Chapter 3 Strategic Advantage 5 Competitive Forces Strategic

Chapter 3 Strategic Advantage 5 Competitive Forces

Strategic Information Technology is not an afterthought n Technology drives business strategy. n Information Technology changes the way businesses compete.

Strategic View n Information systems are vital competitive networks. n Information systems enable organizational renewal. n Information systems enable a business to quickly reengineer or reinvent

Porter’s Competitive Forces 1. Rivalry of competitors within an industry 2. Threat of new entrants into an industry 3. Threat posed by substitute products which might capture market share 4. Bargaining power of customers 5. Bargaining power of suppliers

Rivalry of competitors n Online-shopping, E-commerce increase rivalry n Price comparison tools (Google Product Search, Shopzilla, etc. ) increase rivalry. ¨ Price transparency n Industries with high rivalry? n Industries with low rivalry?

Threat of new entrants E-commerce enables a business to emerge overnight n A medium-sized retail store can become a global E-commerce competitor at little cost. n Whereas, it costs a lot to become a global donut competitor

Substitute Products Internet makes substitutes easier to find. n n Can’t afford to fly. . . take a train. Ipod to expensive. . . buy a Microsoft Zune

Bargaining power Customer: n n E-commerce has empowered the customer Examples: n Ebay Lending Tree Reverse auctions n Drives prices down! n ¨ ¨ ¨ n Suppliers: Example: A leading supplier can force retailers to invest in their Supply Chain Mgmt. system. Pushes costs on to the retailer More profit for the suppliers

Competitive Strategies 1. Cost Leadership 2. Differentiation 3. Innovation 4. Growth 5. Alliance

Cost Leadership Strategy n Using information technology to become the lowest-cost provider of products and services ¨ Using IT to reduce n Example: Dell ¨ Leveraging costs IT investments to drive up costs for the competition n Example: Apple

Differentiation Strategy n Developing ways to differentiate a firm’s products and services from its competitors’ ¨ Example: Starbuck vs. Dunkin Donuts

Innovation Strategy n n n Development of unique products and services Entry into a unique market Making radical changes that alter the fundamental structure of an industry

Growth Strategy n Significantly expanding capacity to produce goods and services ¨ Expanding into global markets Diversifying into new products and services n Integrating into related products and services E-commerce: enables Global Reach for small companies n

Alliance Strategy n Establishing new business linkages and alliances with ¨ customers, ¨ suppliers, ¨ competitors, ¨ consultants, n etc. Supplier and Retailer sharing information systems, sharing IT infrastructure.

Examples Cost Leadership: n Priceline. com n Bidding n Buyer set pricing

Examples Innovation: E-trade Online discount stock trading Market leader in 2000, but then they collapsed because everyone else entered the market.

Examples Growth: Walmart Streamlining supply chain and distribution so they can open stores everywhere at minimal cost. 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).

Examples Differentiation: n Moen & Lego n Online customer design n Increase in market share

Examples Alliance: Wal-Mart & 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). Outcome: Market gains as a Pharmacy

Other Competitive Strategies n Locking in customers or suppliers by building valuable new relationships with them. n 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. Examples? n

Other Competitive Strategies n Leveraging investment in information technology by developing new products and services that would not be possible without a strong IT capability.

Advantage vs. Necessity n Competitive Advantage – developing products, services, or capabilities that give a company a superior business position relative to its competitors n Competitive Necessity – developing products, services, or capabilities that are simply necessary to do business in an industry

Business Process Reengineering (BPR) Definition: n Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

Business Improvement (BI) n BI: Companies are always trying to improve, but most improve incrementally. ¨ This necessary to compete. BPR: Business Process Re-engineering is more than just BI… ¨ BPR involves radical change ¨ BPR is done to achieve competitive advantage

Agility n The ability of a company to prosper in rapidly changing market ¨ market demands high-quality, high performance, customer-configured products and services. n Information Systems can improve a companies Agility.

Agile Company Definition: n A company that can make a profit in markets with ¨ broad product ranges ¨ short model lifetimes n can produce orders individually and in arbitrary lot sizes.

Mass Customization Definition: n Providing individualized products while maintaining high volumes of production n Again, Information System can help a company achieve Mass Customization initiatives n Consider buying a Dell computer.

Customer-Focused Business A business that: n can anticipate customers’ future needs. n responds to customer concerns. n provides top-quality customer service.

Value Chain Definition: n All companies are just a series or chain of basic activities that… add value to its products and services, n Raw Material Add Value Products/Services

IS & The Value Chain n Integrate/”Bring together” the value chain in multiple Companies Mattel Toys Amazon. com GE Plastics