School of Information Systems

Porter Five Competitive Forces

Information Systems Strategy is support for existing systems and helps in achieving competitive advantage over organizational competitors in terms of objectives. Information systems can influence the overall business activities of the company so that it can help companies in business competition with other companies. To analyze company’s environment, there are five competitive forces, as follows:

1. Threat of new entrants

This power determines how easy (or difficult) to enter a particular industry. The more competing companies (competitors) compete in the same market, the profit will decrease. Conversely, the higher barriers to entry for new entrants, the position of our company engaged in the industry will be more profitable.

2. Power of Suppliers

Bargaining power of suppliers that allows suppliers to sell raw materials at high prices or sell low quality raw materials to buyers. Thus, the company’s profits will be low because it requires high costs to buy high-quality raw materials. Conversely, the lower the bargaining power of suppliers, the higher the profit of our company.

3. Power of Buyers

This power assesses the bargaining power or supply power of the buyer, the higher the bargaining power of the buyer in demanding lower prices or higher product quality, the lower the profit or profit that will be obtained by the producer company. On the one hand, the Company requires high costs in producing high quality products. Conversely, the lower the bargaining power of buyers, the more profitable for our company.

4. Threat of Substitutes

These obstacles or threats occur if the buyer gets a cheaper replacement product or a substitute product that has a better quality with a low transfer fee. The fewer substitute products available in the market, the more profitable our company will be.

5. Rivalry among existing competitors

This strength is the main determinant, companies must compete aggressively to get a large market share. Our company will be more profitable if our company’s position is strong and the level of competition in the market (Market) is low. Tighter competition will occur if many competitors capture the same market share, low customer loyalty, products can be quickly replaced and many competitors have the same ability to face competition.

After knowing the competitive forces, the following is a strategy in the information system, namely :

1. Low Cost Leadership Strategy

The Low Cost Strategy (cost leadership) emphasizes efforts to produce standard products with very low unit costs. This product is usually aimed at consumers who are relatively easily affected by price shifts (price sensitive) or use price as a determining factor.

2. Product Differentiation Strategy

Develop ways to distinguish products and services from competitors or reduce the advantage of differentiation from competitors. This strategy allows companies to focus on products or services to provide benefits in a unique market segment / niche market.

3. Focused Strategy

The focus strategy is used to build competitive advantage in a narrower market segment. This type of strategy is intended to serve the needs of consumers whose numbers are relatively small and in making their decision to buy relatively unaffected by price.

4. Innovation Strategy

Find new ways of doing business. This strategy can involve the development of unique products or services to enter a unique market / niche market. This can also involve radical changes in business processes to produce or distribute products and services of the majority of the available types and methods.

5. Alliance Strategy

Form new business relationships / alliances with customers, suppliers, competitors, consultants, and other companies. This relationship can be a merger, acquisition, joint venture, formation “Virtual companies,” or other marketing, manufacturing, or distribution agreements between business persons with their trading partners.

6. Growth Strategy

Significantly expand the company’s capacity to produce goods and services, expand into global markets, diversify into new products and services, or integrate into related products and services.

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