Porter Imp

7/27/2019 Porter Imp

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Whats Happening?!

Broadband Internet access has grown from 6% to 31% in three

years.

John Rodrigues reports that he is getting job interviews.

Jobless claims fell last week to the lowest level since Nov. 30

GM reported record 4th quarter earnings.

First ISMA meeting on TuesdaySpeaker is JP LeBlanc

from Borland. Time and place yet to be determined.


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Chapter 2 Summary

Business Competitive Environment


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Review of Objectives

To clearly understand competition:

Definition of Competitiveness

Competitive Advantage Global Competition

Role of the nation:

Role of government within a nation.


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Definition of Competitiveness

Objective of a business is to make a profit.

Profit based on providing value to customers.

How can a business assure value to customers?

A good competitor knows:

Whichproducts and services it offers. Who its customers are.

Who its competitors are.


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Competitive Advantage

To assure positioning for profit, a company must

maintain competitive advantage.

Methods that are achievable and sustainable.

Work smarter.

Assess whether Information Systems are

appropriate to gaining a competitive advantage?

Focus on three primary inputs: HR , Capital,Technology.


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Global Competition

The Global Market will come to you if you

dont go to it.

By staying in your home country, youassume a defensive position.

There are advantages and disadvantages to

going global. These need to be considered

carefully.


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Role of the Nation

Study states that increased competitiveness

of the Nation will stimulate the economy.

6 recommended steps to stay competitive. Only companies can sustain and achieve

competitive advantage.

Government should serve as a catalyst and achallenger.


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Competitiveness: A Link to National Goals

Human

Resources

Capital

Technology

Improved

Domestic

Performance

More and

Better Jobs

Increased

Standard of

Living

Stronger

National

Security

Decreased

Budget

Deficit

Trade

Policy

New

Competition

Increased

World Market

Competitiveness

Reduced

Trade

Deficit

Figure 2-1


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Possible Exam Questions

1. What are some ways that governments

serve as a catalyst and challenger to the

competitiveness of its companies?

2. Why has competitiveness become the

important topic that it is?


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Chapter 3 Introduction

The Porter Competitive Model

for Industry Structure Analysis


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Key Chapter Objectives

Basic understanding of Porter CompetitiveModel

How the model can be used to analyze acompanys competitive position within itsenvironment (its industry).

How IS infrastructure can influences acompanies responsiveness to its changingbusiness environment.


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The Porter Competitive Model

Used to understand and evaluate the

structure of an industrys businessenvironment and the threats of

competition to a specific company.


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Porter Competitive Model

Intra-IndustryRivalry

Strategic Business Unit

BargainingPower

of Buyers

BargainingPower

of Suppliers

Substitute

Products

and Services

PotentialNew Entrants

Figure 3-1

Source: Michael E. Porter

Forces Governing Competition in IndustryHarvard Business Review, Mar.-Apr. 1979


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Two Strategic Objectives

Create effective links with customers and

suppliers

Create barriers to new entrants and substitute

products


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Primary and Supporting Strategies

Differentiation Strategy (Primary)

Low Cost Strategy (Primary) Innovation (Supporting)

Growth (Supporting)

Alliance (Supporting)


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Value Chain

Developed by Michael Porter but different

from competitive model because it focuses

within the company.

Analyzes the cross-functional flow of

products or services within an organizationthat add value to customers.


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Generic Value Chain

INBOUND

LOGISTICSOPERATIONS OUTBOUND

LOGISTICS

MARKETING

AND SALESSERVICE

PRIMARY ACTIVITIES

PROCUREMENT

TECHNOLOGY DEVELOPMENT

HUMAN RESOURCE MANAGEMENT

FIRM INFRASTRUCTURE

SUPPORTACTIVITIE

S

Figure 3-6Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from

COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright

1985 by Michael E. Porter.


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Value Chain and IS

The Value Chain can be used to determinewhere IS can strengthen the flow of primaryand support activities within an

organization. Every segment of an organization needs IT

and IS to be competitive. So this model is

essential to visualizing the flow of activitieswithin segments through the use of IS andIT.


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Chapter 3


for

Industry Structure Analysis


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ATP Research

1. Value Line

2. Company web page and annual report.

3. Internet search engines:Google

Ask Jeeves

4. Library reference documents

5. Jack Callon and his documents


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The Plan for Today

Address the Concepts of the Porter

Competitive Model.

Provide some industry examples using theCompetitive Model.

