The Impact of Information Technology on Porter Model of Competition

Topics: Strategic management, Porter five forces analysis, Bank Pages: 7 (2514 words) Published: February 2, 2013
The Impact of Information Technology on Porter Model of Competition Introduction
Michael Porter’s competitive forces model is a well-known framework for analyzing competitiveness. Competitive force model is used to develop demonstrates on how Information Technology can upgrade the competitiveness of a corporation. It is also used to develop strategies to increase competitive edge. Competitive strategy must grow out of a sophisticated understanding of the structure of the industry and it is changing. In any industries, whether it is domestic or international, the nature of competition is embodied in five competitive forces: (1) the threat of new entrants, (2) the threat of substitute products, (3) the bargaining power of suppliers, (4) the bargaining power of buyers, and (5) the rivalry among the existing competitors (Richard, E, pg. 16). In industries in which the five forces are favorable, such as soft drinks, mainframe, computer, Internet, database publishing, pharmaceuticals, and cosmetics, many competitors earn attractive returns on invested capital. The five competitive forces determine industry profitability because they shape the prices firms can change, the costs they have to bear, and the investment required to compete in the industry. The threat of new entrants limits the overall profit potential in the industry, because new entrants bring new capacity and seek market share, pushing down margins. Powerful buyers or suppliers bargain away the profits for themselves. Fierce competitive rivalry erodes profit s by requiring higher costs of competing advertising, sales expense

or passing on profits to customers in the form of lower prices. These five forces model show how it could endanger a company position in an industry. The Internet has changed the Porter’s competitive forces model, and this research paper will show now the impact of Information technology on the model of competition.

How did the impact of information technology influence the threat of substitute product of service? The emergence of the Internet on competition levels in the banking industry that uses Porter’s Five Force Model is how. (Siaw.7, 1996, pg. 514). The Internet has affected the world by its ability to pull enormous information on any subject virtually. In today’s society, business models have to adapt to the growing acceptance of Internet and e-business. The impact of the Internet on the banking industry is often under- valued by executives. Home banking experienced a lot of problems in the early 1980’s. The Chemical bank introduced Pronto Business Banker, a small business. Pronto Business Banker failed to break even and it didn’t attract many customers. In 1989, Promo Business Banker and Chase Manhattan Spectrum Home Bank had to resign. In 1989, executives asked many questions. Will Internet banking customers adopt this service? Can we breakeven? The previous questions are just a couple of these questions. In 1996, Netbank started an Internet bank, in Atlanta. Netbank lost $5.6 million in 1997, but in 1998, they reported 4.5 million in net income. Most executives still wonder if the Internet banking industry can satisfy customers. E-Commerce has brought about different kinds of business people that involve themselves in the Internet and commercial technology. The real value of E-commerce comes from enhancing communication and transactions. They then integrate this with customers, business partners, suppliers, government regulators and the public at large. This ultimately moves us towards an electronic market place where goods and services are exchanged over the Internet (Siaw, 7, 2000, pg 515). Internet banking and traditional PC banking are different forms of applications of the Internet that help in banking. One-way information technology has an impact on products and services. The Internet lowers the barriers to entry that allow more new competitors. This gives companies more opportunity to...
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