role of i-t in porters model

8/8/2019 Role of I-T in Porters Model

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WeekWeek 33

IT Strategic Alignment

&

Porters 5 Forces


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Today

The role ofIT in business

Porters 5 competitive forces

Porters response strategies


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The role of IT in business

IT creates applications that provide strategicadvantages to companies

IT is a competitive weapon

IT supports strategic change, e.g, re-engineering

IT networks with business partners

ITprovides cost reduction

ITprovides competitive business intelligence IT enables new products


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The role of IT in business


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Competitive advantage in the web economy

CompetitiveAdvantage

Look fora

competitivenecessity, whichwillhelpyour

company keepup with the

competitors.

CompetitiveStrategy

Searchfora

competitiveadvantage inan industry,

whichleads tocontrolof the

market.

SustainableStrategic

Advantage

Maintain

profitable &sustainable

position againstthe forces that

determine

industrycompetition


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It changes industry structure andalters therules ofcompetition

by increasing the powerofbuyers

raising barriers to entryand

influencing the threat ofsubstitution

It creates competitive advantage by givingcompanies new ways toout-perform theirrivals

lowering costs,

enhancing differentiation and

changing competitive scope

HOW IT/IS AFFECTS COMPETITION


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Porters 5 Competitive Forces (1985)

The threat ofentryofnew competitors.

The bargaining powerofsuppliers.

The bargaining powerofcustomers (buyers).

The threat ofsubstitute products or services.

The rivalryamong existing firms in theindustry.


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Porters Model in Action


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1. The threat ofentryofnew competitors

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Profitable markets willdraw in more competitors

Many new entrants decrease profitability.

Unless the entryofnew firms can be blocked the

profit rate willfall towards a competitive level The existence ofbarriers to entry, for example:

patents & rights, etc.

economies ofproduct differences

switching costs capital requirements

learning curve advantages


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2. The bargaining powerofsuppliers

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Suppliers ofraw materials, components, andservices (suchas expertise) to the firm can bea source ofpowerover the firm

Suppliers may refuse to work with the firm, ore.g. charge excessivelyhighprices for uniqueresources

Supplier switching costs relative tofirm

switching costs


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2. The bargaining powerofsuppliers

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supplier concentration tofirm concentrationratio

threat offorward integration by suppliers

relative to the threat ofbackward integration byfirms

degree ofdifferentiation of inputs

presence ofsubstitute inputs


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3. The bargaining powerofcustomers

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The abilityofcustomers toput the firmunderpressure - buyer volume

buyer concentration tofirm concentration

ratio buyer switching costs relative tofirmswitching costs

ability to backward integration availabilityofexisting substitute products

buyerprice sensitivity


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4. The threat ofsubstitute products orservices

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The existence ofclose substitute productsincreases the propensityofcustomers to switchtoalternatives in response toprice increases

buyerpropensity to substitute

relative price performance ofsubstitutes

buyer switching costs

perceivedlevelofproduct differentiation


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5. The rivalryamong existing firms inthe industry

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Formost industries, this is the majordeterminant of the competitiveness oftheindustry.

sometimes rivals compete aggressively

sometimes rivals compete in non-pricedimensions suchas innovation, marketing,

etc. numberofcompetitors

intermittent industryovercapacityor under

capacity


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5. The rivalryamong existing firms inthe industry

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exit barriers

informational complexityandasymmetry

fixed cost allocation per value added

levelofadvertising expense

economies ofscale

sustainable competitive advantage through

improvisation


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Response Strategies (Porter, 1985)

FOCUS

Selecting aniche market

andachievingcost leadership

and/or

differentation.

DIFFERENTATION

Being unique in theindustry

COST

LEADERSHIP

Providingproducts and/orservices at the

lowest cost in theindustry.


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Response Strategies(addedby Porterandothers)

INNOVATIONDeveloping new products & services

GROWTH

Increasing market share,acquiring more customers or

selling more products

IMPROVE INTERNAL

EFFICIENCYTo improve employee and

customer satisfaction

ALLIANCESWorking with businesspartners to create synergy &

provide opportunities forgrowth

CRMCustomer-orientedapproaches, e.g. the

customer is king (queen)


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Porters Model in Action (cont.)

Step 1: The players in eachforce are listed.

Step 2: An analysis is made which relates

Porters determining factors.

Step 3: A strategy is devised todefendagainst these factors.

Step 4: Support information technologiesare employed.


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Web-based Strategic Information Systems

Manyofthe SISs of the 70s - 90s were basedonprivatelyowned networks, ororganizationalinformation systems (OISs).

EDI-based systems are ofkey importance

SISs are changing the nature ofcompetition

In some cases, SIS renders traditional businessprocedures obsolete.