Address the Value Chainconceptually and

with industry examples. Revisit each of these using the Airline

Industry as the example in Chapter 4.


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Awareness of competitive forces can

help a company stake out a position

in its industry that is less vulnerableto attack.

Michael E. Porter

Competitive Strategy


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Was not developed for IS use.

Breaks an industry into logical parts,

analyzes them and puts them back together. Avoids viewing the industry too narrowly.

Provides an understanding of the structure

of an industrys business environment.

Provides an understanding of competitive

threats into an industry.



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Two Key Questions

1. How structurally attractive is

the industry?

2. What is the companys relative

position within the industry?


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Why Do You Care?

The collective strength of the industry forces

determines the ultimate profit potential of an

industry.

The strongest competitive forces are of greatest

importance in formulating competitive strategies.

Every industry has an underlying structure, or aset of fundamental economic and technical

characteristics that gives rise to these competitive

forces.


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Why Do You Care?

This view of competition pertains to industries

selling products and those dealing in services.

A few characteristics are often key to the strength

of each competitive force.


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Key Industry Analysis Factors

Collecting the data.

Determining which data is important.

Selecting an appropriate overall approach.

Deciding on the logical starting point.


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Basic Objectives of the SBU

1. To create effective links with

buyers and suppliers.

2. To build barriers to new entrants

and substitute products.


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Intra-IndustryRivalry

Strategic Business Unit

BargainingPower

of Buyers

BargainingPower

of Suppliers

Substitute

Products

and Services

PotentialNew Entrants

Figure 3-1

Source: Michael E. Porter

Forces Governing Competition in Industry

Harvard Business Review, Mar.-Apr. 1979


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Rivalry Likelihood

Profit margins.

Industry growth rate and potential.

A lack of capacity to satisfy the market.

Fixed costs.

Competitor concentration and balance.

Diversity of competitors.

Existing brand identity.

Switching costs.

Exit barriers.


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A Buyer Has Power If:

1. It has large, concentrated buying power that enables

it to gain volume discounts and/or special

terms or services.

2. What it is buying is standard or undifferentiated andthere are multiple alternative sources.

3. It earns low profit margins so it has great incentive

to lower its purchasing costs.

4. It has a strong potential to backward integrate.

5. The product is unimportant to the quality of the

buyers products or services.


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A Supplier Has Power If:

1. There is domination of supply by a few companies.

2. Its product is unique or at least differentiated.

3. It has built up switching costs.

4. It provides benefits through geographic proximity to

its customers.

5. It poses a definite threat to forward integrate intoits customers business.

6. A long time working relationship provides unique

capabilities.


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Definitions

New Entrant:

An existing company or a startup that has not

previously competed with the SBU in its

geographic market. It can also be an existingcompany that through a shift in business strategy

begins to compete with the SBU.

Substitute Product or Service:

An alternative to doing business with the SBU. This

depends on the willingness of the buyers to

substitute, the relative price/performance of the

substitute and/or the level of the switching cost.


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Possible Barriers to Entry

Economies of scale.

Strong, established cost advantages.

Strong, established brands.

Proprietary product differences.

Major switching costs.

Limited or restrained access to distribution.

Large capital expenditure requirements.

Government policy.

Definite strong competitor retaliation.


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Substitute Threats

Buyer propensity to substitute.

Relative price/performance of substitutes.

Switching costs.


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Competitive Strategies

What is driving competition in my current or

future industry?

What are my current or future competitors

likely to do and how will we respond?

How can we best posture ourselves to achieve

and sustain a competitive advantage?


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Strategy Options

According to Michael PorterPrimary Strategies

1. Differentiation

2. Least Cost

Supporting Strategies

1. Innovation2. Growth

3. Alliance


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Can Information Systems:

1. Build barriers to prevent a company from entering

an industry?

2. Build in costs that would make it difficult for a

customer to switch to another supplier?3. Change the basis for competition within the

industry?

4. Change the balance of power in the relationship

that a company has with customers or suppliers?

5. Provide the basis for new products and services,

new markets or other new business opportunities?



