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Porters Competitive Forces Model

The best-known framework for analyzing competitiveness is Michael Porters competitive forces model (Porter, 1985).

Porters Competitive Forces Model


The Threat of entry of new competitors is high when it is easy to enter a market and low when significant barriers to entry exist A barrier to entry is a product or service feature that customers expect from organizations in a certain industry For most organizations, the Internet increases the threat that new competitors 2 will enter a market

Porters Competitive Forces Model


The bargaining power of suppliers is high when buyers have few choices and low when buyers have many choices Internet impact is mixed. Buyers can find alternative suppliers and compare prices more easily, reducing power of suppliers On the other hand, as companies use the Internet to integrate their supply chains, suppliers can lock in customers
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Porters Competitive Forces Model


The bargaining power of buyers is high when buyers have many choices and low when buyers have few choices Internet increases buyers access to information, increasing buyer power Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power
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Porters Competitive Forces Model


The threat of substitute products or services is high when there are many substitutes for an organizations products or services and low where there are few substitutes Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently 5

Porters Competitive Forces Model


The rivalry among firms in an industry is high when there is fierce competition and low when there is not

Value Chain in E-commerce


Value Chain: a way of organizing the activities of a business so that each activity adds value (valueadded activity) or productivity to the total operation of the business.
Michael Porter
Competitive Advantage: Creating and Sustaining Superior Performance

A strategic tool for identifying how the critical components of a business tie together to deliver value for the business across the value-chain process.
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Value Chain in E-commerce - contd


Organizations are open systems
They do not consist of isolated sets of functions They are a chain of value-creating activities that assure competitive advantages by delivering value to the customer

Depicts the series of interdependent activities of a business A business evaluates its value to find opportunities for improving the value activities
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Competitive Advantage
Competitive advantage is achieved when an organization links the activities in its value chain more cheaply and effectively than its competitors.

Value Chain Primary Activities


1. Inbound logistics
2. Operations

3. Outbound logistics
4. Marketing and sales 5. Service
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Value Chain Support Activities


1. Corporate infrastructure
2. Human resources

3. Technology development
4. Procurement

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Porters Value Chain


Primary Activities:

Inbound Logistics: Inbound activities to receive, store and distribute inputs to the product, such as material handling, inventory control, warehousing and contact with suppliers. Operations: Production activities to create the product such as machining, packaging, printing and testing. Outbound Logistics: Outbound activities to store and distribute the product to customers, including warehousing, order processing and vehicle scheduling.

Marketing and Sales: Activities associated with providing a means by which buyers can purchase the product and be included to do so (advertising, selling, pricing, merchandising and promotion).
Service: Activities for providing service or maintaining product value, including installation and training.
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Porters Value Chain Support Activities:

Procurement: Purchasing input. Technology Development: Not just machines and processes but Human Resource Management: Activities involved in recruiting,
Infrastructure: General management, finance, planning and quality
assurance. Infrastructure supports the whole value chain. training and staff development. also expertise, procedures and systems.

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Analyzing Value Chain Activities


What type of activity is being performed? Does it add value? Does it ensure the quality of other activities?
How does the activity add value to the customer? Could the same activity be reconfigured or performed in a different way? What inputs are used? Is the expected output being produced? Is the activity vital? Could it be outsourced, deleted completely, or combined with another activity? How does information flow into and out of the activity?

Is the activity a source of competitive advantage?


Does the activity fit the overall goals of the organization? 14

E-commerce Value Chain


The E-commerce Value Chain means identifying:
The competitive forces within the companys ecommerce environment The business model it will use Identifying the value activities that help the e-commerce value chain do its homework

E-commerce views information technology as part of a companys value chain

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Value Chain for American Airlines

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