Five Forces Framework And Zara Case

Transcription

1 Five Forces Framework And Zara Case Key points from last class: Organizations can look for sustainable competitive advantage through operational effectiveness or more likely through differentiation Use IT to create or strengthen resources that can provide sustainable competitive advantage Resources have to be different (valuable, rare, imperfectly imitable, nonsubstitutable) Resources can be ways of doing things, assets, capabilities, skills, competencies, and more Discussed how FreshDirect gained advantage from its IT-enabled business model Resources for Competitive Advantage Imitation-resistant Value Chain Brand (lowers search cost, inspire trust, viral mktg) Scale (economies, bargaining power, entry barrier) Switching cost and Data Differentiation Personalization Network Effects Distribution Channels ex: TiVo Patents (Intellectual Property) Porter s Five Forces:

2 Threat of new competition: Profitable markets that yield high returns will attract new firms. This results in new entrants, which eventually will decrease profitability for all firms in the industry. Threat of substitute products or services: The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Bargaining power of customers (buyers): The ability of customers to put the firm under pressure. Bargaining power of suppliers: Intensity of competitive rivalry: Major determinant of the competitiveness of the industry Thread of substitutes: ex: if you are in the gps industry, smartphones now have this capacity. (they overlap the gps industry) Bargaining power of buyers: In entertainment industry, apple is their client (itunes) -> strong buyer. Thread of the new entrants: market level. Rivalry with other industries. Bargaining power of supplies: Bargaining power of buyers: When your buyers have power, you can t raise prices Some factors that increase buyers power: If buyers purchase in large volumes If buyers can easily switch to a competing firm If buyers know a lot about your cost structure

3 Examples of how IT affects buyer power IT-administered loyalty programs foster stickiness The Internet provides buyers with detailed information (commodities) The Internet provides your firm with detailed information Intra-Industry Rivalry: Intra-industry rivalry decreases prices Some factors that increase intra industry rivalry: Lots of firms in the industry (especially of similar size) Competing firms offer similar products Slow industry growth Examples of how IT affects rivalry between firms The Internet globalizes commerce, increasing # of firms Web-based personalization can reduce product similarity Threat of Substitutes: Lowers a firm s ability to raise prices and may reduce demand Some factors that increase threat of substitutes: Convergence (of products/features) PDA, GPS, cameras vs. smartphones Changing tastes/preferences high quality (CD) vs. high variety (ipod) Radical Innovations landline vs. cell phones, books vs. e-books

4 Generic Strategies: Cost leadership (operational efficiency): A firm sets out to become the low cost producer in its industry. Differentiation (strategic positioning): A firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. Focus/niche strategy (segmentation): Choice of a narrow competitive scope (segment) within an industry Cost Leadership: Using IT to lower price Substitute information for physical goods Info vs. parts inventory (Dell)

5 Info vs. finished goods inventory (Dell, Zara, Wal-Mart) Substitute information technology for labor IT + customer vs. employees (FedEx, Amazon) Increase the output from the same payroll Enable employees to work faster Expand skills of employees Use employees in lower-cost areas/offices (e.g., offshoring ) Differenciation: Using IT to create value Increase product quality Create better products, enabled by IT (FedEx) Overlay better IT-enabled service on existing products (Amazon) Increase product fit Use local information about demand patterns (Zara) Find out what customers want and build it (Dell) Increase product variety Convert uniform products into differentiated ones (Dell, Priceline) The productivity frontier: At a fixed level of production technology When a firm increases product value, they also increase the cost There is a trade-off between low costs and high value The productivity frontier constitutes the set of best outcomes possible under that technology Progress in IT shifts the productivity frontier Increases the product value deliverable at the same cost level Lowers the cost level of delivering a specific product value Introduces new levels of product value

6 Zara: Convential Wisdom: Conventional wisdom suggests that leveraging cheap contract manufacturing in developing countries can keep the cost of goods low Contract manufacturing: Involves outsourcing production to third-party firms They have good design, high manufacturing & logistics The counterintuitive and successful strategy of Zara The technology, which has made all of this possible