Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
PORTER’S COMPETITIVE FORCES MODEL
● The competitive forces model; provides a general view of the firm, its competitors, and
the firm’s environment
1. Traditional competitors
○ All firms share market space with competitors who are continuously developing
new, more efficient ways to produce by introducing new offerings
○ Attempts to attract customers by developing their brands and imposing switching
costs on their customers
2. New market entrants
○ In a free economy → new companies are always entering the marketplace
○ Some industries have a very low barrier to entry
i. Ex: small businesses → small barrier to energy
ii. Ex: computer chip businesses → high barrier entry
● High capital costs, and require significant knowledge
○ New companies have new equipment, younger workers, and little brand
recognition, highly motivated
i. They are dependent on outside financing + less-experienced workforce
3. Substitute for products and service customers
○ These are substitutes that customers might use if your prices become to high
○ New technologies create new substitutes all the time
○ Ex. ethanol → gasoline
○ Ex. can't afford sim card → prefer Skype
4. Customers
○ The power of customers grows if they can easily switch to competitors to
compete on price
i. This happens if there is little product differentiation
● Ex: students find used college textbooks + find multiple suppliers
for any textbook
5. Suppliers
○ The market power of suppliers when firm cannot raise prices as fast as suppliers
○ The more different suppliers a firm has → greater control it can exercise over
suppliers in price, quality, delivery schedules
INFORMATION SYSTEMS STRATEGIES FOR DEALING WITH COMPETITIVE FORCES
1. Low-cost leadership
a. Less the price, the higher the chance the customers will buy my product
b. Use IS systems to achieve the lowest operational costs and the lowest prices
i. Ex: Walmart
● Keeping prices low and shelves well stocked using a
goodinventory replenishment system
● Walmart → continuous replenishment system sends orders for
new merchandise directly to suppliers as soon as consumers pay
for their purchase at the register
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
● POS terminals record the bar code and send the purchase
transaction directly to a central computer at Walmart HQ
● The computer collects the orders from all the Walmarts and sends
them to the suppliers
ii. Walmart's continuous replenishment system → efficient customer
response system
2. Product differentiation
a. This is mass customization based on customer preferences
b. Ex: google updated their GA to enable more natural and continuous
conversations and smart displays that can play the output of Assistant to screens
c. Manufacturers and retailers use IS to create new offerings that are customized
and personalized to fit the precise specifications of individuals
i. Ex: Nike sells sneakers through “NIKE BY YOU” on their website
ii. Mass customization: the ability to offer individually tailored products and
services using the same production resources as mass production
3. Focus on market niche
a. Use IS to enable specific market focus and serve a narrow target market better
than customers
i. Supports this strategy by producing and analyzing data for finely tuned
sales and marketing techniques
ii. Enables companies to analyze customer buying patterns, tastes, and
preferences closely so they can efficiently pitch advertising to smaller
markets
b. The data comes from a range of sources:
i. credit transactions
ii. demographic data
iii. data collected when people access and interact with web services
● Software tools find patterns in large pools and infer rules from
them to guide decision-making
● Analysis of data drives one-to-one marketing that creates personal
messages on individualized preferences
a. Ex: Hilton Hotels OnQ system → analyzes collected data
on active guests on all properties and determines the
preferences of each quest and their profitability
b. What temperature do you set, and what kind of food do
you order → Here is a promotion package that's promoted
to customers like you
4. Strengthen customer and supplier intimacy
a. Use IS to tighten linkages with suppliers and develop intimacy with customers
i. Toyota, Ford, and other automobile manufacturers use IS to facilitate
direct access by suppliers to production schedules permit suppliers to
decide how and when to ship supplies
● Allows suppliers more lead time in producing goods
b. Strong linkages to customers and suppliers increase switching costs
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
i. Switching costs: the cost of switching from one product to a competing
product
THE INTERNET’S IMPACT ON COMPETITIVE ADVANTAGE
● Internet technology is based on the universal standard that any company can use
○ Makes it easier for rivals to compete on prices and for new competitors to enter
the market
