Strategy and the Internet-Porter - Texas A_M University Corpus

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					STRATEGY
AND THE
INTERNET -
PORTER



Group 3
Sergio Montero
Frank Buell
Michael Ibanez
Author:
Michael
Porter
Education
•Harvard Business Professor
•Mechanical Engineering from 
Princeton
•MBA and PHD from Harvard

Theories Developed
• Competitive advantage
•Five Forces Analysis
•Strategic Groups
•Value Chain
•Generic  Strategies
•Product Differentiation
•Market Positioning
•Global Strategy
•Clusters of competence for 
Economic Development
•Diamond Model
•Porter's Four Corners Model
The Internet as a New
Technology
 Assumptions
  qTechnology that will change everything
  qOld rules about companies and competition 
   obsolete
 What is the Internet
  qAn Enabling Technology
  qA New Tool Available to Everyone
  qA Compliment to Traditional ways of competing 
  qA Game Changer
Distorted Market Signals

 Rampant Experimentation
 Subsidized inputs
 Payments made with equity, warrants, or 
  stock options
 Downplay of traditional financial metrics
 Creative accounting
A Return to Fundamentals

 True Economic Value
 Distinction of Uses of the Internet
  qOperating digital marketplace, selling toys, or 
   trading securities
  qInternet Technologies ( Site-Customization tools 
   or real-time communications services)
 Two Fundamental Factors
  qIndustry Structure
  qSustainable Competitive Advantage
Industry Structure

 Reconfiguration
  qCommunication
  qGathering Information
  qAccomplishing Transactions
 The Integration of the Internet
  qPros
  qCons
Influences

   Threats of substitutes
   Bargaining Power of Suppliers
   Rivalry among Existing Competitors
   Buyers
    qBargaining power of channels
    qBargaining power of end users


 Barriers to Entry
Myth of the First Mover

 Myths
  qStrong Network Effects and Switching Cost
  qBuying Behavior Better Service
 Facts
  qEasier to Switch to Competitors (One Page)
  qLimited Network Effects
  qSelf Limiting Mechanism
  qNetwork Effects Expensive to Create
Myth of the First Mover

 Partnerships and Compliments
  qProduces Network Effects
  qMay Raise Switching Cost
  qNo Relationship to Industry Profitability
  qOutsourcing

Standardization
 qMay increase Rivalry
 qDepress Profitability
Future of Internet Competition

 Internet increases Competition
 Power of Buyers increases
 New Formats of Service
 Increased Profits
 qFragmented Markets
 qDifferentiated Products 
 qDirect Contact with Suppliers
The Internet and Competitive
Advantage
Sustainable Competitive
  Advantage
  Operational Effectiveness
  qSpeeding  Real Time Information
  qMust sustain to keep Competitive 
   Advantage
  qBest Practices
  Strategic Positioning
The Six Principles of Strategic
Positioning
1. Right Goal
2. Value Proposition
3. Distinctive Value Chain
4. Trade-Offs
5. Fit
6. Continuity of Direction
 The Absence of Strategy
 Market Strategy
 qReduction of Competitive Strategy
 qCapturing the Market
 qReducing Differentiation
 qNot focusing on Core Competencies
 Past and Present
 qPast: Companies adapted to Software
 qPresent: Software adapts to Strategy
The Internet as Compliment

 Internet applications 
  qInforming customers
  qProcessing transactions 
  qProcuring inputs
 Existing competitive advantages
  qSkilled personnel
  qProprietary product technology
  qEfficient logistical systems
The Internet as Compliment

 The internet compliments rather than 
  cannibalizes, companies’ traditional activities 
  and ways of competing.

