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An organisation can utilise an information system in many ways through its incorporation into the Porter's five forces model, basically comprising the elements of suppliers and buyers bargaining power, competitive rivalry, potential entrants, and threats from substitutes. Given that the organisation adopts cost effective production policy, for instance just-in-time policy, it is intended to suppress the bargaining power of suppliers. Subsequently, the organisation can embrace information system to link externally with suppliers, so as to allow virtual information sharing in which the suppliers will be informed of when, what and how much quantity of items should be delivered during a specific period of time. Suppliers can access into the system of the organisation to obtain relevant information that is permitted, such as the production of new products which requires new types of materials. In some extent, the organisation can also discuss virtually with the suppliers regarding the quality of materials delivered and their quality standard expected to be met. Such collaboration will keep the cost of materials low but high quality. Suppliers will unlikely to offer high price and low quality products due to efficient corporation and tight monitoring process.
On the other hand, to reduce the bargaining power of customers in gaining high profits, the organisation can allow its customers to customise the products they desired via the selection of a wide range of features in its designed system. The products will then be manufactured accordingly to fulfil their satisfaction and be delivered on time (Mashithah, 2008). Customers can provide feedback in the organisation's portal if the product is of well-satisfied. The customer profile as well as their specific requirements will be recorded to tailor for their future needs, enhancing the relationship with customers. As such, people will experience high switching cost if they change their preferences to other brands, thus they will rather stay loyal to the organisation and willing to pay higher price.
In terms of competitive rivalry, the organisation can strengthen its core competency by developing efficient and effective work operation. Internal staffs are able to function productively through the utilisation of information system, which integrates operation of different parts of the organisation. The system allows employees to acknowledge the subsequent impact of their actions or decisions to other areas of organisation, resulting in better planning which reduces the wastage of resources and improves the quality of products. Top management is able to view a broader picture and the inter-linkage of the organisation's operation as a whole, thereby having the aptitude to make good decisions. As a result, the organisation can compete more aggressively with its rivals, in terms of speed of manufacturing and marketing, introduction of unique products, ability to increase market segments and et cetera.
Moreover, in facing the emergence of new substitutes of products in the market, the organisation can automate customer relations with the use of information system which allows rapid information collection. This enables the organisation to identify customer's preferences and design its products or services to make them important to customers. The increase in importance will then reduce the threat of substitutes as customers are not willing to compromise this need, which is fulfilled by the company's products or services, for other products.
Overall, the implementation of information system strategy over the four forces has created the barriers for potential entry of prospective industry players. The new players are unable to penetrate into the market due to established network with customers and suppliers as well as the ability of the organisation to compete effectively and overcome the new substitutes following the utilisation of information system. The competitive advantage of having low cost while high productivity will drive the new players away or cause their failure to survive in the playing field.
In general, this context explains the development of information system in Porter's five forces model. Information system is indeed very useful in elevating the performance of the organisation and safeguarding their market position based on the porter's model.
Discuss any four of the five forces giving specific examples of information systems that are appropriate in each force to provide competitive advantage. (1200 words)
In this context, four of the five forces are discussed including suppliers' bargaining power, customer's bargaining power, competitive rivalry and potential entrants.
Supplier's bargaining power represents the power supplier has over the company. Information system allows a company to reduce the bargaining power of suppliers and achieve competitive advantage. To achieve so, a company may attempt to create an information system which links both the company and its suppliers. With the system, the company will begin to share important information, such as inventory level, destination of delivery and time of delivery, and suppliers can directly obtain the information from the system. This reduces the amount of attention needed for each supplier. As such the company will be able to source from more than one supplier for its operation, thus, reducing the influence a supplier has on the company.
