IE-401 MANAGEMENT

INFORMATION SYSTEM (MIS)

Lecture-9 (Competitiveness)
Dr. Sikandar Bilal Khattak
Department of Industrial Engineering
University of Engineering and Technology Peshawar, Pakistan
 This Lecture
■ Porter’s Competitive Forces Model

■ Information System Strategies for Dealing with Competitive Forces

■ The Internet Impact on Competitive Advantage

■ The Business Value Chain Model

■ Challenges

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 Porter’s Competitive Forces Model
■ Most widely used model for
Porter’s Competitive Forces Model
understanding competitive advantage is
Michael Porter’s Competitive forces
model.

■ Five competitive forces shape fate of

firm

1. Traditional competitors

2. New market entrants

3. Substitute products and In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its

services traditional direct competitors but also by four forces in the industry’s
environment: new market entrants, substitute products, customers,
and suppliers.

4. Customers
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 Porter’s Competitive Forces Model
1. Traditional Competitors
■ All firms share market space
Porter’s Competitive Forces Model
with competitors who are
continuously devising

– New products

– Services

– Attempting to attract
customers In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its
traditional direct competitors but also by four forces in the industry’s

– switching costs. environment: new market entrants, substitute products, customers,

and suppliers.

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 Porter’s Competitive Forces Model
2. New Market Entrants
■ Some industries have low
Porter’s Competitive Forces Model
barriers to entry, e.g. Pizza
business

■ Some industries have high

barriers to entry, e.g. computer
chip business

■ New companies have new

equipment, younger workers, In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its
traditional direct competitors but also by four forces in the industry’s
environment: new market entrants, substitute products, customers,
but little brand recognition and suppliers.

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 Porter’s Competitive Forces Model
3. Substitute Products and Services
■ New technologies create Porter’s Competitive Forces Model
new substitutes all the time.

– Electric Cars

■ Substitutes customers might

use if your prices become
too high,

– e.g. Online Music services In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its
traditional direct competitors but also by four forces in the industry’s

substitutes for CDs environment: new market entrants, substitute products, customers,
and suppliers.

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 Porter’s Competitive Forces Model
4. Customers
■ A profitable company need to
Porter’s Competitive Forces Model
attract and retain customers.

■ Companies should analyze

– can customers easily switch

to competitor’s products?

– Can customers force

businesses to compete on
price alone in transparent In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its
traditional direct competitors but also by four forces in the industry’s
environment: new market entrants, substitute products, customers,
marketplace? and suppliers.

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 Porter’s Competitive Forces Model
5. Suppliers
■ Market power of suppliers Porter’s Competitive Forces Model
when firm cannot raise
prices as fast as suppliers.

■ The more different suppliers

a firm has, the greater
control it can exercise over
suppliers.
In Porter’s competitive forces model, the strategic position of the firm
and its strategies are determined not only by competition with its
traditional direct competitors but also by four forces in the industry’s
environment: new market entrants, substitute products, customers,
and suppliers.

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 Activity No. 1
■ Can you apply the Porter’s Competitive Force Model to for a new
engineering university in Khyber Pakhtunkhwa?

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 INFORMATION SYSTEM
STRATEGIES FOR DEALING
WITH COMPETITIVE FORCES

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 Information system Strategies for Dealing with Competitive Forces

• Four generic strategies for dealing with competitive

forces, enabled by using IT

1. Low-cost leadership

2. Product differentiation

3. Focus on market niche

4. Strengthen customer and supplier intimacy

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 Information system Strategies for Dealing with Competitive Forces
1. Low Cost Leadership
■ Produce products and services at a lower price than competitors while enhancing
quality and level of service.

– E.g. Wal-Mart, Dell

■ The system replenishes inventory with lightning speed,

– E.g. Walmart does not need to spend much money on maintaining large
inventories of goods in its own warehouses.

■ Walmart’s continuous replenishment system is also an example of an efficient customer

response system.

– An efficient customer response system directly links consumer behavior to

distribution and production and supply chains.
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 Information system Strategies for Dealing with Competitive Forces
2. Product Differentiation
■ Enable new products or services, greatly change customer convenience and experience

– E.g. Google, Apple iPhone

■ Customized and personalized products and services are also offered.

– Sometimes, mass customization

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 Information system Strategies for Dealing with Competitive Forces
3. Focus on Market Niche
■ Use information systems to enable a focused strategy on a single
market niche; specialize.

■ Information systems enable companies to analyze customer buying

patterns, tastes, and preferences closely so that they efficiently
pitch advertising and marketing campaigns to smaller and smaller
target markets.

– E.g. Hilton Hotels, Facebook

■ From multiple data sources, identify customer preferences.

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 Information system Strategies for Dealing with Competitive Forces
4. Strengthen Customer and Supplier Intimacy
■ Use information systems to develop strong ties and loyalty with
customers and suppliers

– increase switching costs

■ Strong linkages to customers and suppliers increase switching costs (the

cost of switching from one product to a competing product) and loyalty to your
firm.

