“Strategy & the Internet” - Porter

How the Internet has influenced the power each force has in his Industry Structure model.

The Internet has tremendous implications in strategy and strategic decisions. To gain sustainable competitive advantage companies tend to focus on operational effectiveness to achieve the low cost leadership or strategic positioning of the firm in its industry to create differentiation and unique value for customers. From the operational effectiveness paradigm, internet helps companies to offer fast, accuracy and reliability in operations. However this opportunity is for all in the market. Rivals can easily achieve the same operational effectiveness as the company has no propriety rights to the internet. Therefore, the internet cannot be a factor of creating sustainable competitive advantage in operational effectiveness paradigm in the long run. From the strategic positioning perspective of gaining sustainable competitive advantage, the internet provides a platform to create customized, unique, and integrated systems that help companies to create and maintain distinctiveness in their products and services. Companies need to use the internet as a complement to the traditional ways of competing.

Let's look at Porter's Five Forces:

Threat of Substitute Products and Services

The Internet influences the market to expand by making overall industry more efficient, which results in the new substitution threats. On one side the internet pushes a positive change of expanding the overall industry and creating new opportunities. On the other side it boosts the substitution threat caused by more efficient ways of operational activities.

Bargaining Power of Suppliers

Internet raises the bargaining power over suppliers through efficient procurement services which is an advantage to the companies. It also provides suppliers the chance to attract a wide range of customers. The Internet gives an opportunity to the suppliers in that they can directly deal with the end users and thereby eliminating the role of intervening companies. It also optimizes procurement efforts of companies which allow equal chances to access the suppliers which ultimately reduce the companies’ capability of differentiation.

Bargaining Power of Customers

The Internet improves bargaining power of customers and reduces their switching cost, which will negatively impact the company by making it easy to choose an alternative option.

Barriers to Entry

The emergence of the internet reduces the entry barriers for new entrants through minimizing the heavy costs like physical assets, access to channels and human resource requirement for sales because everyone now has access to internet applications and no one has proprietary rights to it. As a result of these reduced entry barriers the number of new entrants has been greatly increased in almost all of the industries.

Rivalry Among Existing Competitors

The Internet enhances the price competition as competitors face difficulty to keep proprietary rights which reduces the distinctiveness of products. It also widens the geographical boundaries of the market resulting in higher number of competitors.

In conclusion, do not depend solely on the internet and leave the traditional ways of competing but instead use the internet as a complement to traditional methods and focus on the strategy to differentiate and sustain competitive advantage.

To read the article yourself, click the link below:

http://hvass.nu/s2/artikler/teori/Misc/porter.pdf