● Internet raises bargaining power for customers who can find the lowest-cost provider on
the web
● The Internet has destroyed some industries and threatened others
○ Ex: printed encyclopedia industry + travel agency industry
● Makes information available to everyone
● New opportunities for building brands and loyal customer bases
○ Ex. aircanada establishes a customer support chat ad to further improve its
loyalty and brand
SMART PRODUCTS AND THE INTERNET OF THINGS(IOT)
● The growing use of sensors in industrial and consumer products → Internet of Things
(IoT)
○ Under Armour and other sports fitness companies are pouring money into
wearable health trackers that use sensors to report users’ activities to remote
corporate computing centers where data is analyzed
○ Farm tractors from John Deere, Kubota, and Mahindra are loaded with field
radar, GPS transceivers, and hundreds of sensors keeping track of the
equipment
● GE is creating a new business helping aircraft and wind turbine clients improve
operations by:
○ Improving operations by examining the data generated by thousands of sensors
on the equipment
● Those who can't afford sensor-based products will be left behind, and new entrants may
even succeed by offering differentiation
● Smart products offer new functionality, greater reliability, and more intense use of
products while providing detailed info that can be used to improve products and
customer experience
○ Expands opportunities for offering differentiation
● Smart products raise switching costs and inhibit new entrants to a market because
existing customers are trapped in the dominant firm’s software equipment
● Smart products increase the power of suppliers of physical components
○ Suppliers of old raw materials dont have power of bargaining
● Sensors can be attacked to physical items and humans
THE BUSINESS VALUE CHAIN MODEL
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
● Value chain model: highlights specific activities in the business where competitive
strategies can be best applied where informational systems are most likely to have
strategic impact
○ Identifies specific, critical leverage pts to enhance competitive position
○ Views the firm as a series of chain of basic activities that add a margin of value to
a firm’s products or services
○ Activities can be categorized either as support or primary activities
● Primary activities: most directly related to the production and distribution of the firm’s
products and services
○ Creates value for the customer
○ Includes inbound logistics, operations, outbound logistics, sales and marketing,
and service
■ Inbound logistics → receiving and storing materials for distribution to
production
■ Operations → transform inputs into finished offerings
■ Outbound logistics → storing and distributing finished products
■ Service activity → includes maintenance and repair of the firm’s offerings
● Support activity: make the delivery of the primary activities possible and consist of
organization infrastructure, HR, technology, and procurement
● Benchmarking: involves comparing the efficiency and effectiveness of your business
processes against strict standards and then measuring performance against those
standards
● Industry best practices: identified by consulting companies, research organizations,
government agencies, and industry associations as the more successful solution or
problem-solving methods for consistently and effectively achieving a business objective
EXTENDING THE VALUE CHAIN: THE VALUE WEB
● The firm’s value chain is linked to the value chains of suppliers, distributors, and
customers
● Value web: a collection of independent firms using highly synchronized IT to coordinate
value chains to produce products or services collectively
○ More customer-driven, less linear operation than the traditional value chain
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
SYNERGIES
● The idea of synergies is that when the output of some units can be used as inputs to
other units or two organization pool markets and expertise
○ These relationships lower cost and generate profits
○ Ex. Bank of New York and JP Morgan combined because they want to be more
powerful
● Bank and financial firm mergers occurred for this purpose
○ Merger of Bank of America and Countrywide Financial Corporation
● One use of IT in these synergy systems is to tie together the operations of disparate
business units so they can act as a whole
○ Ex: acquiring countrywide financial enabled Bank of America to extend its
mortgage lending business and to tap into a large pool of new customers who
might be interested in its credit cards, consumer banking, and other offerings
● IS helped the merged companies consolidate operations, lower retailing costs, and
increase cross-marketing of financial products
CORE COMPETENCIES
● A core competency: an activity for which a firm is a world-class leader, different than
others
● Relies on knowledge gained over many years of practical field experience with
