1 IS Theories & Practices On Competition IS 655: Note 2 CSUN Information Systems

2 Porter’s Competitive Forces Model

3 Competitive Forces Threat of new entrants / competitors –high when it is easy to enter a market –low when significant barriers to entry exist. Barrier to entry –a product or service feature that customers expect from organizations in a certain industry. IT (low cost technologies, Internet) increases the threat that new competitors will enter a market.

4 Competitive Forces … Bargaining power of suppliers –high when buyers have few choices –low when buyers have many choices. Buyers can use the Internet to find alternative suppliers and compare prices more easily, reducing power of suppliers. But companies can use the Internet to integrate their supply chains, suppliers can lock in customers.

5 Competitive Forces … Bargaining power of buyers –high when buyers have many choices –low when buyers have few choices. Internet increases buyers’ access to information, increasing buyer power. Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power.

6 Competitive Forces … Threat of substitute products or services –high when there are many substitutes for an organization’s products or services –low where there are few substitutes. Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently.

7 Competitive Forces … Rivalry among firms in an industry –high when there is fierce competition –low when there is not.

8 Strategies for Competitive Advantage Cost Leadership Differentiation Innovation Operational Effectiveness Customer-orientation

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10 Business Strategies Intensification: improving processes to serve current customers better: reengineer the current processes, eliminate ineffective operations. Extension: using efficient existing processes to enter new markets to gain competitive advantage. Augmentation: expanding processes to provide additional services to current customers. Conversion: taking a process that the company performs well and performing it as a service to other companies. Innovation: applying existing processes that one performs well to create and deliver different goods or services. Diversification: creating new processes to deliver new goods or services

11 Competitive Advantage Sources of Competitive Advantage: –Best-made product –Superior customer service –Lower costs –Superior manufacturing technology –Shorter lead times –Well-known brand name –High value per cost

12 What IT/IS can do IT/IS improves or innovates the use of knowledge in operations of the value chain and value system IT/IS improves products or services by increasing quality, reducing costs, or adding desirable features IT/IS provides timely and reliable information to enhance the decision-making process IT/IS improves communication between internal as well as external business entities to increase efficiency in production and distribution