Page 42 - DMGT505_MANAGEMENT_INFORMATION_SYSTEM

Unit 2: Information Systems in the Enterprise

The five chief forces can be generalized as follows: Notes
1. The threat of entry of new competitors
2. The bargaining influence of suppliers
3. The bargaining influence of customers (buyers)

4. The risk of alternate products or services
5. The competition between present firms in the industry.
The strength of every force is determined by factors associated to the industry's structure. While
the Internet has changed the nature of business, it has also modified the nature of competition.
Some have recommended semi radical variations in the model. For example, Harmon et al.
(2001) suggest adding a sixth force- negotiating influence of employees-to the original five.
Porter himself quarrels that the Internet doesn't vary the model, but that it is only another tool
to be used in looking for competitive advantage. Alternatively, "The Internet per se will hardly
ever be a competitive advantage. Many of the companies that achieve success will be the ones
that utilize the Internet as a complement to traditional manners of competing, not those that set
their Internet initiatives besides their recognized functions".
There are some recommended ways the Internet influences competition in the five factors:

1. The threat of new competitors: For many of the firms, the Internet enhances the threat of
new competitors. Initially, the Internet penetratingly decreases conventional obstruction
to entry, like the require for a sales force or a physical storefront to sell goods and services.
All a competitor needs to do is set up a Web site. This threat is particularly sharp in
industries that carry out an intermediation role in addition to industries in which the
primary product or service is digital. Secondly, the geographical goal of the Internet
facilitates remote competitors to bring rivalry into the local market, or even an indirect
competitor to compete more directly with an existing firm.
2. The bargaining power of suppliers: The Internet's influence on suppliers is mixed. On the
one hand, buyers can locate substitute suppliers and evaluate prices more easily,
diminishing the supplier's bargaining influence. Alternatively, as companies utilize the
Internet to combine their supply chain and link digital exchanges, participating suppliers
will flourish by locking in consumers and rising switching costs.

3. The bargaining influence of customers: The Web extensively enhances a buyer's use to
information regarding products and suppliers, Internet technologies can decrease customer
switching costs, and buyers can more simply acquire from downstream suppliers. These
factors signify that the Internet significantly enhances customers' bargaining influence.
4. The threat of alternate products or services: Information-dependent industries are in the
greatest danger here. Any industry in which digitalized information can substitute material
goods must observe the Internet as a threat.

5. The competition among existing firms in the industry: The visibility of Internet functions
on the Web makes proprietary systems harder to keep undisclosed, decreasing differences
between opponents. In many of the industries, the propensity for the Internet to lower
variable costs in relation to fixed costs supports price discounting simultaneously that
competition transfers to price. Both are forces that support destructive price competition
in an industry. The on the whole impact of the Internet is to enhance competition, which
pessimistically influences profitability.

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