E.g, Encyclopedia Britannia


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CASE: Mobile Oil Moves to Web-based System

Problem:

Largest marketeroflubricants in the USA In 1995, introduced EDI system

Used toplace orders, submit invoices & exchange businessdocuments

It was too expensive, too complex to use Solution:

In 1997, moved to web-based extranet-supported B2Bsystem

Results:

Reduced transaction cost from $45/order to $1.25 Fewer shortages, better customer service decline in distributoradministration costs


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Examples ofEDI/Internet-based SIS

(for individual Companies)

Electronic Auctions

Electronic Biddings Buyer-Driven Commerce

Single Company Exchange

Direct Sales


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Examples ofEDI/Internet-based SIS

(for Groups ofCompanies)

Industry Consortiums

Horizontal Consortiums

Web-based Call Centers

Web-basedTracking Systems

Web-based Intelligent Agents

Web-based Cross Selling

Accessing knowledge via Intranets


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GrowthofCompanies Operating in a GlobalEnvironment

Fully GlobalorMultinationalCorporations

Companies that export orimport

Companies facingcompetition oflow labourcost andhigh naturalresources

Companies withlow costproduction facilitiesabroad

Small companies thatcan now use eC tobuy/sell internationally


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CASE: Geisinger Implements an Intranet

Problem:

As a result ofmergers & acquisitions, Geisinger (ahealthmaintenance organization) had40 differentITlegacy systems in needofan upgrade &integration.

Solution: In 1993, Geisinger implementedan innovative

Intranet: with the following features: Tel-a-Nurse Clinical Management System Human Resource Management

Results:

Geisinger reduced costs and unnecessarymedicalwork.


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CASE: Caltex Corporation

Majormultinational company selling gasoline &petrolproducts.

In 2000, createda centralized e-purchasing

corporate exchange (www.caltex.com)

Suppliers build electronic catalogues with Aribassoftware.

Many benefits to buyers and suppliers, particularly in

Asia, Africa & the Middle East. System enables Caltex to successfullyhandle

complex multinational business environments.


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CASE: Caterpiller Corporation

Problem: This worldleader in manufacturing ofheavy

machines faced strong competition from Japanesecompanies.

Solution:

Computer-aidedmanufacturing and robots

Computerized inventorymanagement

Supply chain web-basedmanagement

Global Intranet & EDI

Sensory Intelligent Agents attached toproducts.Results:

CAT experienced suchahigh rate of success thattheirmain competitor was forced to shift its strategy


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SIS Implementation

Major Issues to be Considered:

Justification

Justifying SIS may be difficult due to the

intengible nature of their benefits.

Risks & Failures

The magnitude, complexity, continuous changesin technologyand business environment mayresult in failures.

Finding appropriate SIS

Identifying appropriate SIS is not a simple task.


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Sustaining SIS & Strategic Advantage

A Majorproblem that companies face is how tosustain their SIS competitive advantage.

3 Majorapproaches =

Create inward systems whichare not visible to

competitors.

Provide a comprehensive, innovative & expensivesystem that is difficult toduplicate.

Combine SIS with structural changes. This wouldinclude business processes, reengineering &organizational transformation.


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Managerial Issues

Implementing SIS Can Be Risky The investment involved in implementing

Strategic Information Systems (SIS) is high

Strategic Information Systems RequiresPlanning

Planning foran SIS is amajor concern oforganizations


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Managerial Issues (cont.)

Sustaining Competitive Advantage Is Challenging

As companies become largerandmore sophisticated, theydevelop resources toduplicate the systems oftheircompetitors quickly

Ethical Issues

Gaining competitive advantage through the use ofITmayinvolve unethicalor even illegalactions

Companies can use IT tomonitor the activities ofothercompanies andmay invade the privacyof individuals workingthere


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References

Porter M.E. (1985), Competitive Advantage: CreatingandSustaining Superior Performance, New York Free Press

Bakos J.Y. and M.W. Treacy (1986), Information TechnologyandCorporate Starategy: A researchPerspective, MIS Quarterly (June

1986)

McFarlan (1984), Information Technology Changes the Way YouCompete, HarvardBusiness Review, (May-June 1984)

Ives B. et al (1993), Global Business Drivers: Aligning IT to GlobalBusiness Strategy, IBM Systems Journal, Vol 32, No 1


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SuggestedReading

Information Technologyfor Management

Chapter 1: pp 35-37

Chapter 13 Information Systems for Competitive

Advantage pp 517

-526

Look at references and bibliographyfor this chapter

Computing Press read it


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Next Week week 4

IT strategyandplanning

Porters value chain

&

Nolans six levels ofDP growth

role of i-t in porters model

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