Strategy and the Internet by Porter - Article Example

Strategy and the Internet Name Institution Tutor Date Findings and arguments Porter (2011) article explains the role that the internet plays in raising a firm’s competitive advantage and ensuring growth as well as organizational sustainability. According to Porter, the internet and technology is a good tool for firms to achieve competitive advantage though it has its own drawbacks that can harm a business. Out of the surprise, some companies have made wrong decisions that have destroyed the companies’ reputation and have caused harm to the companies’ competitive advantage. Some companies have used the internet technology to make more profit compromising the quality in order to win the competition in the market (Guo 2011, p183). Porter (2001) advises firms that the time has come for them to consider internet as a vital tool for doing modern business in the right way and remain competitive in the market without causing harm to the firm’s reputation. This paper will look at what roles the internet plays and the arguments that porter raises in his findings. According to Porter (2001, p.63), time has come for businesses to consider internet as a tool that can be used wise or unwisely as a strategy to create competitive advantage. This can be achieved by addressing an important issues, who gains the economic benefits of the internet, whether the benefits goes to the customer or the business. Secondly, it is important to know what impacts the internet has on the industry structure, whether it expands it or shrinks it and lastly, businesses need to know the impact that the intern has on the strategy, whether it erodes or boost the chances of the business gaining competitive advantage. Porter’s views on the role of the internet can be supported by the utility theory which explains what factors influences customer’s decisions. This theory was to the effect that decisions by consumer are based on what the outcome of such a decision is going to be. In this regard, consumers should be seen as acting rationally. Consumers are therefore able to determine with near certainty what the outcome of their decision is going to be. In such a case, consumers make the decision that ensures that the decision arrived at maximizes the well being of the consumer. It is also factual that consumers are never completely rational. Consumers at times not able to realize all the elements that enables them to arrive at a given decision (Dao, Langella & Carbo 2011, p.66) Porter argues that in the modern world, businesses have no choice on deploying the internet technology if at all they want to remain competitive. The issue is not whether to apply the internet technology but how to deploy it is more important. Porter argues that the internet technology enables companies to establish strategic positioning in the industry unlike it was with the previous generations of information technology. This does not mean changing the approach of doing business in order to acquire the competitive advantage associated with the internet it rather calls for building on the existing strategic principles that are already proven. The point is that the internet is not the tool that brings competitive advantage but how it is used is the point that brings the advantages. As such, the firms that benefits from the internet are the ones that use the internet to compliment their previous strategies of competing. Porter argues that the key to the success of any business is the economic value that is derived from it. In order to understand the impact that the internet has on a business, one cannot just look at the results. The economic value is measure by determining the gap between the price and cost which determines profitability. The economic value can be added when the various uses of the internet and internet technologies such as operating digital marketplaces and real time communication services are deployed into many uses across the business. Technology providers rely on the internet to help businesses generate revenues at the least cost of deploying the technology. Porter adds that in order to determine the profitability associated with the internet, it is important to focus on some two important factors that determine profitability: industry structure and sustainable competitive advantage. These two factors are universal and they more important than any technology or business when it comes to profitability. The factors also vary depending on the nature of the industry being focused. Profitability of any company can better be understood by looking at an individual business and companies. Porter looks at the impact of the internet on each of the two fundamental factors in order to determine the role the internet plays to improve firm’s competitive advantage. The internet and the industry structure The internet has come up with new industries like the digital markets and the online stores. However, on the existing businesses, the internet has had a greater impact of configuring the companies that had to incur high costs of communication, information gathering and accomplishing transactions (Ramos, Garcia, Garcia 2012, p.333). An example is distant learning where many students enroll for course every year but the internet did not create the industry, instead it expanded the online learning. Irrespective of how old a business is, the structural attractiveness is determined by the factors of competition which are: bargaining power of the suppliers, intensity of the rivalry among the