Information Technology Reference
In-Depth Information
Threat of Substitute Products and Services
Companies that offer one type of goods or services are threatened by other companies that
offer similar goods or services. The more consumers can obtain similar products and services
that satisfy their needs, the more likely firms are to try to establish competitive advantage.
For example, consider the photographic industry. When digital cameras became popular,
traditional film companies had to respond to stay competitive and profitable. Traditional
film companies, such as Kodak and others, started to offer additional products and enhanced
services, including digital cameras, the ability to produce digital images from traditional film
cameras, and Web sites that could be used to store and view pictures.
Bargaining Power of Customers and Suppliers
Large customers tend to influence a firm, and this influence can increase significantly if the
customers can threaten to switch to rival companies. When customers have a lot of bargaining
power, companies increase their competitive advantage to retain their customers. Similarly,
when the bargaining power of suppliers is strong, companies need to improve their compet-
itive advantage to maintain their bargaining position. Suppliers can also help an organization
gain a competitive advantage. Some suppliers enter into strategic alliances with firms and
eventually act as a part of the company. Suppliers and companies can use telecommunications
to link their computers and personnel to react quickly and provide parts or supplies as nec-
essary to satisfy customers. Government agencies are also using strategic alliances. The
investigative units of the U.S. Customs and Immigration and Naturalization Service entered
into a strategic alliance to streamline investigations.
Strategic Planning for Competitive Advantage
To be competitive, a company must be fast, nimble, flexible, innovative, productive, eco-
nomical, and customer oriented. It must also align its IS strategy with general business
strategies and objectives. 36 Given the five market forces previously mentioned, Porter and
others have proposed a number of strategies to attain competitive advantage, including cost
leadership, differentiation, niche strategy, altering the industry structure, creating new prod-
ucts and services, and improving existing product lines and services. 37 In some cases, one of
these strategies becomes dominant. For example, with a cost leadership strategy, cost can be
the key consideration, at the expense of other factors if need be.
Cost leadership. Deliver the lowest possible cost for products and services. Wal-Mart
and other discount retailers have used this strategy for years. Cost leadership is often
achieved by reducing the costs of raw materials through aggressive negotiations with
suppliers, becoming more efficient with production and manufacturing processes, and
reducing warehousing and shipping costs. Some companies use outsourcing to cut costs
when making products or completing services.
Wal-Mart and other discount
retailers have used a cost
leadership strategy to deliver the
lowest possible price for products
and services.
(Source: © Jeff Zelevansky/Getty
Images.)
 
 
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