International Journal of Science and Research (IJSR)

ISSN (Online): 2319-7064

Impact Factor (2012): 3.358

The Role of Information Technology in the

Business Sector
Prof. Krume Nikoloski PhD
1
Faculty of Economics at University "Goce Delcev" Stip, Republic of Macedonia

Abstract: The business sector produces products and services for profit. Information technology describes any technology used to
create, process and disseminate information that is critical to business performance. Information technology is important to the business
sector as a management tool to optimize the processing of information to produce goods and services for profit. No matter the size of
your enterprise, technology has both tangible and intangible benefits that will help you make money and produce the results your
customers demand. Technological infrastructure affects the culture, efficiency and relationships of a business. It also affects the
security of confidential information and trade advantages. The information revolution is sweeping through economy. No company can
escape its effects. Dramatic reductions in the cost of obtaining, processing, and transmitting information are changing the way we do
business.

Keywords: business sector, information technology, competitive advantage, business relationships

1. Introduction We know that the business sector produces products and

services for profit. Information technology describes any
With information technology (IT) going mobile, thanks to technology used to create, process and disseminate
the deployment of faster and more reliable broadband information that is critical to business performance.
networks, we are experiencing yet another technology driven Information technology is important to the business sector as
transition. Technology (-based) businesses can be referred to a management tool to optimize the processing of information
as businesses that engage in technology related products, to produce goods and services for profit. Automation
processes and services. They may be low-, medium- or high- improvements achieved by deploying information
technology. One area of the economy which has seen technology usually decrease the number of personnel
significant growth is that focused on new technology-based required. Economies of scale gained through the deployment
products and services and the high-technology sectors are of information technology reduce the overall cost for
perceived as major sources of future economic prosperity businesses to produce products and services. This has an
and employment growth. overwhelmingly positive effect on the financial goals of a
business.
However, IT includes the management information systems
(computers, hardware, software, networks) used to automate Quality assurance entails systematic testing to ensure that a
and support business tasks and decision-making. IT is used business is producing quality goods and services for its
to automate simple, routine tasks such as word processing customers. Rigorous quality standards help business outputs
and advanced processes such as production, scheduling and meet the required specifications. Quality assurance can be
logistics. In this manner, information technology enables used within processes such as marketing, customer support
businesses to operate efficiently and profitably. and accounting, as well as product testing. The effective and
efficient processing of information related to achieving
Technological advances in the past few decades have greatly quality assurance goals is key to the delivery of quality
increased the competitive nature of the economic business goods and services to business customers. Investments in
world. Companies have used software, computers and the information technology can help make a firm’s operational
Internet to transform their businesses from local places of processes substantially more efficient, and its managerial
business to national and global market competitors. Many processes much more effective. By making such
companies have responded to these changes by automating improvements to its business processes a firm may be able
their business processes and capturing industry-related to:
information and using it to their advantage. Technology has
also forced businesses to remain flexible, adapting their 1. Dramatically cut costs
operations to newer and better technological advances. 2. Improve the quality and customer service
3. Develop innovative products for new markets
Business owners once had very few tools at their disposal:
little more than a basic adding machine and paper records. Investments in information systems technology can result in
Today's business owners can complete their duties much the development of new products, services, and processes.
more effectively than their predecessors with an array of This can:
technological tools at their disposal. By using these tech-
tools, companies and employees enjoy a number of 1. Create new business opportunities
business-related benefits. 2. Enable a firm to enter new markets
3. Enable a firm to enter into new market segments of
existing markets.

