Whats Happening?!Broadband Internet access has grown from 6% to 31% in three years.John Rodrigues reports that he is getting job interviews.Jobless claims fell last week to the lowest level since Nov. 30GM reported record 4th quarter earnings.First ISMA meeting on Tuesday Speaker is JP LeBlanc from Borland. Time and place yet to be determined.

Chapter 2 Summary

Business Competitive Environment

Review of ObjectivesTo clearly understand competition:Definition of CompetitivenessCompetitive AdvantageGlobal CompetitionRole of the nation:Role of government within a nation.

Definition of CompetitivenessObjective of a business is to make a profit.Profit based on providing value to customers.

How can a business assure value to customers?A good competitor knows:Which products and services it offers.Who its customers are.Who its competitors are.

Competitive AdvantageTo assure positioning for profit, a company must maintain competitive advantage. Methods that are achievable and sustainable.Work smarter.Assess whether Information Systems are appropriate to gaining a competitive advantage?Focus on three primary inputs: HR , Capital, Technology.

Global CompetitionThe Global Market will come to you if you dont go to it.By staying in your home country, you assume a defensive position.There are advantages and disadvantages to going global. These need to be considered carefully.

Role of the NationStudy states that increased competitiveness of the Nation will stimulate the economy.6 recommended steps to stay competitive.Only companies can sustain and achieve competitive advantage.Government should serve as a catalyst and a challenger.

Competitiveness: A Link to National GoalsHumanResourcesCapitalTechnologyImprovedDomesticPerformanceMore andBetter JobsIncreasedStandard ofLivingStrongerNational SecurityDecreasedBudgetDeficitTradePolicyNewCompetitionIncreased World Market Competitiveness ReducedTrade DeficitFigure 2-1

Possible Exam QuestionsWhat are some ways that governments serve as a catalyst and challenger to the competitiveness of its companies?

Why has competitiveness become the important topic that it is?

Chapter 3 Introduction

The Porter Competitive Model for Industry Structure Analysis

Key Chapter Objectives Basic understanding of Porter Competitive ModelHow the model can be used to analyze a companys competitive position within its environment (its industry).How IS infrastructure can influences a companies responsiveness to its changing business environment.

The Porter Competitive ModelUsed to understand and evaluate the structure of an industrys business environment and the threats of competition to a specific company.

Porter Competitive ModelIntra-Industry RivalryStrategic Business UnitBargainingPower of Buyers

Bargaining Power of Suppliers

Substitute Products and Services

PotentialNew Entrants

Figure 3-1Source: Michael E. PorterForces Governing Competition in IndustryHarvard Business Review, Mar.-Apr. 1979

Two Strategic ObjectivesCreate effective links with customers and suppliers

Create barriers to new entrants and substitute products

Primary and Supporting StrategiesDifferentiation Strategy (Primary)Low Cost Strategy (Primary)Innovation (Supporting)Growth (Supporting)Alliance (Supporting)

Value Chain Developed by Michael Porter but different from competitive model because it focuses within the company.

Analyzes the cross-functional flow of products or services within an organization that add value to customers.

Generic Value ChainINBOUNDLOGISTICSOPERATIONSOUTBOUNDLOGISTICS MARKETING AND SALES SERVICEPRIMARY ACTIVITIESPROCUREMENTTECHNOLOGY DEVELOPMENTHUMAN RESOURCE MANAGEMENTFIRM INFRASTRUCTURESUPPORT ACTIVITIESFigure 3-6Adapted 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.

Value Chain and ISThe 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.

Chapter 3Porter Competitive Model for Industry Structure Analysis

ATP Research1. Value Line 2. Company web page and annual report.3. Internet search engines:GoogleAsk Jeeves4. Library reference documents5. Jack Callon and his documents

The Plan for TodayAddress the Concepts of the Porter Competitive Model.Provide some industry examples using theCompetitive Model.Address the Value Chain conceptually and with industry examples.Revisit each of these using the Airline Industry as the example in Chapter 4.

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

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 industrys business environment. Provides an understanding of competitive threats into an industry.

Two Key Questions1. How structurally attractive is the industry?

2. What is the companys relative position within the industry?

Why Do You Care?The collective strength of the industry forces determines the ultimate profit potential of an industry.The strongest competitive forces are of greatest importance in formulating competitive strategies. Every industry has an underlying structure, or a set of fundamental economic and technical characteristics that gives rise to these competitive forces.

