Strategy and the Internet by Michael Porter - Article Example

Journal article analysis Student’s name Course Institution Date Part I Michael Porter is credited as the father of modern day strategic management theory particularly competitive strategy and the theory of competitive advantage. Competitive advantage refers to the instance of a company having some attributes which makes it stand out from the competition (Porter, 2001). Competitive strategy refers to the organization having competitive advantage and leveraging that advantage to enhance it business outcomes. New technologies such as the internet, information technology and robotics of the contemporary world offer competitive advantage through either being part of the product or enhancing business processes of production or other aspects such as customer service or sales. Competitive advantage may be attained by differentiation or lower costs which enable the organization have superior market position or resources. Competitive advantage results from an organization implementing a strategy of value creation which is presently not being implemented by the competition in the industry. In order to have competitive advantage a business has to have business leadership in terms of its strategy (Donelan & Kaplan, 2008). Competitive strategies may be; cost leadership, differentiation, innovation and operational effectiveness. In the current marketplace the internet has gained even more importance in how businesses operate. This has led to competitive advantage and competitive strategies being abandoned with the internet being deemed as the solution for all ills affecting the organization. In order for an organization to be effective it is important that it acknowledges that the internet is only a tool for enhancing the basic strategic competitive strategies and advantages. In “Strategy and the Internet” Michael Porter asserts the critical importance of the internet in the redefinition of competitive advantage and strategy. He also makes an analysis of ways in which the modern corporation may make use of the internet to enhance its outcomes. He asserts that many have argued that the advent of the internet has rendered traditional theory on strategy and competitive advantage obsolete. He argues that this is not the case since the utilization of the internet as a complement would serve the basic fundamentals of competitive strategy even better. The internet has come to be seen as so critical that organizations that use it have distorted its effect (Shank & Govindarajan, 2013). Revenues and the benefits of internet technology have been distorted by unrealistic and unsustainable business practices such as revenue being constituted of stocks rather than real sales. Porter argues that there is a need for companies to go back to basics. Many businesses operating in the contemporary internet economy artificially maintain competitive advantage by taking advantage of easily available cash which is not sustainable in the long run. There is an argument that there needs to be more emphasis on industry structure and sustainable competitive advantage. The industry structure is a determinant of the general profitability of the firm while sustainable competitive advantage enables the firm maintains a leadership position (Walker 2013, p. 337-360). Porters five forces model are critical in seeking to understand the new internet marketplace. Any industry whether new or old is impacted by the aspects of bargaining power of buyers, intensity of rivalry among industry players, bargaining power of suppliers, barriers to entry and the threat of substitute products. Through the use of internet technology it is easier to determine industry attractiveness such as profitability change in competition, channels and substitutes (Pavitt, Keith &Parimal, 2009, p. 94-119). While industry analysis of the five forces varies depending on industry some aspects such as the provision of new avenues of communication is common to most industries. Easier access to information will however tend to enhance bargaining power of buyers through enabling consumers’ greater access to suppliers which also enhances competition among industry players. Nevertheless dealing with goods or services which have substitutes that have fragmented customers offers an advantage of setting prices due to enhanced efficiency offered by internet technology. The myth of the first mover is also an important part in the analysis of the five forces with regard to the industry. While some industries may benefit from new internet technologies by being the pioneers not all will (Tregoe et al, 2009). For instance some industries may have high switching costs for the consumer and hence a good product offering on the technology may not attract consumers as expected. Nevertheless switching costs will be usually lower for the internet as compared to other traditional business processes. However there is a high cost of keeping up the leadership position since the openness of the internet makes the barriers to entry very low. It is critical to understand the future of internet competition in order to come up with a successful strategy. There is likely to be greater consolidation as many new internet companies go out of business which would work to reduce rivalry. Nevertheless increase in the knowledge of internet technologies and adaptation may result in the exact opposite. There will be greater buyer power and reducing interest in online product and service offerings (Tichy & Charan, 2009, 112-120). Nevertheless the positive is that technological advances such as low cost bandwidth may enable a company differentiate itself through hands on customer care and sales services thus shifting the focus from price. Digital market-places are still in transition just like industry