Managing Information Technology

Chapter 7 • E-Business Systems 259

Customers

New Market Entrants Substitute Products

The Firm Competitors

Suppliers

FIGURE 7.4 Porter’s Competitive Forces Model

Strategic E-Business Opportunities (and Threats)

A well-established, pre-Internet framework for assessing
a firm’s strategic opportunities and threats is Michael
E. Porter’s competitive forces model.As can be seen in
Figure 7.4, the five competitive forces in the model are a
firm’s suppliers, its customers, new market entrants
(same products/services), substitute products brought to
market, and a firm’s competitors within the same
industry.
In an article published in the Harvard Business
Reviewafter the first wave of e-business applications at the
beginning of this century (Porter, 2001), Porter used this
competitive forces model to make predictions about the
commercial opportunities and threats to an industry from
the perspective of a traditional brick-and-mortar company.
Only three major e-business opportunitiesfor traditional
companies were identified:

1.the procurement of supplies via the Internet can

increase a company’s power over its suppliers,

2.the size of a potential market can be greatly expanded

(due to the national and global reach of the Internet),

and

3.distribution channels between the traditional company

and its customers can be eliminated.

The first and third opportunities here refer to the potential
to bypass a company that was a traditional “intermediary”
between a producer (or service provider) and the customer
for that product (or service). For example, an airline com-
pany used to depend on travel agencies to sell and print
airline tickets; today, airline companies can bypass this
channel by selling tickets directly to customers via the
Web and save the transaction fees once paid to travel
agents or their own customer service representatives.

However, in the same article Porter also identified

a large number of e-business threatsto the traditional

company, including the following:

1.there is greater competition based on price because

the Internet makes it more difficult to keep product

or service offerings proprietary,

2.the widening of the geographic markets results in an

increase in the number of competitors,

3.the Internet reduces or eliminates some traditional

barriers, such as the need for an in-person sales

force, and

4.customers have more bargaining power because they

can see prices for the same or similar products by

just looking at Web sites and can easily “switch” to a

competitor.

The first and fourth threats suggest that it is much more dif-

ficult to compete based on differentiation of the company’s

products or services—such as visible quality, customer

service, or some other unique value perceived by the

customer—because of information available on the public

Internet.

Although Porter’s model establishes a starting point

for thinking about competitive moves for companies within

an industry, there is a potential danger in using a com-

petitive model that was initially based on ways of doing

business in earlier decades when we did not have a global

computer network to link commercial businesses with their

business partners and to provide global reach online. For

example, users of this model need to take into account the

potential impacts of new dot-com intermediaries between a

firm and its customers, as well as between a firm and its

suppliers—including Web sites that can serve as online

“aggregators” that make it easy to compare prices (such as

http://www.hotels.com) or competitor bids.