How Competition Forces Shape Strategy - Essay Example

The overall aim of this question is to analyze how changes in the role of information systems have affected their modern role in the making and breaking of corporate competitive landscape.The industry under discussion here is the Music industry and how its competitiveness has been affected by the advent of the Mp3 technologies. (Laudon,and Laudon 2008) In this vein my analysis employs a usage of the theories of "Porter's 5 forces" and "Ecosystem" in order to explain how these theories can be used to explain the changing landscape of the Music industry. (Laudon,and Laudon 2008). The very first word that springs to our mind when we discuss Mp3 technology is "copyright". Inefficient copyright mechanisms can make or break the Music Industry as apparent from the yesteryears hype created by the Music Industry suing for piracy of their music through Mp3 versions of their copyrighted material. The digital age seems to have compromised the concept of copyright material and has had negative outcomes for the publishing, music and the computer industries. An important example of this is the peer-to-peer file sharing system of copyrighted music. The Napster and Grokster cases are a good illustration of the legal response of the industries .The copyright industries themselves have responded with new business strategies by providing legal download services.1The internet has been famously defined as a network of networks, and the denser these networks become; the more complicated it becomes to prevent the bane of copyright infringement and other intellectual property violations from occurring. 2Even though the courts have been willing to intervene where there has been an infringement of copyright, the practical difficulties of managing copyright violations arise whenever the "sheer scale" and "speed" of the internet causes high speed reproduction of the material to be achieved without actually being detected.Therefore my strategic analysis of the Mp3 technology involves the stress on DRM technologies to prevent heavy losses to the industry.Further discussion entails the emergence of Ecosystems with in this industry bringing about a collusion of the Singers,Record Labels and online Information service providers as well as the role played by governmental and legal agencies to protect the financial interests of the industry as illegal downloading and burning continue to compromise the industry's ability to invest in the new music talent of tomorrow. When assessing the purchasing trends of any industry it is pertinent to note that the buyers will display certain types of buying behaviors. The aim of assessing the competitive landscape of the Music industry it would be worth employing a Marketing Mix (MM) strategy to tap into the preferences of the consumer base(Laudon,and Laudon 2008).The diagram below shows five dimensions of the customer buying behaviour. Figure: THE FIVE KEY DIMENSIONS OF BUYING BEHAVIOUR (Jobber, 1998) The answer to these questions can be given through direct contact with consumers (in a retail environment) and increasingly by using marketing research for the Music Industry.However there are other issues at stake.The use of information systems for the sale purchase and management of the Music industry has harmed it more than benefitting it.No doubt the online music stores are a testimony to the blessings of the cost efficient era of E commerce and allow Ecosystems to develop in the cyber world thereby integrating the industry to bring about cheaper goods and services. (Laudon,and Laudon 2008).The era of digitalization for this industry began very positively as the dot.com bubble encouraged many small and large businesses to open online stores.Significant record labels also clamored to advertise their merchandise and labels online.The scale and magnitude of advertisement potential available online brought about a temporary boom in the Online Music industry while bringing fringe benefits for the offline record labels but the entry of Kazaa, Grokster, EDonkey, and Bit-Torrent and their way of offering "free music" (Porter, M. 2001).This had a two fold effect on the consumer base psychology.The first was to allow easy access to illegal copies of Mp3 versions of copyrighted music to the general public .The sheer ease of availability of such music meant simply that consumers would not be willing to pay a premium price for it given the fact that it could be acquired free or cheap.Secondly this lack of empathy for the survival of the music industry damaged the ethical consumer base as well which also got discouraged in its perception of music as intellectual property that needed respect. (Boddy, 2005 ) The section below purports to undertake a Porter's Strategy based analysis to predict the outcome of the Mp3 boom on the Music industry.The biggest challenge right now for the Music industry is in terms of maintaining market sales, sales values, and profit. Its competitors and piracy gurus have been growing since the early times of the Dot.com bubble. Growing competitors reduces market shares and constraint the already operating company's profit (Kotler, Armstrong & Cunningham, 1999).This is due to the perfect competition model in economics which reduces the supernormal profits of the large companies as smaller firms seep in to gain benefits from the industry.There is a lot to be said in terms of the market analysis of the Music Industry as the Ecosystem approach has truly helped the merging of the supply chains to cut down costs and bring greater cooperation to this industry.So far based on the five market forces, addressed by Porter (1998), it is possible to see that the music companies have adopted a variety of marketing and advertising campaign, including mergers and acquisition to maintain their market share, be competitive, and even have comparative advantage over other competitors. This can allow the music industry to keep growing despite this competition. To maintain market share, the music companies will have to find new and innovative