1. Explain information technology’s role in business and describe how you measure success?
Information technology has become an important part of organisations’ strategy, competitive advantage and profitability. There is management pressure to build systems faster, better and at minimum cost. The return on investment that an organisation can achieve from the money it spends on IT has come under increased scrutiny from senior business executives and directors. Consequently, IT now has to operate like other parts of the organisation, being aware of its performance and its contribution to the organisation’s success and opportunities for improvement. The first thing managers need to understand about It success is that it is incredibly difficult to measure. Key performance indicators (KPIs) are the maeasures that aree tied to busness drivers. Metrics are the detailed measures that feed those KPIs. Performance metrics fall into a nebulous area of business intelligemnce that is neither technology- nor business- centred., but this area requires input from both IT and business professionals to find success. Efficiency and effectiveness metrics are two primary types of It metrics. Efficiency IT metrics measure the performance of the IT system itself, such as throughput, speed and availability. Effectiveness IT metrics measure the impact IT has on business processes and activities, including customer satisfaction, conversion rates and sell through increases. Efficiency focuses on the extent to which an organisation is using its resources in an optimal way, while effectiveness focuses on how well an organisation is achieving its goals and objectives. The two- efficiency and effectiveness- are definitely interrelated. However, success on one area does not necessarily imply success on the other. Benchmarking- baseline metrics is a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance. Regardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks or baseline values that the sytem seeks to attain.
2. List and describe each of the forces in Porter’s Five Forces Model?
1. Buyer Power- A producing industry requires raw materials – labor, components and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide the raw materials used to create products. Suppliers, if powerful can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits.
2. Supplier Power- A supply chain consists of all parties involved, directly or indirectly, in the procurement of a product or raw material. In a typical supply chain, an organisation will probably be both a supplier (to customers) and a customer (of other supplier organizations). Buyer- supplier relationships occur when a company (buyer) purchases raw materials from other companies or individuals (suppliers). Supplier power is high when one supplier has concentrated power over an industry. If supplier power is high, the supplier can directly influence the industry by charging higher prices, limiting quality or services and shifting costs to industry participants. Typically when a supplier raises prices the buyers will pass on the increase in price to their customers by raising prices on the end-product. When supplier power is high, buyers lose revenue because they cannot pass on the price increase to their customers. One tactic a company can adopt to decrease the power of it’s suppliers is to use standardized parts so that it can easily switch suppliers.
3.Threat of substitute products or services- The threat of substitute products or services is high when there are a few alternatives from which to choose. Ideally, an organisation would like to be in a market in which there are a few substitutes for the products or services it offers. Of course that is seldom possible today, but an organisation can still create a competitive advantage by using switching costs.
4.Threat of new entrants- The threat of new entrants is high when it is easy for new competitors to enter a market and low when there are significant barriers to entering a market. An entry barrier is a product or service feature that customers have come to expect from organizations in a particular industry and which must therefore be offered by an organisation entering the industry, in order to compete and survive.
5. Rivalry among existing competitors- This is high when competition is fierce in a market and low when competition is more complacent. Although competition is always more intense in some industries than in others, the overall trend is towards increased competition in almost every industry. The retail grocery industry is intensively competitive, with the main chains being Coles and Woolworths in Australia, and Woolworths and New World in New Zealand. Most supermarkets chains implement loyalty programs to provide customers with special discounts while the store gathers valuable information on their purchasing habits. One way to reduce rival power is by using switching costs. Switching costs are costs that can make customers reluctant to switch to another product or service. A switching cost need not have an associated monetary cost. A company can also reduce competition from it’s rivals by creating products that are significantly different from its competitors’ products.
3.Compare Porter’s three generic strategies?
The three generic strategies are:-
1. Broad Cost Leadership-
The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. 'cost advantage' is the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.
2. Broad Differentiation-
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service.
The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.
3. Focused or Niche strategy-
The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus.
With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.
4. Describe the relationship between business processes and value chains?
A business process is a standardized set of activities that accomplish a specific task, such as processing a customer’s order. An organisation creates value by performing a series of activities that Porter identified as the value chain. The value chain approach views an organisation as a series of processes, each of which adds value to the product or service for each customer. To create a competitive advantage, the value chain must enable the organisation to provide unique value to its customers. In addition to the firm’s own value-creating activities, the firm operates in a value system of vertical activities including those of upstream supplier and downstream channel members. To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Added value is created through lower costs or superior benefits to the customer (differentiation). Value chain analysis, is a highly useful tool, provides hard and fast numbers for evaluating the activities that add value to products and services. An organisation can find additional value by analyzing and constructing its value chain in terms of Porters Five Forces. A company can implement its selected strategy by means of programs, budgets and procedures. Implementation involves organisation of the firm’s resources and motivation of the employees to achieve objectives. How the company implements its chosen strategy can have a significant impact on its success. In a large company, the personnel implementing the strategy are usually different from those formulating the strategy. For this reason, proper communication of the strategy is critical. Failure can result if the strategy misunderstood or if lower level managers resist its implementation because they do not understand the process for selecting the particular strategy. An organisation must continually adapt to its competitive environment, which can cause its business strategy to change. To remain successful, an organisation should use Porter’s Five Forces, the three generic strategies and value chain analysis to adopt new business strategies.
For further information www.quickmba.com/strategy/porter.shtml
www.valuebasedmanagement.net/methods_porter_five_forces.html
en.wikipedia.org/wiki/Porter_five_forces_analysis
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