– E.g. Chrysler, Amazon, Mark and Spencer, IBM

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Information system Strategies for Dealing with Competitive Forces
Summary

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THE INTERNET IMPACT
ON COMPETITIVE
ADVANTAGE

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 The Internet Impact on Competitive Advantage

■ Transformation, destruction, threat to some industries

– E.g. travel agency, printed encyclopedia, newspaper

■ Competitive forces still at work, but rivalry more intense

■ Universal standards allow new rivals, entrants to market

■ New opportunities for building brands and loyal customer bases

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 The Internet Impact on Competitive Advantage
Smart Products and Internet of Things
■ The growing use of sensors in industrial and customer products, often called
the Internet of Things (IOT)

– Has increased competition

– Created new products and services

■ Smart products offer new functionality, greater reliability, and more intense
use of products.

■ Smart products generally raise switching costs and inhibit new entrants to a
market because existing customers are trapped in the dominant firm’s
software environment.
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THE BUSINESS VALUE
CHAIN MODEL

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 The Business Value Chain Model
■ Views firm as series of activities that add value to products or services

■ Highlights activities where competitive strategies can best be applied

– Primary activities vs. Support activities

■ At each stage, determine how information systems can improve

operational efficiency and improve customer and supplier intimacy

■ Utilize benchmarking,

– industry best practices

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 The Business Value Chain Model
Primary vs Support Activities
■ Primary Activities The Value Chain Model

– Directly related to
production and
distribution

– Create values for customer

■ Support Activities

– Make delivery of primary

activities possible.
This figure provides examples of systems for both primary and support
activities of a firm and of its value partners that can add a margin of value
■ E.g. Purchasing of Input to a firm’s products or services.

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 The Business Value Chain Model
Benchmarking
■ Involves comparing the efficiency and effectiveness of your business
processes against strict standards and then measuring performance
against those standards.

■ Industry best practices are usually defined by

– consulting companies,

– research organizations,

– government agencies,

– industry associations.
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 The Business Value Chain Model
Value Web
■ Collection of independent firms The Value Web

using highly synchronized IT to

coordinate value chains to produce
product or service collectively

■ More customer driven,

■ less linear operation than

traditional value chain

■ More adaptive and flexible

The value web is a networked system that can
synchronize the value chains of business partners within
an industry to respond rapidly to changes in supply and
demand.

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Information systems can improve the overall performance of these
business units by promoting synergies and core
competencies.

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 Synergies
■ When output of some units used as inputs to others, or
organizations pool markets and expertise

– For Example
■ merger of Bank One and JPMorgan Chase

■ Purchase of YouTube by Google

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 Enhancing Core Competencies
■ Activity for which firm is world-class leader

■ Relies on knowledge, experience, and sharing this across

business units

– E.g.
■ Procter & Gamble’s, a world leader in brand management and consumer
product innovation

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 Network Based Strategies
■ Take advantage of firm’s abilities to network with each other

■ Include use of:

– Network economics

– Virtual company model

– Business ecosystems

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 Network Based Strategies
Network Economics
■ Traditional economics:

– Law of diminishing returns

– 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

■ Network economics:

– market situations where the economic value being produced depends on the number of
people using a product
■ E.g. Uber, Airbnb

– Marginal cost of adding new participant almost zero, with much greater marginal gain

– Value of community grows with size

– Value of software grows as installed customer base grows

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 Network Based Strategies
Virtual Company Model
■ A virtual company, also 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.

■ One company can use the capabilities of another company without

being organizationally tied to that company.

– E.g. Li Fung manages production, shipment of garments for major

fashion companies, outsourcing all work to over 15,000 suppliers in
40 countries
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 Network Based Strategies
Business Ecosystems and Platforms
■ Industry sets of firms providing related services
and products An Ecosystem Strategic Model
– Microsoft or Facebook platform used by
thousands of firms for their own products

■ Different diverse organizations can collaborate

for a single product.

■ Keystone firms: Dominate ecosystem and create

platform used by other firms

■ Niche firms: Rely on platform developed by

keystone firm

■ Individual firms can consider how IT will enable

The digital firm era requires a more dynamic view of the
boundaries among industries, firms, customers, and suppliers, with
them to become profitable niche players in larger competition occurring among industry sets in a business
ecosystem. In the ecosystem model, multiple industries work
ecosystems together to deliver value to the customer. IT plays an important
role in enabling a dense network of interactions among the
participating firms.
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 Challenges
■ Successfully using information systems to achieve a competitive
advantage is challenging and requires precise coordination of
technology, organizations, and management.

■ Key Challenges

– Sustaining competitive advantage

– Aligning IT with Business Objectives

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 Challenges
Sustaining Competitive Advantage
■ Competitors can retaliate and copy strategic systems.

■ Competitive advantage is not always sustainable

■ Information systems may become tools for survival

– Physical Retailer Stores vs Online Stores

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 Challenges
Aligning IT with Business Objectives
■ The precise alignment between IT and business goals, will lead to
more profit.

■ Successful firms and managers understand

– What IT can do

– How it works

– Take active role in shaping its use

– Measure its impact on revenues and profits.

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 References
■ Chapter 3, Management Information Systems By K.C. Laudon, J.P.
Laudon, 17th Edition

■ Chapter 3, Management Information Systems By K.C. Laudon, J.P.

Laudon, 12th Edition

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 Thank You
Any Questions?

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