Porter’s Competitive Forces

Porter’s Competitive Forces New entrants Industry competitors Suppliers Buyers Intensity of rivalry Substitutes

Strategies for Competitive Advantage Competitive Advantage Cost Differentiation Broad focus Cost leadership Competitive Scope Differentiation Narrow focus Differentiation focus Cost focus

Role of IT in Competitive Strategy • Raise Barriers to Entry • offer unique services that are hard to copy • first mover advantages • knowledge barriers

Role of IT in Competitive Strategy • Establish Switching Costs • integrate IT services with other services • response time and service quality • value-added services

Role of IT in Competitive Strategy • Generate New Products • tailor existing products to meet customer needs • emergence of new IT-based industries

Role of IT in Competitive Strategy • Change cost structure or product/service offerings • cheaper production, distribution through IT • use IT to differentiate

Role of IT in Competitive Strategy • Change supplier/buyer relationships • process automation • inventory management and JIT • electronic linkages • reducing the role of the middleman

Role of IT in the Value Chain • Inbound logistics • inventory and ordering • links to suppliers • Operations • process control • on-line processing • telecommunications

Role of IT in the Value Chain • Outbound logistics • links to buyers • Marketing and sales • customer service • linking suppliers and buyers • database marketing

Role of IT in the Value Chain • After-sales service • on-line support • expert systems

Classification of Companies’ Use of Information Systems • Adopters • Adapters • Inventors

Characteristics of Adopters • Use purchased, off-the-shelf systems for routine applications • Goal is short-term survival or catching up with competitors

Characteristics of Adopters • Most often found in • stagnant industries • areas of depressed economy • companies with insufficient capital resources

Characteristics of Adapters • IT is an essential element of planning • Have awareness, capability, and funds to undertake internal development

Characteristics of Adapters • Have close working relationships with suppliers to take advantage of developments in which timing is critical • Invest significantly in maintenance of existing applications, but also focus on adapting new technology through expansion and innovation

Characteristics of Inventors • Create new technologies that represent significant departures from current practice • Can “leapfrog” the competition

Characteristics of Inventors • Strong R&D department • Ability to market needs and bring products or services to the market at the right time and at a competitive cost

Information Technology Strategic Development Cycles • Assessment Cycle • Planning/Development/Implementation Cycle

Assessment Cycle • Evaluate position and approach used by competitors • Identify strong and weak points of competitors’ products and services • Identify competitors’ major applications of IT • Identify competitors’ technical and financial strength and their ability to invest in IT

Assessment Cycle • Evaluate company’s current IT status • should be performed by independent group within company or outside consultant • develop description of applications of IT to critical operations or products and identify gaps in application’s ability to meet its objectives

Assessment Cycle • Evaluate company’s current IT status (cont’d) • appraise skills, methods, and tools of application developers • review work mix (e.g., percentage of time spent on maintenance versus new development)

Assessment Cycle • Understand how information technology could be applied • appraise available IT that could be used for competitive advantage now • appraise anticipated changes or new developments that could be used for competitive advantage over the next 3-5 years

Assessment Cycle • Understand how information technology could be applied • identify potential applications of current and future technology -- how will they affect competition? • identify potential changes in current applications driven by market demands or technology development

Assessment Cycle • Assess environmental factors • technology • industry structure • external economic and political forces

Planning/Development/Implementation Cycle • Identify major threats and opportunities • summary of results of assessment cycle • what areas would most benefit from improved use of IT? • relate to business objectives

Planning/Development/Implementation Cycle • Develop an IT strategy • what areas deserve high-priority attention • how competitors maximize their use of IT • how does company respond to competitors • identify any important new threats

Planning/Development/Implementation Cycle • Develop an IT strategy (cont’d) • identify and analyze new uses of IT for products and services • assess threats and opportunities • identify parts of company infrastructure that will need to be improved

Planning/Development/Implementation Cycle • Develop the infrastructure to implement the plans • Specify: • goals • strategy • approach • expected results • critical milestones • requisite resources

Planning/Development/Implementation Cycle • Perform detailed planning and implementation • improve the IT infrastructure • begin detailed planning for the application • establish a steering group to ensure that all interests are represented during this phase

Planning/Development/Implementation Cycle • Evaluate realized returns on investment • evaluation may not be possible for months due to application migration, test marketing, redesign of business processes • maintain updated estimates on return of technology investments

Planning/Development/Implementation Cycle • Evaluate realized returns on investment (cont’d) • measure return in terms of success criteria • Reiterate these cycles to improve competitive position

Risks • Failure to continue investing in new technology • Lowered barriers to entry • Litigation • Dominance of customer or supplier (elimination of middleman)

Risks • Timing • Threats to large firms • Misunderstanding segments • Cultural lag

Management Perspective • Importance of IT in the strategic plan • Securing confidentiality • Evaluating financial and accounting measures for IT • Partnership with IT specialists

Porter’s Competitive Forces