Presentation on theme: "Chapter 2 Learning Objectives"— Presentation transcript:
1 Chapter 2 Learning Objectives Michael Porter’s 5 Competitive Forces ModelValue Chain & Competitive StrategiesStrategic Use of Information Technology
2 Porter’s 5 Competitive Forces Model Threat of substitutesThreat of new entrantsCompetitive Rivalry withinBusiness EnterpriseThreat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:Existing loyalty to major brandsIncentives for using a particular buyer (such as frequent shopper programs)High fixed costsScarcity of resourcesHigh costs of switching companiesGovernment restrictions or legislationPower of Suppliers - This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then they hold substantial power. Here are a few reasons that suppliers might have power:There are very few suppliers of a particular productThere are no substitutesSwitching to another (competitive) product is very costlyThe product is extremely important to the buyer, they can not do without itThe supplying industry has a higher profitability than the buying industryPower of Buyers - This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company's margins and volumes, then they hold substantial power. Here are a few reasons that customers might have power:Small number of buyersPurchases of large volumesSwitching to another (competitive) product is simpleThe product is not extremely important to the buyer, they can do without it for a period of time.Customers are price sensitiveAvailability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses to be a serious threat. Here are a few factors that can affect the threat of substitutes:The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially, a coffee drinker is likely to switch over to a beverage like tea because the products are so similar.If substitutes are similar, then it can be viewed in the same light as a new entrant.Competitive Rivalry - And last but not least, this describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:Many players of about the same size, no dominant firm.Little differentiation between competitors products and services.A mature industry with very little growth. Companies can only grow by stealing customers away from competitors.Bargaining power of suppliersBargaining power of buyers
3 The Value ChainImproved administrative coordinationTrainingJoint design of products and processesImproved procurement processesJIT inventoryOrder processing systemsViews a firm as a series, chain, or network of activities that add value to its products and services.
4 Competitive Strategies Cost Leadership (e.g. Wal-Mart)Differentiation (e.g. Nordstrom)Innovation (e.g. eBay)Growth (e.g. Starbuck)Alliance (e.g. Sears, LandsEnd)Others (e.g. lock in customers/suppliers, high switching cost, barrier to entry, etc.)Cost Leadership (low cost producer)Reduce inventory (JIT)Reduce manpower costs per sale (see Real World Case 1)Help suppliers or customers reduce costsIncrease costs of competitorsReduce manufacturing costs (process control)DifferentiationCreate a positive difference between your products/services & the competition.May allow you to reduce a competitor’s differentiation advantage.May allow you to serve a niche market.InnovationNew ways of doing businessUnique products or servicesNew ways to better serve customersReduce time to marketNew distribution modelsGrowthExpand production capacityExpand into global marketsDiversifyIntegrate into related products and services.AllianceBroaden your base of supportNew linkagesMergers, acquisitions, joint ventures, “virtual companies”Marketing, manufacturing, or distribution agreements.Other Competitive StrategiesLocking in customers or suppliersBuild value into your relationshipCreating switching costsExtranetsProprietary software applicationsRaising barriers to entryImprove operations or promote innovationLeveraging investment in ITAllows the business to take advantage of strategic opportunities
5 Strategic Uses Of Information Technology Focus on the customer (e.g. CRM) to deliver high(er) customer valueBusiness Process Reengineering (BPR) for cost, quality, speed, and service improvementsTotal Quality Management (TQM) from customer’s perspective (e.g. Six Sigma) to improve business qualityAgility …Virtual company …Major competitive differentiatorDevelop a focus on the customerCustomer valueBest valueUnderstand customer preferencesTrack market trendsSupply products, services, & information anytime, anywhereTailored customer serviceBusiness Process Reengineering (BPR)Rethinking & redesign of business processesCombines innovation and process improvementThere are risks involved.Success factorsOrganizational redesignProcess teams and case managersInformation technologyImprove business qualityTotal Quality Management (TQM)Quality from customer’s perspectiveMeeting or exceeding customer expectationsCommitment to:Higher qualityQuicker responseGreater flexibilityLower costBecoming agileFour basic strategiesCustomers’ perception of product/service as solution to individual problemCooperate with customers, suppliers, other companies (including competitors)Thrive on change and uncertaintyLeverage impact of people and people’s knowledgeThe virtual companyUses IT to link people, assets, and ideasForms virtual workgroups and alliances with business partnersInterorganizational information systemsVirtual Company StrategiesShare infrastructure & risk with alliance partnersLink complementary core competenciesReduce concept-to-cash time through sharingIncrease facilities and market coverageGain access to new markets and share market or customer loyaltyMigrate from selling products to selling solutions
6 An Agile Company Which company do you believe to be an agile company? Provides solution to customer’s (unique) individual problem; value-based pricingBe able to cooperate with customers, suppliers, other companies/competitorsIs organized so that it can thrive on change and uncertaintyLeverages impact of people and their knowledgeWhich company do you believe to be an agile company?
7 A Virtual Company Is the company you’re working for a virtual company? IT links people, assets, and ideasForms virtual workgroups and alliances with business partners (with complementary core competencies)Shares infrastructure & risk with partnersGains access to new market (market shares) & customersInter-organizational (Enterprise-wide) ISIs the company you’re working for a virtual company?Virtual Company StrategiesShare infrastructure & risk with alliance partnersLink complementary core competenciesReduce concept-to-cash time through sharingIncrease facilities and market coverageGain access to new markets and share market or customer loyaltyMigrate from selling products to selling solutions