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Business Models and Information Systems
“A business strategy is a well articulated vision of where a business seeks to go and how it expects to get there” (Pearlson & Saunders, 2004). An organization’s decisions regarding both organizational and information systems strategies must be governed by this overarching business strategy. The information technology strategy must fit into the business strategy and be reevaluated constantly to ensure the company is meeting its strategic goals. The information systems strategy will both affect, and be affected, by the business strategy. Pearlson and Saunders (2004) discuss two important business models: the Porter generic strategies framework and D’Aveni’s hyper-competition model.
The Porter generic strategies framework can be a useful tool to help managers identify and understand the strategy options available in the search for competitive advantage. Porter (1985) identified three primary strategies that allow a business to obtain this advantage: cost leadership, differentiation, and focus. I feel that this competitive advantage is just as dependent on the competition’s strategy and execution as it is on the organization’s position in the market relative to those competitors.
Porter (1985) contends that the goal of a cost leadership strategy is to be the lowest-cost producer in a particular marketplace. By minimizing the costs associated with doing business the organization is able to obtain above average performance. “To be successful, this strategy usually requires a considerable market share advantage or preferential access to raw materials, components, labor, or some other important input. Without one or more of these advantages, the strategy can easily be mimicked by competitors” (Wikipedia.org, n.d.). The organization must also offer a product or service of comparable quality to its higher cost competition. It is only when the quality of two competing products is comparable that a customer will be able to realize the relative value of the product made by the cost leader. In order for an organization to properly execute a cost leadership strategy it must streamline operations and reduce overhead while decreasing the time it takes to get products from the idea to the customer stages. Proper design and use of information technology systems allow an organization to distribute information, coordinate efforts, share resources, automate processes, and analyze data in order to make the cost leadership strategy a market reality.
“Through differentiation, the organization qualifies its product or service in a way that allows it to appear unique in the marketplace” (Pearlson & Saunders, 2004). The organization identifies the features most important to its customers and then attempts to add value by improving upon or augmenting those facets.
As part of a generic strategy, companies develop a competitive strategy and complement it with a strategic move to strengthen its competitive position. The strategic options are strategic alliances, collaborative partnership, mergers and acquisition, horizontal and vertical integration, initiate an offensive strategic move, employ defensive strategic move, the internet website strategy, and outsourcing (SNHU, 2016).
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competitors products (differentiation advantage). (QuickMBA, 2007) Creating this competitive advantage is produced using the organizations resources and capabilities b either a cost advantage or differentiated. Porter identified three basic strategies one of which is the cost leadership strategy. This strategy intends for the organization being the low cost producer in the industry. Such ways to lower prices include; improving process efficiency, vertical integration, and avoiding some cost for example.
Adopting a strategy of differentiation makes firms provide products and services what are distinct in some way valued by customers.
Arthur, A., Thompson, Margaret, A., Peteraf, John, E. Gamble, A., J., Strickland III. (2014). Crafting & Executing Strategy: The Quest for Competitive Advantage 19e: Concepts & Cases. C6-C25.
Porter (1997) suggests in order to gain competitive advantages in the changing business environment, it is essential to design a generic strategy for the business: product differentiation or cost leadership. The competitive strategy is determined at round 2, when recognised our rivals held whole product profile which was the product differentiation strategy. To differentiate our strategy from rivals for competitive advantages, Digby designed to imply the cost
Narrow focus on limited value chain activities, competitor’s pricing war and lack of differentiation parity can erode the competitive advantage associated with cost leadership strategy. Similarly, imitation of differentiating features by competition and lack of perceived value of the differentiating features can erode the competitive advantage associated with differentiation strategy.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2008). Crafting & executing strategy: The quest for competitive advantage (16th ed.). New York: McGraw-Hill Irwin.
Cost leadership strategy involves the business winning the market share by appealing to cost-conscious and price-sensitive consumers. This is achieved when you have the lowest prices in the target market. The lowest price of value ratio (price compared to what consumers receive). To be successful at offering the lowest price while still achieving profitability and a high return on investment, the business must be able to operate at a lower cost than its competitors. There are three main ways to achieve this.
Thompson, A.A., Strickland, A.J., & Gamble, J. E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin
Both Porter and Miles and Snow’s strategy typologies are based on the concept of strategic equifinality, or the ability for firms to be successful via differing managerial strategies (Hambrick, 2003, p. 116). Porter 's strategy is more generic while Miles and Snow’s is more specific in nature. Porter’s generic strategy typology is based on economic factors centering on the source of a firm’s competitive advantage and the scope of a firm’s target market (González-Benito & Suárez-González, 2010). Porter’s typology emphasizes a firm’s cost, product differentiation or non-differentiation and market focus. When utilizing Porter’s strategy typology, a firm must first decide to target its products toward the mass market versus a market niche or focus. Secondly, a firm will determine if it wishes to minimize costs or differentiate its products with differentiation meaning that firms will most likely forego lower costs (Parnell, 2014, p. 184). This can lead a firm to develop a myriad of strategies between these options. Strategies which may have or not have focus, may or not be differentiated, may or not be low cost or any combination of strategies. In contrast to Porter, Miles and Snow’s typology is more specific in nature.
Business strategy is the means by which firm’s plans to achieve its goals and objectives. It can also be termed as organization long-term planning. The strategy covers periods between 3-5 years and sometimes longer. Businesses use two major types of strategy, general or generic and competitive strategies. The overall strategy involves strategies of growth, globalization and retrenchment. The competitive advantage includes low pricing, product and customer differentiation. We will look at the business strategy used by Marks and Spenser (Cole, 1997). The company is a British multinational located at Westminster London and specializes in clothes and luxurious food products.
The three alternative strategies are: cooperative strategy: strategy alliance (focus on joint venture), international strategy: transnational strategy, and differentiation strategy: integration cost leadership and differentiation strategy. After we have finished on doing those three alternative strategies’ evaluation and selection, we agreed on using the differentiation strategy: integrated cost leadership and differentiation strategy (hybrid strategy) as the strategic alternative for Harley Davidson. In the next couple paragraphs we are going to discuss in detail how to implement the integrated cost leadership and differentiation strategy and action planning for Harley Davidson. The integrated cost leadership strategy and differentiation strategy is the business level strategy that most of managerial people consider as the hybrid strategy (www.ccsenet.org). The hybrid strategy has become the most important and successful strategy that attracted many organizations to choose and implement this particular strategy. As global competition keeps on increases, it is crucial for each organization starts to think about building its own economic of scale, lower production costs while developing on its innovative products or services for
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 25-40.
Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.