1. Lecture 23 Electronic Business (MGT-485)

2. Recap – Lecture 22 E-Business Strategy: Formulation – Internal Assessment Value Chain Analysis Linkages within the Value Chain Value Chain Linkages in the Supply Chain Linkages with Supplier Value Chain The Buyer’s Value Chain

3. Contents to Cover Today E-Business Strategy: Formulation – External Assessment Key External Factors Relationships between key external factors and an organization Performing an External Audit Michael Porter’s Five Forces Model

4. External Assessment Also called: – External Audit – External Strategic Management Audit – Environmental scanning – Industry analysis

5. External Assessment External Audit: – Identification and evaluation of trends and events beyond control of single firm Increased foreign competition Populations shifts Aging society Information technology Computer revolution

6. Purpose: – Development of Finite List: Opportunities Threats to be avoided Nature of External Assessment

7. Five (5) broad categories: 1.Economic forces 2.Social, cultural, demographic, & environmental forces 3.Political, governmental, and legal forces 4.Technological factors 5.Competitive forces Key External Forces

8. Relationships Between Key External Forces and an Organization Key External Forces Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Opportunities & Threats

9. Performing an External Audit Gather competitive intelligence on factors: – Social – Cultural – Demographic – Environmental – Economic – Political, legal, governmental – technological

10. Performing an External Audit Sources of information include: – Internet – Libraries (corporate, university, public) – Suppliers – Distributors – Customers – Competition

11. Performing an External Audit Key factors: – Vary over time – Vary by industry

12. Performing an External Audit Variables include: – Market share – Breadth of competing products – World economies – Foreign affiliates – Proprietary account advantages – Price competitiveness – Technological advancements – Interest rates – Pollution abatement

13. Key External Factors Key External Factors: 1.Oriented to long-term & annual objectives 2.Measurable 3.Applicable to all competing firms 4.Hierarchical Overall company Divisional or functional areas

14. Michael Porter’s Five-Forces Model (Competitive Analysis) Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

15. Michael Porter’s Five-Forces Model (Competitive Analysis) Competitive Rivalry – Competitive rivalry is a good starting point to when analyzing a particular industry. – If entry to an industry is easy then competitive rivalry is likely to be high. – If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. – Generally competitive rivalry will be high if: There is little differentiation between the products sold by competitors. Competitors are approximately the same size of each other. If competitors have similar strategies. It is costly to leave the industry (exit barriers)

16. Michael Porter’s Five-Forces Model (Competitive Analysis) Power of Suppliers – Suppliers are also essential for the success of an organization as they provide businesses with the resources they need to produce their products and services. – Supplier power can come from: If there is one or just a few suppliers that can provide the resources a business needs. If it is expensive to move from one supplier to another (known also as switching cost) If there is no other substitute for the product provided by the supplier.

17. Michael Porter’s Five-Forces Model (Competitive Analysis) Power of Buyers – Buyers or customers can exert influence and control over an industry in certain circumstances. – This happens when: There is little differentiation over the product and substitutes can be found easily by customers/buyers. Buyers/customers are sensitive to price fluctuations. Switching to another product is not costly for customers/buyers.

18. Michael Porter’s Five-Forces Model (Competitive Analysis) Threat of Substitutes – Are there alternative products that customers can purchase instead of yours? – Alternative products that offer the same benefit as your products? – The threat from substitute (competitor) products is high when: The price of the substitute (competitor) product falls. It is easy for consumers to switch from one substitute product to another. Buyers are willing to substitute products from different competitors.

19. Michael Porter’s Five-Forces Model (Competitive Analysis) Threat of New Entrant – The threat of new organizations entering the industry is high when it is easy for an organization to enter the industry i.e. entry barriers are low. – When a new business is deciding whether to enter an industry it will look at: How loyal customers are to existing products, How quickly it can achieve economy of scales Would it have access to suppliers and Would government legislation prevent them or encourage them to enter the industry.

20. Summary E-Business Strategy: Formulation – External Assessment Key External Factors Relationships between key external factors and an organization Performing an External Audit Michael Porter’s Five Forces Model