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Strategy and the Internet. Summary and Insights Team GALIP. W. Zhao, L. Johnson, M. Saxena, A. Silverman, N. Elovitz. April 22, 2006. Fundamental Questions. Who will capture the economic benefits that the Internet creates?

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strategy and the internet

Strategy and the Internet

Summary and Insights


W. Zhao, L. Johnson, M. Saxena,

A. Silverman, N. Elovitz

April 22, 2006

fundamental questions
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 Internet’s 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?
article review
Article Review
  • Paradox
  • Porter’s view
  • Myths
  • Affects on competition
  • Strategy
  • Operational effectiveness
  • Risks
  • Disadvantages
  • Advantages
  • IT’s role and use
the internet paradox
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.

porter s view of the internet
Porter’s 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

internet myths
Internet Myths
  • First mover advantage
  • Partnering as a win-win
  • The Internet is cannibalistic
  • Channel conflicts
internet s effect on competition
Internet’s effect on competition

Porter’s 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
building the internet into your strategy
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
operational effectiveness
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
strategic positioning
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 customer’s experience
    • Balance deficiencies
  • 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
disadvantages of not integrating
Disadvantages of Not Integrating
  • Lack of real-time information
  • High cost of face-to-face interaction
  • High cost of physical versions
advantages of integration
Advantages of Integration
  • Complementary
  • Reconfigure traditional activities
  • Market-segment trade-offs
its role in strategy and the internet
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
internet used by it
Internet used by IT
  • Firm Infrastructure
  • Human Resource Management
  • Technology Development
  • Procurement
internet used by it1
Internet used by IT
  • Supply Chain Management
    • Inbound Logistics
    • Operations
    • Outbound Logistics
    • Marketing and Sales
    • After-Sales Service
the internet isn t limitless
The Internet isn’t Limitless


  • 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)
the bottom line for a company s bottom line
The Bottom line for a Company’s Bottom Line
  • Integrate the Internet into your company’s overall strategy as a complement to traditional ways of competing
  • Complement your existing competitive approaches
  • Create systematic (entire value chain) that competitors can’t copy
delivering customer value
Delivering Customer Value

supplier coordination
Supplier Coordination

employee support
Employee Support

World’s Top 10 Intranets of 2005

  • 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.)
  • Thank you