Information Systems: Technology and Strategy
Key frameworks for examining a firm's competitive environment: Porter's Five
Forces, also known as the Industry and Competitive Analysis.
1) The intensity of rivalry among existing competitors
o Intra-industry Rivalry is high when competition is fierce in the market.
IT can be used to create personalized products and services, which
can reduce product similarity among competitors in an industry,
thus reducing competition. Firms also use IT to create loyalty
programs (Provigo and Loblaw)
2) The threat of new entrants
Threat of new entrants is high when it is easy for new competitors to enter a
o Example: IT enabled services such as ATM use, online bill paying and
account monitoring, etc., create entry barriers to enter a banking market
o Internet provides direct consumer access to the banks. It eliminates the
need for a bank to incur huge amounts in setting up retail branches and
ATMs. This lowers entry barriers, leading to the entry of new firms.
3) The threat of substitute goods or services
o Threat of substitute products or services is high when there are many
alternatives to a product or service
4) The bargaining power of buyers
o Buyer power is high when buyers have many choices on which firm to
IT: competitive advantage, reduce buyer power
Example: loyalty program of travel industry – free airline
tickets, upgrades, hotel stays
The Internet provides buyers a multitude of choices to choose from,
and as a result, buyer power has greatly increased.
5) The bargaining power of suppliers
o Supplier power is high when buyers have fewer choices about which firm
to buy from. Supplier power is the converse of buyer power.
Key frameworks: the value chain
o The value chain is the set of activities through which a product or service
is created and delivered to customers.
o The primary components are:
Inbound logistics – get needed inputs into the firm from suppliers
Operations – turn inputs into products or services
Outbound logistics – delivering products or services to consumers Marketing and Sales – customer engagement, pricing, promotion,
Support – service, maintenance, and customer support
o The secondary components are:
Firm infrastructure – functions that support the whole firm,
including general management, planning, IS, and finance
Human resource management – recruiting, hiring, training, and
Technology / Research & Development – new product and process
Procurement – sourcing and purchasing functions
*supply chain management (SCM: linking inbound and outbound logistics with
operations), customer relationship management (CRM: supporting sales,
marketing, and in some cases R&D), and enterprise resource planning software
(ERP: software implemented in modules to automate the entire value chain)
Generic Strategies for competitive advantage
o Cost leadership (or operational efficiency): providing the product or
service at an unbeatable price point.
o Differentiation (or strategic positioning): supermarkets – stocking a
slightly differentiated brand.
Example: Provigo with President’s Choice
Many firms develop an innovation that creates a unique market space.
Example: Apple with iPod innovation
Many supermarket companies focus on improving the customer
orientation and customer service to be able to track customer preferences,
thereby providing them the information for re-stocking the inventory.
o Segmentation (Focus or niche) Strategy: the firm concentrates on a select
few target markets. Less vulnerable to substitutes, competition is weakest.
How to support cost leadership and differentiation strategy with IT?
o Cost leadership strategy
Substitute information for physical goods – use demand
information collected through their information systems to
minimize the need for stocking large inventory, thereby reducing
the inventory costs.
Substitute information technology for labour
Example: Canada Post use tracking numbers available
online so that customers can query themselves the real-time
status of their shipments.
Increase the output from the same “payroll”
Example: ERP implementations can be used to eliminate
the inter-departmental boundaries and facilitate the flow of
data and information within a firm. o Differentiation strategy
Increase product quality
Example: Amazon suggests other products that may be