COM333 – IS3

IS and Competition

• A number of techniques exists that support the analysis and assessment of Organisations’ competitive position from an IS perspective.

• Based on Porter’s five forces model.– Industry analysis

• How can IS/IT contribute to competitive opportunities surrounding

– Products and services• Their nature, production lifecycle, speed of distribution

– Markets• Their overall demand, degree of segmentation, geographic

distribution possibilities

– Economies of production• The relevant range of economics of scale, the necessary

flexibility versus standardisation, value adding stream

• Porter’s 5-forces model– Operates at individual organisational level– Can IS influence the relative power of the five

forces?• First step – assess the most significant of the five

forces• Second step – question what IS opportunities

related to that force

The industry:

Jockeying for position among current competitors

Threat of new entrants

Bargaining power of customersBargaining power of

suppliers

Threat of substitute products or services

• Customer (buyer) power high when:– few customers (buyers)– high volume of purchases– many suppliers– supplier product quality unimportant– supplier product does not increase margins of

customer (value chain not affected)– threat of backward integration by customer

(value chain)

• Supplier power high when:– few alternative suppliers (product unique or

rare)– switching costs are high– no competition with substitute supplier

products– threat of forward integration by supplier (value

chain)– supplier’s customer is not important to

supplier

• Barriers to entry (threat of new entrants)– economies of scale– capital requirements– product differentiation– cost disadvantages independent of size– access to distribution channels– legislation or government policy

• Substitution issues– How may substitutes impact on our activities?– What steps should we take to minimise the

risk of substitution?– Can our product be used as a substitute for

another product?

• Rivalry: issues (Porter)– size balance of competitors– rate of growth in the industry– product differentiation– fixed costs– expanded capacity often in large increments– barriers to exit

• Five forces– Buyers– Suppliers– New entrants– Substitutes– Rivalry

• A good business or IS strategy would enable the organisation to – Erect barriers against potential new entrants– Change the balance of power in supplier relationships in favour

of the firm– Increase the switching costs for customers– Change the basis of competition among the rivals in favour of

organisation Robson (1997)

Strategic potential for IS • Buyers

– Switching costs– Buyer selection

• Suppliers– Avoid switching costs– Backward integration

• New entrants– Entry barriers– Entry deterrents

• Substitution– Relative price-performance– Product features

• Rivalry– New basis of competition– Shared IT

• Generic business strategies– Strategies - sense of direction– Generic strategies – encapsulate the

directions

• Possible directions– Overall cost leadership– Overall differentiation– Focus/niche

• Overall cost leadership– Objective: become the low-cost producer in all

market segments– IS seeks to

• reduce the overall costs directly• enhance the ability to reduce costs through other functions

• Overall differentiation– Objective: distinguish the organisation’s products and

services from others in all market segments– IS seeks to

• add unique features to products/services directly• enhance the ability to differentiate the products/services

through other functions

• Focus/niche– Objective: concentrate upon a particular market

segment– IS seeks to

• identify and create market niches directly• enhance the ability to create market niches through other

functions

• Example: Robson (1997)– A tractor producing company developed a spare parts

stock management system that allows similar parts to be identified rather than made or purchased, which allow them to save £9 million in two years.

• Manufacturing: IS applications– Low-cost strategy

• Process control systems• Stock planning and control systems

– Differentiation strategy• TQM systems• Progress tracking systems

• R&D: IS applications– Low-cost strategy

• Project control systems• CAD systems

– Differentiation strategy• Public research data access systems• Dispersed research communication systems and e-mail

• Sales: IS applications– Low-cost strategy

• Sales call prioritising systems• Advertising and promotions tracking systems

– Differentiation strategy• Easy order-entry and order-query systems• Total customer care systems• Pricing systems

• Finance: IS applications– Low-cost strategy

• Planning and budgeting systems• Cost control systems

– Differentiation strategy• Business integration office automation systems

• Strategic Option Grid– Strategic option generator identifies ‘five’ things that

an organisation can do and ‘three’ targets that those things can be applied to.

• Questions for completing the strategic option grid– What is our strategic target?– What strategic thrust can be used against the target?– What strategic mode can be used?– What direction of thrust can be used?– What IS skills can we use?

• What is our strategic target?– Suppliers– Customers– Competitors

• What strategic thrust can be used against the target?– Differentiation– Cost– Innovation– Growth– Alliance

• What strategic mode can be used?– Offensive– Defensive

• What direction of thrust can be used?– Usage– Provision

• What IS skills can we use?– Processing– Storage– Transmission

• The grid facilitates the process of making strategic choices

• Main purpose– The role that IS can take in supporting the chosen

strategic thrusts can be identified.• Strategic support role of IS

– Competitive importance

– Identify the opportunities that IS offers to shape the organisations’ strategy by shaping the strategic thrusts.

• High competitive importance

• Strategic option generator can act as– Aligning technique

• What is our approach?• How can IS help it?

– Impacting technique• What can/should be our approach?• How can IS change it?