Benefit of the Internet - Essay Example

?Strategic Essay Table of Contents Strategic Essay Table of Contents 2 Question 3 Question 2 4 Question 3 5 References 7 Question What Are The Central Arguments Of This View? Internet has played a major role in transforming the world into a global village. It has become important in today’s competitive world. Right from home to big industries every single person enjoys the benefit of internet. In the present era, it is no doubt that internet grabbed the attention of businessmen, investors, entrepreneurs and executives. Internet has changed the old rules of competition giving rise to a more competitive obsessed world. Few companies use internet for shifting the basis of competition. Internet is a powerful tool and a vital part of any industry and every strategy. According to Porter, internet must not be viewed as emerging infrastructure for economic activity, but it should rather be viewed as technological development, for example, ‘object oriented programming’, DBMS, RDBMS, MIS and wireless communication. It is a global communication medium as well. Internet has surpassed the radio television and other digital media (Tapscot, 2000). However, many argued that internet is making strategy more essential for every organisation. Organisation is sometimes confused by internet technology because it often distorts and does not show the actual market conditions by their own creation. If company does not check and implement new technology in their organisation, then it will not show the original market situation (Porter, 2001). The rise of dot-com is an indication of economic significance of the internet. The increasing number of dot-com doesn’t reveal anything than the existence of low barrier to entry for new organisation. It does not show the health business environment to the people. The major reason for rapid growth of dot-com is that they can generate capital without any viability (Porter, 2001). There is another argument which states that the rapid change in internet technology in today’s world is making industry analysis worthless. A few argued that buyer can easily access any information about any product with the help of internet. This increases the bargaining power of the buyer. There is another argument which states that internet increases the switching cost significantly. It is a cost which will arise for a customer when he switches to a new supplier (Porter, 2001). Question 2 What Are The Main Criticisms Of This View In The Internet Age? Michael Porter’s view about “Strategy and Internet” has been criticised since Michael Porter’s theory is based on the economic condition of eighties. The main characteristics of that phase were strong competition, stable market structure and continuous development. His theory mainly focuses on actual situation and predictable development such as threats of new competitor, substitutes and others. These methods do not explain today’s dynamic changes that comprise the power which can change whole industry (Holt, 2011). Larry Downes stated that the assumptions used by Porter are not viable enough in this current era. He also classifies 3 new forces which can influence the strategy taken by any organisation namely globalisation, digitalisation and deregulation. He says that the role of technology is important for these new forces. The information technology was used as a tool in Michael Porter’s old economy, but nowadays technology has become most strong forces for change industry. It is not considered to be a wise decision to make any strategy based only on the views of Porter (Recklies, 2008). It has been suggested by Michael Porter that entry barriers exist. It is said that these barriers only become the basis of sustained competitive advantage when companies’ products are not homogeneously spread across competing firms and when these products are not perfectly movable. In order to maintain a competitive advantage it is necessary to make a theoretical model by guessing that organisation’s resources might be heterogeneous and static (Barney, 1991). Question 3 How Well Does Porter Counter These Arguments In His Article ‘Strategy And The Internet’? It has been argued that internet at times distorts the information. Porter said there are three causes for distortions in market signals. The first reason is that the prices shown in online sales have been discounted heavily for making the demand artificially high. Second reason states that online sales prompt the curiosity of customers but when the curiosity dies he returns to the usual buying pattern. The final reason is that revenue is sometimes received in the form of stock rather than the form of cash. Several suppliers offer their product at discounted price for associating them with online business. They prefer stocks for payment in place of cash (Porter, 2001). There was another argument about the fact that rapid changes in internet technology in today’s world are making industry analysis less valuable. This argument is totally false because internet helps to analyse fundamental attractiveness of any industry. It shows that how profit will be stimulated in future. The ‘five competitive forces’ of Porter help to determine the profitability if the competitor, supplier, distribution channel or substitute changes. The strength of these five forces varies from organisation to organisation. It will be a mistake to make a conclusion about the affect of internet in ‘long term profitability of industry’. Internet examines ‘wide range industry’ and reveals clear trends about the industry (Naughton, 2010). Another argument was that rapid change in internet technology in today’s world is making industry analysis less valuable. According to Porter, Internet cannot create economic value. An economic value is only measured by sustained profitability. It is the ‘gap between cost and price’ (Howry, 2003). Michael Porter’s five forces namely entry barrier, threat of substitution, bargaining power of buyer, supplier and rivalry determine the inherent profit of an industry. These five forces provide a systematic way of thinking regarding how the competitive forces work at industry level. These forces determine the profitability of different organisations and marketing segments (Teece & Et. Al., 1997). The strategy of Star Trek dwells in imagination. Creative imagination and ability to develop a compelling abstract idea are essential for Star Trek. Star Trek’s managers were more comfortable with tangible reality than creative fiction. Creative imagination and ability to develop a convincing idea are essential to make strategy for Star Trek. Star Trek also implemented the ‘pioneering quality of strategy’. Today, strategy formation has extended beyond SWOT analysis (Business Strategy Review, 2003). References Barney, J., 1991. Firm’s Resources and Sustained Competitive Advantage. Journal of Management, Vol: 17, No: 1, Pp. 99-120. Business Strategy Review, 2003. Star Trek Strategy: Real Strategy at Work. Autumn. Howry, E., 2003. Porter, M. E. 2001. Strategy and the internet. Harvard Business Review. University of South Florida. [Online] Available at: http://maaw.info/ArticleSummaries/ArtSumPorter2001.htm [Accessed February 28, 2011]. Holt, J., 2011. Smarter, Happier, More Productive. London Review of Books. [Online] Available at: http://www.lrb.co.uk/v33/n05/jim-holt/smarter-happier-more-productive [Accessed February 28, 2011]. Naughton, J., 2010. The Internet: Is It Changing The Way We Think?. Guardian News and Media Limited. [Online] Available at: http://www.guardian.co.uk/technology/2010/aug/15/internet-brain-neuroscience-debate [Accessed February 28, 2011]. Porter, M. E., 2001. Strategy and the Internet. Harvard Business School Publishing Corporation. Recklies, D., 2008. Beyond Porter – A Critique of the Critique of Porter. Recklies Management Project GmbH. [Online] Available at: http://www.themanager.org/strategy/BeyondPorter.htm [Accessed February 28, 2011]. Tapscot, D., 2000. Why Michael Porter Is Wrong about the Internet. Harvard Business School Press. [Online] Available at: http://newparadigm.com/media/StrategyandBusiness2.pdf [Accessed February 28, 2011]. Teece, J. D. & Et. Al., 1997. Dynamics Capabilities and Strategic Management. Strategic Management Journal, Vol: 18, No: 7, Pp. 509-533. Read More