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Heavyweight Motorcycle Manufacturing Industry

North American Market

Bargaining

Power of

Buyers

Recreational Cyclist Young Adults

Law Enforcement

Military Use

Racers

PotentialNew Entrant

Substitute

Product or

Service

Intra-Industry Rivalry

SBU: Harley-Davidson

Rivals: Honda, BMW,

Suzuki, Yamaha

Foreign Manufacturer

Established Company

Entering a New Market

Segment

New Startup

Parts Manufacturers

Electronic Components Specialty Metal Suppliers

Machine Tool Vendors

Labor Unions

IT Vendors

Bargaining

Power of

Suppliers

Automobiles

Public Transportation

Mopeds

Bicycles

Business Strategy Model - Motorcycle Manufacturing Industry


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Engineering Product Design Manufacturing Sales/Distribution Business

Information Systems

Company Structure

Independent Alliances Joint Ventures/Subsidiaries

Sales/Distribution Strategy

Distributors Independent Dealers Franchised Dealers

Manufacturing Strategy

Vertically Integrated Vendor Emphasis Outsource

Market Strategy

North American Europe Japan/Asia Latin America

Law Enforcement Military Recreational Professional Young Adult

Product Strategy

Type/Purpose/Size

Heavyweight Off-Road Dual Purpose Road Racing Caf Racer

Price Strategy

Entry Level Moderate Premium

Business Strategy Model Motorcycle Manufacturing Industry

Business Strategy Model Food Service Industry


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Product Strategy

LimitedSpecialized

Products

Broad Rangeof Specialized

Products

Wide Range ofNon-specialized

Products

HealthConsciousProducts

ParentswithKids

EthnicFocus

TeenagersYoung Adultswith Social

Focus

TimeConscious

Adults

Leisure

Adults

SeniorCitizens

Customer Strategy

Store Format StrategyDine In

Wait Service

Dine InCounter Service

or BuffetTake Out

Drive

Through

Vendor Strategy

Competitive

Bids

Vertically

Integrated

Long Term

ContractsAlliances

Market Strategy

Local Regional National International

Business Strategy Model Food Service Industry


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Company Structure Strategy

Independent Alliances Franchises Subsidiary

Information Systems Strategy

Customer

Systems

StoreLogisticalSystems

Business

Systems

ProductAnalysisSystem


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Porter Competitive Model Analysis

for the San Francisco 49ers

Intra-Industry

RivalrySBU: SF Giants

BuyersSuppliers

Substitute Products and Services

New Entrants

Porter Competitive Model Analysis for the San Francisco 49ers


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Bay Area Market

Intra-Industry RivalrySBU: SF 49ers

Rivals: Oakland RaidersArena Football

S.F. 49ers

Golden State Warriors

College Athletic Events

High School Athletic Events

Movies, Stage Plays, etc.General Travel and Travel Packages

BuyersDie Hard 49er Fans

Die Hard Football Fans

Fair Weather Football Fans

Non-football FansOut of Town Visitors

Opposing Team Fans

Age Group Segments

Groups Versus Individuals

Corporate Sponsors

Sports Writers and Media

Outlets

SuppliersPlayers Union

City of SF

Transportation Services

Food ServiceSovereigns

Police and Sanitation

Service

Utilities

Stadium Employees

Substitute Products and ServicesTelevised Football Games - Free or Cable Service at Home

Televised Games at Sports Bars

Radio Broadcasts of Football Games Rotisserie Leagues, Trading Cards, Memorabilia

New EntrantsCanadian Football

Professional Hockey

Professional SoccerSumo Tournaments


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Tips1. To incorrectly define the industry can cause major

problems in doing Section I of the analysis term paper.

2. You must identify the specific market being evaluated.

3. Your analysis company is the Strategic Business Unit.

4. Identify rivals by name for majors, by category for minor

rivals if needed to present the best possible profile of

rivals.


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5. Be sure to address the power implications of both

customers and suppliers. Power buys them what?

6. Identify buyers and suppliers by categories versuscompanies.

7. Summarize your Porter Model analysis.


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Computer Industry

Why is this industry more of a challenge to

evaluate using the Porter Competitive

Model?


