Strategy and Information Systems

11/02/2002

What is Strategy?

• Merriam Webster Dictionary– The science and art of military command exercised to meet the e

nemy in combat under advantageous conditions

• Michael Porter– Leverage of core competence to achieve competitive innovation

(changing the rules of the game). It is about being different

• Hamel and Prahalad– Strategy is about being different. It means deliberately choosing

a different set of activities to deliver a unique mix of value

• Resource-based view– The use of valuable, rare, non-substitutable, and appropriable re

sources and capabilities to create sustainable advantage

Current Trends in Strategy

• Business building

• Growth short-term and long-term

• Dealing with disruption

• Strategic alignment

Strategy and the Internet

2002/10/17

Michael Porter’s view of the Internet

• We need to move from the rhetoric about “Internet industries,” ”e-business strategy,” and a “new economy” and see the Internet for what it is– An enabling technology– A power set of tools that can be used, wisely

or unwisely in almost any industry and as part of almost any strategy

Fundamental Questions

• Who will capture the economic benefits that the Internet creates?

• Will all the value end up going to customers, or will companies be able to reap a share of it?

• What will be the Internet’s impact on industry structure?

• Will it expand or shrink the pool of profits?• What will be its impact on strategy?• Will the Internet bolster or erode the ability of

companies to gain sustainable advantages over their competitors?

Negative view of the Internet

• It tends to alter industry structures in way that dampen overall profitability

• It has a leveling effect on business practices– Reducing the ability of any company to

establish an operational advantage that can be sustained

Positive View of the Internet

• It provides better opportunities for companies to establish distinctive strategic positionings than did previous generations of information technology– Gaining such a competitive advantage does not require a radi

cally new approach to business– It requires building on the proven principles of effective strateg

y– Many of the companies that succeed will be ones that use the I

nternet as a complement to traditional ways of competing, not those that set their Internet initiatives apart from their established operations

– Dot-coms can also be winners• If they understand the trade-offs between internet and traditional approa

ches and can fashion truly distinctive strategies

Rivalry among Existing Competitors

• Reduces differences among competitors as offerings are difficult to keep proprietary(-)

• Migrates competition to price(-)• Widens the geographic market, increasing

the number of competitors(-)• Lowers variable sot relative to fixed cost,

increasing pressures for price discounting(-)

Threat of Substitute Products or Services

• By making the overall industry more efficient, the Internet can expand the size of the market (+)

• The proliferation of Internet approaches creates new substitution threats (-)

Barriers to Entry

• Reduces barriers to entry such as the need for a sales force, access to channels, and physical assets– Anything that Internet technology eliminates or makes

easier to do reduces barriers to entry(-)

• Internet application are difficult to keep proprietary from new entrants(-)

• A flood of new entrants has com into many industries(-)

Bargaining Power of Suppliers

• Procurement using the Internet tends to raise bargaining power over suppliers, though it can also give supplier access to more customers (+/-)

• The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies(-)

• Internet procurement and digital markets tend to give all companies equal access to supplier, and gravitate procurement to standardized products that reduce differentiation(-)

• Reduced barriers to entry and the proliferation of competitors downstream shift power to supplier(-)

Buyers Bargaining Power

• Bargaining power of channels– Eliminates powerful channels or improve

bargaining power over traditional channels(+)

• Bargaining power of end users– Shifts bargaining power to end consumers– Reduces switching costs(-)

Five Competitive forces

Threat of New

Entrants

Rivalry AmongExisting

Competitors

Bargaining Powerof Customers

Bargaining Powerof Suppliers

Threat ofSubstitutes

COMPETITIVE FORCES MODEL

SUBSTITUTE PRODUCTS &

SERVICES

NEW MARKET ENTRANTS

SUPPLIERS CUSTOMERS

THE FIRMTRADITIONAL

INDUSTRY COMPETITORS

THE THE INDUSTRYINDUSTRY

COMPETITIVE FORCES MODEL

SUBSTITUTE PRODUCTS &

SERVICES

NEW MARKET ENTRANTS

SUPPLIERS CUSTOMERS

INDUSTRY INDUSTRY SETSET

INDUSTRY COMPETITORS

INDUSTRY 4

INDUSTRY 3

INDUSTRY 2

INDUSTRY 1

Fundamental Competitive Strategies

Differentiation StrategiesDifferentiation Strategies

Innovation StrategiesInnovation Strategies

Growth StrategiesGrowth Strategies

Alliance StrategiesAlliance Strategies

Cost Leadership StrategiesCost Leadership Strategies

Strategic Uses of Information Technology

ImprovingBusinessProcess

PromoteBusinessInnovation

Locking in Customers and Suppliers

Use IT to reduce costs of doing business

•Use IT to improve quality•Use IT to link business to customers and suppliers

Use IT to create new products or services

EnhanceEfficiency

Create NewBusiness Opportunities

Maintain ValuableCustomers and Relationships

Strategy

IT Role

Outcome

Strategic Uses of Information Technology

RaiseBarriersto Entry

Build aStrategic ITPlatform

Build a Strategic Information Base

Increase amount of investment or complexity of IT needed to compete

Use IT to provide information to support firm’s competitive strategy

Leverage investment in IS resources from operat- ional uses to strategic uses

IncreaseMarket Share

Create NewBusiness Opportunities

EnhanceOrganizational Collaboration

Strategy

IT Role

Outcome

Strategic Positioning of Internet Technologies

Global MarketPenetration

E-Commerce WebsiteValue-added IT Services

Product and ServicesTransformation

E-Business; ExtensiveIntranets and Extranets

Cost andEfficiency Improvements

E-Mail, Chat Systems

Performance Improvements inBusiness Effectiveness

Intranets and Extranets

Strategy

Solution

Low

High

High

Cu

sto

me

r C

om

pe

titio

n C

onn

ect

ivi ty

E-Business Processes Connectivity

Internal Drivers

Ex

tern

al D

rive

rs

The Value Chain

Administrative Coordination & Support Services

Human Resource ManagementHuman Resource Management

Technology DevelopmentTechnology Development

Procurement of ResourcesProcurement of Resources

InboundLogisticsInboundLogistics OperationsOperations Outbound

LogisticsOutboundLogistics

Marketingand

Sales

Marketingand

Sales

CustomerServiceCustomerService

Com

petit

ive

Adv

anta

ge

The Internet Value Chain

Marketing andProductResearch

Sales andDistribution

Support and Customer Feedback

Data for market research, establishes consumer responses

•Access to customer com-ments online•Immediate re-sponse to customer problems

•Low cost distribution•Reaches new customers •Multiplies contact points

EnhanceEfficiency

Create NewBusiness Opportunities

Maintain ValuableCustomers and Relationships

InternetCapability

Benefitsto

Company

Opportunityfor

Advantage