Revision Part I - Business Information Management

I am preparing for a ferocious battle...

Venue: Singapore Expo Centre...

Date: 4 Dec 06...

Time: 1500 hrs...

And I hold several of the magic potions. This is one of them:

The Five Competitive Forces Model of Michael E Porter...

Now, how does it works...

To develop a IT/IS strategy, the Five Forces Model analyses the competitive environment and the business position of the organisation relative to customers, new entrants, suppliers and competitors.

The view of the model is that the five forces are what an industry is subjected to in a competitive environment. By influencing the five forces, with a framework provided by the model, the organisation can change the structure of the industry to gain competitive advantage.

With the areas identified by the model for focus on improvement through IT and IS enhancement, they can be ranked according to importance, immediacy and economics.

And the five forces are described as:

1) Rivalry between existing competitors: Now, the factors determining the intensity of the rivalry are number of competitors, the low growth of the market, the high fixed cost and similar products saturating the market. To overcome this threat, the organisation may adapt the generic strategy of cost leader, product differentiation or focus (that is on a particular segment of the market, eg. Ferrari).

2) Threat of substitutes which are alternative ways of meeting the objective: we have to convince the customers that the price is worthy of the performance paid for. Example: car vs public transport.

3) Threat of New entrants: we can create barriers to reduce this threat. Some of the barriers are the advantage of economics of scales, capital (by investment in new systems) and legal (regulatory such as operating licence) requirements, product differentiation (a great example is Coke) and closing rank of the existing competitors to drive the entrants out with a collective price war.

4) The power of supplier: The organisation could do well to improve the ability to "switch"

5) The power of buyers: This is demonstrated through the ability of the customers to "switch", to not pay for "extras" (such as delivery charges, warranty), to buy in bulk, and if the customer is not making any profits and facing bankruptcy, to not pay for your services or goods.

Generic strategy, consisting of product differentiation, cost leader and focus, is used to compete in the market.

And to implement the strategy, we have the value chain which consists of both primary and secondary activities.

Primary activities are activities directly involving the creation, sales and delivery of goods and services. They are:

Inbound Logistics: activities involving the receiving, storing and delivering of inputs used in the business. Examples of such activities are warehousing, inventory control.

Operations: activities to create product or services. Examples are production line, quality control.

Outbound Logistics: activities involved in the delivery of goods or services to customers. Examples are warehousing, inventory for finished goods and distribution network.

Marketing and sales: activities to induce the customers to purchase and to execute the transactions. Examples are promotions, CRM (customer relationship management system), sales order system.

Services: activites to retain the value of the goods and services after the point of sales. Examples are after sales support, technical support and availability of spare parts.

Secondary activities: These are there to enhance the performance of the primary activities.

They are:

1) Firm infrastructure which refers to the general management and organisation of the business
2) HR management is the utilisation of people
3) Technology development refers to the utilisation of systems and technology.
4) Procurement are activities involving purchase of inputs for the business (eg. sourcing for suppliers, negotiating for price and terms)

And you know what. The competitive strategy guru is just recently in town to criticise some of our government public policies. I glow with respect for him; he was spot on for large part.