Why Do You Care?This view of competition pertains to industries selling products and those dealing in services.A few characteristics are often key to the strength of each competitive force.

Key Industry Analysis FactorsCollecting the data.Determining which data is important.Selecting an appropriate overall approach.Deciding on the logical starting point.

Basic Objectives of the SBU1. To create effective links with buyers and suppliers.

2. To build barriers to new entrants and substitute products.

Porter Competitive ModelIntra-Industry RivalryStrategic Business UnitBargainingPower of Buyers

Bargaining Power of Suppliers

Substitute Products and Services

PotentialNew Entrants

Figure 3-1Source: Michael E. PorterForces Governing Competition in IndustryHarvard Business Review, Mar.-Apr. 1979

Rivalry Likelihood Profit margins. Industry growth rate and potential. A lack of capacity to satisfy the market. Fixed costs. Competitor concentration and balance. Diversity of competitors. Existing brand identity. Switching costs. Exit barriers.

A Buyer Has Power If: 1. It has large, concentrated buying power that enables it to gain volume discounts and/or special terms or services.2. What it is buying is standard or undifferentiated and there are multiple alternative sources. 3. It earns low profit margins so it has great incentive to lower its purchasing costs. 4. It has a strong potential to backward integrate. 5. The product is unimportant to the quality of the buyers products or services.

A Supplier Has Power If:

1. There is domination of supply by a few companies.2. Its product is unique or at least differentiated.3. It has built up switching costs.4. It provides benefits through geographic proximity to its customers. 5. It poses a definite threat to forward integrate into its customers business. 6. A long time working relationship provides unique capabilities.

DefinitionsNew Entrant:An existing company or a startup that has not previously competed with the SBU in its geographic market. It can also be an existing company that through a shift in business strategy begins to compete with the SBU.Substitute Product or Service:An alternative to doing business with the SBU. This depends on the willingness of the buyers to substitute, the relative price/performance of the substitute and/or the level of the switching cost.

Possible Barriers to Entry Economies of scale. Strong, established cost advantages. Strong, established brands. Proprietary product differences. Major switching costs. Limited or restrained access to distribution. Large capital expenditure requirements. Government policy. Definite strong competitor retaliation.

Substitute Threats Buyer propensity to substitute. Relative price/performance of substitutes. Switching costs.

Competitive StrategiesWhat 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?

Strategy Options According to Michael PorterPrimary Strategies1. Differentiation2. Least CostSupporting Strategies1. Innovation2. Growth3. Alliance

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?

Porter Competitive ModelHeavyweight Motorcycle Manufacturing Industry North American Market

Bargaining Power of Buyers Recreational Cyclist Young Adults Law Enforcement Military Use Racers Potential New EntrantSubstitute Product or ServiceIntra-Industry RivalrySBU: Harley-DavidsonRivals: Honda, BMW, Suzuki, Yamaha Foreign Manufacturer Established Company Entering a New Market Segment New Startup Parts Manufacturers Electronic Components Specialty Metal Suppliers Machine Tool Vendors Labor Unions IT VendorsBargaining Power of Suppliers Automobiles Public Transportation Mopeds Bicycles

Engineering Product Design Manufacturing Sales/Distribution BusinessInformation SystemsCompany StructureIndependent Alliances Joint Ventures/SubsidiariesSales/Distribution StrategyDistributors Independent Dealers Franchised Dealers Manufacturing StrategyVertically Integrated Vendor Emphasis OutsourceMarket StrategyNorth American Europe Japan/Asia Latin AmericaLaw Enforcement Military Recreational Professional Young AdultProduct StrategyType/Purpose/SizeHeavyweight Off-Road Dual Purpose Road Racing Caf Racer Price StrategyEntry Level Moderate PremiumBusiness Strategy Model - Motorcycle Manufacturing Industry

Product StrategyLimited Specialized ProductsBroad Range of Specialized ProductsWide Range of Non-specialized ProductsHealth Conscious ProductsParents with KidsEthnic FocusTeenagersYoung Adults with Social FocusTime Conscious AdultsLeisure AdultsSenior CitizensCustomer StrategyStore Format StrategyDine InWait ServiceDine In Counter Service or BuffetTake OutDrive ThroughVendor StrategyCompetitive BidsVertically IntegratedLong Term ContractsAlliancesMarket StrategyLocalRegionalNationalInternationalBusiness Strategy Model Food Service Industry

