The nature of competition in the industry forms the context for every company’s strategy, and Michael Porter’s model describes the five forces that shape an industry’s competitive structure. They help determine how profitable companies operating in the industry will be, and they include (1) the threat of new entrants, (2) the power of buyers, (3) the power of suppliers, (4) the threat of substitute products, and (5) rivalry among competitors.

In addition to the strategies of the companies themselves, many external factors affect how the five forces operate. Disruptive innovations, for example, can transform entire industries through the process of creative destruction. Government policies can also affect industry competition through legislation, regulation, and court decisions. Industries that operate in a larger ecosystem are affected by the development of complementary products and services that accelerate trends. In addition, environmental events such as pandemics or earthquakes can reshape industries and call for changes in strategy.

Organizations can use the value chain model to understand their options as they strive to compete in an industry. Primary activities (bringing in raw resources, making the product, marketing, delivery, and customer support) and support activities form the major components of the value chain. The extended value chain, which includes suppliers and customers, offers more strategic opportunities. Benchmarks are used to compare a company’s performance to industry standards on components of the value chain.

Nonprofits take advantage of information systems to manage basic operations and also as a strategic enabler in areas such as fund-raising and volunteer management. Governments use information systems extensively for e-government initiatives, especially to increase access and enhance services for the public. Governments are also deeply involved in funding initiatives that offer potential value for the country, but that may be too risky for private investors. Examples include the research that led to the Internet and funding for alternative energy.

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.

Competitive strategies include low cost leadership, product differentiation, and a focused niche strategy for a particular market segment. Information systems support all these approaches by reducing costs, 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.

2-1. What are the five competitive forces that shape industry competition? How are these forces interrelated?

2-2. How do disruptive innovations, government policies, complementary products and services, and environmental events affect how the competitive forces operate?

2-3. What are the components of the value chain? Which components comprise the primary activities? Which components comprise the support activities? What is the extended value chain?

2-4. How do managers use benchmarks to analyze the value chain and IT spending?

2-5. How do information systems apply to competitive strategies for business?

2-6. How are information systems used to run, grow, and transform a business?

2-7. How do information systems apply to competitive strategies for nonprofit organizations?

2-8. How do governments use information systems to improve services and fund research?

E-Project 1 Identifying Company Strategy with Online Financial Chart Tools