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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358
About strategic, competitive advantage plays a fundamental exchanges, i.e. replaces some of the personal exchange of
role in the success of a given business within its sector. information.
Information technology has become fundamental to
acquiring competitive advantage. The combination of The question is if the need for personal meetings decreases
process improvements, cost reductions, communications and when the levels of information technology use increase. That
quality assurance all contribute to the competitive advantage would suggest increased efficiency of meetings, as the use of
of a business unit. However, the constant identification and information technology then replaces other means of
analysis of new risks and opportunities are critical to the interaction for some types of exchanges. On the other hand,
ongoing success of a business. Evolving Internet aggregation the use of information technology may require additional
technologies, including social networks, blogs and meetings, if the technology is difficult use or the purpose of
subscription databases, are becoming important tools needed its employment is another than making the information
to achieve and maintain advantages within the business exchange more efficient by decreasing the need for
sector. The transfer of information is a significant impact of meetings. The reasons why the use of information
information technology in business. Companies gather technology in business relationships would decrease or
information from both internal and external sources with increase the need for personal meetings can only be
more efficiently than in previous years. Email is now a speculated on.
common form of business communication that results in
near-instant messages that deliver important information. This paper analyses the extent to which the need for personal
meetings has decreased or increased in the investigated
2. The Role of Information Technology business relationships as a result of the use of information
technology, as well as to the extent which such a change is
2.1 Importance of Information Technology in business related to levels of lower and higher of information
relationships technology. If the use of information technology affects the
need for personal meetings, and that effect is related to when
The social interaction of a business relationship can be the use is lower or higher, it is interesting to analyze why
discussed in terms of how often people from the companies and how the need for personal meetings is affected by the
meet, or how well the parties know each other. It is argued use of information technology. Now, most organizations in
that depending on the extent of the use of information all sectors of industry, commerce and government are
technology for different exchanges, the impact on the social fundamentally dependent on their information technologies.
interaction patterns that are carried out without information
technology may be influenced. One argument that could be The information revolution is sweeping through our
raised in the theorizing on the effect of use of information economy. No company can escape its effects. Dramatic
technology in business relationships is that the number of reduction in the cost of achieving, processing, and
meetings, or need for meetings will decrease, as the use of transmitting information is changing the mode by which we
the technology handles a great deal of information do business. This article moves towards the explaining and
exchanges, i.e. replaces some of the personal exchange of distinguishing impact IT has on internal and corporate
information. strategies in small and medium enterprises. The information
revolution is sweeping through information is changing the
The question is if the need for personal meetings decreases mode by which we do business. Many companies in most
when the levels of information technology use increase. That our economy; no company can escape its effects. Dramatic
would suggest increased efficiency of meetings, as the use of reduction in the cost of achieving, processing, and
information technology then replaces other means of transmitting industries have little choice but to implement
interaction for some types of exchanges. On the other hand, some form of information technology in order to remain
the use of information technology may require additional both innovative and on the cutting edge of competitive
meetings, if the technology is difficult use or the purpose of advantage.
its employment is another than making the information
exchange more efficient by decreasing the need for 2.2 View of Information Technology’s Relationship to
meetings. The reasons why the use of information Business
technology in business relationships would decrease or
increase the need for personal meetings can only be There are two basic concepts or principles that can be
speculated on. effectively executed and applied within an organization to
help the organization succeed when it comes to Information
The social interaction of a business relationship can be Technology [1].
discussed in terms of how often people from the companies
meet, or how well the parties know each other. It is argued • Link Information Technology Solutions to Overall
that depending on the extent of the use of information Business Strategy
technology for different exchanges, the impact on the social • Keep IT Simple
interaction patterns that are carried out without information
technology may be influenced. One argument that could be Maintaining focus on the overall goals and mission of an
raised in the theorizing on the effect of use of information organization while looking at Information Technology
technology in business relationships is that the number of enables management to make appropriate investments,
meetings, or need for meetings will decrease, as the use of reduce cost, and provide value. We recommend a top-down
the technology handles a great deal of information approach and have found the seven layer OSI (Open
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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358
Systems Interconnection) Model an excellent tool to help It is our experience that the more complex the environment,
think about Information Technology needs. OSI is an the more complicated it becomes as well as inflexible. This
international standard to help implementers, developers, results in additional time and effort needed to maintain
technicians, and service providers ensure software and and/or change the environment increasing operational and
hardware properly work with one another and maintenance costs.
communication can occur within the network and with end-
users. By keeping IT simple we have found funds can be
reallocated from maintenance and routine operational
We found the same approach can be used when thinking activities to spending on strategic information technology
about your Information Technology needs. By looking at the and/or operational needs that support the overall
“big picture”, it is possible to align your business processes organizational objectives and goals. How can the preceding
and Information Technology needs with the overall strategy competitive strategy concepts be applied to the strategic role
and goals of your organisation. Strategy, Goals, Mission and of information systems? Information technology can be used
Culture drive Business Processes. Business Processes to implement a variety of competitive strategies. These
determine necessary tasks (who, what, why, where and include the five basic competitive strategies (differentiation,
how). The tasks define the Information Technology cost, innovation, growth, alliance), as well as other ways that
requirements (software and hardware) to be investigated, companies can use information systems strategically to gain
decided upon, and implemented. a competitive edge. For example:

