Lecture 23

Electronic Business (MGT-485)

Recap – Lecture 22

• E-Business Strategy: Formulation– Internal Assessment• Value Chain Analysis• Linkages within the Value Chain• Value Chain Linkages in the Supply Chain• Linkages with Supplier Value Chain• The Buyer’s Value Chain

Contents to Cover Today

• E-Business Strategy: Formulation– External Assessment• Key External Factors• Relationships between key external factors and an

organization• Performing an External Audit• Michael Porter’s Five Forces Model

External Assessment

Also called:– External Audit– External Strategic Management Audit– Environmental scanning– Industry analysis

External Assessment

External Audit:– Identification and evaluation of trends and

events beyond control of single firm• Increased foreign competition• Populations shifts• Aging society• Information technology• Computer revolution

Purpose:

– Development of Finite List:• Opportunities• Threats to be avoided

Nature of External Assessment

Five (5) broad categories:

1. Economic forces2. Social, cultural, demographic, & environmental

forces3. Political, governmental, and legal forces4. Technological factors5. Competitive forces

Key External Forces

Relationships Between Key External Forces and an Organization

Key External Forces

CompetitorsSuppliers

DistributorsCreditors

CustomersEmployees

CommunitiesManagers

StockholdersLabor Unions

Special Interest GroupsProductsServices

Opportunities&

Threats

Performing an External Audit

Gather competitive intelligence on factors:– Social– Cultural– Demographic– Environmental– Economic– Political, legal, governmental– technological

Performing an External Audit

Sources of information include:– Internet– Libraries (corporate, university, public)– Suppliers– Distributors– Customers– Competition

Performing an External Audit

Key factors:–Vary over time–Vary by industry

Performing an External AuditVariables include:– Market share– Breadth of competing products– World economies– Foreign affiliates– Proprietary account advantages– Price competitiveness– Technological advancements– Interest rates– Pollution abatement

Key External Factors

Key External Factors:

1. Oriented to long-term & annual objectives2. Measurable3. Applicable to all competing firms4. Hierarchical

• Overall company• Divisional or functional areas

Michael Porter’s Five-Forces Model (Competitive Analysis)

Potential development of substitute products

Rivalry among competing firms

Bargaining power of suppliers

Potential entry of new competitors

Bargaining power of consumers

Michael Porter’s Five-Forces Model (Competitive Analysis)• Competitive Rivalry– Competitive rivalry is a good starting point to when analyzing a

particular industry. – If entry to an industry is easy then competitive rivalry is likely

to be high. – If it is easy for customers to move to substitute products for

example from coke to water then again rivalry will be high.– Generally competitive rivalry will be high if:

• There is little differentiation between the products sold by competitors.

• Competitors are approximately the same size of each other.• If competitors have similar strategies.• It is costly to leave the industry (exit barriers)

Michael Porter’s Five-Forces Model (Competitive Analysis)• Power of Suppliers– Suppliers are also essential for the success of an

organization as they provide businesses with the resources they need to produce their products and services.

– Supplier power can come from:• If there is one or just a few suppliers that can provide the

resources a business needs.• If it is expensive to move from one supplier to another

(known also as switching cost)• If there is no other substitute for the product provided by

the supplier.

Michael Porter’s Five-Forces Model (Competitive Analysis)• Power of Buyers– Buyers or customers can exert influence and control

over an industry in certain circumstances. – This happens when:• There is little differentiation over the product and

substitutes can be found easily by customers/buyers. • Buyers/customers are sensitive to price fluctuations.• Switching to another product is not costly for

customers/buyers.

Michael Porter’s Five-Forces Model (Competitive Analysis)• Threat of Substitutes– Are there alternative products that customers can

purchase instead of yours? – Alternative products that offer the same benefit as your

products? – The threat from substitute (competitor) products is high

when:• The price of the substitute (competitor) product falls.• It is easy for consumers to switch from one substitute product

to another.• Buyers are willing to substitute products from different

competitors.

Michael Porter’s Five-Forces Model (Competitive Analysis)• Threat of New Entrant– The threat of new organizations entering the

industry is high when it is easy for an organization to enter the industry i.e. entry barriers are low.

– When a new business is deciding whether to enter an industry it will look at:• How loyal customers are to existing products,• How quickly it can achieve economy of scales• Would it have access to suppliers and• Would government legislation prevent them or encourage

them to enter the industry.

Summary

• E-Business Strategy: Formulation– External Assessment• Key External Factors• Relationships between key external factors and an

organization• Performing an External Audit• Michael Porter’s Five Forces Model