technology
○ Practical knowledge is supplemented with long-term research efforts and
committed employees
○ Ex: Procter & Gamble → a lead in brand management and customer product
innovation
■ Uses a series of systems to enhance its core competencies by helping
people working on similar problems share ideas and expertise
■ Employees working in R&D, engineering, purchasing, marketing, legal
firms, and business IS around the world can share data from various
online sources
■ P&G system can link research scientists and entrepreneurs outside the
company to search for new, innovative, products worldwide
NETWORK-BASED STRATEGIES
● Take advantage of the firm’s abilities to network with one another, includingthe use of:
1. Network economics refers to market situations where the economic value being
produced depends on the number of people using a product
○ Once you produce once,the cost of additional goods is zero
○ Certain products and markets → The real economic value comes from the
fact that other people use the product
i. “Network effects” are at work
○ In traditional economics → the economics of factories and agriculture
production experience diminishing returns
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
i. The more any given resource is applied to production → the lower
the marginal gain in output until a point is reached where the
additional inputs produce no additional outputs
1. Law of diminishing returns → foundation of modern
economics
○ The law of diminishing returns → doesn’t always work
i. In a network → marginal costs of adding another participant are
about 0
ii. The larger the number of subscribers in a telephone system or the
Internet → the greater the value to all participants because each
other can interact with more people
iii. It is not more expensive to operate a television station with 1,000
subscribers vs 10M subscribers
iv. The value of a community grows with size → the cost of adding
new members is insignificant
○ Internet sites can be used by firms to build communities of users →
like-minded customers who want to share their experiences
i. Builds customer loyalty and enjoyment and builds unique ties to
customers
1. Ex: eBay → based on a network of millions of users and
built an online community by using the internet
a. More people offering products on eBay → the more
valuable Ebay site becomes because more
products are listed → more competition among
suppliers lowers prices
○ Network economics provides strategic benefits to commercial software
vendors
i. The value of their software and complementary software products
increases as more people use them
2. Virtual company model: another network-based strategy uses the model of a
virtual company to create a competitive business
○ Virtual company: known as a virtual organization → uses networks to
link people, assets, and ideas enabling it to ally with other companies to
create and distribute products and services without being limited by
traditional organizational boundaries or physical locations
i. Useful when a company finds it cheaper to acquire products,
services, or capabilities from an external vendor or when it needs
to move quickly to exploit new market opportunities and lacks time
and resources to respond on its own
1. Ex: GUESS, Ann Taylor, Levi Strauss, Reebok enlisted
Hong-Kong-based Li & Fung → manages production and
shipment of their garments
Week 12 Apr 7, 2025
Chapter 3.3+4: Information systems, Organizations and Strategy
a. Handles product development, raw material
sourcing, production planning, quality assurance,
and shipping
b. They don’t own any fabric, factories, or machines
→ outsource everything
3. Business Ecosystems and Platforms: the internet and the emergence of digital
firms call for some modification of the industry competitive forces model
○ Business ecosystem: another term for these loosely coupled,
interdependent networks of suppliers, distributors, outsourcing firms,
transportation service firms, and technology manufacturers
i. Ex: device makers, wireless Telecomms, independent software
applications providers, Internet service providers
ii. Microsoft, Facebook
○ Business ecosystems only have few keystone firms that dominate the
ecosystem and create the platforms used by other niche firms
CHALLENGES POSED BY STRATEGIC INFORMATION SYSTEMS
● Sustaining competitive advantage
○ Competitors can retaliate and copy strategic systems
■ Advantages don't last forever and technology can be outdated and
obsolete
■ Examples of First-Mover Advantages: Systems like SABRE (American
Airlines), Barclays' ATMs, and FedEx's package tracking initially
succeeded as industry pioneers but were later challenged by competitors.
○ Systems may become tools for survival
● Aligning IT with business objectives
○ Performing strategic systems analysis
■ Structure of industry
■ Firm value chains
● Review for the final exam using the posted Slides
● Prepare well and don’t leave everything last minute :)