1. Chapter 2 Strategic Advantage 5 Competitive Forces

2. Why Study Strategic IT? Technology is no longer an afterthought in forming business strategy, but the actual cause and driver.Technology is no longer an afterthought in forming business strategy, but the actual cause and driver. IT can change the way businesses compete.IT can change the way businesses compete.

3. Strategic View of IS Information systems are vital competitive networks.Information systems are vital competitive networks. Information systems are a means of organizational renewal.Information systems are a means of organizational renewal. An IS can enable a businesses to reengineer or reinvent itself in order to survive and succeed.An IS can enable a businesses to reengineer or reinvent itself in order to survive and succeed.

5. Porter’s Competitive Forces To survive and succeed, a business must develop and implement strategies to effectively counter the: 1.Rivalry of competitors within its industry 2.Threat of new entrants into an industry and its markets 3.Threat posed by substitute products which might capture market share 4.Bargaining power of customers 5.Bargaining power of suppliers

6. Rivalry of competitors Online-shopping, price comparison tools (Froogle, Shopzilla, etc.) increase rivalry.Online-shopping, price comparison tools (Froogle, Shopzilla, etc.) increase rivalry. Industries with high rivalryIndustries with high rivalry –Automotive –Cell Phone –Retail Clothing –Fast Food Industries with low rivalry?Industries with low rivalry?

7. Threat of new entrants Internet/E-commerce enables a business to emerge overnightInternet/E-commerce enables a business to emerge overnight Almost any medium-sized retail store can become a global e- commerce competitor at little cost.Almost any medium-sized retail store can become a global e- commerce competitor at little cost. It costs a lot to become a global donut competitor

8. Substitute Products Internet makes substitutes easier to find.Internet makes substitutes easier to find. –Can’t afford to fly...take a train. –Ipod not available...buy a Dell DJ –Thomas the Tank Engine costs too much...consider Imaginarium.

9. Bargaining power Customer: Here is where the Internet has empowered the customerHere is where the Internet has empowered the customer –Ebay –Lending Tree –Reverse auctions Suppliers: Home Depot, Walmart, etc. can persuade suppliers to lock-out the little guys –By forcing suppliers into investing in SCM software

10. Competitive Strategies 1.Cost Leadership 2.Differentiation 3.Innovation 4.Growth 5.Alliance

11. Cost Leadership Strategy Becoming a low-cost producer of products and servicesBecoming a low-cost producer of products and services Finding ways to help suppliers and customers reduce their costsFinding ways to help suppliers and customers reduce their costs Increase costs of competitorsIncrease costs of competitors

12. Differentiation Strategy Developing ways to differentiate a firm’s products and services from its competitors’Developing ways to differentiate a firm’s products and services from its competitors’

13. Innovation Strategy Development of unique products and servicesDevelopment of unique products and services Entry into unique markets or market nichesEntry into unique markets or market niches Making radical changes that alter the fundamental structure of an industryMaking radical changes that alter the fundamental structure of an industry

14. Growth Strategy Significantly expanding capacity to produce goods and servicesSignificantly expanding capacity to produce goods and services –Expanding into global markets Diversifying into new products and servicesDiversifying into new products and services Integrating into related products and servicesIntegrating into related products and services Example of Bad Diversification: Dr. B.’s great new business idea: The Quick-Lube, Dentist, Movie Theater

15. Alliance Strategy Establishing new business linkages and alliances withEstablishing new business linkages and alliances with –customers, –suppliers, –competitors, –consultants, etc. Great advantages from linking Information Systems of different companies.Great advantages from linking Information Systems of different companies.

16. ExamplesExamples Cost Leadership: Priceline.comPriceline.com BiddingBidding Buyer set pricingBuyer set pricing

17. ExamplesExamples Innovation:E-trade Online discount stock trading Market leader, then problems...

18. ExamplesExamples Growth:Walmart Beer, diapers, discount beef jerky, country music CD’s, NASCAR merchandise, cheap plastic furniture, and every ingredient you need to make napalm (all at low prices). Market leadership

19. ExamplesExamples Differentiation: MoenMoen Online customer designOnline customer design Increase in market shareIncrease in market share

20. ExamplesExamples Alliance: Walmart & Proctor N’ Gamble Beer, diapers, discount beef jerky, country music CD’s, NASCAR merchandise, cheap plastic furniture, every ingredient you need to make napalm, and oxycontin (all at low prices). Even more Market leadership

21. Other Competitive Strategies Locking in customers or suppliers by building valuable new relationships with them.Locking in customers or suppliers by building valuable new relationships with them. Building switching costs so a firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company’s competitors.Building switching costs so a firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company’s competitors.

22. Other Competitive Strategies Raising barriers to entry that would discourage or delay other companies from entering a market.Raising barriers to entry that would discourage or delay other companies from entering a market. Leveraging investment in information technology by developing new products and services that would not be possible without a strong IT capability.Leveraging investment in information technology by developing new products and services that would not be possible without a strong IT capability.

23. Advantage vs. Necessity Competitive Advantage – developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forcesCompetitive Advantage – developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces Competitive Necessity – products, services, processes, or capabilities that are necessary simply to compete and do business in an industryCompetitive Necessity – products, services, processes, or capabilities that are necessary simply to compete and do business in an industry

24. Customer-Focused Business A business that: can anticipate customers’ future needs.can anticipate customers’ future needs. responds to customer concerns.responds to customer concerns. provides top-quality customer service.provides top-quality customer service.

26. Value Chain Definition: View of a firm as a series, chain, or network of basic activities that add value to its products and services,View of a firm as a series, chain, or network of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers.and thus add a margin of value both to the firm and its customers.