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The Strategic Potential of The Internet


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A presentation/summary from The Strategic Potential of The Internet , Strategy and the Internet by M. E. Porter. Published at Harvard Business Review

A presentation/summary from The Strategic Potential of The Internet , Strategy and the Internet by M. E. Porter. Published at Harvard Business Review

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  • 1. Sartika Kurniali 0832200310
    Celline Liawan 0832200430
    The Strategic Potential of The InternetStrategy and the InternetM. E. Porter
  • 2. Agenda
    Distorted Market Signals
    A Return to Fundamentals
    The Internet and Industry Structure
    The Myth of The First Mover
    The Future of Internet Competition
    The Internet and Competitive Advantage
    Operational Effectiveness
    Strategic Positioning
    The Six Principles of Strategic Positioning
    The Absence of Strategy
    The Internet as Complement
    Words for The Unwise: The Internet’s Destructive Lexicon
    The Internet and The Value Chain
    Strategic Imperatives for Dot-coms and Established Companies
    The End of The New Economy
  • 3. Many have argued that the Internet renders strategy obsolete. In reality, the opposite is true. Because the Internet tends to weaken industry profitability without providing proprietary operational advantages, it is more important than ever for companies to distinguish themselves through strategy. The winners will be those that view the Internet as a complement to, not a cannibal of, traditional ways of competing.
  • 4. The Internet’s Effect
    Internet changes everything, rendering all the old rules about companies and competition obsolete.
    bad decisions that have eroded the attractiveness of their industries
    shift the basis of competition away from quality, features, and service toward price, making it harder for anyone in their industries to turn a profit.
  • 5. Fundamental Questions for Internet Business
    Who will capture the economic benefits that the internet creates?
    Will all the value end up going to customers, or will the companies be able to reap a share of it?
    What will be the Internet’s impact on industry structure? Will it expand or shrink the pool of profits? And what will be the impact on strategy?
    Will the internet bolster or erode the ability of companies to gain sustainable advantages over their competitors?
  • 6. Reason for OptimismInternet Technology
    Internet Technology provides better opportunities for companies to establish distinctive strategic positionings than did previous generation of IT.
    Gaining such competitive advantage requires building on the proven principles of effective strategy.
    Use internet as a complement to traditional ways of competing.
    Understand the trade offs between Internet and traditional approaches
  • 7. Distorted Market Signal
    Companies that have deployed Internet technology have been confused by distorted market signals
    New technology trigger rampant experimentation, by both companies and customers, and the experimentation is often economically unsustainable.
    As a result, market behavior is distorted and must be interpreted with caution.
  • 8. Distorted Market Signal (Continue)
    Sales figures have been unreliable for three reasons:
    Many companies have subsidized the purchase of their products and service in hopes of staking out a position on the Internet.
    Many buyers have been drawn to the internet out of the curiosity
    Some revenues from the online commerce have been received in the form of stock rather than cash.
  • 9. A Return to Fundamentals
    Two fundamental factors that determine profitability:
    industry structure, which determines the profitability of the average competitor
    sustainable competitive advantage, which allows a company to outperform the average competitor.
  • 10. The Internet and Industry Structure
  • 11. The Myth of The First Mover
    General assumption that the deployment of the internet would increase switching costs and create strong network effects which would provide first movers with competitive advantages and robust profitability.
  • 12. The Future of Internet Competition
    Combination of new and old companies and generally lower entry barriers, most industries will likely end up with a net increase in the number of competitors and fiercer rivalry than before the advent of the internet.
  • 13. Digital Market Place
    Longer term structural consequences digital market
    Benefits to buyers: low transaction costs, easier access to price and product information, convenient purchase of associates service.
    Benefits to suppliers : lower selling costs, lower transaction costs, access to wider markets.
  • 14. The Internet and Competitive Advantage
    It’s all about setting yourself apart from the pack
    • a sustainable competitive advantage
    • 15. Operating at a lower cost
    • 16. Commanding a premium price, or both
    Cost and price advantages:
    Operational positioning
    Doing the same things your competitors do, but doing them better
    Strategic positioning
    Doing things differently from competitors, in a way that deliver
    a unique type of value to customers
  • 17. The Internet and Competitive Advantage
    Strategic positioning, the six principles:
    it must start with the right goal
    company’s strategy must enable it to deliver a value proposition, or set of benefits, different from those that competitors offer
    strategy needs to be reflected in a distinctive value chain
    robust strategies involve trade-offs—to choose what not to do
    strategy defines how all the elements of what a company does fit together
    strategy involves continuity of direction
  • 18. The Absence of Strategy
  • 19. The Absence of Strategy
    • Zero-sum form of competition, price has been defined as the primary if not the sole competitive variable, race to the bottom
    In the past, IT worked against strategy
    Internet actually provides a better technological platform. By providing a common IT delivery platform across the value chain, it also make it possible to build truly integrated and customized systems that reinforce the fit among activities
    companies need to stop their rush to adopt generic, ‘out of the box’ packaged applications and instead tailor their deployment of Internet technology to their particular strategies
  • 20. The Absence of Strategy
    Rivals can easily copy your improvements in quality and efficiency.
    But they shouldn’t be able to copy your strategic positioning—what distinguishes your company from all the rest.
  • 21. The Internet as Complement
    There is no doubt that real trade-offs can exist between Internet and traditional activities  record industry
    Frequently, in fact, Internet applications address activities that, while necessary, are not decisive in competition informing customers, processing transactions, and procuring inputs
    In many cases, the Internet complements, rather than cannibalizes, companies’ traditional activities and ways of competing  Walgreens, W. W. Grainger
  • 22. The Internet as Complement
    The Internet and The Value Chain
    • Value chain
    • 23. The evolution of IT technology in business can be thought of in terms of five overlapping stages
  • The Internet as Complement
    Virtual activities do not eliminate the need for physical activities, but often amplify their importance.
    Introducing internet applications in one activity often places greater demands on physical activities elsewhere in the value chain
    Using the Internet in one activity can have systemic consequences, requiring new or enhanced physical activities that are often unanticipated
    Internet applications have some shortcomings in comparison with conventional methods
    The greatest threat to an established company lies in either failing to deploy the Internet or failing to deploy it strategically
  • 24. The End of The New Economy
    The most successful ones will be those that use Internet technology to make traditional activities better and those that find and implement new combinations of virtual and physical activities that were not previously possible
    Demand side
    Supply side
    While a new means of conducting business has become available, the fundamentals of competition remain unchanged
    Only by integrating the Internet into overall strategy will this powerful new technology become an equally powerful force for competitive advantage
  • 25. Questions
    ‘Many have argued that the Internet renders strategy obsolete. In reality, the opposite is true.’ In what ways do you think that this statement from Michael Porter is appropriate? And how would you provide a counter argument?
    There are strong echoes in this chapter of Porter’s seminal ‘5 forces’ analysis of two decades ago. What has changed and what remains the same 20 or so years on (both in relation to Information & Communication Technology and to the competitive environment)?
    Porter concludes this chapter by stating ‘The next stage of the Internet’s evolution will involve a shift in thinking from e-business to business, from e-strategy to strategy’. Do you agree? Why?
    ‘Competitive analysis frameworks, such as the “5 forces” and “value chain” concepts propagated by Porter are ultimately redundant since competitor firms will draw the same conclusions as each other from their use and, in any event, strategy is “emergent” and the result of “tinkering” from the bottom-up.’ Discuss this view in the light of arguments Porter puts forward in this chapter.