IT-enabling Business strategies

CONTENT
• Michael Porter’s competitive forces model
• strategies for dealing with competitive forces, enabled by
using IT
• Sustaining core competency and IT supports
 Using Information Systems to Develop
Competitive Strategies

• Value chain model

– Firm as series of activities that add value to products
or services
– Highlights activities where competitive strategies can
best be applied
• Primary activities vs. support activities
– At each stage, determine how information systems
can improve operational efficiency and improve
customer and supplier intimacy
THE VALUE CHAIN MODEL
 Using Information Systems to Develop
Competitive Strategies
´Why do some firms become leaders in their
industry?
´Michael Porter’s competitive forces model
´Provides general view of firm, its competitors, and
environment
´Five competitive forces shape fate of firm:
1. Traditional competitors
2. New market entrants
3. Substitute products and services
4. Customers
5. Suppliers
 M.PORTER’S COMPETITIVE FORCES
MODEL

In Porter’s competitive forces model, the strategic position

of the firm and its strategies are determined not only by
competition with its traditional direct competitors but also
by four other forces in the industry’s environment.
 Using Information Systems to
Develop Competitive Strategies
• Existing competitors
– All firms share market space with competitors who are
continuously devising new products, services, efficiencies, and
switching costs. à Direct substitute products

• New market entrants

– Some industries have high barriers to entry, for example,
computer chip business.
– New companies have new equipment, younger workers, but
little brand recognition.
 Using Information Systems to
Develop Competitive Strategies

´Substitute products and services

´Indirect substitutes customers might use if your prices
become too high, for example:
´ iTunes substitutes for CDs: Convenience and price
´Energy drinks versus coffees: staying awake/refreshing
´Customers power
´Can customers easily switch to competitor's products? Can
they force businesses to compete on price alone in
transparent marketplace?
´Suppliers power
´Market power of suppliers when firm cannot raise prices
as fast as suppliers
 Competitive force 1:
Rivalry among existing firms (cont.)
´ Factors determining the intensity of competition
´ Product (Degree of differentiation and switching costs)

Very similar Very differentiable

-Customers are ready to switch from one
Competitors to another purely on the basis of
price

Sample tactics to make switching cost high

https://www.strategyzer.com/blog/posts/20
15/7/27/switching-costs-6-strategies-to-
lock-customers-in-your-ecosystem
Competitive force 2: The super-profitability will attract
Threat of new entrants new entrants.
´ The ease of entrant will deter
the profitability.
Factors determines the height of
barriers are:
Economies of scale: The
larger, the more difficult to enter
´ Large investment otherwise
suffering of sub-optimal capacity
´ E.g. those need huge R&D
investment (e.g. pharmaceutical
or jet engine industries), in
brand advertising (soft-drink), or
in physical plant & equipment
(telecom).
Competitive force 2: Threat of new entrants (Cont.)

´ First mover advantage

´ acquire scarce govt. licenses to operate in regulated
industries
´Medical services, Broadcasting, and Telecom. Also those with
patents and
´or enter into exclusive arrangements with suppliers of
cheap raw materials,
´Best locations for selling
 Competitive force 3: Threat of substitute products

´Threat can be in form of products or functions

´E.g. airlines -vs- car rental for short distance traveling
´Plastic .vs. metal bottle as packaging in the beverage
industry.
´Energy-conserving technologies allows customers to
reduce usage of electricity and fossil fuels.
Competitive force 4 & 5:
Bargaining power of buyers & that of suppliers

´The actual profits are influenced by the relative

economic power of two sides:
´Input side: How the firm interacts with suppliers
of labor, raw materials and components, and
finances.
´Output side: Either the firm sells directly to the
final customer or enter into contracts with
intermediaries in the distribution chain.
Competitive 4-5: Bargaining power

Relative bargaining power, depends on many

factors, e.g.
- Volume of purchases,
- no. of alternative products available to buyers, and
- the threat of backward/forward integration.
- Importance of product to buyer’s cost structure
- importance of the product to buyer’s product quality ∆
Value Chain and Porter’s Five Forces
Model
Strategy

´Strategy: framework, or approach, to

obtaining an advantageous position
´Business strategy: a plan to help an
organization outperform its competitors
´Often done by creating new opportunities,
not beating rivals

