IT and Strategy Part 2 continued IT IT and Strategy Part 2 continued IT Strategy Management Strategy Management BMGT301 BMGT301 Professor Catherine Anderson Professor Catherine Anderson Administrative Administrative Quiz is 9 22 for TR and 9 23 for MW Format is multiple choice 10 questions Review at end of today s presentation slides Intro to Strategy and the Internet Intro to Strategy and the Internet Porter argues companies made poor choices that eroded the attractiveness of their industries and undermined competitive advantages Shift away from competition based on quality features and service toward price Difficult to earn a profit Rushed partnerships forfeited proprietary advantages Strategy and the Internet Strategy and the Internet Distorted market signals Subsidizing purchases to attract customers e g heavy discounts free Curiosity experimentation high in beginning Discounted inputs Accepting stock payments in equity depresses costs and inflates revenue Stock valuations decoupled from business fundamentals investor enthusiasm Change in language Move away from traditional profit measures to number of customers number of visitors click through rates e Business e Strategy put focus on Internet operations and not holistic approach Porter s puzzle s puzzle Porter Why are some industries more profitable than others Oil Pharmaceutical VS Catering Restaurant A firm s profitability depends on its relationship with its environment How can we describe the firm s environment Industry Attractiveness Porter s Five Industry Attractiveness Porter s Five Forces Forces Over time profitability is determined by industry structure which the Internet impacts Industry structure and the profitability of the average competitor are shaped by five forces Intensity of intra industry competition Barriers to entry Bargaining power of suppliers Bargaining power of buyers and channels Threat of substitute products and services Porter 1980 The Five Forces Porter 1980 The Five Forces Porter s Five Forces Model determines the relative attractiveness of an industry Buyer Power Buyer Power Buyer power high when buyers have many choices of whom to buy from and low when their choices are few Determinants of buyer power Volume concentration buyer information Price sensitivity brand loyalty IT reduces search costs increasing buyer info How IT can be used to decrease Buyer power Loyalty programs reward customers based on the amount of business they do with a particular organization Supplier Power Supplier Power Supplier power high when buyers have few choices of whom to buy from and low when their choices are many Determinants of supplier power Substitute for the supply volume concentration impact of inputs on cost or differentiation How IT can be used to decrease supplier power Use inter organizational system to lock in suppliers harder now Why Business to Business B2B marketplace an Internet based service which brings together many buyers and sellers Be aware of the down side Hurting long term relationship Good for commodity like office supply Not suitable for more complex products bidding for a new product design Threat of Substitute Products or Services Threat of Substitute Products or Services Threat of substitute products or services high when there are many alternatives to a product or service and low when there are few alternatives from which to choose Determinants Example Relative price performance switching costs buyer propensity to substitute Change doctors vs change barbers Video conference VS travel Wikipedia VS your professor Kindle VS paper Kodak Rivalry among Existing Competitors Rivalry among Existing Competitors Rivalry among existing competitors high when competition is fierce in a market and low when competition is more complacent Although competition is always more intense in some industries than in others the overall trend is toward increased competition in just about every industry Widens geographic market increasing the number of competitors Fierce price competition Product information more transparent Examples of highly competitive industries Wireless communication e g AT T and Verizon tobacco products Examples of industries with lower competition soup plastic products Threat of New Entrants Threat of New Entrants Threat of new entrants high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market Other determinants Economies of scale patent protection access to distribution regulation and policy expected retaliation Example Low barriers retail hospitality High barriers telecommunications energy Benefits and Limitations of B2C E Benefits and Limitations of B2C E commerce for Consumers11 commerce for Consumers Benefits Limitations Lower prices Shop 24 7 Greater searchability Shorter delivery times for digital products Sharing of information with other consumers Improved customer service Delay in receiving physical products plus shipping In areas without high speed Internet service slow download speeds Security and privacy concerns especially with rise of phishing Inability to touch feel or even smell products prior to the purchase Unavailability of micropayments for purchase of small cost products 1From Information Systems Creating Business Value by Huber Piercy and McKeown p 208 Benefits and Limitations of B2C E Benefits and Limitations of B2C E commerce for Businesses11 commerce for Businesses Benefits Limitations Expansion of marketplace to global proportions Cheaper electronic transactions Greater customer loyalty through customized Web pages and 1 to 1 marketing Expansion of niche marketing opportunities Direct communications with customers through Web site resulting in better customer service Increased competition due to global marketplace Ease of comparison between competing products drives prices down Customers want specific choices and will not accept substitutes Customers control flow of information instead of companies Strategy and the Internet Strategy and the Internet increase Threat of substitutes Bargaining power of suppliers reduce Intra industry rivalry Bargaining power of channels end users increase increase Barriers to entry reduce Value Creation Value Creation Once an organization chooses its strategy it can use tools such as the value chain to determine the success or failure of its chosen strategy Value chain connected series of activities each of which adds value or supports the addition of value to
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