structure is evolving and hence the setting of standards is still unchartered territory that offers opportunities for competitive advantage. Sustainable competitive advantage in the age of internet technologies can only be achieved by commanding premium price and low costs (Woudstra, 2009, p. 7-21). The internet can offer operational effectiveness through better technologies, better sales and services people and effective management. Operational advantages are hard to sustain in the contemporary internet marketplace through it offers opportunities of strengthening such positions. Operational effectiveness is achieved if the organization attains higher levels of efficiency as compared to their competition. Strategic positioning is on the internet will be achieved through having a strong focus on profitability as opposed to the unsustainability of sheer growth. Strategic positioning will call for tradeoffs and the configuratio0n of a value chain that creates unique value that is defensible. Strategy is a critical component for any company seeking competitive advantage. A lack of proper strategy which focuses on delivering real value has made much start up internet businesses unsustainable. Having no clear product offering or value makes it easy for the business model to be replicated thus eroding distinctiveness. Greater focus ought to be on the internet’s ability to offer customization, convenience, specialization and service. Internet architecture has complemented IT by making it easier to customize strategic tools which are truly integrated and customized (Porter, 2001). There is therefore a need to stop generic imitation and standardization but rather there should be customization for competitive advantage. In order to be effective in the modern marketplace the internet ought to be taken as a complement. While the internet is a huge invention which has changed the contemporary marketplace’s way of conducting business, this does not mean it has made traditional competitive strategies obsolete. Risks of channel conflict remain at best exaggerated. On the other hand internet applications while becoming increasingly important remain indecisive in strategic competitive advantage. The internet is in the minds of most consumers a place for collecting information which is used in actual purchase decisions done on physical locations (Donelan & Kaplan, 2008). Through having online catalogues sales have been found to increase by up to 9%. Virtual activities will thus amplify rather than eliminate physical activities as widely believed. The internet is thus not disruptive to established rules of strategic and competitive advantage. It is in very rare instances that the sources of competitive advantage within an industry are neutralized by internet technologies. In many instances internet technologies can be used as a complement in order to have even better competitive strategies and competitive advantage. Part II The article has been written by Michael Porter who is one of the most celebrated of strategic management and competitive advantage theorists. Porter has been very clear in the elucidation of his ideas regarding how the internet has shaped modern competitive strategies. Making use of a range of literature from his past works Porter has effectively added clarity to the ideas he has argued in this article. This has been achieved through the setting of clear research objectives in the introduction. In the introduction Porter clearly states the research goals by making the assertion that people have come to believe that internet technology has made obsolete traditional methods of competitive advantage. He goes on to assert how this is different from the truth through listing of the different ways in which internet technology has been used negatively and how it ought to be used. Through the introduction portion of the article he succeeds in setting of research goals and objectives most of which he achieves. The articulation of ideas in the article was of high quality as would be expected of a professional like Porter. Porter makes clear his ideas through the use of examples he draws out from modern day company application of internet technologies in business. He takes the example of the way Amazon has been effective in the application of internet technology as compared to Paydotcom which has been ineffective. He presents the ideas in a clear format in which he sets out the stage by first stating what he believes is wrong then presenting his own ideas on how strategic management ought to be implemented (Shank & Govindarajan, 2013). He clearly asserts his ideas by making use of Porters five forces which he analyzes individually. Porter has clearly done his homework regarding internet technology since the articulation of the ideas is delivered in a sequential manner. Ideas from the previous section build on those that follow and this enhances how the audience would understand it. The ideas are also articulated in a language that is clear and simple enough for even a layman in organization strategy and competitive advantage would understand. The article has been very effective in the use of a literature review. Nevertheless much of the literature review that has been provided is Porter’s own work. As a scholar whose theories are being put to the test this is not good practice given that use of one’s own theories does not lend credence to present theories. However, he also makes use of other theories such as the reference to the article ‘words for the unwise; the internet’s destructive lexicon” which enhances the understanding of his ideas (Walker 2013, p. 337-360). Nevertheless he has been very effective in the application of the literature review with every point and objective that is being argued being accompanied by a literature review from his