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Five Forces Framework And Zara Case - IS

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Management Core
MGCR 331
Yasser Rahrovani

Five Forces Framework And Zara Case Key points from last class: Organizations can look for sustainable competitive advantage through operational effectiveness or more likely through differentiation Use IT to create or strengthen resources that can provide sustainable competitive advantage Resources have to be different (valuable, rare, imperfectly imitable, non- substitutable) Resources can be ways of doing things, assets, capabilities, skills, competencies, and more Discussed how FreshDirect gained advantage from its IT-enabled business model Resources for Competitive Advantage Imitation-resistant Value Chain Brand (lowers search cost, inspire trust, viral mktg) Scale (economies, bargaining power, entry barrier) Switching cost and Data – Differentiation Personalization Network Effects Distribution Channels – ex: TiVo Patents (Intellectual Property) Porter’s Five Forces: Threat of new competition: Profitable markets that yield high returns will attract new firms. This results in new entrants, which eventually will decrease profitability for all firms in the industry. Threat of substitute products or services: The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Bargaining power of customers (buyers): The ability of customers to put the firm under pressure. Bargaining power of suppliers: Intensity of competitive rivalry: Major determinant of the competitiveness of the industry Thread of substitutes: ex: if you are in the gps industry, smartphones now have this capacity. (they overlap the gps industry) Bargaining power of buyers: In entertainment industry, apple is their client (itunes) -> strong buyer. Thread of the new entrants: market level. Rivalry with other industries. Bargaining power of supplies: Bargaining power of buyers: When your buyers have power, you can’t raise prices Some factors that increase buyers’ power: If buyers purchase in large volumes If buyers can easily switch to a competing firm If buyers know a lot about your cost structure Examples of how IT affects buyer power IT-administered loyalty programs foster “stickiness” The Internet provides buyers with detailed information (commodities) The Internet provides your firm with detailed information Intra-Industry Rivalry: Intra-industry rivalry decreases prices Some factors that increase intra industry rivalry: Lots of firms in the industry (especially of similar size) Competing firms offer similar products Slow industry growth Examples of how IT
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