Company Structure StrategyIndependentAlliancesFranchisesSubsidiaryInformation Systems StrategyCustomer SystemsStore Logistical SystemsBusiness SystemsProduct Analysis System

Porter Competitive Model Analysis for the San Francisco 49ersIntra-Industry RivalrySBU: SF Giants

Buyers

Suppliers

Substitute Products and Services

New Entrants

Porter Competitive Model Analysis for the San Francisco 49ersBay Area MarketIntra-Industry RivalrySBU: SF 49ersRivals: Oakland RaidersArena FootballS.F. 49ersGolden State WarriorsCollege Athletic EventsHigh School Athletic EventsMovies, Stage Plays, etc.General Travel and Travel Packages BuyersDie Hard 49er FansDie Hard Football FansFair Weather Football FansNon-football FansOut of Town VisitorsOpposing Team FansAge Group SegmentsGroups Versus IndividualsCorporate SponsorsSports Writers and MediaOutlets

SuppliersPlayers UnionCity of SFTransportation ServicesFood ServiceSovereignsPolice and Sanitation ServiceUtilitiesStadium Employees

Substitute Products and ServicesTelevised Football Games - Free or Cable Service at HomeTelevised Games at Sports Bars Radio Broadcasts of Football Games Rotisserie Leagues, Trading Cards, MemorabiliaNew EntrantsCanadian Football Professional HockeyProfessional SoccerSumo Tournaments

Porter Competitive Model Tips

1. To incorrectly define the industry can cause major problems in doing Section I of the analysis term paper.2. You must identify the specific market being evaluated.3. Your analysis company is the Strategic Business Unit.4. Identify rivals by name for majors, by category for minor rivals if needed to present the best possible profile of rivals.

Porter Competitive Model5. Be sure to address the power implications of both customers and suppliers. Power buys them what?6. Identify buyers and suppliers by categories versus companies.7. Summarize your Porter Model analysis.

Computer IndustryWhy is this industry more of a challenge to evaluate using the Porter Competitive Model?

Old Computer IndustryLayer 5Distribution

Layer 4ApplicationSoftware

Layer 3OperatingSystemSoftware

Layer 2ComputingPlatforms

Layer 1Basic Circuitry

IBM DEC HP Fujitsu NCRFigure 3-3

The New Computer IndustryLayer 1MicroprocessorIntel X86 Motorola RISC Power PCLayer 2ComputerPlatforms IBM Compaq Other Intel-Based PCs Apple Macs OtherLayer 3OperatingSystem SoftwareMS DOS Windows OS/2 Unix Apple Novell Netware Banyan IBM Others Layer 4ApplicationsSpreadsheetsWord ProcessorsDatabase

Lotus 1-2-3 Microsoft Excel Quattro ProLayer 5DistributorsComputerDealersSuperStoresMass MerchandisersClubsMailOrder Value-addResellersDirectSalesForceOtherFigure 3-4

The Computer IndustryLayer 1MicroprocessorIntel X86 Motorola RISC Power PCLayer 2Computer HardwarePlatforms Supercomputer Mainframe Midrange Workstation PC Handheld Device Layer 3OperatingSystem Software Windows Unix Linux Apple Layer 5Application SoftwareEnterpriseSpecific

Word Processors Spread Sheets Publishing Groupware Data Warehouse OtherLayer 6Sales andDistributionComputerStoresSuperStoresMass MerchandisersMailOrder Value-addResellersDirectSalesForceInternet DirectLayer 4 Database & Networking Software

Hierarchical Database Relationship DatabaseDesktop Suites Enterprise Resource Planning Supply Chain Management OtherLAN, WAN and Internet Software Interfaces, Browsers and Search Engines

Computer IndustryHardware Processors Input/Output Devices Storage DevicesNetworking Equipment?Multiple processor segments in the computer industry.Processor companies versus specialized hardware companies.

Software Systems Software Operating Systems Database Systems Network Systems Utility Software Performance and Security Software Development Software Programming Languages CASE Software Applications SoftwareHardware vendors versus independent software companies.