The challenge occurs when discussing the tasks and 1) Lower Costs
Information Technology requirements. The communication 2) Differentiate
channel tends to break down. This is known by many as the 3) Innovate
“IT Divide”. Both sides have their own jargon, 4) Promote Growth
abbreviations, and unique experiences. Neither is able to 5) Develop Alliances
explain, in terms understandable by the other, the necessary 6) Improve quality and efficiency
requirements, limitations, gaps, and potential solutions that 7) Build an IT platform
are an acceptable fit. Executives, Managers and 8) Other strategies
Technologists each go their own way out of frustration • use interorganizational information systems to create
withone another. And the alignment of business processes switching costs that lock in customers and suppliers.
and strategy with Information Technology goes by the • use investments in IT to build barriers to entry against
wayside. Information Technology success comes from industry outsiders.
having a common understanding. Everyone on the team • use IT components to make substitution of competing
needs to take a look at the total picture and approach the products unattractive.
solution with the same view and goal. If this occurs it is
possible to align business processes and Information 3. Reengineering Business Processes
Technology needs with the overall strategy and goals of an
organization. The result is motivated employees, satisfied One of the most popular competitive strategies today is
customers, and reduced costs. business process reengineering (BPR), most often simply
called reengineering. Reengineering is the fundamental
2.3 Keep “IT” Simple rethinking and radical redesign of business processes to
achieve dramatic improvements in cost, quality, speed, and
We have found many organizations have a tendency to service. BPR combines a strategy of promoting business
complicate their Information Technology environment. It is innovation with a strategy of making major improvements to
our belief that Information Technology should not and does business processes so that a company can become a much
not need to be complicated. We believe organizations should stronger and more successful competitor in the marketplace.
focus on keeping “IT” simple. By simplifying and
consolidating an organization’s Information Technology 3.1 How To Implement Business Process Reengineering
there is [2]: In Your Business?
• Reduced or lowered costs,
• Improved efficiency and increased consistency, The following steps (Davenport, 1992) can help BPR realize
• Easier overall administration, its core principles of customer satisfaction, reduced costs of
• Ability to respond quicker to change, and business and increased competitiveness [3].
• Better use resources (hardware, software and people).
Business vision and objectives: Any BPR activity needs to
Some Keep “IT” Simple” recommendations are: begin with a clearly defined and measurable objectives.
• Standardize on hardware and software, Whether the goal is reducing costs, improving quality of
• Develop and follow policies and procedures, product, or increasing efficiency, the framework for what
• Document your network infrastructure, needs to be achieved has to be decided upon at the outset, in
• Purchase and use proven products from well known and line with the company’s vision and mission.
reliable vendors,
• Select and integrate application systems prudently, and Identification and slacking processes: Once a clear goal is
• Limit business workstation use to business use only. in mind, all processes need to be studied and those seen as
‘slacking’ or that can be improved need to be identified.
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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358
Among these, those processes with direct impact on the this, entire processes can be eliminated or amalgamated
company’s output or those that clash with the company’s into fewer but more relevant and powerful processes
mission become part of the ‘red’ list. This clear throughout the organization.
identification makes the difference between BPR success • There is a real desire to simplify the way of work by
and failure. objectively assessing all activities and tasks and
eliminating any that add less value and more complexity.
Understand and measure the ‘red’ processes: With a list
of slacking processes in hand, it is imperative to identify A BPR program will fail if:
how they were identified as such. Are they taking too much
time to complete? Is the quality of the outcome being • It is seen as a way to make minor adjustments and
compromised? improvements to existing processes. If there is no clear
willingness to put all existing process onto the chopping
Whatever the issue, each process must be judged objectively block, there is no chance of success.
either against industry standards or ethically obtained • It is seen as a one-time cost cutting exercise. In reality,
competitor best practices. cost reductions are often a handy by product of the activity
but not the primary concern. It is also not a one-time
Information system and technology capabilities: An activity but an ongoing change in mindset
efficient and relevant IT system is an essential BPR enabler. • There is no success in gaining dedicated long term
Without such a system, it is not possible to keep a check on commitment from management and the employees.
all factors affecting the change. Before setting out on a Bringing people onboard is a difficult task and many BPR
radical BPR activity, it is vital to set in place information initiatives never take off because enough effort is not put
systems that can deal with the magnitude of the change. into securing support
• There is less effort to redesign and more to automate.
Design, build and test the new prototype: Before any new • One department is prioritized at the expense of the
product is launched, a prototype is tested out. A failure at a process. There needs to be an openness towards studying
testing stage should never be implemented at a larger scale. every single process in detail and a willingness to change
BPR projects fail more often than not for a variety of whatever is needed to achieve overall efficiency.
reasons but a basic reason is the inability to identify and • There is too much internal focus and not enough of an eye
accept any limitations at the testing stage. Among other on the industry and what competitor best practices can be
factors, both the management’s attitude towards the new used as benchmarks.
way of work and the employees’ outlook towards the change
should be carefully assessed.
4. Information Technology And Competitive
Adapting the organization: Managing change brought about Advantage
by BPR activities is the final effort towards a successful
project. Providing updated documentation, organizational Although the objective of any Information IT business unit
structures, governance models as well as updated charts of is the enhancement of modern firm’s performance - through
authority and responsibility leave little room for confusion the improvement of the quality of managerial decisions - in
and allow a smooth transition into the new way of work. the absence of an adequate alignment between IT and
Business objectives, the attainment of the firm’s agility
