Strategy and the Internet

1. Strategy and the Internet by Michael E. Porter Harvard Business Review, Vol. 79, No. 3, March 2001 指導老師　林娟娟教授 資碩專一　史元瑜99756009 資碩專一　林仲葦99756014 報告日期 2010/11/22

2. Outline • Background • Myth of Internet • Return to fundamentals • Internet and industry structure • Future of Internet Competition • Internet and Competitive Advantage • Absence of Strategy • Internet as Complement • Conclusion

3. Background • Dot-com bubble (1995-2000) • Distorted Market Signals • Discount provided by enterprise • Curiosity , freshness and discount that influenced consumers • Distorted revenue from capital gains instead of profitability from products and services

4. Myth of Internet • First mover • Switching costs • Brand advantages • Proprietary makes winner-take-all • Partnering improves industry economics

5. Return to fundamentals • Strategy creates economic value, not Internet technology • Basis of economic value : price and cost • Economic value of Internet • Uses of Internet • Internet technologies • Factors determine profitability • Industry structure • Sustainable competitive advantage

6. Internet and industry structure(1/8) • Impacts of Internet • Reduce cost of communicating, information gathering, transaction accomplishing

7. Internet and industry structure(2/8) • Five underlying forces of competition • Bargaining power of suppliers • Threat of substitute products or services • Rivalry among existing competitors • Barriers to entry • Buyers • Bargaining power of channels • Bargaining power of end users

8. Internet and industry structure(3/8) substitutes suppliers competitors buyers barriers

9. Internet and industry structure(4/8) • Bargaining power of suppliers • Advantage • Raise bargaining power over suppliers • Disadvantage • Suppliers access to more customers • Reducing the leverage of intervening companies • Gravitate procurement to standardized products that reduce differentiation • The proliferation of competitors downstream shifts power to suppliers

10. Internet and industry structure(5/8) • Threat of substitute products or services • Advantage • Expand the market size by making the overall industry more efficient • Disadvantage • Creates new substitution threats

11. Internet and industry structure(6/8) • Rivalry among existing competitors • Disadvantage • Reduces differences • Migrates competition to price • Increasing competitors • Lowers variable cost relative to fixed cost

12. Internet and industry structure(7/8) • Barriers to entry • Disadvantage • Reduces barriers to entry • Difficult to keep proprietary from new entrants • New entrants has come into many industries

13. Internet and industry structure(8/8) • Buyers • Advantage (bargaining power of channels) • Eliminates powerful channels • Disadvantage (bargaining power of end users) • Shifts bargaining power to end consumers • Reduces switching costs

14. Future of Internet Competition • Continuously put pressure on profitability • Strengthen customers and advertisers’ power because of low switching cost • Opportunities of profitability from Internet

15. Internet and Competitive Advantage • Sustainable competitive advantage • Lower cost • Premium price • Cost and price advantages • Operational effectiveness • Strategic positioning

16. Absence of Strategy • Drought of distinctive strategic positioning • Advantage of Internet with traditional IT service

17. Internet as Complement(1/3) • Internet complements companies’ traditional activities and ways of competing • Critical corporate assets vs. noncompetitive activities • Examples: Wal-greens , W.W. Grainger

18. Internet as Complement(2/3) • Virtual activities amplify importance of physical activities • Reasons of complementarity between Internet and traditional activities • Internet in one activity places demands on physical activities • Using Internet in one activity can have systemic consequences • Restricts of Internet

19. Internet as Complement(3/3) • Internet and value chain Firm infrastructure Human resource management Technology department Procurement Inbound logistics Operations Outbound logistics After-sales services Marketing and sales Web-distributed supply chain management

20. Conclusion • Internet makes competitive advantage more important • Dot-coms must pursue distinctive strategies rather than emulate established companies • “New economy” is more like an old economy access to a new technology

21. Thanks for your listening