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Old Computer Industry

Layer 5

Distribution

Layer 4

Application

Software

Layer 3

OperatingSystem

Software

Layer 2

Computing

Platforms

Layer 1Basic

Circuitry

IBM DEC HP Fujitsu NCR

Figure 3-3


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The New Computer Industry

Layer 1

Microprocessor Intel X86 Motorola RISC Power PC

Layer 2

ComputerPlatforms

IBM Compaq Other Intel-Based PCs Apple Macs Other

Layer 3

Operating

System

Software

MS DOS Windows OS/2 Unix Apple

Novell Netware Banyan IBM Others

Layer 4

ApplicationsSpreadsheets

Word Processors

Database

Lotus 1-2-3 Microsoft Excel Quattro Pro

Layer 5

Distributors

Computer

Dealers

Super

Stores

Mass

Merchandisers

Clubs Mail

Order

Value-add

Resellers

Direct

SalesForce

Other

Figure 3-4

Th C t I d t


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The Computer Industry

Layer 1

Microprocessor Intel X86 Motorola RISC Power PC

Layer 2

Computer

Hardware

Platforms

Supercomputer Mainframe Midrange Workstation PC Handheld Device

Layer 3

Operating

System

Software

Windows Unix Linux Apple

Layer 5

Application

Software

Enterprise

SpecificWord Processors Spread Sheets Publishing Groupware Data Warehouse Other

Layer 6

Sales and

Distribution

Computer

Stores

Super

Stores

Mass

Merchandisers

Mail

Order

Value-add

Resellers

Direct

Sales

Force

Internet

Direct

Layer 4

Database &

Networking

SoftwareHierarchical Database Relationship Database

Desktop Suites Enterprise Resource Planning Supply Chain Management Other

LAN, WAN and Internet Software Interfaces, Browsers and Search Engines


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Computer Industry

Hardware

Processors

Input/Output Devices

Storage Devices

Networking Equipment?

Multiple processor

segments in the computer

industry.

Processor companiesversus specialized

hardware companies.


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Software

Systems Software

Operating Systems Database Systems

Network Systems

Utility Software

Performance and

Security Software

Development Software

Programming Languages

CASE Software

Applications Software

Hardware vendors

versus independentsoftware companies.


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Applications Software

Specific application software to do numerous things.

Running on a range of processors.

Applications suites (integrated applications) Some call

these integrated enterprise applications

Is game software from Sony a part of the computer

industry?

Is software to run numerical control machine tools part ofthe computer industry?

Is software to analyze automobile smog tests part of the

computer industry?

W ld id C t H d S l


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Worldwide Computer Hardware Sales

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000

1993

1994

1995

1996

1997

1998

1999

2000

Supercomputer

Mainframe

Midrange

Workstation

Personal Computer

Source: Dataquest

Millions of Dollars


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Billions of $s

Worldwide Hardware Sales

0 100 200 300

2000

2001

2002

PCs

Total Hardware

Billions of $s

Source: Dataquest


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What is a PC?

1. A desktop toolword processor, spreadsheet,

publishing tool, data store.

2. An entertainment device.3. Communication deviceemail.

4. Information sourceInternet sources.

5. A collaboration tool.


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PC Industry Segment

1. Passed $100 billion in sales in the first ten years.

2. Growth and competition was based on industry standards

like never before.3. This has spawned thousands of niche companies.

4. The PC has fundamentally restructured the Computer

Industry.

5. Industry pioneers believe the revolution is no more than

half over.


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Change Relative to Selling PCs

1. Languages

2. Application Packages3. Connectivity and Compatibility

4. Multimedia

5. Communication Device--Groupware


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PC Industry Change

Atari

Cromemco

Fortune Systems

Wicat Systems

Kaypro

Morrow Designs

Osborne Computer

Victor Technologies

Dell

Gateway

IBM

HP (Compaq)

NEC


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The Future Computer Industry

1. Traditional US Companies (large).

2. Asian Electronic Companies.

3. The New Strategy Companies.

Why has the US continued to be the world leader in

the computer industry?


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Porter Value Chain

Basic Concept:

1. Deals with core business processes.

2. Enables tracking a new idea to create a new

product and/or service from origination all the

way to customer satisfaction.


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Porter Value Chain

Service

Sales

and

Distribution

Marketing

Production

and

Manufacturing

Engineering

Manufacturing Industry Value Chain

Research

and

Development


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Retail Industry Value Chain

Marketingand

Selling

Operating

Stores

Distributing

Inventory

Managing

InventoryBuying

Partneringwith

Vendor


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Generic Value Chain


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Generic Value Chain

INBOUND

LOGISTICSOPERATIONS OUTBOUND

LOGISTICS

MARKETING

AND SALESSERVICE

PRIMARY ACTIVITIES

PROCUREMENT

TECHNOLOGY DEVELOPMENT

HUMAN RESOURCE MANAGEMENT

FIRM INFRASTRUCTURE

SUPPORTACTIVIT

IES

Figure 3-6Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from


1985 by Michael E. Porter.