Business process reengineering is a radical change activity status is jeopardized, and consequently, the chances of
that cannot be repeated if it goes wrong the first time. It is achieving the IT-Business competitive advantage are
often a high risk activity that involves monetary investment reduced.
and a risk of demotivated employees. In is essential to have
buy in all the way from top management down and it should The strategic role of information systems involves using
have a broad functional scope. information technology to develop products, services, and
capabilities that give a company strategic advantages over
It Is Important To Acknowledge and understand that BPR is the competitive forces it faces in the global marketplace.
not a foolproof method of success. As with all activities it This creates strategic information systems, information
runs the risk of failure [4]. systems that support or shape the competitive position and
strategies of an enterprise. So a strategic information system
A BPR program can be successful if: can be any kind sentence of information system (TPS, MIS,
DSS, etc.) that helps an organization:
• Customer needs are made the priority and this vision is 1) Gain a competitive advantage
used to appropriately direct business practices. 2) Reduce a competitive disadvantage
• There are cost advantages to be achieved that help the 3) Meet other strategic enterprise objectives
organization become more competitive in its industry
• A strategic view of all operational processes is taken with Information technology emerges as an essential asset of
relevant questions being asked about the established way modern firms’ competitive advantage, because it connects
of work and how it can be developed over the long term all business functions and supports managerial decision
into more efficient business practices. processes - both essential conditions for the attainment of
• There is a willingness to look beyond tasks and traditional the organization agility level.
functional boundaries with a focus outcomes. Through
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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358
In any company, IT has a dominant effect on competitive supply chain by digitally connecting customers, suppliers,
advantages in either cost or differentiation. The technology partners; by reducing the information gaps/errors along the
also affects value activity themselves or allows companies to chain (especially demand and supply); and by bettering
gain competitive advantage by utilizing changes in communication, cooperation and collaboration.
competitive scope. Porter (1996) stated; the IT is affecting
competition in three fundamental ways: 4.2 Internet Value Chains
• It changes industry structure and, in so doing, alters the
rules of competition. The value chain concept helps a company evaluate how to
• It creates competitive advantage by giving companies new use information technology strategically. Value chains can
way to outperform their rivals. also be used to strategically position a company’s Internet-
• It spawns whole new business, often from within a based applications to gain competitive advantage. The value
company’s existing operations. chain model can be used to outline several ways that a:
1) Company’s Internet connections with its customers could
In the last decade many scholars were trying to develop the provide business benefits and opportunities for
idea of IT as a source of competitive advantage have been competitive advantage.
focusing on IT capabilities as a source of competitive 2) Company’s Internet connections with its suppliers could
advantage. Оverview indicates on four different be used for competitive advantage.
relationships: 3) Company’s internal operations can benefit strategically
1) IT has a direct and positive effect on firm performance/ from Internet-based applications.
competitive advantage;
2) IT has a direct and negative effect on firm Table 1: Operational Definitions of Observed Variable
performance/competitive advantage; Variables Operational definition Sources
3) There is no connection and no effect between IT and Information technology
firm performance/competitive advantage; and infrastructure
4) IT has a contingent effect on firm • Information technology hardware
performance/competitive advantage. establishment Sircar et al.
• Information technology software (2000);
Bharadwaj
• IT as a resource can contribute to improved growth and purchasing and maintenance
(2000)
• Information technology staffing
productivity. However, the question of whether IT can be
• Implementing new information
a source of competitive advantage remains unresolved
technology applications
since they discovered that IT spending was not correlated
with competitive advantage. Organizational structure Flippo (1966);
• Employee empowerment Mintzberg
• IT capabilities have greater overall profitability (firm
• Business function integration (1979);
performance). • Work activities coordination Porrass &
• Departmental operations mobility Robertson
4.1 Value Chain • Decision making quick response (1992);
Zaltman et al.
An important concept that can help a manager identify Information (1973)
technology
opportunities for strategic information systems is the value Strategic alignment
adoption • Aligning information technology
chain concept as developed by Michael Porter. This concept:
1) Views a firm as a series or "chain,” of basic activities that strategies to business strategies
Venkatraman
• Developing information
add value to its products and services and thus, add a (1989);
technology projects to support
margin of value to the firm. business strategies
Palmer &
2) Some business activities are viewed as primary activities, Markus (2000);
• Updating information technology
and others are support activities. This framework can Reich &
applications for business strategic
highlight where competitive strategies can best be applied Benbasat
goals
(1996)
in a business. • Deploying information technology
3) Managerial end users should try to develop strategic strategies for business processes
information systems for those activities that add the most
value to a company’s product or services, and thus to the Individual learning
• Providing information technology Barrett (1995);
overall business value of the firm.
related training Scott Morton
• Being familiar with information (1995);
The model highlights specific activities in the business technology applications Grover et al.
where competitive strategies can be best applied and where • Adapting to use information (1999);
information systems are most likely to have a strategic technology applications Zahra & George
impact. By creating/adding value and thus creating • Possessing information technology (2002);
competitive advantages, information systems could knowledge and skills Chonko et al.
contribute to each part of an organization’s value chain and • Less resistance to information (2003)
extended value chain (including interactions/ties with technology applications
external partners and strategic alliances). By leveraging on
the Internet technologies, organizations could also create a
value web or a hub structure, both of them look at improving
the efficiency and the effectiveness of value chain and
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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358

