Fitsum ristu lakew strategy and the internet
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The document discusses how companies can develop an effective internet strategy. It notes that the internet provides opportunities for strategic positioning but can also distort market signals and weaken competitive advantages. Specifically, it dampens profitability by leveling business practices and reducing barriers to entry. However, companies can build on proven strategic principles by using the internet to complement traditional operations rather than replacing them. This allows integrating it into the value chain in a way that is difficult for competitors to copy.
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Fitsum ristu lakew strategy and the internet
- 1. STRATEGY AND THE INTERNET BY FITSUM R. LAKEW
- 2. INTERNET AS A NEW TECHNOLOGY IN BUSINESSES Internet technology provides better opportunities for companies to establish distinctive strategic positioning. Many of the companies that succeed are ones that use the internet as a complement to traditional ways of competing Companies set their internet initiatives apart from their established operations. *Dampen profitability *Leveling effects on business practices *Reduce the ability to establish operational advantage The solution-to build on proven principles of effective strategy using the internet as a complement to traditional ways of competing.
- 3. DISTORTED MARKET SIGNALS Companies deployed internet technology confused by distorted market signals. * Sales figures distorted for three reasons 1.Prices for products placed for sale online heavily discounted, making demand for these goods artificially high. 2.Customer curiosity has prompted many online sales. 3.Some revenues received in the form of stock rather than cash. Cost side of the equation is equally distorted. *Many suppliers offered products at a discount prices to affiliate with online business or take stock instead of cash for payment. The main reason for the multitude of dotcoms, i.e., *Able to raise capital without demonstrate viability.
- 4. INTERNET AND ECONOMIC VALUE Economic value can be defined as the gap between price and cost, and it is reliably measured only by sustained profitability. Two fundamental factors that determine profitability: 1. Industry structure Threat of substitute product or services * (+) By making the overall industry more efficient, the Internet can expand the size of the market * (-) The proliferation of Internet approaches creates new substitution threats
- 6. Bargaining power of suppliers * (+/-) Procurement using the Internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers * (-) The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies * (-) Internet procurement and digital markets tend to give all companies equal access to suppliers, and gravitate procurement to standardized products that reduce differentiation * (-) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers
- 7. Rivalry among existing competitors *(-) Reduces differences among competitors as offerings are difficult to keep proprietary * (-) Migrates competition to price * (-) Widens the geographic market, increasing the number of competitors * (-) Lowers variable cost relative to fixed cost, increasing pressures for price discounting
- 8. BUYERS (+) Eliminates powerful channels or improves bargaining power over traditional channels (-) Shifts bargaining power to end consumers (-) Reduces switching costs BARGAINING POWER OF CHANNELS BARGAINING POWER OF END USERS
- 9. Barriers to entry (-) Reduces barriers to entry such as the need for a sales force, access to channels, and physical assets anything that Internet technology eliminates or makes easier to do reduces barriers to entry (-) Internet applications are difficult to keep proprietary from new entrants (-) A flood of new entrants has come into many industries
- 10. 2. Sustainable competitive advantage *Company must operate at a lower cost, command a premium price, or both Cost and price can be achieved in two ways, *Operational effectiveness *Strategic positioning Companies must integrate the internet into their value chain making difficult for competitors to copy their strategy.
- 11. To conclude that internet is a complement to rather than a cannibal of existing business practices Only by integrating the internet into overall strategy will this powerful new technology become an equally powerful force for competitive advantage.
Editor's Notes
- #3: Porter begins by stating that experiences a company has had with the internet up until this point must be largely discounted and that many of the lessons learned should be forgotten. The reasoning for his point is that the internet tends to alter industry structures in ways that dampen overall profitability, and it has a leveling effect on business practices, reducing the ability of any company to establish an operational advantage that can be sustained. The solution- to build on proven principles of effective strategy using the internet as a complement to traditional ways of competing.