Organizational Strategy and information Systems
The threat of new entrants force is low (meaning it is difficult to enter an industry) when:
1.There is patented or protected knowledge 2. Brand switching is difficult 3. There are restricted distribution channels 4. Entry and exit costs are high
Organizations create information systems for what two purposes:
1.To obtain its goals, objectives, or mission 2.To solve a major problem or meet a challenge
Customer bargaining power
the influence that customers can exert on an industry. If the force of customer bargaining is strong, it restricts the ability of firms operating in that industry to raise prices without losing customers. This is especially true if the customers have many options from which to choose, or locations from which to buy, a given product.
If the force is intense for _________ it restricts the ability of firms operating in that industry to raise prices without losing customers.
customer bargaining power
Porter's Five Forces analysis
enables an organization to study the industry of which it is a part. This gives the organization a better understanding of the forces the industry faces and provides the basis for the company to determine how it wants to compete.
Porter's Value Chain
model enables an organization to break down its processes (activities) to look for opportunities for cost savings and identify potential uses of information systems.
Porter's Generic Strategies
model helps an organization determine the best way to compete in its industry and maximize its profits.
Michael Porter
one of the foremost developers of modern management techniques, has developed three distinct management models that many organizations use to refine their strategies. These models enable an organization to align its information systems to help implement its strategy.
Narrow Diferentiation
organization focuses on serving a defined, focused market segment with a narrow scope. The competitive advantage usually occurs through product innovation and/or brand marketing, rather than efficiency. It should target market segments that are less vulnerable to substitutes, or where competition is weakest.
Broad Differentiation
organizations strategize to reduce their overall production and distribution costs, and appeal to cost-conscious customers. They set their prices at the lowest point to maintain a value ratio of cost and quality. They can achieve this by maintaining low operating costs through process efficiencies and gaining control over the supply chain.
Threat of new entrants
refers to how difficult it is to enter an industry. The force is considered intense if it is easy to enter an industry because this increases competition and makes it more difficult to retain market shares. The more barriers to entry, the more benign this force because the barriers keep new entrants out.
Value Chain Example
1. Ordering 2. Receiving 3. Shelving 4. Renting 5. Disposing
Porter's Generic Strategies model applies these four strategies:
1.Broad cost leadership 2.Narrow cost leadership 3.Broad differentiation 4.Narrow differentiation
Threat of substitutes is determined by these factors:
1.Customer loyalty to certain brands 2.Good customer relationships 3.Current trends and fashions 4. Price of the substitute in relation to the performance 5.of the substitute
Characteristics of Focus Strategy
1.High customer loyalty 2.Lower sales volumes but higher profits 3.Passing higher costs to customers
Porter's Five Forces are
1.Rivalry 2.Threat of substitutes 3.Customer bargaining power 4.Supplier power 5.Threat of new entrants
Michael Porter created which three models
1.The Five Forces Industry Analysis 2.The Generic Strategies 3.The Value Chain
Low-Cost Strategy
A business implements a low-cost strategy when it desires to be the low-cost leader in an industry. To do this, it must be able to attract a large market (sell in volume), be very efficient in its processes (distribution chain), and be able to keep its costs low. Walmart is an example of a business that successfully uses the low-cost strategy
Differentiation Strategy
A business implements differentiation when it makes its product or service stand out from that of its competitors. Unique characteristics usually translate into a product or service that is high quality and for which customers are willing to pay a premium price, which results in higher profits. Firms competing with a differentiation strategy usually have highly effective sales and marketing programs that enable the company to pass the extra costs to the consumer. Successful firms using a differentiation strategy have the following internal strengths: Access to leading scientific research A skilled research and development program Strong sales and marketing teams A reputation for quality and innovation For example, a laundromat located in Charlottesville, Virginia, serves students at the University of Virginia by using this strategy. The business is unique in that it includes a sports bar serving alcoholic beverages. It attracts more clients than its competitors because customers not only do their laundry but also enjoy beverages while watching a variety of sporting events. Potential risks of a differentiation strategy include the following: Imitation by competitors Changes in consumer tastes and shopping habits
Support Activities
According to porter support activities are those that indirectly assist and support the primary activities of the organization.
Effectively Choosing Strategies
An organization needs to think carefully about which strategy will be most successful. Porter suggests that businesses select only one strategy, rather than more than one. Using more than one strategy usually leads to failure because different strategies attract different customer bases.
Value Chain Analysis Advantages Enhancing Activities
Each activity can be identified and enhanced to create cost savings, thus allowing a larger profit margin.
Porter's Generic Strategies
In this case, the term generic means that these strategies are not industry-specific. Unlike Porter's Five Forces, which are applied to the industry as a whole, Porter's Generic Strategies are applied at the business-unit level. Porter's Generic Strategies are used for two reasons: Existing firms use them to leverage their strengths to select the strategy that results in the most profit, and new businesses use them to determine the best way to operate.
Service Primary Activities
Includes all activities for servicing the customer after the sale.
Primary Activities Outbound Logistics
Includes all activities needed to collect, store, and distribute the output created.
Primary Activities Marketing and Sales
Includes all activities used to market and sell the products or services.
