Porter's Competitive Forces Model-Information Systems - Coursework Example

? Porter's Competitive Forces Model-Information Systems Porter’s Competitive Forces Model Michael E. Porter’s Five Forces Model is considered as the best model that can be applied in understanding the competitive position of a business in regards to its external business environment. Herein the competitive position of the business is analyzed based on an analysis of the key stakeholders like consumers, suppliers, and also the competitive entities like existing and emerging competitors and the prevalence of substitute products in the extended market. Thus the competitive forces model helps one to understand the different strategies that the firm can take to counter the competition posed by the different external entities as reflected. Porter’s Five Forces Model of Business Competitiveness can be reflected as follows. Figure 1 (Source: Laudon, 2010, p.96) The business gains competitive advantage in its pursuits of governing the competitive threat imposed by these different parameters that can be analyzed as follows. Firstly the company would have potential competitors existing at the market place that can work on product or brand development and thereby gain on its existing market share. This product or brand development can work in encouraging the consumers to switch over to gain the benefits of the products and services delivered. Secondly the business company in question also needs to effectively compete in regards to new entrants in the industry. Owing to lower economic and trade barriers it is found that companies focusing on the opening up of small retail arms and food joints tend to face lesser trade and economic constraints than companies in other industries where investment required is huge. In larger investment sectors it is hard for the companies to retrieve potential returns on the amount invested and thus are deterred from entering. Again in the third case the business company operational for a longer period happens to create a more popular understanding of the type of the attributes of the products and services developed. Thus this fact encourages the emergence of substitute products in the marketplace with both the prevalence of more innovative products and also of lesser value and price. Fourthly the company needs to counter the bargaining power of consumers in meeting the requirements both in regards to quality and pricing conditions. The number of companies in the industry being large enables the consumers to switch over to different concerns at the cost of the initial company holding the consumer. Finally in the fifth case the company needs to hold on to its suppliers from switching over to another company in the same industry rendering more leverage. Henceforth the business companies need to work on a greater network of suppliers where the company can tend to exert influence over the supplier groups in regards to pricing, quality and timely and effective delivery management guidelines (Laudon, 2010, p.94-97; Rainer and Cegielski, 2009, p.45-48). Thus the Porter’s Five Forces model effectively presents the situational analysis of a company’s external environment based on which the firm is required to develop its potential strategies required for market growth and business development. Utility of Information Systems in Porter’s Competitive Forces Model The analysis of the above model reflects the various competitive forces that a company is required to counter to successfully exist in the competitive business market. Herein the modern business companies tend to put into use information technology applications that would help the company to effectively counter the different competitive forces. Firstly it is found that business companies in order to largely reduce the price structure of its products and services and at the same time work to generate profitability can largely integrate information systems in its applications. Retail organizations through the use of effective information systems can help reduce the amount of working capital that would be kept locked in regards to stocking. Point-of-sale systems can effectively render information to the company about the consumer’s preference to which the right stock can be brought in from the warehouse. The business houses thus by effectively reducing its operational cost can work on reducing the price of the products and also helps in meeting the needs of the consumer in time. Secondly the business companies through the use of information systems can largely work to help develop on the attributes and features of the product or services. Moreover the business company through the use of information technology applications can help enhance the level of accessibility of the product to the consumer’s end. These two features thereby help in augmenting the level of consumer loyalty. Addition of attributes to the existing product or service happens to add value to the product and thereby enhances on its quality paradigm. In the third case the use of information systems makes the company able to analyze large volumes of information gathered from the external market in regards to consumers, suppliers and other key areas. Information Systems helps the company in conducting effective market research activities that would provide to the management effective information in regards to changes in the tastes and preferences pattern of the consumers and also in regards to the several demographic parameters pertaining to income and age levels of the consumers. Effective market research activities enable the company to rightly plan the promotional and advertising activities that would in turn attract the potential consumers to purchase the product. Fourthly the firm through the use of information systems can largely integrate the activities of the supplier and consumer groups such that the suppliers can gain access to potential consumer information in supplying the key deliverables. Again the consumer can also have a view of the different items in store through effective information systems before ordering for their relevant purchase. Information technology applications by integrating the actions of the consumer and supplier groups work to enhance the level of switching costs through which the chances of shifting of the consumers and suppliers to other companies would be greatly reduced. The emergence of internet technology and its extended use in the domain of business has also led to the enhancement of the impact of the competitive forces. With the advancement of internet use the consumers and the firm’s competitors have both gained large access to potential information. Consumers thereby can effectively shift to other companies that help in