Besides that, information system also allows a company to create a standard operating procedure. This is because the information system links different entities within an organisation and provides a simplified illustration of the interaction between these entities. Clear understanding of the interaction will then allow the organisation to create an operating procedure which synchronizes all these entities. Operating procedure will then reduce the amount of time taken to switch suppliers as it would provide explicit guidelines for the new supplier to operate with the company. Because time is important in business, reduction of switching time will reduce the cost of switching suppliers, hence, reducing the bargaining power of suppliers.
Lastly, implementing an information system allows an organisation to easily communicate and collaborate with entities from different countries. This enables the organisation to include foreign suppliers within its option hence, increasing the number of potential suppliers. As a result, existing suppliers will experience a decline in bargaining power as the organisation now has more suppliers to switch for the same service or input.
An organisation which uses information system to reduce the bargaining power of suppliers is Wal-Mart. Currently Wal-Mart has an information system, named RetailLink, which links the company and all its suppliers (Fishman, 2003). The system includes important information about Wal-Mart which allows suppliers to understand the time and venue for delivery (Scavo, 2006). The system also includes the guidelines which suppliers must adhere to, hence, allowing Wal-Mart to have a consistent manner of operation. Because the information in the system is comprehensive, new suppliers can quickly accustom with Wal-Mart by just adhering to the guidelines and obtaining information from the system (Schuman, 2004). Besides allowing Wal-Mart to switch suppliers easily, the system also allows suppliers fulfil its role more easily as they can now gain information such as inventory level, destination of delivery and time of delivery by just accessing it. This reduces the time Wal-Mart needs to spend on each supplier and allows the company to source from many suppliers. As a result, the information system allows Wal-Mart to reduce the influence of its suppliers.
On the other hand, a company's industry becomes less attractive, when the customers have high bargaining power over the company. Therefore, the company must reduce the bargaining power of customers in order to maintain the attractiveness of the industry and achieve competitive advantages. By creating an information system that helps the company to keep in close touch with customers and collect and manage customers' data, companies can understand customers better hence gaining competitive advantage. Besides, management can make better decision because information system would help them to focus on market niche and serve narrow target market better than competitors. Strong information system also supports the company's intention to increase customer base. It is supported as information system will support delivery, customer service and production. With the expansion of customer base, the number of customers will increase and the bargaining power of customers will reduce. Moreover, information system allows the company to incur lesser costs by downsizing the number of employees, thus the company can reduce the price of products and the customers will be able to enjoy lower prices and lower the bargaining power of consumers. In addition, information system allows customers to access to the company's products and services easily. This will increase the customers' switching cost as customers are unlikely to change to less accessible products and services. An example of company that implement such information system is Hilton Hotels. The company has built a Customer Relationship Management (CRM) information system called QnQ (PDFTop, n.d.). QnQ links the company to every customer database and provides the ability to share the customers' details and their previous lodging information among all the company brands and hotels. When a customer checks in at any Hilton hotels, the desk clerks will be aware of the customer's past request and will allocate the room according to the customer's preference. Thus, the company can always deliver an experience that is tailor made to the customer's needs which subsequently help the company to build customer loyalty.