Applications SoftwareSpecific application software to do numerous things.Running on a range of processors.Applications suites (integrated applications) Some call these integrated enterprise applications

Is game software from Sony a part of the computer industry?Is software to run numerical control machine tools part of the computer industry?Is software to analyze automobile smog tests part of the computer industry?

Chart1

73560.89795.621014.417325.51906

95455.511069.820415.716306.52255.2

123597.713298.522569.3140822052.2

147302.712086.425728.9137302602.2

233891.212093.52753012082.42680.2

261934.312654.229181.810390.82648.1

284293.813269.2303498832.22621.6

32236613739.431320.27595.72592.7

Source: Dataquest

Millions of Dollars

Personal Computer

Workstation

Midrange

Mainframe

Supercomputer

Worldwide Computer Hardware Sales

Sheet1

19931994199519961997199819992000

Personal Computer73,560.8095,455.50123,597.70147,302.7233,891.2261,934.3284,293.80322,366.0

Workstation9,795.6011,069.8013,298.5012,086.4012,093.5012,654.2013,269.2013,739.40

Midrange21,014.4020,415.7022,569.3025,728.9027,530.0029,181.8030,349.0031,320.20

Mainframe17,325.5016,306.5014,082.0013,730.0012,082.4010,390.808,832.207,595.70

Supercomputer1,906.002,255.202,052.202,602.202,680.202,648.102,621.602,592.70

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Source: Dataquest

Millions of Dollars

Personal Computer

Workstation

Midrange

Mainframe

Supercomputer

Worldwide Computer Hardware Sales

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Billions of $sBillions of $sSource: Dataquest

Chart1

252187.565

221.5161.2

217.7154

Total Hardware

PCs

Worldwide Hardware Sales

Sheet1

200020012002

Total Hardware252221.5217.7

PCs187.565161.2154

Sheet1

Total Hardware

PCs

Worldwide Hardware Sales

Sheet2

Sheet3

What is a PC?A desktop toolword processor, spreadsheet, publishing tool, data store.An entertainment device.Communication deviceemail.Information sourceInternet sources.A collaboration tool.

PC Industry Segment1. Passed $100 billion in sales in the first ten years.2. Growth and competition was based on industry standards like never before.3. This has spawned thousands of niche companies.4. The PC has fundamentally restructured the Computer Industry.5. Industry pioneers believe the revolution is no more than half over.

Change Relative to Selling PCs1. Languages2. Application Packages3. Connectivity and Compatibility4. Multimedia5. Communication Device--Groupware

PC Industry Change Atari Cromemco Fortune Systems Wicat Systems Kaypro Morrow Designs Osborne Computer Victor Technologies Dell Gateway IBM HP (Compaq) NEC

The Future Computer Industry1. Traditional US Companies (large).2. Asian Electronic Companies.3. The New Strategy Companies.Why has the US continued to be the world leader in the computer industry?

Porter Value ChainBasic Concept:

1. Deals with core business processes.

2. Enables tracking a new idea to create a new product and/or service from origination all the way to customer satisfaction.

Porter Value Chain Service Sales and Distribution Marketing Production and Manufacturing Engineering Manufacturing Industry Value ChainResearch and Development

Retail Industry Value Chain

Marketing and Selling Operating Stores Distributing Inventory Managing Inventory BuyingPartneringwithVendor

Value Chain Things to Remember1. Value to customer objective is not clear.2. Relay team concept is too time consuming and doesnt work in the current competitive environment.3. Maximize the value-add activities and eliminate as much as possible the things that do not add value.4. Make sure that each step in the overall process (each function) does things consistent with the overall objective of value to customer.

Generic Value ChainINBOUNDLOGISTICSOPERATIONSOUTBOUNDLOGISTICS MARKETING AND SALES SERVICEPRIMARY ACTIVITIESPROCUREMENTTECHNOLOGY DEVELOPMENTHUMAN RESOURCE MANAGEMENTFIRM INFRASTRUCTURESUPPORT ACTIVITIESFigure 3-6Adapted 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.

