Strategy and the Internet

1
Strategy and the Internet

• Summary and Insights
• Team GALIP

W. Zhao, L. Johnson, M. Saxena, A. Silverman,
N. Elovitz
April 22, 2006
2
Fundamental Questions

• Who will capture the economic benefits that the
  Internet creates?
• Will all the value end up going to customers, or
  will companies be able to reap and share of it?
• What will be the Internets impact on industry
  structure?
• Will it expand or shrink the pool of profits?
• What will be its impact on strategy?
• Will the Internet bolster or erode the ability of
  companies to gain sustainable advantages over
  their competitors?

3
Article Review

• Paradox
• Porters view
• Myths
• Affects on competition
• Strategy
• Operational effectiveness
• Risks
• Disadvantages
• Advantages
• ITs role and use

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The Internet Paradox

• The very things that it provides as benefits -
  information, reduction of difficulty for
  purchasing, marketing and distribution, easier
  business transactions also make it more difficult
  for companies to capture those benefits as
  profits.

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Porters View of the Internet

• An enabling technology a powerful set of tools
  that can be used, wisely or unwisely in almost
  any industry and as part of almost any strategy.
• - Porter

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Internet Myths

• First mover advantage
• Partnering as a win-win
• The Internet is cannibalistic
• Channel conflicts

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Internets effect on competition
Porters 5 Forces 1

• Threat of Substitutes
• Overall industry is more efficient
• Substitution options available through same
  channel

• Supplier Power
• Access to more customers
• Channel to reach end users
• Equal access to suppliers

Competitive Rivalry

• Increase in competitive rivalry
• Migrates competition to price

• Buyer Power
• Reduced switching costs
• Bargaining power shifted to buyer

1

• Barriers to Entry
• Open system
• Reduction of geographic boundaries
• Internet applications are not proprietary and
  easily replicated

• Customer
• More choice
• More knowledge
• More freedom

8
Building the Internet into your Strategy

• The Internet can offer a unique competitive
  advantage, leading to increased, long-term
  profits
• 2 ways
• Operational effectiveness
• Strategic positioning

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Operational effectiveness

• Speed, flexibility and efficiency
• Internet affects this for each company
• But it also lowers the advantage
• All competitors have the same opportunities
• Rivals can copy what you do quickly
• Uniqueness is gone
• The Internet does not supply lasting SCA for
  operational effectiveness

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Strategic positioning

• While a new means of conducting business has
  become available the fundamentals of
  competition remain unchanged
• Use of the Internet creates economic value by
• New opportunities
• Unique, common information technology platform
• Complementary service
• Inter-connected value chain
• Enhance the customers experience
• Balance deficiencies

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Risks

• Exclusion of the Internet within strategy
• Undermine industry structure
• Hastened competitive convergence
• Reduce likelihood of competitive advantage
• Forgetting what they stand for
• Foregoing uniqueness
• Compromise competitive advantage

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Disadvantages of Not Integrating

• Lack of real-time information
• High cost of face-to-face interaction
• High cost of physical versions

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Advantages of Integration

• Complementary
• Reconfigure traditional activities
• Market-segment trade-offs

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ITs Role in Strategy and the Internet

• Internet provides a stronger, interconnected
  information architecture
• Older software and ERP systems forced companies
  to conform to their structure
• Reducing opportunities for differentiation
• This no longer occurs
• Systems to fit their unique processes

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Internet used by IT

• Firm Infrastructure
• Human Resource Management
• Technology Development
• Procurement

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Internet used by IT

• Supply Chain Management
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• After-Sales Service

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The Internet isnt Limitless

• Lacks
• Physical examination of products
• In-person Sales influence
• Face to face contact and relationship building
• Lack of spontaneity for purchase
• Fear of fraud (compared to in person purchasing)

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The Bottom line for a Companys Bottom Line

• Integrate the Internet into your companys
  overall strategy as a complement to traditional
  ways of competing
• Complement your existing competitive approaches
• Create systematic (entire value chain) that
  competitors cant copy

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Delivering Customer Value
http//www.keystonehighschool.com/
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Supplier Coordination

• http//www.adp.com/index_adp.html

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Employee Support

• Worlds Top 10 Intranets of 2005
  http//www.useit.com/alertbox/20050228.html
• Banesto - the third largest bank in Spain
• Cisco Systems - the world's leading computer
  networking vendor (U.S.)
• Electrolux - the world's largest manufacturer of
  powered appliances (Sweden)
• The Integer Group - the seventh largest
  promotional marketing agency (U.S.)
• NedTrain - the Dutch National Railway's
  maintenance subsidiary (The Netherlands)
• Orbis Technology - a small software developer
  (U.K.)
• Park Place Dealerships - operator of ten luxury
  automobile dealerships (U.S.)
• Procter Gamble - a leading manufacturer of
  branded consumer goods (U.S.)
• Schematic - an interactive design and technology
  agency (U.S.)
• Verizon Communications - a leading
  telecommunications company (U.S.)

22
Questions

• Thank you