- 1 -© Minder Chen, 1993-2011

IT/IS and Business Strategies / Competitiveness

- 2 -© Minder Chen, 1993-2011

Strategy and IS

Industry Structure (5 Competing Forces)

Competitive Strategy

Value ChainAnalysis

Business Process Design / Reengineering

InformationSystems

- 3 -© Minder Chen, 1993-2011

Business Strategies

• The job of the strategist is to understand and cope with competition.

• Competition for profits goes beyond established industry rivals to include four other competitive forces: customers, suppliers, potential entrants, and substitute products.

• The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

- 4 -© Minder Chen, 1993-2011

Industry Structure and Forces

• Forces are intense: airlines, textiles, and hotels, almost no company earns attractive returns on investment.

• Forces are benign: software, soft drinks, and toiletries, many companies are profitable

• Industry structure, manifested in the competitive forces, sets industry profitability & competitiveness in the medium and long run.

• Industry structure and a firm strategic positioning

• Identify the strongest competitive force or forces for strategy formulation.

- 5 -© Minder Chen, 1993-2011

• Rivalry is often fierce in commodity industries

• Photographic film industry: Kodak and Fuji

– Key competing force

– Polaroid subsitutional products/services http://en.wikipedia.org/wiki/Polaroid_Corporation

• New entrants are diversifying from other markets, they can leverage existing capabilities

– Pepsi did when it entered the bottled water industry,

– Microsoft did when it began to offer Internet browsers

– Apple did when it entered the music distribution business.

- 6 -© Minder Chen, 1993-2011

Five Competing Forces

YouTube Video: The Five Competitive Forces That Shape Strategy

- 7 -© Minder Chen, 1993-2011

Analysis and Driving Forces

Source: http://bcs.wiley.com/he-bcs/Books?action=resource&bcsId=4903&itemId=0470343818&resourceId=16146

- 8 -© Minder Chen, 1993-2011

Barriers to Entry

• Supply-side economies of scale

• Demand-side benefits of scale (network effects)

• Customer switching costs: – Enterprise resource planning (ERP) software is an

example of a product with very high switching costs.

• Capital requirements– Semiconductor foundry vs. corner coffee shop

• Incumbency advantages independent of size– Brand, experiences curve

• Unequal access to distribution channels– Using e-commerce for direct sales

• Restrictive government policy

- 9 -© Minder Chen, 1993-2011

Sources of Switching Costs• Learning costs: Switching technologies may require an

investment in learning a new interface and commands.• Information and data: Users may have to reenter data, convert

files or databases, or may even lose earlier contributions on incompatible systems.

• Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used.

• Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organization’s reputation as a reliable partner.

• Search costs: Finding and evaluating a new alternative costs time and money.

• Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software).

- 10 -© Minder Chen, 1993-2011

Porter Generic Strategies

- 11 -© Minder Chen, 1993-2011

Generic Strategies and Industry Forces

- 12 -© Minder Chen, 1993-2011

- 13 -© Minder Chen, 1993-2011

An Example of Detail Value Chain Activities

- 14 -© Minder Chen, 1993-2011

Supply Chain Management

Customer Relationship Management

Enterprise Resource Planning

- 15 -© Minder Chen, 1993-2011

IT Permeates the Value Chain

Source: How information gives you competitive advantage.

- 16 -© Minder Chen, 1993-2011

Industrial Value Chain

- 17 -© Minder Chen, 1993-2011

Industry Value Chain

- 18 -© Minder Chen, 1993-2011

Information Systems Components

Source: Using MIS 3e

- 19 -© Minder Chen, 1993-2011

Characteristics of Good Information

Figure 1-6 here

Source: Using MIS 3e

- 20 -© Minder Chen, 1993-2011

Integration