Property and Casualty Industry Value ChainINBOUNDLOGISTICSOPERATIONSOUTBOUNDLOGISTICS MARKETING AND SALES SERVICEPROCUREMENTTECHNOLOGY DEVELOPMENTHUMAN RESOURCE MANAGEMENTFIRM INFRASTRUCTURE-Financial Policy -Regulatory Compliance - Legal - AccountingActuary TrainingAgent TrainingClaims Training Claims ProceduresClaims SettlementLoss ControlPolicy SalesPolicy RenewalAgent Manage- mentAdvertising

Independent Agent NetworkBilling and Collections Underwriting InvestmentPolicy RatingActuarial MethodsInvestment PracticesI/TCommunicationsProduct DevelopmentMarket ResearchFigure 3-7Included with permission of Michael E. Porter based on ideas in Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter.

Technologies in the Value ChainINBOUNDLOGISTICSOPERATIONSOUTBOUNDLOGISTICS MARKETING AND SALES SERVICEPROCUREMENTTECHNOLOGY DEVELOPMENTHUMAN RESOURCE MANAGEMENTFIRM INFRASTRUCTURE Information System TechnologyPlanning and Budgeting TechnologyOffice TechnologyTraining TechnologyMotivation ResearchInformation Technology Product TechnologyComputer-Aided DesignPilot Plant TechnologyDiagnostic and Testing TechnologyCommunications TechnologyInformation TechnologyTransportation TechnologyMaterial Handling TechnologyStorage and Preservation TechnologyCommunication System TechnologyTesting TechnologyInformation TechnologyInformation Systems TechnologyCommunication System TechnologyTransportation System TechnologySoftware Development ToolsInformation Systems TechnologyBasic Process TechnologyMaterials TechnologyMachine Tools TechnologyMaterials Handling TechnologyPackaging TechnologyTesting TechnologyI/nformation Tech.Transportation TechnologyMaterial Handling TechnologyPackaging TechnologyCommunications TechnologyInformation TechnologyMulti-Media TechnologyCommunication TechnologyInformation TechnologyFigure 3-8Adapted 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.

Business Awareness Questionnaire2. The worlds largest corporation based on annual revenue is Wal-Mart.3. CTO Chief Technical Officer CFO Chief Financial Officer CMO Chief Marketing Officer CIO Chief Information Officer COO Chief Operating Officer CEO Chief Executive Officer4. Large number of well known business success books.

5. Business Week, Fortune, Forbes, The Economist, Harvard Business Review Information Week, Datamation, Computer WorldLarry Ellison OracleScott McNealy Sun MicrosystemsJohn Chambers Cisco SystemsCarly Fiorina Hewlett-PackardCraig Barrett Intel Corp.Steve Balmer MicrosoftJeff Bezos Amazon.com

Sam Walton Wal-Mart StoresFred Smith Federal ExpressGordon Moore Intel Corp.Herb Kelleher Southwest AirlinesDavid Filo Yahoo!George Zimmer Mens WearhouseMichael Porter Business CompetitivenessMichael Hammer Process ReengineeringW. Edwards Demming Total Quality ManagementTom Peters Managing by Walking AroundWarren Bennis Business Leadership

Significant Business Events During 2000:Enron collapseHP-Compaq mergerUnited Airlines bankruptcySurvival of Amazon.com and continued success of eBay.Amazon.com is definitely the standard by which e-Commerce companies are compared. eBay is uniquely profitable as an Internet company.NASDAQ lists more than technology companies.The News, Life, Sports and Weather is a description of USA Today and not the Wall Street Journal.Japan, not Germany, is the worlds second largest economy.

5. Saturn is owned by GM and not Ford.6. Burn rate is the rate at which a startup uses up its cash position on a daily or weekly basis.7. A balance sheet indicates assets and liabilities. The profit and loss statement indicates profit.8. A general sentiment is that established companies with a solid brick and mortar foundation can move to the Internet with a winning approach.9. The big three of the airline industry are American, United and Deltanot Northwest.

To start a new business requires: E. all of the above.Of the factors in question 1, not having sufficient operating capital is the cause of most business failures.Never listed as first on the Fortune Most Admired List are Cisco Systems, Intel and Wal-Mart Stores.Industries that have dominated the least admired list are the Savings and Loan Industry and the Airline Industry.A money source for a startup that is not realistic in most cases is commercial banks.IPO stands for initial public offering.Marketing is determining what to sell and sales is selling what you have.