1. MP3 / MD740 Strategy & Information Systems Nov. 3, 2004 Technology & Industry Competition

2. Topics Covered Strategy & the Internet – a critical look Tech’s impact on the five forces of industry competitiveness Recognizing competitor threats Information Systems and dealing with competitor threats –Readings discussions on mass-customization, brand, and scope, among others Buyer / Supplier power

4. ICA: Industry & Competitive Analysis (Porter’s Five Forces) Industry Competitors Potential New Entrants Substitute products or services Power of Suppliers Power of Buyers

5. Value Chain InboundOperationsOutboundMarketingService logisticslogistics& Sales Infrastructure: general mgmt, planning, finance, IS HRM: recruiting, hiring, training, and development Tech. Development: R&D Procurement

7. Competitor related threats –Growth industry w/above average profits –Fragmented industry - no clear leader / national brand –Low startup costs –Lack of scale economies –Low differentiation –Weak brands / low customer loyalty –Low customer switching costs –Available distribution networks –Technology & Regulatory shifts –Similar products/services/industries exist

9. Addressing Competitive Threats –Economies of Scale –Differentiation –Scope / Multiple Business Lines / Slack Resources –Develop / Strengthen Brand –Proprietary technology, learning curve/know-how, geography –Contrived Deterrence over-capacity, pre-announcements –Government Regulation –Switching Costs and Network Effects –Create / secure distribution channels –Alliances (with complementary firms & competitors) The Role of Timing

10. IS as an Enabler IS resource yields competitive advantage –(ex. Alcoa) Competitive Advantage Scale, World-leading mfg. & sales Integrated IS across plants / offices

11. Creating / Enhancing Resources Created when resources combine for additional benefit. –e.g. embedded technology Competitive Advantage Service Network Monitoring IS R & D Superior Service/ Switching Cost/ Inventory Efficiencies Superior Products

12. Google Revenue Streams AdWords AdSense Google Search Appliance

14. Google (GOOG)GOOG Yahoo Yahoo (YHOO)YHOO eBay eBay (EBAY)EBAY Net income latest four quarters in millions $222$542$715 Market cap (10/26/04) $63.0$49.8$47.7 Source: Fortune, Nov 15, 2004 Comparing Google

15. Supplier related threats Small number of suppliers Suppliers sell highly differentiated products Suppliers not threatened by substitutes Cost to switch suppliers is high Firm is not an important customer for suppliers Suppliers threaten forward integration Information asymmetries

16. Addressing the supply-side Foster relationships with more suppliers Acquire & leverage information Lower switching costs –Lower product complexity - turn supplier products into commodities –be less dependent on a given supplier Integrate backwards Tightly integrate suppliers into your operations –make suppliers more dependent on your firm

17. Reduce Switching Costs & Enhance Choice Firms have a greater choice of suppliers Firms are limited to a few suppliers SWITCHING COSTS LOW HIGH Information Systems Examples EDI, WebServices Computer Aided Design (CAD), Computer Aided Engineering (CAE), Computer Aided Manufacturing (CAM) Integrated Robotics

18. Buyer related threats Small number of highly influential buyers Buyers purchase commodity products Products sold to buyers consume a high portion of the product’s final cost Buyers are not earning significant economic profits Buyers threaten backward integration Information asymmetries

19. Addressing the buy side Seek or create new buyers / new markets Acquire & leverage information Reduce buyer costs / assist buyer in expanding markets Differentiate products Tightly integrate with buyers Integrate forwards

20. Differentiating Products Commodities Differentiated Goods LEVEL OF CUSTOMIZATION LOW HIGH Examples Customer-driven Ordering Systems Mass-customization Systems Just In Time (JIT) Manufacturing Systems Information Systems