Variables Operational definition Sources Automated teller machine (ATMs), point-of-sale terminals
(POSs), and electronic home banking.
Service Process innovation
innovation • New external service processes Zaltman et al.
practices • New internal service development (1973); Table 2: Variety Of Competitive Strategies
processes Davenport & Variety of Competitive Strategies
• New internal administration Short (1990) Become a low cost producer of products and
processes Cost services
Product innovation Leadership - Find ways to help suppliers or customers
• Service modifications Strategy reduce their costs
Avlonitis et al. - Increase the costs of competitors.
• Service line extensions
(2001) Develop ways to differentiate products and
• Service repositioning
• New service launch Differentiation services from competitors
Competitive External advantage Strategy - Reduce the differentiation advantages of
advantage • Entering a new market Avlonitis et al. competitors.
• Obtaining higher competitive (2001); Find new ways of doing business:
advantage Atuahene-Gima a) develop new products & services
• Providing better services quality (1996) b) enter new markets or marketing segments.
Innovation
than competitors c) establish new business alliances
Strategy
Internal advantage d) find new ways of producing products/services
• Increasing staff job satisfaction Van Riel et al. e) find new ways of distributing
• Enhancing staff experience and (2004); products/services
domain knowledge Atuahene-Gima Significantly expand the company=s capacity
• Uplifting staff innovative (1996) to produce goods and services
Growth
capability - Expand into global markets
Strategies
- Diversify into new products and services
- Integrate into related products and services.
5. Framework For Competitive Analysis Establish new business linkages and alliances
with customers, suppliers, competitors,
According to Michael Porter, a firm can survive and succeed Alliance
consultants and other companies (mergers,
Strategies
in the long run if it successfully develops strategies to acquisitions, joint ventures, forming virtual
confront five competitive forces that shape the structure of companies, etc.).
competition in its industry. These include:
On the other hand, IT affects the rate of new entry into
1) Rivalry of competitors within its industry industries by raising the barrier to delay competitor entry by
2) Threat of new entrants providing new service or product features that appeal to
3) Threat of substitutes customers. For example, in the banking industry, IT-based
4) Bargaining power of customers access to banking services has seriously eroded the
5) Bargaining power of suppliers traditional entry barriers enjoyed by many branch offices. In
the distribution industry, IT has created new entry barriers
Porter advanced the idea that competition in any industry is by requiring investment in extensive computer and
rooted in its principal economic structure, so that it is more telecommunication networks that are used to control costs in
than a superficial game of moves and countermoves among large-scale multiplication distribution facilities. In effect, IT
participating firms. This approach is reflected in the has created a new scale- economy barrier which the new
framework he proposed to explain; i.e. the dynamics of entrant must overcome in order to price competitively and
competition in an industry. still be profitable.