methods to secure the copyright of their music and this requires cooperation between the retailers and the composers/marketers to improve sales .According to Porter, "the essence of strategy formulation is coping with competition" (1998, 2). It is rooted in the economy, he said. The five forces that the company is facing associated with competition are customers (both direct and indirect), suppliers (both direct and indirect), potential entrants, and product substitute, which as previously mentioned early in its future strategy, is to counter threats from other modes of music formats which will threaten its market strategy and profits. The way ahead for the Ecosystem of sellers,retailers,producers and the close competing forces of the Industry is to adopt self-regulation which can be defined as a kind of delegation of governmental power to the internet world actors although the relationship between the industry and the state will vary.3Self regulation is good because it does not depend heavily on national laws and state governance as such, and is based upon accepted norms across borders by the main players in a particular sector, 4 The internet is a network of networks and its is difficult to control piracy of Mp3's across borders. Based on Lawrence Lessing's model there can be four forms of self-regulation: Codes of Conduct and Use of a Trusted Third Party Regulation by the market Regulation by technology Regulation by control over an asset OF more importance here is the regulation by technology which refers to the fourth of Lessing's modalities of regulation: architecture or code.5 Lessig says that cyberspace' can be used to regulate human conduct.Technology plays a crucial role in regulating people's use of the Internet, limiting or enhancing, as the case may be, what people can see and do on the Internet.Law and policy will inevitably try to lay bare the effects of technology on the parties' respective interests and powers and for the law to adjust these power imbalances. An example of this is the DRMS which has already but briefly been discussed above but it has had a massive effect on the music and entertainment industry.Since the internet and the Mp3 digital technology have always posed a threat to music copyright, since they enable users to make perfect, identical copies of content files and to disseminate these quickly and conveniently at (almost) no cost. The response by copyright holders was to develop new technologies-Digital Rights Management Systems (DRMS).'Digital Rights Management Systems' (DRMS)6 can then be described as software and hardware tools enhancing copyright and can include both tools controlling access and controlling use and tools providing information about copyright in a particular work. A component of DRMS is, e.g. digital watermarking, which will leave a 'stamp'- code embedded in the digital data, which carries information concerning copyright and data authentication and which allows the content to be tracked on the Internet.This has been known to effectively protect the sales revenues of the music industry by prevent Mp3 theft/piracy. Another component of DRMS is encryption technology, which controls access (by e.g. giving access only on payment of a fee or for a limited time) and copy protection. An example for encryption technology is the Content Scrambling Systems used to protect DVDs from unauthorised copying. The DRMS can be contained in or attached to the digital content distributed over the Internet or otherwise (software, e-book, video or audio files) and allow the copyright holder to both confine use of the content to the licensee and to determine what the licensee can do and cannot do with the protected content. The aim is to prevent unauthorised copying, passing on the content to another person or transforming it into another format. DRMS extend the control of the copyright holder over his or her work. The 1998 US Digital Millenium Copyright Act and the 2001 EU Copyright Directive7 protect DRMS. Both pieces of legislation are implementing the 1996 WIPO Treaties8, the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). Each of the WIPO Treaties in almost identical language imposes the obligation on Contracting States to prohibit the circumvention of technological protection measures.9 They also obligate Contracting States to prohibit the tampering with copyright management information, such as digital watermarks.10The law has also developed to protect the economic interests of the musicians and their related agents and products (The Music Industry Ecosystem).Furthermore although the DMCA allows for mere circumvention of anti-copying measures, it prohibits the sale or making available of circumvention tools, even if these tools are designed or intended to enable fair use. There have been many recent examples of the tension between those who want to control the manner in which digital content is distributed and those providing technology to enable content to be used in different ways.You only need to look at the content industry's ongoing war with peer to- peer networks for high profile evidence (MGM v Grokster 545 US 125 (2005) in the US and Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242, 5 September 2005 in Australia). Coming back to the rest of Porters Analysis refer to the diagram below as it identifies the six major sources of barriers to entry. Price, product, place and promotion are the basic marketing considerations (Kotler, Armstrong & Cunningham, 1999; Smith, 2006). The price indicates the marketing mix that produces revenue; it is subject to an array of competitive forces. These competitive forces, which are adopted from Porter's (1998) five strategy forces of competition described as follows: Where as the music companies can easily manage the emergence of the new entrants by maintaining its economies of scale, increase its marketing and advertising campaign to offer product differentiation, invest in research and development to produce new product line, tap into the market advantage that the new entrants do not have, have established