competitors, potential threat of substitute products or services and the buyer’s bargaining power. An omnibus of these factors creates the economic value that is associated with the product. The five forces of competition still determine the level of profitability even if some of the market actors change. The impact of the five forces of competition vary from one industry to another implying that it will be erroneous to make a general conclusion on the impact of the internet on profitability; this is to say that each of the industries is affected in its own ways. However, most of the industries in which the internet is applied show some positive trends towards profitability. Particularly, the internet strengthen the bargaining power of the channels by providing firms with new and direct avenues to the customers. The internet has also boosted the industry’s efficiency by expanding the market size by improving the industry’s position. Porter indentifies the basic benefit off deploying the internet as making information about products and services widely available, minimizing the difficulties of purchasing, marketing and distribution; the internet also helps buyers and seller to interact and transact more easily. This can be easily seen in the automotive industry where the internet ensures that the customers are provided with adequate information of the care, detailed specification and prices. Customers are not just provided with the information of the local dealers but they get referrals and online dealers, this increasing the options for the customers. The internet helps to reduce the need for location thus widening the geographical market from local to international (Reuter, Kaifoerstl, Hartmann, Blome, 2010, p.51). Porter argues that this makes every dealer to become a competitor; this is so because it is not possible for the online dealers to differentiate themselves since none of them has a distinct showroom, service department as well as personal selling. Porter uses the example of online auctions like Ebay and Amazon. Ebay used to charge customers for shipping goods but when competitors like Amazon entered the market, Ebay had to shift to other ways of retaining the customers. Amazon.com which is one of the world’s biggest and most successful online shopping retailer. It started with selling books in 1995 after diversifying in 1999 when it started selling clothing, toys, movies and other goods. To date, Amazon has more than 20 categories of products in its online stores. In 2003 for instance, Amazon.com sales were at around 4 billion US dollars with the book sales in the US accounting for 89 percent of the total sales (Dao, Langella & Carbo 2011, p.67). There are many reasons why internet shopping has been on the rise in the recent past; notably being the benefits associated with benefits that the internet provide. Convenience to the customer is a key concept that the internet brings to the customer. To begin with, the consumers do not have to go out to the market to search for the products they need as the internet can help them do the search online on the various sites; in so doing, they are also able to compare and evaluate the different prices for the products available in order to choose the one that suits them. Through the search engines, the consumers are able to access the consumption related information of the product they need as well as the image, texture, sound and any other feature that they consumer may need when selecting the product of their choice. The internet and competitive advantage Many companies have deployed the internet tool in their operation are under pressure to make more profit than the average performers in the market. This is only achievable if they acquire competitive advantage and operate at minimum costs. Operational effectiveness id key towards profitability, this can be done by operating better than the competitors. Alternatively, firms can employ strategic position; this entails doing different than the competitors and offering unique quality to the customers. The internet plays a key role in determining operational effectiveness and strategic position of the companies making companies to sustain operational advantage. The internet is currently the most powerful tool to enhance operational effectiveness in today’s business. The internet eases and speeds up exchange of real time information, ensures fast improvement throughout the value chain and across the company and industry at large. Since, it is an open platform; companies can deploy it at a lower cost than the older generations of information technology. This helps to improve operation effectiveness; this alone does not guarantee competitive advantage; companies have to achieve and sustain higher levels of operational effectiveness when compared with the competitors. Companies have to keep their strategies in secret since competitors will copy such strategies leading to the whole industry have similar operational strategies (Guo 2011 p.183). The previous generation of internet technology was expensive, and time consuming implying that operational effectiveness could not help gain competitive advantage. It also implied that competitors would not easily imitate a certain technology. However, today, with the openness of the internet and software application techniques in place, companies are able to design applications and implement them at some low costs. Such services are provided by third party companies implying that many companies may end up using the same technology with similar