Business Strategy & ITStrategy and ISBusiness StrategiesIndustry Structure and ForcesNew Entrances or SubstitutesFive Competing ForcesSources of Switching CostsBarriers to EntrySlide 9Apple’s Entrance to Different IndustriesAppleApple Stores ServicesSlide 13Porter Generic StrategiesGeneric Strategies and Industry ForcesResource-Based View of Competitive AdvantageValue ChainValue Chain AnalysisApple Inc.Stan Shih “Smile Curve”Slide 21Process in PerspectiveBusiness ProcessesSlide 24An Example of Detail Value Chain ActivitiesValue Chain and ERP, CRM, SCMIT Permeates the Value ChainIndustrial Value ChainIndustry Value Chain4-Step ProcessIntegration- 1 -© Minder Chen, 1993-2012Business Strategy & ITMinder Chen, [email protected] 2 -© Minder Chen, 1993-2012Strategy and ISIndustry Structure (5 Competing Forces)Competitive Strategy Value ChainAnalysis Business Process Design / ReengineeringInformationSystems- 3 -© Minder Chen, 1993-2012Business Strategies•The job of the strategist is to understand and cope with competition. •Competition for profits goes beyond established industry rivals to include four other competitive forces: customers, suppliers, potential entrants, and substitute products.•The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.- 4 -© Minder Chen, 1993-2012Industry Structure and Forces•Forces are intense: airlines, textiles, and hotels, almost no company earns attractive returns on investment.•Forces are benign: software, soft drinks, and toiletries, many companies are profitable •Industry structure, manifested in the competitive forces, sets industry profitability & competitiveness in the medium and long run.•Industry structure and a firm strategic positioning•Identify the strongest competitive force or forces for strategy formulation.- 5 -© Minder Chen, 1993-2012New Entrances or Substitutes •Rivalry is often fierce in commodity industries•Photographic film industry: Kodak and Fuji–Key competing force–Polaroid  Substitutive products/services http://en.wikipedia.org/wiki/Polaroid_Corporation •New entrants are diversifying from other markets, they can leverage existing capabilities–Pepsi did when it entered the bottled water industry, –Microsoft did when it began to offer internet browsers (embrace and extend)–Apple did when it entered the music distribution business.http://www.businessweek.com/1996/29/960715.htm INSIDE MICROSOFT (Part 1) INSIDE MICROSOFT (Part 2)- 6 -© Minder Chen, 1993-2012Five Competing ForcesYouTube Video: The Five Competitive Forces That Shape Strategy- 7 -© Minder Chen, 1993-2012Sources of Switching Costs•Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software).•Learning costs: Switching technologies may require an investment in learning a new interface and commands.•Information and data: Users may have to reenter data, convert files or databases, or may even lose earlier contributions on incompatible systems.•Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used.•Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organization’s reputation as a reliable partner.•Search costs: Finding and evaluating a new alternative costs time and money.- 8 -© Minder Chen, 1993-2012Barriers to Entry•Supply-side economies of scale•Demand-side benefits of scale (network effects)•Customer switching costs: –Enterprise resource planning (ERP) software is an example of a product with very high switching costs.•Capital requirements–Semiconductor foundry vs. corner coffee shop•Incumbency advantages independent of size–Brand, experiences curve•Unequal access to distribution channels–Using e-commerce for direct sales•Restrictive government policy- 9 -© Minder Chen, 1993-2012Emerging technologiesEntry threat/Entry barriers- 10 -© Minder Chen, 1993-2012Apple’s Entrance to Different Industries- 11 -© Minder Chen, 1993-2012Apple •Apple Computer Inc.  Apple Inc.•Apple to Mac•iPod + iTune + music •Apple Stores (see teaching note)•iPhone + iTune + Apps•iPad + iTune + Apps + iBook•From a system to an eco-system•From hardware to software to contents and services- 12 -© Minder Chen, 1993-2012Apple Stores Services•Intensive control of how employees interact with customers, scripted training for on-site tech support and consideration of every store detail down to the pre-loaded photos and music on demo devices.Photo by Bobby Bank/Getty Images- 13 -© Minder Chen, 1993-2012Competitive ForceIT Influence on Competitive ForceThreat of New EntrantsZara’s IT supports its tightly-knit group of designers, market specialists, production managers and production planners. New entrants are unlikely to provide IT to support relationships that have been built over time. Further it has a rich information repository about customers that would be hard to replicate.Bargaining Power of BuyersWith its constant infusion of new products, buyers are drawn to Zara stores. Zara boasts more than 11,000 new designs a year, whereas competitors typically offer only 2,000 – 4,000. Further, because of the low inventory that the Zara stores stock, the regulars buy products they like when they see them because they are likely to be gone the next time they visit the store. More recently Zara has employed laser technology to measure 10,000 women volunteers so that it can add the measurements of ‘real’ customers into its information repositories. This means that the new products will be more likely to fit Zara customers.Bargaining Power of SuppliersIts computer-controlled cutting machine cuts up to 1000 layers at a time. It then sends the cut materials to suppliers who sew the pieces together. The suppliers’ work is relatively simple and many suppliers can do the sewing. Thus, the pool of suppliers is expanded and Zara has greater flexibility in choosing the sewing companies. Further, because Zara dyes 50% of the fabric in its plant, it is less dependent on suppliers and can respond more quickly to mid-season changes in customer color preferences. Threat of