distribution channel there will be problems putting the piracy laws into practice this will bring the need for better government policy to limit the interfer it policy to limit new entrants.In this industry, buyers' bargaining power may have less influence than the suppliers' bargaining power but it depends on several characteristics of the "market situation and on the relative importance of the sales and purchases to the industry compared (Porter, 1998, 5) with its overall business.However the availability of Music Mp3's online will lead to the customers bargaining position strengthening through channels like E-bay and other online auctions.Competition is becoming intensive and concentrated. . Therefore, in order to increase profit, the music industry post the Mp3 revolution needs to review its strategy option and emphasize it on the suppliers and buyers who have less market influence (Porter, 1998). This can be achieved through the Marketing mix strategy that includes target market and positioning, the price should be consistent with market segmentation, positioning strategy, and other elements of marketing strategies. Setting strategic direction and positioning and designing what product to offer to the market can be completed by differential advantage. And securing the support from other functions within the company and to conduct monitoring, controlling, executing and performing can be complemented by integration.(Porter 1998). . In order to be competitive and hence to maximize profit, it is also necessary for the music industry to be better able to identify who are the competitors as well as (1) Describe what the competitors' abilities are, what difficulties they have faced when they launched their new Music sales platforms. (2) Evaluate other options of their marketing strategy (3) Project or predict what are their next marketing strategy would be either in short-term, medium-term, or long-term. The cyber market is a Global village. Therefore in addition, in analyzing the competitors, for example, framework of analysis may include the studies of the culture, which is the norms, standards, beliefs, and values that determine how the people in the company operate.Also imperative is the companies environment such as Value chain, which includes major marketing projects the competitors do and how these activities have an impact on the both the buyers and the suppliers. Alliances or networking are the link between the competitors and other companies and the company itself. On a concluding note if we set out to answer the question asked in the first instance the downloading of the Mp3 music has radically changed the music scene by distorting the commercial channels to provide "free" music and thus the internet has irreversibly changed the business model in the music industry .The activity of downloading has made the internet a remarkable, and virtually invisible, way of illegally taking title to music without purchasing it and thus bringing down industry profits.The Mp3 provides an easy method of pirating music and there is no significant loss in quality of downloaded files for most listeners. Fast internet connections, underground peer-to-peer (P2P) networks, and inexpensive digital storage have all heightened the attack on the Music Industry's profitability. Although Napster was later shut down and DRM technologies like Cuckoo's eggs discouraged the Mp3 pirates to a large extent the damage is apparent from the heavy losses suffered in the recent years by big labels and artists in the music industry.In this vein my paper has suggested that in the view of the internal and external threats to the industry based on the new Mp3 technologies there should be an Ecosystem based regulation to protect the industry from losses and the use of circumvention techniques can thus allow for the reaping of the advantages from the technology rather than allowing it to be a bane to the profitability of the industry . References Porter, M. (1980a) How Competition Forces Shape Strategy, Harvard Business Review, September-October, pp.137-145. Porter, M. (1980b) Competitive Strategy, New York: Free Press. Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press. Sanderson, S. (1998) New approaches to strategy: new ways of thinking for the millennium, Management Decision, Vol. 36 issue 1, pp.9-13 Thurlby B (1998) "Competitive forces are also subject to change", Management Decision London Laudon, K.C., Laudon, J.P., (2008) "Management Information Systems", 11th Edn. Prentice-Hall, New Jersey ISBN 0131538411 Porter, M. & Millar, V. How information gives you competitive advantage. Harvard Business Review, 63(4) 1985, pp 149-160 Porter, M. Strategy and the internet. Harvard Business Review, 79(3) 2001, pp 62-78 ISPs not to disclose the identity of their users: a green light for file-sharers Ent. L.R. 2008, 19(1), 19-20 From Berne to national law, via the Copyright Directive: the dangerous mutations of the three-step test, E.I.P.R. 2007, 29(12), 486-491 Monroe E. Price and Stefaan G. Verhulst, In Search of the Self, Chapter 3 in Christopher T. Marsden (ed) Regulating the Global Information Society Routledge, London 2000, p. 58 http://www.gbde.org/index1.html last visited on 31. October 2003 Lawrence Lessig, The Law of the Horse: What Cyberlaw Might Teach, 1999 Harvard Law Review p. 507 Lawrence Lessig, Code and other Laws of Cyberspace Basic Books, New York 1999, Chapter 4, p. 30 Clare Sellers, Digital Rights Management Systems: Recent European Issues, 14 (1) Entertainment Law Review 2003pp. 5-9 Brett Glass, What Does DRM Really Mean, PC Magazine April 8, 2003 available from< www.pcmag.com/solutions > last visited on 31. October 2003 Directive 2001/29/EC of the European Parliament and of the Council on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society last visited on 31. October 2003 Kotler, Philip, Armstrong, Gary, Saunders, John, et al.: Principles of Marketing. Prentice Hall, 1996, pp. 956. Michael Porter, 2008, The Five Competitive Forces That Shape Strategy, Harvard Business Review, Jan 1, 2008 Read More