In looking at the various cases involving the use of the information systems to gain a competitive advantage, one pattern often emerges. Many of the examples (such as American Airlines and Baxter Healthcare) consist of suppliers using information systems to change the relationship with their customers. Although this change in the relationship can benefit both parties, the possibility always exists that one of the groups may eventually choose to abuse the power created by the change. In the following example, Oliver, Avery, and Lamar work for an accounting firm. One of their clients is a small business run by Mitch and Abby.
| Oliver: | Look, we’re starting to feel pressure in this business. We’re having a lot of trouble keeping our smaller clients. Lately, even some of our larger clients have been complaining about the cost of our services. We need to find some way to expand our services and keep our current clients. |
| Avery: | Well, Oliver, we’ve been looking at this problem for quite some time. There seem to be only a few options. Obviously, we don’t want to cut our fees. We’ve cut our internal costs as far as we can. Based on economic projections, the number of accounting firms is increasing faster than the client base, so we can’t expect things to get any better. But, Lamar here has an idea that has some merit . . . |
| Lamar: | Thanks, Avery. I’ve been talking to our junior staff members and a couple of clients. It seems that a large portion of our time is spent just collecting data from some of our clients. Although most of the larger clients have computerized accounting systems, we still do taxes and audits from the printouts. For the smaller clients, we spend a lot of time just organizing their data. Sure, we charge them for our time, but as soon as a hungry competitor offers to do the paperwork for a lower price, the clients jump ship. |
| Oliver: | Sure, that makes sense; because of our higher overhead, we can’t price our services as low as some of these small firms. So what’s the answer? |
| Lamar: | Well, the main idea is to handle everything on the computer. Let’s take our main computers and connect them to all of our clients. For the larger clients, we’ll concentrate on getting direct access to their databases. Whenever we need data, we’ll just pull it directly from the client computer, feed it into one of our auditing or tax packages, do some quick analyses, and create the final reports. It’ll really speed up the process and cut down on errors. Plus, we’ll be able to concentrate more on the analytical services, such as looking for better tax strategies. |
| Avery: | That seems to fit with our goals of cutting costs and offering more services, but what about the small clients that don’t use much in the way of computers? |
| Lamar: | With the smaller clients, we’ll offer a complete accounting system that runs from our computers. Basically, we’ll provide their complete information system. With current telecommunications technology, it’s easy to set up. It doesn’t really matter where the computers are located. And we’ve already got most of the software we need. |
| Oliver: | Okay, so we can run with lower costs. I still don’t want to cut prices. How does this system help keep clients? |
| Lamar: | Once the clients are on the system, they won’t want to switch. Even if a competitor comes up with a similar idea, it would cost the clients too much time and effort to change to another system. Once we get them hooked, they’re locked in. |
| Avery: | Yes, that’s the best part. Here’s how I see the plan. We go to our customers and offer them a short-term discount to switch to the system. Tell them we want to use them as demo sites . . . |
| Oliver: | I get it; we make the same offer to everyone, just to get them on the system. |
| Avery: | That’s right, plus we train their staff members. Get them used to the system. After a year or so, we start to raise our rates. In the meantime, we write a couple of reports showing how much the system is saving them. Collect a couple numbers that show how much we spent on training their people and setting up the system for them. Then, if they complain about their bills and start talking about switching to another firm, we give them a report showing how much it’ll cost them to switch. |
| Lamar: | Plus, we can tell them the costs are because of their increased business—part of which they earned because of getting better reports from us. |
| Oliver: | And because we have all of their data, it should be easy to make these reports say anything we want. I like it . . . |
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(Later, at one of the clients. . .) |
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| Mitch: | Hi, Abby. Lamar from the accounting firm just made us an interesting offer. He said his firm is offering a new service. It will handle all of our accounting for a fixed fee. And they’re offering a special deal if we agree to let them use us as a demo site. . . |
| Abby: | I don’t know, Mitch. Maybe they found out we’ve been talking to other firms, and they’re just trying to keep us interested. |
| Mitch: | Nah, I don’t think that has anything to do with it. They’ve got a whole new system. Lamar was really excited. They’re going to computerize everything. |
| Abby: | But we can’t afford a big computer system. We’ve talked about it before . . . |
| Mitch: | That’s the best part. We don’t have to buy the computer. All of the records are kept on their computer. We just use a couple of smart cash registers that transfer the data over the phone lines. |
| Abby: | But what if we ever want to switch companies? How do we get our data? |
| Mitch: | Relax, I asked Lamar about that. He said it’s like medical records. The accountants will give us whatever reports we want. If we ever switch companies, they’ll give all of the data to the new firm. |
| Abby: | Well, maybe . . . And you said they’re giving us a break on the prices? What do we have to do to get that? How can they afford it? |
| Mitch: | Lamar said that officially, we might have to let some potential customer wander through the store to check out the system. They won’t see any of the data; they’ll just make sure the system works. But don’t worry, he hinted that it was just a formality. He’s really looking out for us on this one—said he pulled a few strings to get us the offer. He hinted that they’re making money because the new computer system is so efficient. |
| Abby: | Hey, I’ve got an idea. It sounds like they really want us to use this system. Maybe we can use that to negotiate with them a little . . . |
| Mitch: | Sure. Let’s call Lamar and tell him it’s still too expensive. We’ll drop a hint that someone else made us a better offer for a similar service. Quick, what was the name of that company we talked to last week? |
Questions