QUIZ 2 REVIEW 5 Forces that determine the structure of an Industry 1 Level of Rivalry Competition determined by of firms 2 Bargaining power of Suppliers 3 Bargaining power of Buyers 4 Barriers of Entry high start up cost 5 Availability of substitute product Strength of the forces are industry specific and company specific Components of the Macro environment Demographic Economic Political Legal Sociocultural Technological Global 1 Buyer Power Bargaining Power of Buyers 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 and increases buyer information DETERMINANTS Buyer concentration Buyer volume Buyer information Ability to integrate backward Substitute products Price Total purchases Product differences Brand identity Buyer profits Impact of quality 2 Supplier Power Bargaining Power of Suppliers 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 IT internal organizational system to lock in suppliers Suppliers are powerful if It is more concentrated than the industry it sells to The supplier group does not depend heavily on the industry for its revenues Industry participants face switching costs in changing suppliers No substitute Suppliers offer products that are differentiated Switching costs DETERMINANTS Differentiation of inputs Presence of substitute input Supplier concentration Importance of volume to supplier Cost relative to total purchases Threat of forward integration Impact of inputs on cost or differentiation 3 Threat of Substitute Products High when there are many alternatives to a product or service and low when there are few alternatives to choose from Determinants Relative price performance switching costs buyer propensity to substitute Technology can cause a significant shift in the availability DETERMINATES Relative price performance Switching costs Buyer propensity to substitute 4 Rivalry 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 Price vs Quality vs Reputation vs Service etc Rivalry is especially destructive to profitability if it gravitates solely to price because price competition transfers profits directly from an industry to its customers Price cuts are usually easy for competitors to see and match making successive rounds of retaliation likely Sustained price competition also trains customers to pay less attention to product features and service Industry growth Fixed costs value added DETERMINANTS Overcapacity Product differences Brand Identity Switching costs Concentration balance Diversity of competitors Exit barriers Corporate stakes 5 Threats 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 Some industries that have high entry barriers Energy the organization has to have the infrastructure to support energy Telecommunications the organization has to invest in a telecommunications infrastructure prior to offering services Banking the bank must offer its customers an array of IT enabled services including ATMs and online account services Industries that have low entry barriers Restaurants simply lease a space obtain a license and you can sell food Catering simply offer food and deliver Movie rental simply buy the movies pay the licensing fee and offer the movies for rental Newcomers to an Industry can expect retaliation if Incumbents possess substantial resources to fight back including excess cash and unused borrowing power available productive capacity or clout with distribution channels and customers Incumbents seem likely to cut prices because they are committed to retaining market share at all costs or because the industry has high fixed costs which create a strong motivation to drop prices to fill excess capacity Industry growth is slow so newcomers can gain volume only by taking it from incumbents DETERMINANTS Economies of Scale Proprietary Product differences Brand Identity Switching costs Capital requirements Access to distribution Absolute cost advantages Government policy Expected retaliation Value Chain connected series of activities each of which ads value or supports the addition of value to the firms goods and services Determines the success or failure of its chosen strategy 9 activities 5 primary 4 supporting The value chain model highlights the primary or support activities that add a margin of value to a firms produces or services where information systems can best be applied to achieve a competitive advantage Primary Activities Directly related to the production and distribution of the organization s products and services Inbound logistics obtaining raw materials Operations creating the product transformation of inputs Outbound logistics storing shipping the product Marketing and Sales establishing customer need Service selling the product after sales service Support Activities Value chain activities that an organization conducts to support the creation of business value Organizational infrastructure Human Resource management Technology development Procurement Value chain primary support activities synergy 2 2 5 Upstream chains of suppliers Downstream chains of customers Value Chain Analyze linkages between steps in value chain Use analysis to identify strategic information systems In order to use IS strategically must identify info related aspects of each activity in value chain and linkages Basic Strategy align IT with business objectives Identify business goals and strategies Break strategic goals into concrete activities and processes Identify metrics for measuring progress Determine how IT can help achieve business goals Measure actual performance Investment and IT is industry specific Collaborative Filtering match against customers with similar characteristics ex Amazon Continuous Replenishment System Sales data is captured at the checkout counter to determine which items have sold and need to be reordered ex manages safety stock CRM and SCM Strengthen customer and supplier intimacy Strong linkages to customers and
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