional methods, to which banks are used. As illustrated in Too Big to Fail, without the adoption of new strategies that will quickly restore the financial position of businesses, it will be impossible to achieve success. Despite the fact that the movie illustrated the financial crisis in the US, it pointed to one important conclusion – immediate and quick actions are needed to keep businesses on top of their game, and information technologies are essential for doing so.

Saving Time Through Information Technologies

Apart from the optimization of business processes, the use of technologies for transactions, and leaving competitors behind, investing in IT will also be beneficial for creating new technologies that lead to savings. Information technologies are worth investing because the time businesses take to complete their tasks has high value. As shown in Too Big to Fail, companies and government lead extremely busy lives filled with challenges, especially when it comes to achieving financial stability. Therefore, time is essential for “achieving progress, having a sense of security, and speeding up operations” (McKinney, 2010, para. 10). Information technologies enable companies to be aware of their time and understand the true value of saved time. Time is also linked with preserving the strategic advantage of businesses. Such retail giants as Amazon, Zara, or Wallmart use IS for maintaining their position in the market through making sure that the time they spend on business operations will bring value in the long run. For instance, Amazon decided to only sell their products online. The company used IS for storing managing inventory in a way that could allow it to stay relevant. Therefore, Amazon can save time through the use of information systems in its daily operations in a strategic way.

Concluding Remarks

Despite the skepticism associated with the investment in information technologies for business optimization, it was found that the use of IT in business is likely to bring more advantages than risks. As illustrated in the example of Netflix, those companies that refuse to embrace new technologies are likely to fail. Netflix adopted an innovative strategy that used IT to allow customers to enjoy video streaming services, leaving businesses such as Blockbuster behind. IT has also been shown to save time, which companies can use for business optimization. For example, Amazon used technologies for eliminating the need for physical stores and therefore saving customers’ time and the business’s time, which was then used to expand the company’s capabilities. Overall, the use of IT should never be underestimated despite the fact that it requires significant investments.

References

Carr, N. (2003). IT doesn’t matter. Harvard Business Review. Web.

Choudhury, S. (2017). Why companies must invest in new technologies, even if it eats their own lunch. Web.

McAfee, A., & Brynjolfsson, E. (2008). Investing in the IT that makes a competitive difference. Harvard Business Review. Web.

McKinney, P. (2010). The real reason to invest in technology. Forbes. Web.