1 Strategic Information Systems and Porter’s Competitive Forces Model

1

Strategic Information Systems and

Porter’s Competitive Forces Model

2Caterpillar Fends Off

Competition • The Problem

– Caterpillar is a world leader in manufacturing heavy machinery.

– In 1992, it confronted a difficult situation,• That is, Komatsu in Japan, as a major competitor, was off

ering bulldozers at price 40% lower than Cat’s.

• Cat(erpillar) was then forced to cut prices.

• Even so, the situation was still worse, i.e., a poor economy and a lenghthy labor strike worsened the situation.


Competition • The Problem (continue…)

– Cat decided to close many plants, laid off workers, and slashed expenses.

– But even so, that didn’t help because its market share still declined and losses increased.

• The IT Solution– Management decided to bring in an IT to use with

the company.


Competition

• The IT Solution (continue…)– The IT that was brought in includes:

• Computer-integrated manufacturing (CIM), in which case,

– machinery parts are integrated (assembled) by computers.

• Robots,

• Computer-aided design (CAD),

• Computer-aided manufacturing (CAM).


Competition

• What Cat’s IT Provides– superb dealer services,– quick shipments,– on-time deliveries,– an effective parts replacement program.


Competition• The Results

– This IT solution resulted in:• the inventory reductions of 60%.

• the elimination of nonessential labor.

• the simplification of production processes.

• the closing-down of costly plants/warehouses.

– By 1993, Cat had become stronger than its competitors.


Competition• The Results ….

– Cat had more than 30% of the US construction equipment market share.

– Cat was a winner of Information Week’s 1998, “Excellence in IS” award.


Competition

• What happened to Kamatsu?

– Komatsu shifted away from the bulldozer market to avoid the head-to-head competition with Cat.

9Strategic Information Systems

(SISs)

• SISs– are a system that leads a business unit (an organisati

on/company) to competitive advantage (ข้�อได้�เปรียบเชิ งแข้�งข้�น).

• which simply means you are in a better position than others.

10Strategic Information Systems

(SISs)

• Why so?– Because SISs typically contribute to the strategic

goals of an organisation.• E.g., Increase the revenue by 5%,

Cut labor.

– SISs can also increase performance and productivity significantly.

11An Example of an SIS

• The IS that Cat built is an SIS because it provides:– superb dealer services,– quick shipments,– on-time deliveries, and– an effective parts replacement program

• All these issues are related to goals, performance and productivity increase.

12Strategic Management

• Strategic management– Management that can help an organisation to achiev

e strategic goals.

• Elements of strategic management:– Long-term planning, – Response management (การบร�หารเชิ�งโต้�ต้อบ), and– Innovation


• Long-term (long-range) planning– An organisation must create a long-term strategic pl

an (e.g., 3-5 years) from which all necessary activities that support strategic goals will be carried out.

• Response Management– This is the use of any crucial response to repel (fend

off) business pressures.• e.g., Cat’s IT use to cope with business pressures.


• Innovation– An organisation introduces something new to the

industry.

• Cat employed strategic management to kick its competitors away, including Komatsu, in which case,– management implemented by CAT helped to

improve the bad situation that CAT confronted at the time.

15Porter’s Competitive Forces

Model• Porter proposed a competitive forces model in

1985.

• The model can be used to analyse your business competitiveness.

• The model has been used to develop competitive strategies for companies to increase their competitiveness.

• The model points to 5 major forces that could endanger your company’s position in an industry.

16Porter’s Model Characteristics

• Is an industry-related model that shows the position (competitiveness) of your company in its industry, e.g.,– Chip Manufacturing Industry

• Intel,

• Motorolla

• Can help suggest specific IT/non-IT actions to take.– But in many cases, such actions introduced involve

the use of IT.

175 Major Forces

1. The threat of entry of new competitors.

2. The bargaining power of suppliers.

3. The bargaining power of customers (buyers).

4. The threat of substitute products/services.

5. The rivalry (competition) among existing firms in the industry.

• Note that all these forces are still valid nowadays and result in business pressures.

18How are You going to Respond

with the Forces?

• The 5 forces have an impact on your business in one way or another.

• You must have response strategies (response management) to cope with the forces.


with the Forces?

• Porter suggests how to develop a response strategy which is aimed at establishing sustainable advantage against the 5 forces.

• To develop such a strategy, Porter proposed the following:– Cost leadership,– Differentiation,– Small focus,– Additional strategies.


with the Forces?

• Cost leadership– Produce products/services at the lowest cost.

• Differentiation– Be unique/different from your competitors.– But must still provide high-quality products/services

at a competitive price.

• Small Focus – Select a narrow-scope small market and apply either:

• cost leadership or

• differentiation or both.

21An Example of Small Focus

• Several chip manufacturers build customised chips for specific industries.– Small market => specific industries who want your

customised chips.– Differentiation => your customised chips.

• Frequent flyer programs– Small market => just frequent travellers.– Cost leadership => cheaper airfares.


with the Forces?

• Other strategies– Introduce any other strategies that can remain

(sustain) your competitive advantage, such as:

• Any strategy to improve the efficiency of your business operations,

• Any strategy to improve customer service,

• etc.

23Factors Related to Each Force

• Such factors are determinants which impact the 5 forces (See the figure in the next page).

Determinants for Suppliers

• E.g., – changing operational costs of suppliers and other

firms in the industry,– Presence of substitute inputs,– Supplier concentration.

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Determinants for Substitutes

• E.g., – Relative prices of substitutes,– Changing costs of substitutes,– Buyer preference.

Determinants for Buyers

• E.g.,– Volume purchases,– Buyer concentration,– Brand identity. (the distinguishing/unique character of the brand)


Determinants for Rivalry

• E.g.,– Brand identity,– Changing costs,– Industry growth.

27How the Model is Applied

• Apply the following 4 steps below to analyse your company position and seek ways to defend your company from business pressures.

Let us look at a market industry that sells all kinds of products to customers, like Walmart (in US), like Carrefour.


• Step 1:– List all the players for each (5) force (see the figure

in the next page).– Describe all the players in each block.

• Step 2:– Perform an analysis to relate the pertinent

determinants and others that you can think of to each player listed in step 1.

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<<Example of a substitute>>– To electronic shopping (as a substitute for Walmart),

you can relate:• Product prices by e-shopping competitors,

• Buyer preference– What makes them purchase via e-shopping?


• Step 3:– Devise a competitive/response strategy for Walmart to

defend itself against the 5 forces (business pressures) based on:

• the specific players in step 1 and

• the determinants in step 2.

32Response Strategies

<<Example of how to counter electronic shopping>>– Buyer preference:

• A questionaire to find out what makes customers purchase via e-shopping.

– Product prices:• Monitoring e-shopping pricing.

– Additional other strategies:• Imitate the e-shopping by introducing online Walmart,

• Value (recognise) frequent shoppers particularly,

• Provide a playground for children,

• Hand out free samples of products.


• Step 4:– Look for supporting ITs.

<<Example of managing frequent shoppers>>– Introduce a monitoring information system.– Introduce Walmart online e-shopping.– Introduce an online processing system with:

• a good DBMS and

• good analytical capability

to assess the frequent shoppers’ activities.

Documents

1 Strategic Information Systems and Porter’s Competitive Forces Model