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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
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