Competitive rivalry serves as an obstacle for companies to succeed in the market. It forms challenges for players to compete in terms of price, product as well as speed of manufacturing and marketing goods and services. Information system can indeed solve these problems by enhancing the core competency of the companies. It basically integrates relevant, timely and accurate information with the stakeholders, particularly the suppliers and employees, to work efficiently and effectively which thereby increases the competitiveness of companies. An example can be illustrated from Toyota which embraces the information system to underpin its Just-In-Time and "Jidoka" approach (MAS South West, n.d.). The company has employed sophisticated supply chain system in production to collaborate closely with the suppliers, so as to manufacture only the exact quantity of automobiles demanded at a given point of time. For instance, whenever a car has been painted in Georgetown, Toyota's Assembly Line Control software will automate the system to send an electronic message to the seat supplier, specifying the precise configuration of the seats required. Subsequently, the company is able to keep minimum level of inventories, which reduces the manufacturing cost and lowers the automobile price, providing a competitive advantage for the company to capture a larger customer base. Less tied- up inventories also means that Toyota has the flexibility to respond quickly to market demands, thus able to surpass competitors with first-to-manufacture and first-to-market products. On the other hand, to produce differentiated automobiles, the company continuously seeks quality production by adopting sophisticated monitoring software. It uses Activplant Performance Management System to alert operators of the problems of equipment in real time manner. As such, the labours can easily identify the cause of product defects and prevent them from progressing into the next manufacturing stage. Hence, wastes are eliminated and automobiles will be produced at the highest quality, reliability and durability, creating a unique product in the eye of customers (Abilla, 2006). In other case, Toyota makes information system gadget as part of its production material and incorporates it into the automobiles. This gadget is known as its new Hybrid Synergy Drive, which is a computerised engine system, that monitors engine performance and generates efficient energy consumption in the automobile to the optimum level. Given the high gasoline and crude oil costs today, such innovation will help reduce the burden of consumers by lowering their automobiles' energy cost. This serves as the competitive advantage for the company as it adds value to the product which results in an outstanding automobile. Currently, Toyota leads the market in hybrid vehicle, distinguishing itself from its major rivals. Following that, the company is able to expand its market segment further despite the market saturation in the automotive industry (Norris, 2007).
Lastly, information system allows a company to achieve competitive advantage by increasing barriers to entry and reducing potential entrants. An efficient information system with suppliers ensures quicker deliver times, problem free delivery, and an assured supply while a strong information system with customers allows the company to interact closely with the customers to obtain their preferences. This relationship with suppliers and customers will build in switching costs, resulting in supplier and customer loyalty towards the company. Therefore, new entrants will find it difficult to remain in the market because they are unable to obtain this supplier or customer loyalty derived from the efficient information system. Furthermore, information system allows the company to have wider and faster distribution network, which poses a problem to the new entrants. This will create a competitive advantage to prevent new entrants from entering the industry. Moreover, information system can manage large production runs, allowing the company to obtain economies of scale easily. This enables the company to reduce cost, hence, being able to charge lower price. New entrants who are unable to compete for such low cost will lose out. An example of company which has achieved competitive advantage by implementing such information system is Dell Inc. Dell connects with its corporate clients and consumers at www.dell.com, where customers can review, configure and price systems within Dell's entire product line and track orders from manufacturing through shipping (Department of Management Science and Technology, n.d.). The company also coordinates with its suppliers at valuechain.dell.com, where it shares information with its suppliers on product quality and inventory. Therefore, Dell has managed to obtain its customer and supplier loyalty by using the Internet as part of its information system. Dell has also widened its distribution network by using the Internet as the company can connect with foreign suppliers and customers easily, enabling the company to have a larger supplier and customer base. Besides, Dell's supply chain system allows the company to adopt the Just-In-Time manufacturing technique. This enables the company to have an efficient inventory management and also cost savings as there is minimum storage cost, resulting in low product cost. This provides a competitive advantage to the company as the low cost acts as a potential barrier to new entrants. Another company which has benefited from its information system is Nokia. The company has a wide distribution network which covers over 150 countries through its efficient global supply chain (Mondato, 2009). As a result, Nokia's market share of the global mobile phone business is larger than its 3 closest competitors combined (Mondato, 2009). This shows that Nokia's wide distribution network which is facilitated by its information system not only serves as the main barrier to entry for potential entrants, it also allows the company to achieve huge competitive advantage over its competitors.
In conclusion, companies usually refer to Michael Porter's five forces model to ensure that they are able to have a profitable operation. With information system emerging as an important success factor, companies are no longer using it as a tool to facilitate operation, but using it to achieve competitive advantage. To achieve so, companies are referring to the five forces model when developing their information system. Multinationals such as Toyota, Dell and Wal-Mart have proven that information system is no longer just a facilitating tool but a critical tool for success.