P t d C lt I d t V l Ch i


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Property and Casualty Industry Value Chain

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISTICS

MARKETING

AND SALES

SERVICE

PROCUREMENT

TECHNOLOGY

DEVELOPMENT

HUMAN

RESOURCE

MANAGEMENT

FIRM

INFRASTRUCTURE-Financial Policy -Regulatory Compliance - Legal - Accounting

Actuary

Training

Agent

Training

Claims

Training

Claims

Procedures

Claims Settlement

Loss Control

Policy Sales

Policy Renewal

Agent Manage-

ment

Advertising

Independent

Agent Network

Billing and

Collections

Underwriting

Investment

Policy Rating

Actuarial Methods

Investment

Practices

I/T

Communications

Product

Development

Market Research

Figure 3-7

Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining

Superior Performance, copyright 1985 by Michael E. Porter.

T h l i i th V l Ch i


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Technologies in the Value Chain

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISTICS

MARKETING

AND SALES

SERVICE

PROCUREMENT

TECHNOLOGY

DEVELOPMENT

HUMAN

RESOURCE

MANAGEMENT

FIRM

INFRASTRUCTURE

Information System Technology

Planning and Budgeting Technology

Office TechnologyTraining Technology

Motivation Research

Information Technology

Product Technology

Computer-Aided Design

Pilot Plant Technology

Diagnostic and

Testing Technology

Communications

Technology

Information

Technology

Transportation

Technology

Material Handling

Technology

Storage and

Preservation

Technology

Communication

System

Technology

Testing Technology

Information

Technology

Information Systems Technology

Communication System Technology

Transportation System Technology

Software Development Tools

Information Systems Technology

Basic Process

Technology

Materials

Technology

Machine Tools

Technology

Materials Handling

Technology

Packaging

Technology

Testing Technology

I/nformation Tech.

Transportation

Technology

Material Handling

Technology

Packaging

Technology

Communications

Technology

Information

Technology

Multi-Media

Technology

Communication

Technology

Information

Technology

Figure 3-8

Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from


1985 by Michael E. Porter., p. 167.


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Business Awareness Questionnaire

2. The worlds largest corporation based on annual revenue isWal-Mart.

3. CTOChief Technical Officer

CFOChief Financial OfficerCMOChief Marketing Officer

CIOChief Information Officer

COOChief Operating OfficerCEOChief Executive Officer

4. Large number of well known business success books.


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5. Business Week, Fortune, Forbes, The Economist,

Harvard Business Review

Information Week, Datamation, Computer World

A. Larry EllisonOracle

B. Scott McNealySun Microsystems

C. John ChambersCisco Systems

D. Carly FiorinaHewlett-Packard

E. Craig BarrettIntel Corp.

F. Steve BalmerMicrosoft

G. Jeff BezosAmazon.com

A Sam Walton Wal Mart Stores


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A. Sam WaltonWal-Mart Stores

B. Fred SmithFederal Express

C. Gordon MooreIntel Corp.D. Herb KelleherSouthwest Airlines

E. David FiloYahoo!

F. George ZimmerMens Wearhouse

A. Michael PorterBusiness Competitiveness

B. Michael HammerProcess Reengineering

C. W. Edwards DemmingTotal Quality Management

D. Tom PetersManaging by Walking Around

E. Warren BennisBusiness Leadership

Significant Business Events During 2000:


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g g

1. Enron collapse

2. HP-Compaq merger

3. United Airlines bankruptcy

4. Survival of Amazon.com and continued success of eBay.

1. Amazon.com is definitely the standard by which e-Commerce companies are compared. eBay is uniquely

profitable as an Internet company.

2. NASDAQ lists more than technology companies.

3. The News, Life, Sports and Weather is a description of

USA Today and not the Wall Street Journal.

4. Japan, not Germany, is the worlds second largest

economy.


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5. Saturn is owned by GM and not Ford.

6. Burn rate is the rate at which a startup uses up its cash

position on a daily or weekly basis.

7. A balance sheet indicates assets and liabilities. The profit

and loss statement indicates profit.

8. A general sentiment is that established companies with asolid brick and mortar foundation can move to the Internet

with a winning approach.

9. The big three of the airline industry are American, United

and Deltanot Northwest.


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1. To start a new business requires: E. all of the above.

2. Of the factors in question 1, not having sufficient

operating capital is the cause of most business failures.

3. Never listed as first on the Fortune Most Admired List

are Cisco Systems, Intel and Wal-Mart Stores.

4. Industries that have dominated the least admired list arethe Savings and Loan Industry and the Airline Industry.

5. A money source for a startup that is not realistic in most

cases is commercial banks.

6. IPO stands for initial public offering.

7. Marketing is determining what to sell and sales is

selling what you have.

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