Porters Five Forces & Value Chain

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Day #2

Porter’s Strategic Models:
The Five forces and the Value Chain

CIS Department

Professor Duane Truex III

The Information Systems Strategy Triangle
Business Strategy

Organizational Design Strategy

ICT/Information Strategy

Professor Truex




Professor Truex


Aligning IS/ICT strategy (Infrastructures) with business strategy • Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. • Here, we look at three such approaches: – Porter’s five forces model of the competitive advantage of firms – Porter’s value chain model of internal organizational operations – Wiseman’s theory of strategic thrusts and strategic option generator Professor Truex E-CommercePrinciples


The Five Forces Model and IS
• The Five Forces Model provides a way to think about how information resources can create competitive advantage. • Using Porter’s Model, General Managers can: – Identify key sources of competition they face. – Identify uses of information resources to enhance their competitive position against competitive threats – Consider likely changes in competitive threats over time Professor Truex E-CommercePrinciples

Five Forces Model

Professor Truex



Porter’s competitive forces with potential strategic use of information Strategic use •Cost effectiveness •Market access •Differentiation of product or service

Potential threat •Switching costs of new entrants •Access to distribution channels •Economics of scale

Strategic use

Bargaining power of suppliers
Strategic use •Selection of supplier •Threat of backward integration Professor Truex

Industry competitors Threat of substitutes

Bargaining power of buyers
Strategic use •Buyer selection •Switching costs •Differentiation

Strategic use •Redefine products and services •Improve price/performance E-CommercePrinciples

Professor Truex



Porter’s Value Chain Model
• Porter’s Value Chain Model looks at increasing competitive advantage by reorganizing the activities related to create, support and deliver a firm’s product or service. • These activities can be divided into two broad categories – Primary activities that relate directly to how value is created for a product or service. – Support activities that make the primary activities possible and that manage the coordinate of different activities. Professor Truex E-CommercePrinciples

Value Chain of the Firm
Firm Infrastructure Human Resource Management Technology Development Procurement Inbound Logistics Materials handling delivery Professor Truex

Support Activities

Operations Outbound Marketing Logistics & Sales Mfg. & assembly


Product Customer Order Pricing service processing Promotion Repair Shipping Place E-CommercePrinciples

Primary Activities


Gaining competitive value
• The Value Chain model suggest that competition can come from two sources: – Lowering the cost to perform an activity and – Adding value to a product or service so buyers will be willing to pay more.

• Lowering costs only achieves competitive advantage if the firm possesses information on the competitor’s costs • Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made? Professor Truex E-CommercePrinciples

The Value System
• The model can be extended by linking many value chains into a value system. • Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system. • This can lead to the formation of entire new businesses designed to change the information component of value-added activities. Professor Truex E-CommercePrinciples


The value system: interconnecting...
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