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Business Strategy & IT. Minder Chen, Ph.D. Minder.Chen@CSUCI.EDU. Strategy and IS. Industry Structure (5 Competing Forces). Competitive Strategy . Business Process Design / Reengineering. Value Chain Analysis . Information Systems. Business Strategies.

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business strategy it

Business Strategy & IT

Minder Chen, Ph.D.


strategy and is
Strategy and IS

Industry Structure

(5 Competing Forces)



Business Process

Design / Reengineering

Value Chain




business strategies
Business Strategies

The job of the strategist is to understand and cope with competition.

Competition for profits goes beyond established industry rivals to include four other competitive forces: customers, suppliers, potential entrants, and substitute products.

The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

industry structure and forces
Industry Structure and Forces

Forces are intense: airlines, textiles, and hotels, almost no company earns attractive returns on investment.

Forces are benign: software, soft drinks, and toiletries, many companies are profitable

Industry structure, manifested in the competitive forces, sets industry profitability & competitiveness in the medium and long run.

Industry structure and a firm strategic positioning

Identify the strongest competitive force or forces for strategy formulation.

new entrances or substitutes
New Entrances or Substitutes


  • Rivalry is often fierce in commodity industries
  • Photographic film industry: Kodak and Fuji
    • Key competing force
    • Polaroid  Substitutive products/services
  • New entrants are diversifying from other markets, they can leverage existing capabilities
    • Pepsi did when it entered the bottled water industry,
    • Microsoft did when it began to offer internet browsers (embrace and extend)
    • Apple did when it entered the music distribution business.
five competing forces
Five Competing Forces

YouTube Video: The Five Competitive Forces That Shape Strategy

sources of switching costs
Sources of Switching Costs

Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software).

Learning costs: Switching technologies may require an investment in learning a new interface and commands.

Information and data: Users may have to reenter data, convert files or databases, or may even lose earlier contributions on incompatible systems.

Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used.

Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organization’s reputation as a reliable partner.

Search costs: Finding and evaluating a new alternative costs time and money.

barriers to entry
Barriers to Entry
  • Supply-side economies of scale
  • Demand-side benefits of scale (network effects)
  • Customer switching costs:
    • Enterprise resource planning (ERP) software is an example of a product with very high switching costs.
  • Capital requirements
    • Semiconductor foundry vs. corner coffee shop
  • Incumbency advantages independent of size
    • Brand, experiences curve
  • Unequal access to distribution channels
    • Using e-commerce for direct sales
  • Restrictive government policy

Entry threat/

Entry barriers

Emerging technologies


Apple Computer Inc.  Apple Inc.

Apple to Mac

iPod + iTune + music

Apple Stores (see teaching note)

iPhone + iTune + Apps

iPad + iTune + Apps + iBook

From a system to an eco-system

From hardware to software to contents and services

apple stores services
Apple Stores Services

Intensive control of how employees interact with customers, scripted training for on-site tech support and consideration of every store detail down to the pre-loaded photos and music on demo devices.

Photo by Bobby Bank/Getty Images

porter generic strategies
Porter Generic Strategies


read the comments

Cost Leadership: High volume and low profit margin

Differentiation strategy: High margin/price, low volume

resource based view of competitive advantage
Resource-Based View of Competitive Advantage
  • Nicholas Carr, "Does IT Matter," Harvard Business Review, May 2003, pp. 41-48.
  • (CSUCI Library Online Database) and Responses
  • The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics.
  • These resources must be
    • Valuable,
    • Rare,
    • Imperfectly imitable, and
    • Non-substitutable.
value chain analysis
Value Chain Analysis

stan shih smile curve
Stan Shih “Smile Curve”

IBM Leads the Way in the Post-PC EraWhy IBM exited the PC market?


process in perspective
Process in Perspective

Source: Process in Perspective (or “Tell me again, why are we doing this ‘process’ stuff?”), Geary Rummler

business processes
Business Processes

The order management process consists of several business processes and crosses the boundaries of traditional business functions.

value chain and erp crm scm
Value Chain and ERP, CRM, SCM

Enterprise Resource Planning

Customer Relationship Management

Supply Chain


it permeates the value chain
IT Permeates the Value Chain

Source: How information gives you competitive advantage.

4 step process
4-Step Process

What are your goals?

What are your strategies?

What are your methods for implementing your strategies?

How do you know you are making progress towards your goals?