Whats Happening?!

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

years.
Jobless claims fell last week to the lowest level since Nov. 30
John Rodrigues reports that he is getting job interviews.
GM reported record 4th quarter earnings.
First ISMA meeting on Tuesday Speaker is JP LeBlanc
from Borland. Time and place yet to be determined.

Chapter 2 Summary
Business Competitive Environment

Review of Objectives
To clearly understand competition:
Definition of Competitiveness
Competitive Advantage
Global Competition
Role of the nation:
Role of government within a nation.

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:
Which products and services it offers.
Who its customers are.
Who its competitors are.

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.

Global Competition
The Global Market will come to you if you
dont go to it.
By staying in your home country, you
assume a defensive position.
There are advantages and disadvantages to
going global. These need to be considered
carefully.

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 a
challenger.

Competitiveness: A Link to National Goals

Human
Resources

Capital

Technology

Trade
Policy

Improved
Domestic
Performance

New
Competition

Decreased
Budget
Deficit
Increased
World Market
Competitiveness
Reduced
Trade
Deficit

Stronger
National
Security

More and
Better Jobs

Increased
Standard of
Living
Figure 2-1

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?

Chapter 3 Introduction
The Porter Competitive Model
for Industry Structure Analysis

Key Chapter Objectives

Basic understanding of Porter Competitive
Model
How the model can be used to analyze a
companys competitive position within its
environment (its industry).
How IS infrastructure can influences a
companies responsiveness to its changing
business environment.

The Porter Competitive Model

Used to understand and evaluate the
structure of an industrys business
environment and the threats of
competition to a specific company.

Porter Competitive Model

Potential
New Entrants

Bargaining
Power
of Suppliers

Intra-Industry
Rivalry
Strategic Business Unit

Bargaining
Power
of Buyers

Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979

Figure 3-1

Two Strategic Objectives

Create effective links with customers and

suppliers

Create barriers to new entrants and substitute

products

Primary and Supporting Strategies

Differentiation Strategy (Primary)
Low Cost Strategy (Primary)
Innovation (Supporting)
Growth (Supporting)
Alliance (Supporting)

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 organization
that add value to customers.

SUPPORT ACTIVITIES

Generic Value Chain

FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT

INBOUND
LOGISTICS

OPERATIONS OUTBOUND
LOGISTICS

MARKETING
AND SALES

SERVICE

PRIMARY ACTIVITIES
Adapted 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.

Figure 3-6

Value Chain and IS

The Value Chain can be used to determine
where IS can strengthen the flow of primary
and 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 activities
within segments through the use of IS and
IT.

Chapter 3
Porter Competitive Model
for
Industry Structure Analysis

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

The Plan for Today

Address the Concepts of the Porter
Competitive Model.
Provide some industry examples using the
Competitive Model.
Address the Value Chain conceptually and
with industry examples.
Revisit each of these using the Airline
Industry as the example in Chapter 4.

Awareness of competitive forces can

help a company stake out a position
in its industry that is less vulnerable
to attack.
Michael E. Porter
Competitive Strategy

Porter Competitive Model

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.

Two Key Questions

1. How structurally attractive is
the industry?
2. What is the companys relative
position within the industry?

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 a
set of fundamental economic and technical
characteristics that gives rise to these competitive
forces.

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.

Key Industry Analysis Factors

Collecting the data.
Determining which data is important.
Selecting an appropriate overall approach.
Deciding on the logical starting point.

Basic Objectives of the SBU

1. To create effective links with
buyers and suppliers.
2. To build barriers to new entrants
and substitute products.

Porter Competitive Model

Potential
New Entrants

Bargaining
Power
of Suppliers

Intra-Industry
Rivalry
Strategic Business Unit

Bargaining
Power
of Buyers

Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979

Figure 3-1

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.

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 and
there 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.

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 into
its customers business.
6. A long time working relationship provides unique
capabilities.

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 existing
company 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.

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.

Substitute Threats
Buyer propensity to substitute.
Relative price/performance of substitutes.
Switching costs.

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?

Strategy Options
According to Michael Porter
Primary Strategies
1. Differentiation
2. Least Cost
Supporting Strategies
1. Innovation
2. Growth
3. Alliance

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?

Porter Competitive Model

Heavyweight Motorcycle Manufacturing Industry
North American Market
Parts Manufacturers
Electronic Components
Specialty Metal Suppliers
Machine Tool Vendors
Labor Unions
IT Vendors

Bargaining
Power of
Suppliers

Automobiles
Public Transportation
Mopeds
Bicycles

Potential
New Entrant

Intra-Industry Rivalry
SBU: Harley-Davidson
Rivals: Honda, BMW,
Suzuki, Yamaha

Substitute
Product or
Service

Foreign Manufacturer
Established Company
Entering a New Market
Segment
New Startup

Bargaining
Power of
Buyers
Recreational Cyclist
Young Adults
Law Enforcement
Military Use
Racers

