Porter Competitive Model (Identify the Industry and the Specific Market Being Evaluated) Announcements. Student Presentations - PDF

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Announcements ISM 50 - Information Systems Lecture 4 Instructor: John Musacchio UC Santa Cruz October 4, 2005 Read Messerschmitt Ch2.3 for Thursday. Read Frito Lay case for Thursday. Homework assignment
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Announcements ISM 50 - Information Systems Lecture 4 Instructor: John Musacchio UC Santa Cruz October 4, 2005 Read Messerschmitt Ch2.3 for Thursday. Read Frito Lay case for Thursday. Homework assignment 2 will be posted to web tonight!!! (due in 1 week) Student Presentations Review from last class What is a business process? A designed succession of actions to the accomplish of some result in a business. What is a business function? A category of activity in a business that requires people with a particular specialization. IT function, marketing function, sales function, etc. Porter Competitive Model? What is it? A model to help understand the competitive environment in which a company operates. What are the 5 forces? Intra-Industry Competition power of Suppliers power of Customers Substitutes Threat of. Porter Competitive Model (Identify the Industry and the Specific Market Being Evaluated) Power of Suppliers Potential Intra-Industry Rivalry Strategic Unit Power of Buyers Substitute Products and Services 1 Porter Competitive Model Education Industry Universities Porter Model in Paper Power of Suppliers Faculty Staff Equipment and Service Suppliers Alumni Foundations Governments IT Vendors Potential Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges Substitute Products and Services Internet Distance Learning Books and Videotapes Computer-Based Training Company Education Programs Foreign Universities Shift in Strategy by Universities or Companies Power of Buyers Students Parents es Employers Legislators You must include a Porter Model in your Paper Figure Make it look nice! Narrative analysis of the five forces Identify the industry. Identify the major buyers, suppliers, potential new entrants, substitutes, and inta-industry rivals. Discuss if and why these players put strong or weak competitive pressures on your business. Example: Usefulness of Porter Model Bob wants to start a dentist office However, bob did not go to dental school Bob will hire the dentist and other staff Is this a good model? Example: Usefulness of Porter Model Suppose Alice, who is a dentist, opens an office Dental School Graduates Dentists moving in from other regions Suppliers Bob s Dentist Office Dentist (Alice) Substitutes Buyers Suppliers Staff Hygienists Intra-industry rivals SBU: Alice s Dentist Office Other local dentist offices Substitutes Buyers Public in general Insurance companies Those wanting cosmetic dentistry No! Dentist has too much bargaining power, she could always go into business for herself. Alternative Medicine? Primary Porter Strategies Primary Porter Strategies In economics you will learn a market where Product is a commodity Firms all have the same production costs New firms can enter market at no cost ( free entry ) profits are driven to zero. Consequently Firms need to Differentiate and/or Achieve Cost leadership Differentiation customer values the differences that you provide in products, services or capabilities. Cost become the lowest cost provider. If this is the only primary strategy in the industry, over time there will only one ultimate winner. 2 Porter Supporting Strategies Can reduce costs and or differentiate Growth Help offset fixed costs Establish reputable brand (differentiate) Alliances Achieve more complete solution (differentiate) Integration of each others technology may reduce costs Rules Regarding Strategies Must pick at least one of the two primary strategies. Can pick any combination o supporting strategies. Let s test the logic of this using Dell and Wal-Mart Stores. Dell, Inc. Strategies Wal-Mart Strategies Primary Strategy: Differentiation Least Cost Primary Strategy: Least Cost Differentiation Supporting Strategies: Growth Alliances Supporting Strategies: Growth Alliances Porter Model Tips 1. To incorrectly define the industry can cause major problems in doing Section I of the business analysis paper. 2. You must identify the specific market being evaluated. 3. Your analysis company is the Strategic Unit. 4. Identify rivals by name for majors, by category for minor rivals if needed to present the best possible profile of rivals. Porter Model Tips 5. Be sure to address the power implications of both customers and suppliers. Power buys them what? 6.Identify buyers and suppliers by categories versus companies. 7.Summarize your Porter Model analysis. 3 What do Porter Models Have to do with IT? Any ideas? Strategic Application Evolution Progression of Information Technology within an enterprise. Level 1: Strategic Level 2: Offensive Level 3: Defensive Level 4: Cost-Justified Level 5: Controlled The progression is from bottom to top. Strategic Uses of Information Technology Strategy Improving Processes Promote Locking in Customers and Suppliers Strategic Uses of Information Technology Raise Strategy Barriers to Entry Build a Strategic IT Platform Build a Strategic Information Base IT Role Outcome reduce costs of doing business Enhance Efficiency create new products or services Create New Opportunities improve quality link business to customers and suppliers Maintain Valuable Customers and Relationships IT Role Outcome Increase amount of investment or complexity of IT needed to compete Increase Market Share Leverage investment in IS resources from operational uses to strategic uses Create New Opportunities provide information to support firm s competitive strategy Enhance Organizational Collaboration Porter Model and Information Systems: 1. Build barriers to prevent a company from entering an industry? 2. Build in costs that would make it difficult for a customer to switch to another supplier? 3. Change the basis for competition within the industry? 4. Change the balance of power between a company and its customers or suppliers? 5. Provide the basis for new products and services? Porter s Value Chain The Competitive Model deals with the environment within which a company competes The Value Chain addresses the flow of a product through the organization. It starts with the original idea in research and tracks its progress all the way to the customers. 4 Generic Value Chain Value Chain Purpose SUPPORT ACTIVITIES INBOUND LOGISTICS FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE A way of classifying a companies activities and how they help deliver value to customer. A framework for evaluating decisions like outsourcing, or deployment of IT. PRIMARY ACTIVITIES Things to Remember Regarding the Value Chain The ultimate objective is value to customer. Simple Value Chain for Manufacturing Industry As a new product and/or services moves through the value chain, it is important to maximize value-add activities and minimize things that do not add value to customer. Functional departments must be sure to emphasize the ultimate goal of value to customer and not do things that seem to make them look good but contradicts the ultimate objective. Research and Development Production Engineering and Manufacturing Sales Marketing and Distribution Service Simple Value Chain for Retail Industry Examples of IT Supporting Value Chain Partnering with Vendor Managing Buying Inventory Distributing Inventory Operating Stores Marketing and Selling 5
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