A Variety Of Competitive Strategies Can Be Developed To Finally, IT changes industry structure by affecting the
Help A Firm Confront These Competitive Forces. rivalry bases among intra-industry competitors. By
introducing a new competitive weapon into various settings,
As IT impacts the products, services, or operations of a IT sparks outbreaks of firm warfare. For example, recently,
business, it may change the relationship between an industry ICICI bank has introduced TV banking and i-zone to serve
and its suppliers. For example, the use of complex the customers as a new weapon to improve the bank’s
production line systems by the auto industry is forcing position in its competitive environment [6].
robots producers to become much more quality conscious.
When industries become much more dependent upon IT, the 6. Conclusion
bargaining power of the IT supplier will become an
important force for a firm to consider planning strategy. It Information technology can change the way businesses
also changes the level of sophistication of some industries' compete. For this reason, you should view information
suppliers. systems strategically, that is, as vital competitive networks,
as a means of organizational renewal, and as a necessary
IT also affects the buyer bargaining power of industries, investment in technologies that help an enterprise achieve its
such as new products, services, and distribution channels. strategic objectives.
For example, buyers in the banking industry can now choose
products and services from several channels. The buyer- The evidence also suggests that turning investment in ICT
industry relationship has been fundamentally changed by into higher productivity is not straightforward. It typically

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 International Journal of Science and Research (IJSR)
ISSN (Online): 2319-7064
Impact Factor (2012): 3.358
requires complementary investments and changes, e.g. in [15] Johnston, H., & Carrico, S. (1988). Developing
human capital, organizational change and innovation. capabilities to use information strategically. MIS
Moreover, ICT-related changes are part of a process of Quarterly, 12(1), 37-48.
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business environment that enables this process of creative performance: An integrative model of IT business
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information systems applications to support their business
strategy and thereby establish a competitive advantage based Author Profile
on the unique capability created in their markets.
Consequently alignment between an organization's business Krume Nikoloski works as a professor at the Faculty
strategy and its information systems strategy positively of Economics, Goce Delcev University in Stip. In
affects business performance. 2004 he obtained the PhD in Economics from
University of National and World Economy-Sofia,
Republic of Bulgaria. Currently he is employed as a
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Volume 3 Issue 12, December 2014
www.ijsr.net
Paper ID: SUB14320 309
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