Business Strategy Model - Motorcycle Manufacturing Industry

Product Strategy
Type/Purpose/Size

Heavyweight Off-Road Dual Purpose Road Racing Caf Racer

Price Strategy

Entry Level
Law Enforcement

North American

Moderate
Market Strategy
Military

Premium

Recreational

Professional Young Adult

Europe
Japan/Asia
Manufacturing Strategy

Vertically Integrated

Vendor Emphasis

Latin America
Outsource

Sales/Distribution Strategy
Distributors

Independent Dealers

Franchised Dealers

Company Structure
Independent

Alliances

Joint Ventures/Subsidiaries

Information Systems
Engineering Product Design Manufacturing Sales/Distribution Business

Business Strategy Model Food Service Industry

Product Strategy
Limited
Specialized
Products

Broad Range
of Specialized
Products

Wide Range of
Non-specialized
Products

Health
Conscious
Products

Customer Strategy
Young Adults
Parents
Teenagers with Social
with
Focus
Kids

Time
Conscious
Adults

Leisure
Adults

Senior
Citizens

Store Format Strategy

Dine In
Wait Service

Dine In
Counter Service
or Buffet

Take Out

Drive
Through

Vendor Strategy
Competitive
Bids

Long Term
Contracts

Alliances

Vertically
Integrated

Market Strategy
Local

Regional

National

International

Ethnic
Focus

Company Structure Strategy

Independent

Alliances

Franchises

Subsidiary

Information Systems Strategy

Customer
Systems

Store
Logistical
Systems

Product
Analysis
System

Business
Systems

Porter Competitive Model Analysis

for the San Francisco 49ers
New Entrants

Suppliers

Intra-Industry
Rivalry
SBU: SF Giants

Substitute Products and Services

Buyers

Porter Competitive Model Analysis for the San Francisco 49ers

Bay Area Market
New Entrants
Canadian Football
Professional Hockey
Professional Soccer
Sumo Tournaments

Suppliers

Buyers

Players Union
City of SF
Transportation Services
Food Service
Sovereigns
Police and Sanitation
Service
Utilities
Stadium Employees

Die Hard 49er Fans

Die Hard Football Fans
Intra-Industry Rivalry
Fair Weather Football Fans
SBU: SF 49ers
Non-football Fans
Rivals: Oakland Raiders
Out of Town Visitors
Arena Football
Opposing Team Fans
S.F. 49ers
Age Group Segments
Golden State Warriors
Groups Versus Individuals
College Athletic Events
Corporate Sponsors
High School Athletic Events
Sports Writers and Media
Movies, Stage Plays, etc.
Outlets
General Travel and Travel Packages

Substitute Products and Services

Televised Football Games - Free or Cable Service at Home
Televised Games at Sports Bars
Radio Broadcasts of Football Games
Rotisserie Leagues, Trading Cards, Memorabilia

Porter Competitive Model

Tips
1. 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.

Porter Competitive Model

5. Be sure to address the power implications of both
customers and suppliers. Power buys them what?
6. Identify buyers and suppliers by categories versus
companies.
7. Summarize your Porter Model analysis.

Computer Industry
Why is this industry more of a challenge to
evaluate using the Porter Competitive
Model?

Old Computer Industry

Layer 5
Distribution
Layer 4
Application
Software
Layer 3
Operating
System
Software
Layer 2
Computing
Platforms
Layer 1
Basic
Circuitry
IBM

DEC

HP

Fujitsu

NCR
Figure 3-3

The New Computer Industry

Layer 5
Distributors

Computer
Dealers

Layer 4
Applications

Layer 3
Operating
System
Software

Layer 1
Microprocessor

Mass
Clubs
Merchandisers

Lotus 1-2-3

Spreadsheets
Word Processors
Database

Layer 2
Computer
Platforms

Super
Stores

MS DOS
Novell Netware

IBM

Compaq

Intel X86

Mail
Order

Value-add
Resellers

Microsoft Excel

Windows

Direct
Sales
Force

Other

Quattro Pro

OS/2

Banyan

Unix
IBM

Other Intel-Based PCs

Motorola

Apple
Others

Apple Macs

RISC

Other

Power PC
Figure 3-4

The Computer Industry

Layer 6
Sales and
Distribution
Layer 5
Application
Software
Enterprise
Specific
Layer 4
Database &
Networking
Software
Layer 3
Operating
System
Software
Layer 2
Computer
Hardware
Platforms
Layer 1
Microprocessor

Computer
Stores

Super
Stores

Mass
Mail
Merchandisers Order

Value-add
Resellers

Direct
Sales
Force

Internet
Direct

Desktop Suites Enterprise Resource Planning Supply Chain Management Other

Word Processors

Spread Sheets Publishing Groupware Data Warehouse Other

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

Windows

Unix

Relationship Database

Linux

Supercomputer Mainframe Midrange Workstation PC

Intel X86

Motorola

Apple

Handheld Device

RISC

Power PC

Computer Industry
Hardware
Processors
Input/Output Devices
Storage Devices

Networking Equipment?

Multiple processor
segments in the computer
industry.
Processor companies
versus specialized
hardware companies.

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 independent
software companies.

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 of
the computer industry?
Is software to analyze automobile smog tests part of the
computer industry?

