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Competitive tactics-micheal potter
June 28, 2008
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The Strategic Role of Information Systems.
Definition of Business Strategy
Strategy is a broad formula of how business is going to compete, what its goals should be, and what policies will be needed to carry out these goals. The essence of formulating a competitive strategy is relating to a company to its environment. (Michael Potter)
A strategy can therefore be viewed as a cohesive plan or a pattern of action that integrate an organization’s major goals and gives meaning to everything an organization does. This plan or pattern of action is intended to enable an organization meet its major goals within a competitive environment.
When something is said to have a strategic role in an enterprise it means that the thing has an important place in the firm’s major objectives both now and in the future. It is therefore a critical success factor. The strategic role of IS today is to assist in organizational effectiveness in the attainment of corporate goals within a competitive environment.
These are the Information Systems that fundamentally change a firm’s goals, her products, services or internal or external relationships. They are systems which contribute in a direct way to the organization’s strategic pursuits. Such systems assist the enterprise in the attainments of its strategic plans, or give it new strategic plans, or give it new strategic options that did not exist before.
Countering Competetive forces(Michael Potter’s Model)
Michael Potter argued that most of an org’s action are aimed at outdoing the competition. He looked at the competitive environment as follows
In response to the five competitive forces i.e substitute products, new entrant, suppliers, buyers, the following competitive tactics have been suggested.
Product Differentiation:
It aims to make goods or services appear different or better to the consumer than those offered by the competition. Common tactics used include Branding, Packaging, Competitive pricing, superior quality, advertising e.t.c.
Focused Differentiation
Aims to entice a select group of more profitable customers to remain loyal to the firm or perhaps bring along their friends. Focused differentiation depends on a colorful analysis of the market and the sales data to perceive trends or other peculiarities.
Tight linkage with suppliers and customers
It entails setting up communication links with customers and suppliers which in effect lock-in these players, ensuring greater loyalty to the company. Such linkages also focus on increasing or sustaining costs e.g. SABRE reservation systems, Proprietary Computer technology by IBM which only runs on software and other hardware designed by IBM in the 70s and 80s (e.g. IBM AS400), Just in time systems i.e. stockless system.
Becoming the low cost producer (Cost Leadership)
Economies of sale can arise through mass production, low cost supplies of raw materials, containment of production overheads like labor e.t.c. IT can assist in this area in the following ways.
- Capital Intensive production i.e. increased use of IT in place of human labor e.g. Robots or use of CAD instead of many human designers.
- Use of IT to analyze supply and production costs with a view to optimize them as is often done using cost accounting system to identify those areas in which savings can be achieved.
This model looks at an enterprise as a series or chain of value-adding activities which together deliver goods and services to the market. The model distinguishes between a primary and secondary activities.
The primary activities involve actual operations (e.g. production), inbound logistics (e.g. warehousing), outbound logistics (transporting finished goods), sales and marketing and customer service.
The secondary activities involve Human Resource, Management, procurement, General administration and Product development i.e. research and development.
Analysis of the value chain statistics can give indications where saving can be achieved through more efficient operations, elimination of less essential activities e.t.c.
IS can make a contribution through:
- Allowing detailed analysis of the value chain figures
- Integration of specific value chain activities that add more value.
Sustainability of competitive Advantage
The trouble with competitive advantage is that it lasts only for a short time, after which the competitors catch up. What may be a strategic system today will almost certainly become a necessity tomorrow, a system which we must have for survival simply because everybody else has it.
The implications to the planners are clear:
- They can’t afford to be complacent; to stay ahead they must keep coming up with unique/new ideas of business value.
- To the extent possible, they should attempt to build strategic systems that are not easy to match e.g. high capital systems which weak competitors cannot afford to build.
- To come up with new or fresh ideas for competitive advantage, the planners need to call up their creative skills, observe the competitors, observe the technology trends e.t.c.
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