Maximizing Information Systems Defining Information Systems
Information systems are much more than hardware and software; they are tools that organizations use to gain strategic knowledge and a competitive advantage. However, simply automating by using IS does not provide a competitive advantage.
Maximizing Information Systems Integrating Information Systems
Integrating IS into a web storefront can expand the scope of an organization from local to international. By doing this, the organization can compete with much larger firms ad offer differences that make it attractive.
Primary Activities Operations
Involves activities used to transform inputs into outputs for products or services.
Primary Activities Inbound Logistics
Involves relationships with suppliers, including any activity related to receiving, storing, and disseminating inputs.
Examining Business Processes
Maximizing personnel is one of the most important tasks for any organization. When an organization looks at its business processes and identifies manual processes that could be automated, it can reap tremendous savings and enable employees to expand their areas of responsibility. The more automated an organization becomes, the easier it is to compete in the marketplace. Technology has been a great enabler of automation and has transformed the way we communicate.
Using Porter's Models
One of the first steps an organization takes toward using information systems (IS) for a competitive advantage is analyzing the business by using the Porter models. This analysis is a three-step process:
Organizational Strategy
Organizational strategy is the alignment of a company's planning, decisions, and actions to enable it to reach its goals, mission, and objectives.
Porters Models Three Step Process Step 1
Porter's Five Forces Industry Analysis enables the organization to study the industry of which it is a part. This gives the organization a better understanding of the forces the industry faces, and provides the basis for the company to determine how it wants to compete.
Porters Models Three Step Process Step 2
Porter's Generic Strategies model helps an organization determine the best way to compete in its industry and maximize profits.
Porters Models Three Step Process Step 3
Porter's Value Chain model enables an organization to break down its processes (activities) to look for opportunities for cost savings and identify potential uses of IS.
Defining Value Chain
Porter's Value Chain model is an organization's network of value-creating activities. It consists of interrelated primary and support activities. The value chain of a firm is simply a process-oriented view of its systems and subsystems, with each one showing and processing the inputs and demonstrating the outputs in the form of products or services.
Risks of Focus Strategy
Potential risks of a focus strategy include Imitations and changes in target segments Broad markets possibly adapting to compet
Primary Activities
Primary activities are activities that all organizations have.
Low-Cost Strategy Advantages
Successful firms using a low-cost strategy have the following internal strengths: Access to capital (production investment) Product design skills Marketing expertise An efficient distribution strategy
Support Activities Human Resource Management
The activities related to acquiring employees (hiring, training, and development).
Support Activities Procurement
The activities related to acquiring inputs for the organization.
Support Activities Technological Development
The activities related to the equipment an organization uses, such as hardware, software, and procedures.
Support Activities Infrastructure
The activities related to the functional areas of an organization, such as accounting, finance, and government relations.
Maximizing Information Systems Using Information Systems
The organization must also understand the different ways IS can be used to provide a marketplace advantage. When an organization uses IS to free up time for key personnel, it enables staff to concentrate on more important tasks. Remember, IS provides the capability to conduct low-cost transactions while decreasing processing time. An organization can use IS in a way that enables it to stand out from its competitors, making it more desirable and thus increasing its customer base. Information systems can also be used to maximize an organization's supply and distribution processes. By using IS automation, an organization can easily identify potential problems and address them before they become costly issues.
Low-Cost Strategy Disadvantages
The potential risks of a low-cost strategy include the following: Losing strategic advantage if most other firms lower their prices to match yours Advances in technology leapfrogging over your technology The possibility that firms with a focus strategy will compete just as well
Value Chain Analysis Advantages Modifying Activities
There might be opportunities to modify the value chain activities to achieve lower costs.
Value Chain Analysis Advantages Identifying Weak Information Systems
Value chain analysis can also be used to identify areas that need improvement, especially those related to information systems (IS).
Value Chain Analysis Advantages Identifying Inefficiencies
When the activities of an organization are broken down by a value chain analysis, the results enable an organization to identify inefficiencies.
Michael Porter's Five Forces Industry Analysis model seeks to
analyze the forces that exist in the industry of which a business is a part. There are three main reasons for using this model: (1) to better understand the industry in which it competes, (2) to determine how attractive it is to start a business in a given industry, and (3) to determine how to conduct a successful business in a given industry.
Threat of subsitues
are products in another industry that could be substituted for the products in the industry being studied. The force (threat) is intense when close substitutes can constrain the ability of a firm to raise prices, or when the demand for a product can be affected by a change in the price of a substitute. Threat of substitutes is determined by these factors: Customer loyalty to certain brands Good customer relationships Current trends and fashions Price of the substitute in relation to the performance of the substitute
Rivalry
competition in industries.
Supplier Power
is the influence an industry's suppliers can exert on that industry. For instance, if a supplier can lower the quality of its products, reduce services, or raise prices without losing customers, it exerts a high level of power on the industry.
A firm raising or lowering its prices and making its products unique, developing innovative channels of distribution, or exploiting relationships with suppliers can result in
rivalry
Products in another industry that could be used in place of products in the industry being studied are known as
substitutes
Raised prices of products sold to capture a portion of a hot market is often a result of
supplier power
The is considered intense if it is easy to enter an industry because this increases competition and makes it more difficult to retain market shares.
threat of new entrants