Worldwide Computer Hardware Sales

2000

1999

1998

Supercomputer
1997

Mainframe
Midrange
Workstation

1996

Personal Computer
1995

Source: Dataquest
1994

Millions of Dollars

1993

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Worldwide Hardware Sales

2002
2001

PCs
Total Hardware

2000

Billions of $s

100

200

300

Billions of $s
Source: Dataquest

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.

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.

Change Relative to Selling PCs

1. Languages
2. Application Packages
3. Connectivity and Compatibility
4. Multimedia
5. Communication Device--Groupware

PC Industry Change
Atari

Dell

Cromemco

Gateway

Fortune Systems

IBM

Wicat Systems

HP (Compaq)

Kaypro

NEC

Morrow Designs
Osborne Computer
Victor Technologies

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?

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.

Porter Value Chain

Manufacturing Industry Value Chain

Research
and
Development

Production
Engineering
and
Manufacturing

Sales
Marketing
and
Distribution

Service

Retail Industry Value Chain

Partnering
with
Vendor

Buying

Managing
Inventory

Marketing
Distributing Operating
and
Inventory
Stores
Selling

Value Chain Things to Remember

1. Value to customer objective is not clear.
2. Relay team concept is too time consuming and doesnt
work in the current competitive environment.
3. Maximize the value-add activities and eliminate as
much as possible the things that do not add value.
4. Make sure that each step in the overall process (each
function) does things consistent with the overall
objective of value to customer.

SUPPORT ACTIVITIES

Generic Value Chain

FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT

INBOUND
LOGISTICS

OPERATIONS OUTBOUND
LOGISTICS

MARKETING
AND SALES

SERVICE

PRIMARY ACTIVITIES
Adapted 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.

Figure 3-6

Property and Casualty Industry Value Chain

FIRM
INFRASTRUCTURE

-Financial Policy

HUMAN
RESOURCE
MANAGEMENT

-Regulatory Compliance

- Accounting

Agent
Training

Actuary
Training
Actuarial Methods
Investment
Practices

TECHNOLOGY
DEVELOPMENT

- Legal

Product
Development
Market Research

Claims
Training
Claims
Procedures

I/T
Communications

PROCUREMENT

Policy Rating

Underwriting
Investment

Independent
Agent Network
Billing and
Collections

Policy Sales
Policy Renewal
Agent Management
Advertising

INBOUND
LOGISTICS

OPERATIONS

OUTBOUND
LOGISTICS

MARKETING
AND SALES

Claims Settlement
Loss Control

SERVICE

Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining
Superior Performance, copyright 1985 by Michael E. Porter.

Figure 3-7

Technologies in the Value Chain

Information System Technology
Planning and Budgeting Technology
Office Technology

FIRM
INFRASTRUCTURE

Training Technology
Motivation Research
Information Technology

HUMAN
RESOURCE
MANAGEMENT

Product Technology
Computer-Aided Design
Pilot Plant Technology

TECHNOLOGY
DEVELOPMENT

Software Development Tools

Information Systems Technology

Information Systems Technology

Communication System Technology
Transportation System Technology

PROCUREMENT
Transportation
Technology
Material Handling
Technology
Storage and
Preservation
Technology
Communication
System Technology
Testing Technology
Information
Technology

INBOUND
LOGISTICS

Basic Process
Technology
Materials
Technology
Machine Tools
Technology
Materials Handling
Technology
Packaging
Technology
Testing Technology
I/nformation Tech.

OPERATIONS

Transportation
Technology
Material Handling
Technology
Packaging
Technology
Communications
Technology
Information
Technology

Multi-Media
Technology
Communication
Technology
Information
Technology

Diagnostic and
Testing Technology
Communications
Technology
Information
Technology

OUTBOUND
LOGISTICS

MARKETING
AND SALES

SERVICE

Adapted 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., p. 167.

Figure 3-8

Business Awareness Questionnaire

2. The worlds largest corporation based on annual revenue is
Wal-Mart.
3. CTO Chief Technical Officer
CFO Chief Financial Officer
CMO Chief Marketing Officer
CIO Chief Information Officer
COO Chief Operating Officer
CEO Chief Executive Officer
4. Large number of well known business success books.

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

Harvard Business Review
Information Week, Datamation, Computer World
A. Larry Ellison Oracle
B. Scott McNealy Sun Microsystems
C. John Chambers Cisco Systems
D. Carly Fiorina Hewlett-Packard
E. Craig Barrett Intel Corp.
F. Steve Balmer Microsoft
G. Jeff Bezos Amazon.com

A. Sam Walton Wal-Mart Stores

B. Fred Smith Federal Express
C. Gordon Moore Intel Corp.
D. Herb Kelleher Southwest Airlines
E. David Filo Yahoo!
F. George Zimmer Mens Wearhouse
A. Michael Porter Business Competitiveness
B. Michael Hammer Process Reengineering
C. W. Edwards Demming Total Quality Management
D. Tom Peters Managing by Walking Around
E. Warren Bennis Business Leadership

Significant Business Events During 2000:

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 eCommerce 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.

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 a
solid 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.

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 are
the 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.