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one of the most often How easy or hard it is for new entrants to
used business start and compete? Any barriers to their
entry?
Potential New Entrants
strategy tools
How strong is the rivalry among existing
players? Does only one player dominate?
Intra- Bargaining
Bargaining Industry Rivalry Power of the
Power of Suppliers Strategic Business Buyers
Unit
How strong is the position of the How strong is the position
suppliers? Are there many? Few? of the buyers? Can we sell
Monopoly? in large volumes? Do we
need to discount heavily?
Source:
Substitute Products
Michael E. Porter “Forces and Services
Governing Competition in How easy or hard it is for
a new product or service to replace what already exists?
Industry (Harvard Business
Review, Mar.-Apr. 1979)
Objective of a business is to make a profit.
Profit based on providing value to customers.
Work smarter.
Substitute
Products
and Services
FIRM INFRASTRUCTURE
TECHNOLOGY DEVELOPMENT
PROCUREMENT
PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright Figure 3-6
© 1985 by Michael E. Porter.
The Value Chain can be used to determine
where IS can strengthen the flow of primary
and support activities within an organization.
Every segment of an organization needs IT and
IS to be competitive. So this model is essential
to visualizing the flow of activities within
segments through the use of IS and IT.
Porter Competitive Model
for
Industry Structure Analysis
1. Value Line
2. Company web page and annual report.
3. Internet search engines:
Google
Ask Jeeves, Yahoo,
4. Library reference documents
The Plan for Today
• Address the Concepts of the Porter
Competitive Model.
• Provide some industry examples using the
Competitive Model.
• Address the Value Chain conceptually and
with industry examples.
Awareness of competitive forces can
help a company stake out a position
in its industry that is less vulnerable
to attack.
Michael E. Porter
Competitive Strategy
• Was not developed for IS use.
• Breaks an industry into logical parts,
analyzes them and puts them back together.
• Avoids viewing the industry too narrowly.
• Provides an understanding of the structure
of an industry’s business environment.
• Provides an understanding of competitive
threats into an industry.
Two Key Questions
Substitute
Products
and Services
Customer Strategy
Parents Young Adults Time Leisure Senior
Teenagers with Social Conscious Ethnic
with Adults Citizens Focus
Kids Focus Adults
Market Strategy
Local Regional National International
Company Structure Strategy
Suppliers Buyers
•Players Union •Die Hard 49er Fans
•City of SF Intra-Industry Rivalry •Die Hard Football Fans
•Transportation Services SBU: SF 49ers •Fair Weather Football Fans
•Food Service •Rivals: Oakland Raiders •Non-football Fans
•Sovereigns •Arena Football •Out of Town Visitors
•Police and Sanitation •S.F. 49ers •Opposing Team Fans
Service •Golden State Warriors •Age Group Segments
•Utilities •College Athletic Events •Groups Versus Individuals
•Stadium Employees •High School Athletic Events •Corporate Sponsors
•Movies, Stage Plays, etc. •Sports Writers and Media
•General Travel and Travel Packages Outlets
Layer 4
Application
Software
Layer 3
Operating
System
Software
Layer 2
Computing
Platforms
Layer 1
Basic
Circuitry
Figure 3-3
The New Computer Industry
Layer 5 Computer Super Mass Mail Value-add Direct
Distributors Clubs Sales Other
Dealers Stores Merchandisers Order Resellers
Force
Layer 4
Applications
•Spreadsheets Lotus 1-2-3 Microsoft Excel Quattro Pro
•Word Processors
•Database
Layer 3
Operating MS DOS Windows OS/2 Unix Apple
System
Novell Netware Banyan IBM Others
Software
Layer 2
Computer IBM Compaq Other Intel-Based PCs Apple Macs Other
Platforms
Layer 1
Microprocessor Intel X86 Motorola RISC Power PC
Figure 3-4
The Computer Industry
Layer 6 Direct
Sales and Computer Super Mass Mail Value-add Internet
Sales
Distribution Stores Stores Merchandisers Order Resellers Direct
Force
Layer 5
Application
Desktop Suites Enterprise Resource Planning Supply Chain Management Other
Software
•Enterprise
Word Processors Spread Sheets Publishing Groupware Data Warehouse Other
•Specific
Layer 4
Database & LAN, WAN and Internet Software Interfaces, Browsers and Search Engines
Networking
Hierarchical Database Relationship Database
Software
Layer 3
Operating
System Windows Unix Linux Apple
Software
Layer 2
Computer
Supercomputer Mainframe Midrange Workstation PC Handheld Device
Hardware
Platforms
Layer 1
Microprocessor Intel X86 Motorola RISC Power PC
Computer Industry
Hardware
Multiple processor
• Processors segments in the computer
• Input/Output Devices industry.
2000
1999
1998
Supercomputer
1997
Mainframe
Midrange
1996 Workstation
Personal Computer
1995
Source: Dataquest
1994
2002
PCs
2001
Total Hardware
Billions of $s
2000
FIRM INFRASTRUCTURE
TECHNOLOGY DEVELOPMENT
PROCUREMENT
PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright Figure 3-6
© 1985 by Michael E. Porter.
Property and Casualty Industry Value Chain
FIRM
INFRASTRUCTURE
-Financial Policy -Regulatory Compliance - Legal - Accounting
HUMAN
RESOURCE
Actuary Agent Claims
MANAGEMENT Training Training Training
Actuarial Methods Product
TECHNOLOGY
Claims
Investment Development
DEVELOPMENT Procedures
Practices Market Research
I/T
PROCUREMENT Communications
Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining
Superior Performance, copyright 1985 by Michael E. Porter.
Figure 3-7
Technologies in the Value Chain
Information System Technology
FIRM
Planning and Budgeting Technology
INFRASTRUCTURE
Office Technology
HUMAN Training Technology
RESOURCE Motivation Research
MANAGEMENT Information Technology
Product Technology
Software Development Tools
TECHNOLOGY Computer-Aided Design Information Systems Technology
DEVELOPMENT Pilot Plant Technology
Information Systems Technology
Communication System Technology
PROCUREMENT Transportation System Technology
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright Figure 3-8
© 1985 by Michael E. Porter., p. 167.
1. To start a new business requires: E. all of the above.
2. Of the factors in question 1, not having sufficient
operating capital is the cause of most business failures.
3. Never listed as first on the Fortune Most Admired List
are Cisco Systems, Intel and Wal-Mart Stores.
4. Industries that have dominated the least admired list are
the Savings and Loan Industry and the Airline Industry.
5. A money source for a startup that is not realistic in most
cases is commercial banks.
6. IPO stands for initial public offering.
7. Marketing is determining what to sell and sales is
selling what you have.