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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

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The Plan 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. Revisit each of these using the Airline Industry as the example in Chapter 4.

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Porter Competitive Model 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.

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Two Key Questions 1. How structurally attractive is the industry? 2. What is the company’s relative position within the industry?

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Key Industry Analysis Factors Collecting a great deal of data. Determining which data is crucial. Selecting an appropriate overall approach. Deciding on the logical starting point.

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Basic Objectives of the SBU 1. To create effective links with buyers and suppliers. 2. To build barriers to new entrants and substitute products.

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Porter Competitive Model Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Figure 3-1 Source: Michael E. Porter “Forces Governing Competition in Industry Harvard Business Review, Mar.-Apr. 1979

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Competitive Strategy What is driving competition in my current or future industry? What are my current or future competitors likely to do and how will we respond? How can we best posture ourselves to achieve and sustain a competitive advantage?

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Strategy Options According to Michael Porter Primary Strategies 1. Differentiation 2. Least Cost Supporting Strategies 1. Innovation 2. Growth 3. Alliance

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Can 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 in the relationship that a company has with customers or suppliers? 5. Provide the basis for new products and services, new markets or other new business opportunities?

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Porter Competitive Model Intra-Industry Rivalry SBU: Wal-Mart Rivals: Kmart, Target, Toys R Us, Specialty Stores Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Consumers in Small Town U.S.A. Consumers in Metropolitans Areas in the U.S. Canadian and Mexican Consumers Other Foreign Consumers Mail Order Home Shopping Network Electronic Shopping U.S. Product Manufacturers Foreign Manufacturers Local Governments I/T Product and Service Suppliers Foreign General Merchandisers or Discounters Established Retailer Shifting Strategy to Discounting or Megastores Telemarketing Buying Clubs Door-to-door Sales Figure 3-2

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Porter Competitive Model Analysis for the San Francisco Giants Intra-Industry Rivalry SBU: SF Giants Buyers Suppliers Substitute Products and Services New Entrants

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Porter Competitive Model Analysis for the San Francisco Giants Intra-Industry Rivalry SBU: SF Giants Rivals: Oakland A’s Minor League Baseball S.F. 49ers Golden State Warriors College Athletic Events High School Athletic Events Movies, Stage Plays, etc. General Travel and Travel Packages Buyers Die Hard Giants Fans Die Hard Baseball Fans Fair Weather Baseball Fans Non-baseball Fans Out of Town Visitors Opposing Team Fans Age Group Segments Groups Versus Individuals Corporate Sponsors Sports Writers and Media Outlets Suppliers Players Union City of SF Transportation Services Food Service Sovereigns Police and Sanitation Service Utilities Stadium Employees Substitute Products and Services Televised Baseball Games - Free or Cable Service at Home Televised Games at Sports Bars Radio Broadcasts of Baseball Games Rotisserie Leagues, Trading Cards, Memorabilia New Entrants Arena Football League Canadian Football Professional Hockey Professional Soccer Sumo Tournaments

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Porter Competitive Model Education Industry: U.S. Universities Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Faculty Staff Equipment and Service Suppliers Alumni Foundations Business Government Books and Videotapes Computer-Based Training Training Companies Consulting Firms Students Parents Business Employers Legislators Foreign Universities Distance Learning Motorola U. National Technical University

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U.S. University Industry Structure Intra-Industry Rivalry: Low growth rate or shrinkage Excess capacity Undifferentiated product Competition for funding and contributions Bargaining Power of Buyers: Price Pressures Mobility Bargaining Power of Suppliers: Cost Pressures Bid Processes Are Common Unions and Tenure Barriers to Entry: Low entry barriers High exit barriers Substitutes: Easy to substitute Self-study success

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Old Computer Industry Layer 5 Distribution Layer 4 Application Software Layer 3 Operating System Software Layer 2 Computing Platforms Layer 1 Basic Circuitry IBM DEC HP Fujitsu NCR Figure 3-3

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The New Computer Industry Layer 1 Microprocessor Intel X86 Motorola RISC Power PC Layer 2 Computer Platforms IBM Compaq Other Intel-Based PCs Apple Macs Other Layer 3 Operating System Software MS DOS Windows OS/2 Unix Apple Novell Netware Banyan IBM Others Layer 4 Applications Spreadsheets Word Processors Database Lotus 1-2-3 Microsoft Excel Quattro Pro Layer 5 Distributors Computer Dealers Super Stores Mass Merchandisers Clubs Mail Order Value-add Resellers Direct Sales Force Other Figure 3-4

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Manufacturing IndustryValue Chain Research and Development Engineering Production and Manufacturing Marketing Service Sales and Distribution Product and Service Flow Administrative and Other Indirect Value Added Figure 3-5 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 1985 by Michael E. Porter.

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Generic Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PRIMARY ACTIVITIES PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE SUPPORT ACTIVITIES Figure 3-6 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 1985 by Michael E. Porter.

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Property and Casualty Industry Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE -Financial Policy -Regulatory Compliance - Legal - Accounting Actuary Training Agent Training Claims Training Claims Procedures Claims Settlement Loss Control Policy Sales Policy Renewal Agent Manage- ment Advertising Independent Agent Network Billing and Collections Underwriting Investment Policy Rating Actuarial Methods Investment Practices I/T Communications Product Development Market Research Figure 3-7 Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter.

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Technologies in the Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE Information System Technology Planning and Budgeting Technology Office Technology Training Technology Motivation Research Information Technology Product Technology Computer-Aided Design Pilot Plant Technology Diagnostic and Testing Technology Communications Technology Information Technology Transportation Technology Material Handling Technology Storage and Preservation Technology Communication System Technology Testing Technology Information Technology Information Systems Technology Communication System Technology Transportation System Technology Software Development Tools Information Systems Technology Basic Process Technology Materials Technology Machine Tools Technology Materials Handling Technology Packaging Technology Testing Technology I/nformation Tech. Transportation Technology Material Handling Technology Packaging Technology Communications Technology Information Technology Multi-Media Technology Communication Technology Information Technology Figure 3-8 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 1985 by Michael E. Porter., p. 167.

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