Reading: Business Strategy and Information Technology

Business Management for Every Enterprise

Unit 6
Business Strategy and Information Technology

Strategy and Information Systems

Industry Structure
  (5 Competing Forces)

Competitive Strategy

Value Chain Analysis 

Business Process
Design / Reengineering 

Information Systems

Business Strategies

The job of the strategist is to understand and cope with competition. 

Competition for profits goes beyond established industry rivals to include four other competitive forces: customers, suppliers, potential entrants, and substitute products.

The extended rivalry that results from all five forces defines an industry structure and shapes the nature of competitive interaction with in an industry.

Industry Structure and Forces

Forces are intense: airlines, textiles, and hotels, almost no company earns attractive returns on investment.

Forces are benign: software, soft drinks, and toiletries, many company’s are profitable.

Industry structure, manifested in the competitive forces, sets industry profitability & competitiveness in the medium and long run.

Industry structure affects a firm’s strategic positioning

Identify the strongest competitive force or forces for strategy formulation.

Five Forces that Shape Industry Competition

Sources of Switching Costs 

Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software.

Learning costs: Switching technologies may require an investment in learning a new interface and commands.

Information and data: Users may have to reenter data, convert files or databases, or may even lose earlier contributions on incompatible systems.

Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used.

Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organizations reputation as a reliable partner.

Search costs: Finding and evaluating a new alternative costs time and money.

Types of Innovations

Sustaining: An innovation that does not affect existing markets.

- Evolutionary: An innovation that improves a product in an existing market in ways that customers are expecting (i.e. fuel injection)

- Revolutionary: (discontinuous, radical): An innovation that is unexpected, but nevertheless does not affect existing markets (i.e. automobile)

Disruptive: An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market.

- i.e. the Model T Ford