Information System and strategy

Introduction:

Companies compete for dollar, customers loyalty and attention, and start-ups face huge challenges as they try to develop a strategy that will lead to success. 

Whether times are calm or stormy, the reasons companies choose one strategy over another—and how they use information systems to implement them—help explain why some companies succeed and others fail. What strategy, starting with the forces that shape industry competition and help to determine how profitable companies operating in the industry will be?

Porter’s five competitive forces:

 Based on Porter’s model, the reasons lie with five interrelated forces that influence industry competition.  1) Threat of new entrants: This is the rate and ease at which new start-ups enter into the industry. However, there are some ways used by incumbents to ward off newcomers which includes: Network effects, which refer to the increased value of a product or service that results simply because there are more people using it. The value of Facebook, for example, is low if you can only connect a few people. But the more people who use that social network, the more valuable it becomes to everyone. Also, switching costs, which are the costs customers incur when they change suppliers. Loyalty programs also raise switching costs and discourage new entrants.

2) Power of buyers: The power of buyers rises when they have leverage over suppliers and can demand deep discounts and special services. Instances where supplier has a small number of buyers, Companies whose main customer is the government, and many suppliers offer similar products etc.

3) Power of suppliers: The power of suppliers is high when they are just about the only game in town and thus can charge more for their products and services. Microsoft is an example. Given the dominance of its Windows operating system on desktop computers. though, as Apple gains share, and free products attract more customers.

4) Threat of substitutes: The threat of substitutes is high when alternative products are available, especially if they offer attractive savings. For example, high-quality videoconferencing offers an alternative to face-to-face meetings that can greatly reduce a company’s travel budget.

5) Rivalry among existing competitors: An industry’s profitability and its competitive structure are affected by the intensity of rivalry among existing competitors, particularly with respect to how they are competing and what they compete on. If firms compete mainly on price, rivalry is high and the industry as a whole becomes less profitable, because price cutting triggers rounds of damaging price wars.

Factors that affects how the five forces operate:

In addition to the strategies of the companies themselves, many external factors affect how the five forces operate. 1) Disruptive Innovations and Technology:  Economist Joseph Schumpeter used the term creative destruction to describe what happens in an industry; Disruptive innovation: Newcomers find ways to capitalize on the new technologies, Sustaining Technologies: while many incumbents resist the change and seek ways to protect their old business models.

2) Government Policies and Actions: Government policies and funding priorities can have dramatic effects on how industries operate and how they evolve. For example, Patents reduce the threat of new entrants.

iii) Complementary Services and Products in the Ecosystem: Many industries are interrelated and events in one can influence the others because Companies are embedded in a complex ecosystem.

iv) Environmental Events and Wildcats: For an organization to develop a viable competitive strategy, its leaders take into account the nature of the industry and how the five competitive forces play out. They also consider the factors affecting those forces and how they are changing. Hurricanes, snowstorms, pandemics, earthquakes, strikes, and civil unrest can all have major effects on entire industries, sometimes without much warning.

The value chain and strategic thinking:

Michael Porter describes the activities a company performs to create value. Primary activities: (bringing in raw resources, making the product, marketing, delivery, and customer support). Support activities: form the major components of the value chain which encompasses all the other processes and offices the company needs, including administration and management, human resources, procurement, and technology support. The extended value chain, which includes suppliers and customers, offers more strategic opportunities. The value chain model offers a way for organizations to compare their performance against industry benchmarks

Competitive Strategies in Business: Porter identified three basic strategies companies can adopt that are most likely to lead to success.

1) The low cost leadership strategy: which means offering a similar product at a lower price compared to competitors.

2) Product differentiation strategy: streamlining processes, and adding unique value with new products or features. Their role includes running the organization and, as a strategic enabler, growing and transforming the organization.

3) Focused niche strategy: Here, the goal is to find a smaller group of customers who have

special preferences, and then tailor your products and services to them.

Information Strategies and Non profit organization:

Non profits organizations  take advantage of information systems to manage basic operations, and also as a strategic enabler (The role information systems play as tools to grow or transform the business, or facilitate a whole new business model) in areas such as fund-raising and volunteer management. 

1) Fund Raising: Many non profits rely on donations, and specialized information systems which help manage these critical activities. 2) Volunteering: Helping volunteers find a project that needs their skills.

Information strategies and Government: Governments are also deeply involved in funding initiatives that offer potential value for the country. Governments use information systems extensively for e-government initiatives, especially to increase access and enhance services for the public.

Therefore, as technologies become commodities, and become widely used by almost all organizations, their strategic value diminishes. The information systems used to “run” organizations, in particular, are readily available and managers should focus on reducing their cost. However, innovative information systems in which creative people leverage technology to grow and transform the organization are critical for effective strategy.