MP3 / MD740Strategy & Information Systems

Nov. 3, 2004

Technology & Industry Competition

Topics Covered

• Strategy & the Internet – a critical look

• Tech’s impact on the five forces of industry competitiveness

• Recognizing competitor threats

• Information Systems and dealing with competitor threats– Readings discussions on mass-customization,

brand, and scope, among others

• Buyer / Supplier power

ICA: Industry & Competitive Analysis

(Porter’s Five Forces)

Industry Competitors

Potential New Entrants

Substitute products or services

Power of Suppliers

Power of Buyers

Value Chain

Inbound Operations Outbound Marketing Servicelogistics logistics & Sales

Infrastructure: general mgmt, planning, finance, ISHRM: recruiting, hiring, training, and developmentTech. Development: R&DProcurement

Competitor related threats– Growth industry w/above average profits– Fragmented industry - no clear leader / national brand– Low startup costs– Lack of scale economies– Low differentiation– Weak brands / low customer loyalty– Low customer switching costs– Available distribution networks– Technology & Regulatory shifts– Similar products/services/industries exist

Addressing Competitive Threats– Economies of Scale– Differentiation– Scope / Multiple Business Lines / Slack Resources– Develop / Strengthen Brand– Proprietary technology, learning curve/know-how, geography– Contrived Deterrence

• over-capacity, pre-announcements

– Government Regulation– Switching Costs and Network Effects– Create / secure distribution channels– Alliances (with complementary firms & competitors)

The Role of Timing

IS as an Enabler

• IS resource yields competitive advantage– (ex. Alcoa)

Competitive Advantage

Scale, World-leading mfg. & sales

Integrated IS across plants / offices

Creating / Enhancing Resources• Created when resources combine for additional benefit.

– e.g. embedded technology

Competitive Advantage

Service Network

Monitoring IS

R & D

Superior Service/Switching Cost/

Inventory Efficiencies

Superior Products

Google Revenue Streams

AdWords

AdSense

Google Search Appliance

Google(GOOG)

Yahoo(YHOO)

eBay(EBAY)

Net incomelatest four quartersin millions

$222 $542 $715

Market cap(10/26/04)

$63.0 $49.8 $47.7

Source: Fortune, Nov 15, 2004

Comparing Google

Supplier related threats

• Small number of suppliers• Suppliers sell highly differentiated products• Suppliers not threatened by substitutes• Cost to switch suppliers is high• Firm is not an important customer for

suppliers• Suppliers threaten forward integration• Information asymmetries

Addressing the supply-side

• Foster relationships with more suppliers• Acquire & leverage information• Lower switching costs

– Lower product complexity - turn supplier products into commodities

– be less dependent on a given supplier

• Integrate backwards• Tightly integrate suppliers into your operations

– make suppliers more dependent on your firm

Reduce Switching Costs & Enhance Choice

Firms have a greater choice of suppliers

Firms arelimited to a

few suppliers

SWITCHING COSTS

LOW HIGH

Information Systems

ExamplesEDI, WebServicesComputer Aided Design (CAD), Computer Aided Engineering (CAE), Computer Aided Manufacturing (CAM)Integrated Robotics

Buyer related threats

• Small number of highly influential buyers• Buyers purchase commodity products• Products sold to buyers consume a high portion of

the product’s final cost• Buyers are not earning significant economic profits• Buyers threaten backward integration• Information asymmetries

Addressing the buy side• Seek or create new buyers / new markets• Acquire & leverage information• Reduce buyer costs / assist buyer in expanding

markets• Differentiate products• Tightly integrate with buyers• Integrate forwards

Differentiating Products

Commodities DifferentiatedGoods

LEVEL OF CUSTOMIZATION

LOW HIGH

ExamplesCustomer-driven Ordering SystemsMass-customization SystemsJust In Time (JIT) Manufacturing Systems

Information Systems