previous works. This enhances the understanding of his assertions regarding the effective use of strategic competitive strategy and competitive advantage. I do believe that the use of the literature review has made the article not only more palatable but also more effective in conveying the message. Part III The internet has had a very huge influence on buyers (clients), suppliers, competition, substitutes and international banking institutions. Buyer power has been enhanced by the internet since the internet has increased the amount of information available regarding suppliers, different prices and broken down geographical barriers hence clients have greater choice (Pavitt, Keith & Parimal, 2009, p. 94-119). Suppliers have benefitted from internet technologies since suppliers can now have greater access to the market since the internet has allowed clients to have access to their goods and services online. The internet has influenced supplier processes in that suppliers can enhance business processes through enhancing instant feedback, greater customer service, and enhancement of advertising markets. However, internet technologies will result in greater competition due to the open access of information. As such the imitation and standardization of strategy is high resulting in lesser competitive advantage. The greater buyer power due to access to information provided by internet technologies results in low supplier power resulting in greater competition. Products and services which have better substitutes will not gain much but in highly fragmented markets such as auctions substitutes such as flea markets offer less values and hence are poor substitutes (Tregoe et al, 2009). In such instances internet technologies will offer competitive advantage. International banking institutions have been impacted a great deal by internet technologies. Banking transactions can now be conducted online which reduces costs thus enabling the bank to attain cost advantage. There are several changes which have occurred in the banking industry with regard to the value chain. The banking industry has seen modifications in firm infrastructure. Web based, distributed financial and ERP systems have become the norm in the banking industry (Shank & Govindarajan, 2013). Online investor relations have also been added to the service offerings with people able to open accounts and make a variety of transactions online. Banking has also seen profound changes in technology. The development of applications and ERP solutions for banking has led to the traditional systems becoming obsolete as standardized systems and platforms are adopted by financial institutions. Knowledge directories platforms and systems are now common to all parts of the banking network connected by intra and internet. The banking system now provides real time access by R & D to consumers regarding the information on their accounts. The client is now made aware of all transactions on their account through their email addresses. Some institutions have also employed internet technology which transits information of withdrawals send it to the organizational server. The server then sends a short message to the clinet regarding the details of the transaction. This has greatly eased the recording of complaints and reduced fraud cases. Banking has also evolved new methods of marketing their products through the internet. Since they have an email list of their client, it is now easier to contact clients regarding new products rather than waiting for them to physically come to the banking hall (Walker 2013, p. 337-360). This has greatly modified the role of sales and kept costs down while resulting in higher rates of conversions. A lot of changes in the business strategy in the banking industry has been attributed to the internet. Investment banking and the buying of stocks has especially been one component of business strategy which has been heavily impacted by internet technologies. Clients have need for greater convenience and instant reaction times and hence banks have had to adopt a strategy of internet platforms to conduct such business. A strategy of allowing clients to purchase stocks and bid on government securities has also been automated in order to satisfy this type of clientele (Pavitt, Keith & Parimal, 2009, p. 94-119). Competitive strategies have been modeled on whether the bank is targeting high end clients or not. High end clients are more likely to seek one on one transaction especially in instances where there are large amounts of cash in transactions. Bibliography Donelan, J. G., & Kaplan, E. A. 2008, Value chain analysis: A strategic approach to cost management. Journal of Cost Management, 7-15. Pavitt, Keith &Parimal Patel, 2009, Global Corporations and National Systems of Innovation: Who Dominates Whom? In: Daniele Archibugi/Jeremy Howells/Jonathan Michie (eds.), Innovation Policy in a Global Economy. Cambridge: Cambridge University Press, 94–119. Porter, M. E., 2001, "Strategy and the Internet," Harvard Business Review, Vol. 79, No. 3 Shank, J. K., & Govindarajan, V. 2013, Strategic cost management: The new tool for competitive advantage. New York: The Free Press. Tichy, N., & Charan, R. 2009, Speed, simplicity, self-confidence: An interview with Jack Welch. Harvard Business Review, 112-120. Tregoe, B. B., Zimmerman, J. W., Smith, R. A., & Tobia, P. M. 2009, Vision in action: Putting a winning strategy to work. New York: Simon & Schuster. Walker, William, 2013, National Innovation Systems: Britain. In: Richard R. Nelson (ed.), National Innovation Systems: A Comparative Analysis. Oxford: Oxford University Press, 337–360. Woudstra, A., & Powell, R. 2009, Value chain analysis: A framework for management of distance education, The American Journal of Distance Education, 3(3), 7-21. Read More