benefits. Porter (2001, p.71) identifies strategic position as a better option to gain competitive advantage since it is harder to sustain operational effectiveness. This could be a way to acquire the economic value through cost advantage and price premium over the competitors. Internet architecture and software designers have turned information technology into a tool for strategy. Customized internet applications for company’s unique positioning can be easily designed. Porter argues that for companies to gain this competitive advantage, they need to move away from the generic out of box applications and instead design their internet technology applications to fit their specific strategy. Though it is difficult to customize packaged applications, companies should strive to move towards this direction based on the sustainability of the resulting competitive advantages. In the long run, companies will end up with its distinct strategy that focuses on the value of their products and they will be in a position to retain and gain customers with fear of competition. Effects of the Internet in the Australian Retail Banking Sector Internet banking is one of the products that e-commerce provides to banks; it has highly been deployed in Australia. It entails the use of internet and telecommunication networks to aid banking service delivery to clients. In Australia, most or all the banks provide banking services to their customers. Research has shown that more than 23% of the total Australian population use internet banking and that internet banking in Australia is highly used than in America and the United Kingdom. This high growth of use of internet banking in Australia suggests that they the media is highly accepted by the clients. There are many reasons why the customers have preferred to use internet banking the main one being that they can inquire information and conduct transactions easily via the internet (Sathye 1999, p.325). New retail banks that have used internet banking have been able to beat the competition they face from the incumbents. Internet banking has had many advantages for both the banks and the retail customers. The internet has lowered the cost of doing business for the bans as compared to human-teller services. This means that the banks do not have to high many customers service staff as most transactions as like self-service. Secondly, electronic transactions that are supported by the internet help the banks to reduce the cost they may incur while processing cheques. Another point is that the cost of distributing papers and mails is lowered since most of the disclosures and ban statements are presented online. Besides cost reductions, the bank revenues also increases due to wider market reach, high customer satisfaction level, new market chances and increased accounts sales. From a customer perspective, the internet has provided convenience, low costs services, more access to banking information as well as the good opportunity for the busy people to do business online. A report by Price Waterhouse Coopers (PWC) shows that internet banking in Australia has a higher customer satisfaction store as compared to the tradition mode of banking. This means that the customers come for more services more times since they are satisfied by the service. For the retail banks, this means that the best way that they can retain the existing customers is to reduce the efforts that the customer needs to make during sales and service interactions. Retail banks in Australia have opted to use internet banking as selective support mechanism for the traditional channels; retail banks have to consider customer efforts from all segment not just the digital customers since the banks have all sorts of customers. The PWC research that involved four big Australian banks showed that digital banking provides customer interactions with banking services as a choice most clients prefer. The report indicated that most customers prefer to access digital banking via desktop when they get at work, mobile services when commuting and via tablet while they are at home. 75 percent of he customers in the Australian big four retail banks use digital bank and have shown high satisfaction levels with the services. Such customers tend to have bank products due to the high interaction that have with their accounts; this translates to more profit for the banks (Sathye 1999, p.329). References Dao, V., Langella, I., & Carbo, J. 2011, ‘From green to sustainability: Information Technology and an integrated sustainability framework’ The Journal of Strategic Information Systems, Vol. 20, No. 1, pp 63–79. Guo, L, 2011, ‘A Research on Influencing Factors of Consumer Purchasing Behaviors in Cyberspace’, International Journal of Marketing Studies Vol. 3, No. 3, pp182-88. Porter, M. E., 2001 ‘Strategy and the Internet,’ Harvard Business Review, Vol. 79, No. 3, pp 62- 78. Ramos, M., Garcia, V., Garcia, E. 2012, ‘Technological distinctive competencies and organizational learning: Effects on organizational innovation to improve firm performance’ Journal of Engineering and Technology Management, Vol 29, No. 3, pp 331–357. Reuter, C., Kaifoerstl, V., Hartmann, E., Blome, C. 2010, ‘Sustainable global supplier management: the role of dynamic capabilities in achieving competitive advantage’ Journal of Supply Chain Management, Vol. 46, No.2, pp 45–63. Sathye, M. 1999, 'Adoption of Internet Banking by Australian Consumers: An Empirical Investigation', International Journal of Bank Marketing, vol. 17, no. 7, pp. 324-34. Read More