15 Management Information
Systems, Sixth Edition
 Using Information Systems to Develop
Competitive Strategies
• Four generic strategies for dealing with
competitive forces, enabled by using
IT:
– Low-cost leadership
– Product differentiation
– Focus on market niche
– Strengthen customer and supplier
intimacy
 Using Information Systems to Develop
Competitive Strategies
´Low-cost leadership
´Produce products and services at a lower price than
competitors
´Example: Walmart’s efficient customer response
system
´Product differentiation
´Enable new products or services, greatly change
customer convenience and experience
´Example: Google, Nike, Apple
 Using Information Systems to Develop
Competitive Strategies
´Focus on market niche
´Use information systems to enable a focused strategy on a
single market niche; specialize
´Example: Hilton Hotels’ OnQ system
´180m records of credit card data, stay history, corporate&
alliance, e.g. frequent flier miles, room preference
´http://www.hotel-
online.com/News/PR2004_3rd/Aug04_OnQ.html
´Strengthen customer and supplier intimacy
´Use information systems to develop strong ties and loyalty
with customers and suppliers
´Increase switching costs
´Example: Netflix
https://www.fastcodesign.com/1671893/the-secret-sauce-
behind-netflixs-hit-house-of-cards-big-data
 Using Information Systems to Develop
Competitive Strategies
• Information systems can improve overall
performance of business units by promoting
synergies and core competencies
– Synergies
• When output of some units used as inputs to
others, or organizations pool markets and
expertise
• Example:
• Toys “R” Us and Amazon
https://www.clearspider.com/blog-supply-chain-
management-disasters-toys-r-us/
 Using Information Systems to Develop
Competitive Strategies
´Network-based strategies supplier intimacy
´Take advantage of firm’s abilities to network with one
another to create network-effect
´Include use of:
´Network (or Platform) economy, e.g. eBay,
Facebook, Grab
´Virtual company model, e.g. Apple or Nike’s
outsourcing
http://davitsioridze.blogspot.com/2011/02/nike-
and-outsourcing.html
´Business ecosystems, SCM of Toyota, Ford, etc.
https://www2.deloitte.com/content/dam/Deloitte/n
l/Documents/center-for-the-edge/deloitte-nl-
performance-ecosystems.pdf
 Using SWOT and TOWS to Choose Strategies
´ SWOT is a situational analysis tool for company
leaders to assess strengths, weaknesses,
opportunities and threats.
´ Strengths: lists the company's core competencies
that give it advantage over others.
´ Weakness: reviews internal deficiencies relative to
the competition.
´ Opportunities: looks at emerging markets or
untapped product diversification.
´ Threats: considers the potential that external
influences, such as those identified in PEST, can
harm the business in the future.
´ PEST == Politics, Economics, Social, and Technology
 Using SWOT and TOWS to Choose Strategies

´TOWS Analysis is an extension of the classic

analytics tool, SWOT Analysis.
´While SWOT analysis, puts the emphasis on
the internal environment (your strengths and
weaknesses), TOWS forces you to look at
your external environment first (your threats
and opportunities).
´Doing this allows you to gain a better
understanding of the strategic choices that
you face.
 Using SWOT and TOWS to Choose Strategies
• Strengths and Opportunities (SO) – How can you use your strengths
to take advantage of these opportunities?
• Strengths and Threats (ST) – how can you take advantage of your
strengths to avoid real and potential threats?
• Weaknesses and Opportunities (WO) – how can you use your
opportunities to overcome the weaknesses you are experiencing?
• Weaknesses and Threats (WT) – how can you minimize your
weaknesses and avoid threats?
• Too defensive strategies, avoid this.
´ Souce: https://www.mindtools.com/auqstul/the-tows-matrix
 EXERCISE
´Presume you (as a group) are the leader of
Disney+ Hotstar
´https://www.facebook.com/DisneyPlusHotstarTH
´https://www.hotstar.com
´Using the knowledge of strategic
management and the TOWS tool, analyse and
propose the best strategy for Disney+ Hotstar
to compete in the streaming marketing in
Thailand.
 Topic review
´Which features of organizations do managers need to
know about to build and use information systems
successfully?
´How do Porter’s competitive forces model, the value
chain model, synergies, core competencies, and network
economics help companies develop competitive
strategies using information systems?
´What are the challenges posed by strategic information
systems and how should they be addressed?
 Further readings
´ From competitive advantage to corporate strategy
https://hbr.org/1987/05/from-competitive-advantage-to-
corporate-strategy
´ Aligning IT to business plan through the strategic IT
http://www.cio.com/article/2889361/it-strategy/why-
you-need-a-strategic-it-roadmap.html
´ Rethinking Strategy in a Networked World (or Why
Michael Porter is Wrong about the Internet)
http://www.strategy-
business.com/article/19911?gko=e37c4
´ Frenemy of Apple and Sumsung
http://databh.net/cooperation-and-competition-
relationship-between-samsung-and-apple/
´ http://www.macrumors.com/2014/11/17/samsung-
apple-processors/