Five Forces Model And Information Systems Business Theory Essay
An organization’s ability to be profitable and operate competitively in the business environment is primarily affected by five competitive forces. The threat of potential entrants relates to the ease of setting up new businesses in a particular industry. This will increase competition in the industry and therefore may decrease the profitability of incumbents in the industry. Barriers to enter an industry have a significant effect on this threat. The power of suppliers refers to the bargaining power that suppliers hold over the organization. This power is especially high when there is a monopoly by the supplier and the costs of switching to alternative suppliers is high for the organization. An organization’s costs may increase thereby affecting profitability. The power of buyers is the negotiating power of customers, for example, in terms of prices and product quality. Besides that, substitutes pose a threat to the organization. Substitutes are alternative products or services that function in a similar way as the organization’s product. Substitutes may decrease demand for the organization’s product. Competitive rivalry is the competition between existing operators in an industry for market share. This is common when rivals are of the same size.
An organization can utilize the five forces to develop a competitive information systems strategy by first determining the main forces that affect profitability in its industry. The extent of the effect of each competitive force differs for every industry. Subsequently the organization can strategize to minimize the threat these forces. Finally the organization identifies the information systems they possess and plan to utilize these tools to maximize their potential. This will enable it to gain a competitive advantage.
A typical industry consists of many types of companies which are being influenced by the Five Forces that was introduced by Michael Porter. This framework that was introduced by him was slowly adapted by many companies in the particular industry as it was a strategic move that was being carried out by many business managers to develop an edge over their rival firms. Many managers understood the industry as a whole much better with the model that was introduced by Michael Porter as it helped a particular company to analyze its position in the industry more effectively. A company can know where exactly it stands in an industry besides knowing how to further improve their position by increasing barriers to entry, lowering threats of substitutes, lowering supplier power, lowering buyer power and lowering rivalry of competitors. This has caused companies these days to compete more intensely in trying to gain a significant advantage over their competitors. In this modern era where technology has taken the business environment by storm, a company’s information system plays a vital role in information management. As such, companies are forced to develop information systems that provide them with a competitive advantage while still holding on to the core principles of the Five Forces model.
One of the Five Forces that was described by Michael Porter is rivalry among existing competitors. Rivalry takes place in many different ways within a particular industry. It may take many different forms such as price discounting, introduction of new products, advertising campaigns, and improving the services provided. Hence, the higher rivalry, the lower the profitability of an industry as companies may have to incur large amount of expenses to gain a competitive advantage over their rivals. As such, this results in intense competition amongst companies within a given industry. Their intensity of rivalry is greatest if competitors are numerous, industry growth is slow, exit barriers are high and rivals are highly committed to the industry. Hence, to overcome these intense conditions,...
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