Strategy and the Internet

Strategy and the Internet Summary and Insights Team GALIP W. Zhao, L. Johnson, M. Saxena, A. Silverman, N. Elovitz April 22, 2006

Fundamental Questions • Who will capture the economic benefits that the Internet creates? • Will all the value end up going to customers, or will companies be able to reap and share of it? • What will be the Internet’s impact on industry structure? • Will it expand or shrink the pool of profits? • What will be its impact on strategy? • Will the Internet bolster or erode the ability of companies to gain sustainable advantages over their competitors?

Article Review • Paradox • Porter’s view • Myths • Affects on competition • Strategy • Operational effectiveness • Risks • Disadvantages • Advantages • IT’s role and use

The Internet Paradox The very things that it provides as benefits - information, reduction of difficulty for purchasing, marketing and distribution, easier business transactions also make it more difficult for companies to capture those benefits as profits.

Porter’s View of the Internet An enabling technology – a powerful set of tools that can be used, wisely or unwisely in almost any industry and as part of almost any strategy. - Porter

Internet Myths • First mover advantage • Partnering as a win-win • The Internet is cannibalistic • Channel conflicts

Internet’s effect on competition Porter’s 5 Forces + 1 • Threat of Substitutes • Overall industry is more efficient • Substitution options available through same channel • Supplier Power • Access to more customers • Channel to reach end users • Equal access to suppliers Competitive Rivalry • Increase in competitive rivalry • Migrates competition to price • Buyer Power • Reduced switching costs • Bargaining power shifted to buyer + 1 • Barriers to Entry • Open system • Reduction of geographic boundaries • Internet applications are not proprietary and easily replicated • Customer • More choice • More knowledge • More freedom

Building the Internet into your Strategy • The Internet can offer a unique competitive advantage, leading to increased, long-term profits • 2 ways: • Operational effectiveness • Strategic positioning

Operational effectiveness • Speed, flexibility and efficiency • Internet affects this for each company • But it also lowers the advantage • All competitors have the same opportunities • Rivals can copy what you do quickly • Uniqueness is gone • The Internet does not supply lasting SCA for operational effectiveness

Strategic positioning • While a new means of conducting business has become available – the fundamentals of competition remain unchanged • Use of the Internet creates economic value by: • New opportunities • Unique, common information technology platform • Complementary service • Inter-connected value chain • Enhance the customer’s experience • Balance deficiencies

Risks • Exclusion of the Internet within strategy • Undermine industry structure • Hastened competitive convergence • Reduce likelihood of competitive advantage • Forgetting what they stand for • Foregoing uniqueness • Compromise competitive advantage

Disadvantages of Not Integrating • Lack of real-time information • High cost of face-to-face interaction • High cost of physical versions

Advantages of Integration • Complementary • Reconfigure traditional activities • Market-segment trade-offs

ITs Role in Strategy and the Internet • Internet provides a stronger, interconnected information architecture • Older software and ERP systems forced companies to conform to their structure • Reducing opportunities for differentiation • This no longer occurs • Systems to fit their unique processes

Internet used by IT • Firm Infrastructure • Human Resource Management • Technology Development • Procurement

Internet used by IT • Supply Chain Management • Inbound Logistics • Operations • Outbound Logistics • Marketing and Sales • After-Sales Service

The Internet isn’t Limitless Lacks: • Physical examination of products • In-person Sales influence • Face to face contact and relationship building • Lack of spontaneity for purchase • Fear of fraud (compared to in person purchasing)

The Bottom line for a Company’s Bottom Line • Integrate the Internet into your company’s overall strategy as a complement to traditional ways of competing • Complement your existing competitive approaches • Create systematic (entire value chain) that competitors can’t copy

Delivering Customer Value http://www.keystonehighschool.com/

Supplier Coordination http://www.adp.com/index_adp.html

Employee Support World’s Top 10 Intranets of 2005 http://www.useit.com/alertbox/20050228.html • Banesto - the third largest bank in Spain • Cisco Systems - the world's leading computer networking vendor (U.S.) • Electrolux - the world's largest manufacturer of powered appliances (Sweden) • The Integer Group - the seventh largest promotional marketing agency (U.S.) • NedTrain - the Dutch National Railway's maintenance subsidiary (The Netherlands) • Orbis Technology - a small software developer (U.K.) • Park Place Dealerships - operator of ten luxury automobile dealerships (U.S.) • Procter & Gamble - a leading manufacturer of branded consumer goods (U.S.) • Schematic - an interactive design and technology agency (U.S.) • Verizon Communications - a leading telecommunications company (U.S.)

Questions • Thank you

Strategy and the Internet