Chapter 2
Strategic Advantage
5 Competitive Forces
Why Study Strategic IT?
• Technology is no longer an
afterthought in forming business
strategy, but the actual cause
and driver.
• IT can change the way
businesses compete.
Strategic View of IS
• Information systems are vital
competitive networks.
• Information systems are a means of
organizational renewal.
• An IS can enable a businesses to
reengineer or reinvent itself in
order to survive and succeed.
Porter’s Competitive Forces
To survive and succeed, a business must
develop and implement strategies to
effectively counter the:
1. Rivalry of competitors within its industry
2. Threat of new entrants into an industry
and its markets
3. Threat posed by substitute products
which might capture market share
4. Bargaining power of customers
5. Bargaining power of suppliers
Rivalry of competitors
• Online-shopping, price
comparison tools (Froogle,
Shopzilla, etc.) increase rivalry.
• Industries with high rivalry
– Automotive
– Cell Phone
– Retail Clothing
– Fast Food
• Industries with low rivalry?
Threat of new entrants
• Internet/E-commerce enables a
business to emerge overnight
• Almost any medium-sized retail
store can become a global ecommerce competitor at little
cost.
It costs a lot to
become a global
donut competitor
Substitute Products
• Internet makes substitutes
easier to find.
– Can’t afford to fly...take a train.
– Ipod not available...buy a Dell DJ
– Thomas the Tank Engine costs too
much...consider Imaginarium.
Bargaining power
Customer:
• Suppliers:
• Here is where
the Internet
has empowered
the customer
• Home Depot,
Walmart, etc. can
persuade suppliers
to lock-out the little
guys
– Ebay
– Lending Tree
– Reverse
auctions
– By forcing suppliers
into investing in
SCM software
Competitive Strategies
1.
2.
3.
4.
5.
Cost Leadership
Differentiation
Innovation
Growth
Alliance
Cost Leadership Strategy
• Becoming a low-cost producer of
products and services
• Finding ways to help suppliers
and customers reduce their costs
• Increase costs of competitors
Differentiation Strategy
• Developing ways to differentiate
a firm’s products and services
from its competitors’
Innovation Strategy
• Development of
unique products
and services
• Entry into unique
markets or market
niches
• Making radical
changes that alter
the fundamental
structure of an
industry
Growth Strategy
• Significantly expanding capacity to
produce goods and services
– Expanding into global markets
• Diversifying into new products and
services
• Integrating into related products and
services
Example of Bad Diversification:
Dr. B.’s great new business idea:
The Quick-Lube, Dentist, Movie Theater
Alliance Strategy
• Establishing new business linkages
and alliances with
–
–
–
–
customers,
suppliers,
competitors,
consultants, etc.
• Great advantages from linking
Information Systems of different
companies.
Examples
Cost Leadership:
• Priceline.com
• Bidding
• Buyer set pricing
Examples
Innovation:
E-trade
Online discount
stock trading
Market leader,
then problems...
Examples
Growth:
Walmart
Beer, diapers, discount beef
jerky, country music CD’s,
NASCAR merchandise,
cheap plastic furniture,
and every ingredient you
need to make napalm (all
at low prices).
Market leadership
Examples
Differentiation:
• Moen
• Online customer
design
• Increase in
market share
Examples
Alliance:
Walmart & Proctor N’ Gamble
Beer, diapers, discount beef
jerky, country music CD’s,
NASCAR merchandise, cheap
plastic furniture, every
ingredient you need to make
napalm, and oxycontin
(all at low prices).
Even more Market leadership
Other Competitive Strategies
• Locking in customers or suppliers
by building valuable new relationships
with them.
• Building switching costs so a firm’s
customers or suppliers are reluctant
to pay the costs in time, money,
effort, and inconvenience that it
would take to switch to a company’s
competitors.
Other Competitive Strategies
• Raising barriers to entry that
would discourage or delay other
companies from entering a market.
• Leveraging investment in
information technology by developing
new products and services that would
not be possible without a strong IT
capability.
Advantage vs. Necessity
• Competitive Advantage –
developing products, services,
processes, or capabilities that give a
company a superior business position
relative to its competitors and other
competitive forces
• Competitive Necessity – products,
services, processes, or capabilities
that are necessary simply to compete
and do business in an industry
Customer-Focused Business
A business that:
• can anticipate customers’ future
needs.
• responds to customer concerns.
• provides top-quality customer
service.
Value Chain
Definition:
• View of a firm as a series, chain,
or network of basic activities that
add value to its products and
services,
• and thus add a margin of value
both to the firm and its
customers.