Page 13-16; 16.6b-16c: Strategies Porter’s 5 Force Model Task 1 Task 2 IT for a Competitive Adv 1

Porter’s Strategies: Overall cost leadership Differentiation Focus Information Systems assist by Reducing costs of products and services If correctly designed, assists with differentiation and focus strategies 2

Role of IT: Bottom-line, by improving efficiency by reducing overall costs Top-line, by generating new revenue by offering new products and services to customers or increasing revenue by selling existing products and services new customers E-commerce: adapt business models to reduce distribution costs dramatically. Ex? 3

Overall Costs: To reduce costs: ES: SCM, CRM, ERP, and collaboration SW SCM CRM Collaboration SW: Goal: To use IT to create the most Efficient, effective link between suppliers and consumers 4

Differentiation: Make the products and services different from competitors Apple: computers look different, and ease of use Amazon.com: Web uses personalization technologies. One-click for fast checkout CEO? 5

Focus: To concentrate on a specific market segment to achieve cost or differentiation advantage Apple: iPhone focus on customers not business Macintosh: for creative professionals Abercrombie & Fitch: high-end clothing to low- income customers Nordstrom: high-end clothing to high-income customers 6

Conclusion: Focus and differentiation work to a certain point, and then customers cannot afford it anymore. Cost still plays a role. 7

Porter’s 5 Force Model: Buyer power: is high when customers have many choices Organizations offer services that makes it difficult for customers to switch (differentiation) increase buyer’s bargaining power and decreases supplier power 8

Cont.: Dell: computer customization Sam’s Club: club cards that encourage customers to shop for big discounts (cost leadership) Airlines and hotels: free mileage and points Customer loyalty: combating the threat of new entrants or substitute products Internet: give customers access to all sorts of data, increase buyer’s bargaining power and decreases supplier power 9

Supplier Power: Is high when customers have fewer options. Make products and services cheaper or to offer more services in order to distinguish themselves from competitors Netflix: watched unlimited movies and TV episodes…. Drug co’s: patents to reduce competition 10

Substitute products: When many alternatives to organization’s products and services are available. Companies try to be distinctive Use fees to discourage customers from switching. Cell phone companies 11

Threat of new Entrants: Low when duplicating a company’s products or services is difficult Focus: Google.. Banks Yahoo Google 12

Rivalry: Many competitors occupy the same marketplace position On-line Brokerage firms: use IT to make their services unique. 13

Task 1 Airline Industry: SA How many airline companies do we have? Who are they? Which one the tax payer is paying for? 14

Task 2: The role of Information Systems in Porter’s Forces: Supplier bargaining Power: Competitive rivalry: Buyers bargaining Power: Thread of substitutes: Threat of new entrants: 15

References: 1. Baltzan, P. Business Driven Technology. New York: McGraw-Hill Irwin, Johnson, G., Whittington, R., Scholes, K. Exploring Strategy. Essex: Pearson, Oz, E,. Jones, A. Managemnt Information Systems. Andover: Course Technology, Stair, R., Reynolds, G., Chesney, T. Fundamentals of Business Information. 16