rendering more price effective products thereby augmenting the buying power. Again the business competitors can work to gain hold of effective markets where potential consumers have been located and thus would gain on both market shares and revenue. This fact helps in augmenting the potential of both the existing and new competitors. However the advent of internet can largely help the company in enhancing on its value paradigm. The company can focus on enhancement of its brand awareness and consumer accessibility through operating based on the internet paradigm thereby gaining in regards to markets and revenue (Laudon, 2010, p.98-104). Four Competitive Strategies enabled by Information Systems in Wal-Mart It is found that Wal-Mart headquartered in United States and operating based on a number of countries has gained a large amount of competitive business advantage through the effective incorporation of information technology processes in its sales and operation activities. The company focuses on retrieving large amount of information through its point-of-sales system that is mainly used by the company managers in understanding the demographic and psychographic qualities of the consumers visiting their stores. Such information can be effectively stored in large databases and processed by the consumer to understand the pattern of products and services that ought to be rendered in meeting the changed demands. Moreover the management of the retail firm can also work in rightly formulating the level of promotional and advertising activities in helping to grab the minds of the target audience or crowd in the extended market. The information technology system works through the scanning of bar codes containing all such relevant information about the codes of the store, the number of items sold from the different outlets and also in regard to the specific departments. This process of retrieving essential information helps the company in linking the consumer demands for stock availability both in regards to the warehouse and store levels. Similarly the information available through the point-of-sales system can also help the company management in effective forecasting of sales and revenue pertaining to its product and store categories. Again the company can also work in planning for the right merchandising activities through the data retrieved from the sales and inventory level in regards to the different stores in order to counter the demand of the consumers (O’Brien and Marakas, 2008, p.44-45). In the second scenario the retail giant Wal-Mart focused on enhancing its relation with the supplier groups through effective interchange of data between the stores and the warehouses. The company works through the integration of information technology systems like the electronic data interface that enhances the potential of the company in reducing the lead time from the supplier’s end. The electronic data interface functions on an effective basis in helping the business managers formulate effective decisions by dividing the product categories to their item number level. Again other software like the retail link also works in helping the supplier groups effectively track the movement of specific goods in the different stores. Through the above function the company tends to enhance the business linkages between the supplier and consumer groups. This fact helps the company in enhancing the merchandising functions at the store level through the application of different technologies like the just-in-time concepts. Use of such innovative concepts helps the firm in reducing business costs and in enhancing the productivity and revenue level (Sunil, 2010, p.51). Thirdly, Wal-Mart also functions in deployment of effective technology that would in turn help in the optimization of use of the resource level available to enhance the productivity of the different units. Optimization of the resource level is conducted by integrating the sales and revenue forecasts made with the strategic resources available to help enhance business productivity and competence functions. In the fourth case Wal-Mart endeavored to gain on business competencies by working to reduce the administration costs in maintaining such large databases. The company through effective linking and lining up information pertaining to different outlets and distribution centers happens to gain in the maximum amount of revenue such that the marginal cost of maintaining any additional information turns out to be quite low. Rate of returns on the investment made by the company in setting up large information technology system interfaces to retrieve and analyze potential information from the market being very high helps in reducing the effect of the marginal or the extra cost taken. This fact in turn helps in enhancing the business competency of the firm in regards to its competitors (Wang, 2006, p.51-59). The above factors being studied reflects the different ways in which information technology systems have been used in Wal-Mart’s operation and sale functions to help generate both revenue and business productivity. It thereby enhances the firm’s competitive position in the global retail industry. Conclusions The analysis of the competitive business environment of any firm can be effectively conducted based on Porter’s Model of Competitive Forces. The model throws light on basically five parameters like the bargaining power of both consumers and suppliers, the existence of substitute products in the market, and the threat imposed by existing and new companies to the market share and competitive business position of the firm. Modern business companies in the course of countering the challenges imposed by competitive forces in the firm’s external environment takes the help of effective information resource systems. Information Technology helps in providing salient information about the market and demand conditions to the companies based on which strategies can be developed to enhance on both market shares and revenue. References Laudon, K.C. (2010). Management Information Systems: Managing the Digital Firm. New Delhi: Pearson Education India. O’Brien, J., and Marakas, G. (2008). Management Information Systems. New Delhi: Tata McGraw-Hill Education. Rainer, R., and Cegielski, C. (2009). Introduction to Information Systems: Enabling and Transforming Business. United States: John Wiley and Sons. Sunil, C. (2010). Supply Chain Management, 4/E. New Delhi: Pearson Education India. Wang, J. (2006). Economies of It Systems at Wal-Mart--- An Historical Perspective. Academy of Information and Management Sciences Journal, 9(1), 45-66. Retrieved from http://www.alliedacademies.org/Publications/Papers/AIMSJ%20Vol%209%20No%201%202006%20p%2045-66.pdf. Read More