3-3. How Do Porter's Competitive Forces Model, The Value Chain Model, Synergies, Core Competencies, and Network Economics Help Companies Develop Competitive Strategies Using Information Systems?

3- 3.
How do Porter’s competitive forces model, the value chain

model, synergies, core competencies, and network economics help
companies develop competitive strategies using information systems?
Why do some firms do better than others, and how do they achieve competitive advantage? And
how do information systems contribute to strategic advantages? One answer to that question is
Michael Porter’s competitive forces model.
A. PORTER’S COMPETITIVE FORCES MODEL
Porter’s model is all about the firm’s general business environment.
In Porter’s competitive forces model, the strategic position of the firm and its strategies are
determined not only by competition with its traditional direct competitors but also by four other
forces in the industry’s environment: new market entrants, substitute products, customers, and
suppliers
 Traditional Competitors
All firms share market space with other competitors who are continuously devising new, more
efficient ways to produce by introducing new products and services, and attempting to attract
customers by developing their brands and imposing switching costs on their customers.
 New Market Entrants
In some industries, there are very low barriers to entry, whereas in other industries, entry is very
difficult. For instance, it is fairly easy to start a pizza business or just about any small retail
business, but it is much more expensive and difficult to enter the computer chip business, which
has very high capital costs and requires significant expertise and knowledge that are hard to
obtain.
 Substitute Products and Services
In just about every industry, there are substitutes that your customers might use if your prices
become too high. For example, Internet and wireless telephone service can substitute for
traditional telephone service.
 Customers
A profitable company depends in large measure on its ability to attract and retain customers.
 Suppliers
The more different suppliers a firm has, the greater control it can exercise over suppliers in
terms of price, quality, and delivery schedules.
B. INFORMATION SYSTEM STRATEGIES FOR DEALING WITH COMPETITIVE FORCES

There are four generic strategies, each of which often is enabled by using information
technology and systems: low-cost leadership, product differentiation, focus on market niche,
and strengthening customer and supplier intimacy.
 Low-Cost Leadership
Use information systems to achieve the lowest operational costs and the lowest prices.
For example, supermarkets and large retail stores such as Walmart use
sales data captured at the checkout counter to determine which items have sold and need to be
reordered. Walmart’s continuous replenishment system transmits orders to restock directly to
its suppliers. The system enables Walmart to keep costs low while fine-tuning its merchandise to
meet customer demands.
 Product Differentiation
Use information systems to enable new products and services or greatly change the customer
convenience in using your existing products and services.
For instance, Google continuously introduces new and unique search services on its website,
such as Google Maps.
 Focus on Market Niche
Information systems enable companies to analyze customer buying patterns, tastes, and
preferences closely so that they efficiently pitch advertising and marketing campaigns to smaller
and smaller target markets.
 Strengthen Customer and Supplier Intimacy
Fiat Chrysler Automobiles LLC uses information systems to facilitate direct access by suppliers to
production schedules and even permits suppliers to decide how and when to ship supplies to
Chrysler and Fiat factories. On the customer side, Amazon keeps track of user preferences for
book and CD purchases and can recommend titles purchased by others to its customers.
C. THE INTERNET’S IMPACT ON COMPETITIVE ADVANTAGE B

Internet technology is based on universal standards that any company can use, making it easy
for rivals to compete on price alone and for new competitors to enter the market. Because
information is available to everyone, the Internet raises the bargaining power of customers, who
can quickly find the lowest-cost provider on the web. Profits have been dampened.
However, the Internet has also created entirely new markets. Amazon, Alibaba, eBay, iTunes,
YouTube, Facebook, Travelocity, and Google are examples.
 Smart Products and the Internet of Things (IoT)
Smart products offer new functionality, greater reliability, and more intense use of
products while providing detailed information that can be used to improve both the
products and the customer experience.
D. THE BUSINESS VALUE CHAIN MODEL

The value chain model views the firm as a series or chain of basic activities that add a margin of
value to a firm’s products or services. These activities can be categorized as either primary
activities or support activities:
- Primary activities are most directly related to the production and distribution of the firm’s
products and services, which create value for the customer.
- Support activities make the delivery of the primary activities possible and consist of
organization infrastructure human resources technology and procurement
This figure provides examples of systems for both primary and support activities of a firm and of
its value partners that can add a margin of value to a firm’s products or services.
 Extending the Value Chain: The Value Web
A value web is a collection of independent firms that use information technology to
coordinate their value chains to produce a product or service for a market
collectively.
E. SYNERGIES, CORE COMPETENCIES, AND NETWORK-BASED STRATEGIES

A large corporation is typically a collection of businesses. Often, the firm is organized financially
as a collection of strategic business units and the returns to the firm are directly tied to the
performance of all the strategic business units. Information systems can improve the overall
performance of these business units by promoting synergies and core competencies.
 Synergies
The idea of synergies is that when the output of some units can be used as inputs to
other units or two organizations pool markets and expertise. Information systems
would help the merged companies consolidate operations, lower retailing costs, and
increase cross-marketing of financial products.
 Enhancing Core Competencies

A core competency is an activity for which a firm is a world-class leader. Core
competencies may involve being the world’s best miniature parts designer, the best
package delivery service, or the best thin-film manufacturer.
 Network-Based Strategies
 Network economics refers to market situations where the economic value
being produced depends on the number of people using a product.
For instance, what’s the value of a telephone if it is not connected to
millions of others? Email has value because it allows us to communicate
with millions of others.
 Virtual Company Model
A virtual company , also known as a virtual organization, uses networks to
link people, assets, and ideas, enabling it to ally with other companies to
create and distribute products and services without being limited by
traditional organizational boundaries or physical locations.
 Business Ecosystems and Platforms
Business ecosystem is another term for these loosely coupled but
interdependent networks of suppliers, distributors, outsourcing firms,
transportation service fi rms, and technology manufacturers

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3- 3.

How do Porter’s competitive forces model, the value chain

A. PORTER’S COMPETITIVE FORCES MODEL

Porter’s model is all about the firm’s general business environment.

B. INFORMATION SYSTEM STRATEGIES FOR DEALING WITH COMPETITIVE FORCES

C. THE INTERNET’S IMPACT ON COMPETITIVE ADVANTAGE B

D. THE BUSINESS VALUE CHAIN MODEL

E. SYNERGIES, CORE COMPETENCIES, AND NETWORK-BASED STRATEGIES

 Enhancing Core Competencies

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