The Use of Strategic Forces to Understand Competitive Advantages Provided by Information Technology

Article excerpt

ABSTRACT

Porter's Five Forces model of business strategy is foundational to understanding strategic forces and the role of information technology in the larger strategic framework of an organization. The authors describe how information technology changes the strength and/or influence of the competitive forces in Porter's model. Furthermore, understanding how specific technologies potentially change specific forces within Porter's model is the foundation of IT strategy. This theoretical framework of strategic alignment is developed through cases demonstrating how specific technologies change the strategic forces within specific industries and how organizations should take advantage of these changing forces. Empirical evidence for the validity of this approach is established through interviews in 136 businesses. Results indicate the utility of Porter's model as applied to strategic information technology was affirmed. Specific findings revealed how current technologies are impacting the competitive landscape.

INTRODUCTION

The foundation for much of the research in strategic information technology is the theory of strategic alignment developed by Henderson and Venkatramen (1989). Called the strategic alignment model (SAM), this theoretical foundation makes a distinction between externally-focused IT (IT strategy) and internally-focused systems (IT infrastructure and processes). These two distinct foci necessitate the integration of IT with both business strategy and operations. It is the integration of IT with business strategy (Jitpaiboom et. Al., 2006) that results in strategic alignment and thus, by extension, in competitive advantage. Integration should be a planned process of the type recommended by Newkirk, Lederer and Srinivasan (2003) in contrast to the evolutionary process suggested by Peters, Heng, and Vet (2002). We propose strategic alignment should be understood and implemented in terms of the impact of IT on the influence and strength of the forces in Porter's Five Forces Model (1979).

Porter's Five Forces Model

Porter's Five Forces model is often used as a tool for analyzing industries and competitive structures within them. The model's central tenet is that an industry's profit potential is determined to a large extent by either one or a combination of five competitive forces within that industry. These forces are: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services, and the intensity of competition among current rivals within the industry. Figure 1 shows the conventional portrayal of this model.

[FIGURE 1 OMITTED]

Applied to American business, Porter's model reveals numerous examples of the power and threats resulting from each of these forces. For example, in many industries, it is very difficult for new entrants to penetrate the market because of high capital costs, strong equity of existing brands, or distribution channels that are controlled by existing rivals. Specifically, it is very difficult to start a new auto company because of the high capital costs, to pioneer a new soft drink due to strong brands like Coke and Pepsi, or to compete against Anheuser Busch with its control over distribution. Customers and suppliers also can influence companies within an industry by exerting pressure on prices, quality, or the quantity of a product they demand or sell.

The power of suppliers is evident when a small number of suppliers dominate an industry that is highly fragmented, as is the case with Microsoft and Intel, which dominate the highly-fragmented PC industry. These suppliers of key components dictate price, terms, and quantities of operating systems and CPUs. The result is a PC industry that is far less profitable than the suppliers of critical components like Microsoft and Intel.

Suppliers also gain power when the supplied components are highly differentiated making switching from one supplier to another difficult. …