 The use of the internet represents only a 
  modest shift from well-established practices 
  in some industries.
Internet activities and
traditional activities
 Internet applications in one activity often 
  place greater demands on physical activities 
  elsewhere in the value chain
 Using the internet in one activity can have 
  systemic consequences requiring new or 
  enhanced physical activities that are often 
  unanticipated
 Most internet activities have some 
  shortcomings in comparison with 
  conventional methods
Internet limitations

 Lack of personal interaction with customers 
  and suppliers
 Loss of product feel and sales force expertise
 Logistics increased expense in smaller order 
  packaging and shipping
 Increased level of competition by the 
  abundant availability of information 
Traditional Method Limitations

 Lack of real time information
 High cost of face to face interaction
 High cost of producing physical versions of 
  information
 Internet fix
  qWeb sites supply product information and support 
   direct ordering
  qResults: traditional sales force increase in value 
   and productivity
The Internet and the Value
Chain
 Information technology pervasive influence 
  on the value chain
 The internet links activities and makes real-
  time data widely available throughout the 
  whole system: within the company and 
  suppliers
 Increase in bidirectional interconnectivity 
V
a
l
u
e
C
h
a
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Value Chain Implications

 Internet influence must be kept in perspective
 Not a dominant influence
 Conventional factors prominent roles
  Scale
  qPersonnel skills
  qProduct and process technology
  qInvestment in physical assets
The End of the New Economy

 Strategies that integrate the internet and 
  traditional competitive advantages and ways of 
  competing should win in many industries
 The demand will be affected by the increasing 
  availability of online services yet the service 
  provided by physical locations will still be valued 
  by customers
 The supply should improve regarding production 
  and procurement with a combination of internet 
  and traditional methods
Traditional VS Dot Coms

 It is easier for traditional companies to adopt 
  and integrate internet methods to their 
  traditional operations creating potential 
  advantages. 
 Dot-coms have to pursue distinctive 
  strategies more so than emulating one 
  another; breakaway from competing solely 
  on price and follow more traditional 
  strategies regarding differentiation or market 
  segmentation
Critique of the Porter Model
Porter Profit Focused
 Oilfield Industry
 Farming
Consumer Focused/Backward Integration
 Wal-Mart 
 Amazon
 Ebay
 IKEA
Old Business Model with Integration
 Automotive Retail 
 Real Estate
 Google’s mission is to organize the world’s
  information and make it universally accessible and
  useful.
 History 
  qFounded in 1998
  qIPO 2004
  qGoogle.org 2004
  qLaunch Google maps and Google earth 2005
  qJoins S&P 500 2006
  qAcquisition of YouTube 2006
  qAndroid open platform for mobile devices 2007
  qGoogle chrome 2008
  qGoogle + 2011
Google




 Services
  qLaser pinpoint accuracy in targeting market 
   sectors
  qFree online services integrated through the gmail 
   domain name
  qLargest availability of information presented in a 
   simple format supported worldwide 
  qMobile information solutions
Google Model
   Focus on the user and all else will follow
   It’s best to do one thing really, really well
   Fast is better than slow
   Democracy on the web works
   You don’t need to be at your desk to need an 
    answer
   You can make money without doing evil 
   There’s always more information out there
   The need for information crosses all borders
   You can be serious without a suit
   Great just isn’t good enough
Products and Services 2011
   qKindle Fire (Android Format)

   qDownloadable Movies

   qSoftware Affiliated Companies
 Affiliated Companies
   qZappos.com

   qShopbop.com

   qWoot
"Facebook's mission is to give people the power to
  share and make the world more open and
  connected.”
facebook use a similar model to Google in that
  the service is free of charge and the majority
  of its profits come from advertising

facebook uses the info of its users to better
  target its consumers for advertising

facebook is everywhere
Business model:
 Build products that support our mission by creating utility for users, 
  developers, and advertisers:

    Users. Enable people who use Facebook to stay connected with their friends and 
      family, to discover what is going on in the world around them, and to share and 
      express what matters to them to the people they care about.

    Developers. Enable developers to use the Facebook Platform to build 
      applications (apps) and websites that integrate with Facebook to reach our 
      global network of users and to build products that are more personalized, social, 
      and engaging.

    Advertisers. Enable advertisers to engage with more than 950 million monthly 
      active users (MAUs) on Facebook or subsets of our users based on information 
      they have chosen to share with us such as their age, location, gender, or interests. 
      They offer advertisers a unique combination of reach, relevance, social context, 
      and engagement to enhance the value of their ads.
Article 5: Strategy               and     the
Internet—Porter
How does Internet influence the industry
  structure? Explain using Porter’s model on
  competition.
Can Internet create sustainable competitive
  advantage? How? Explain.
“The winners will be those that view the
  Internet as a complement to, not a cannibal of
  traditional ways of competing.” Explain.

				
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