Effects of IT on Competition and Value Chain Activities - Research Paper Example

Topic: Effects of IT on competition and value chain activities Introduction The value chain analysis model was developed by Michael Porter in 1985 where he recommended that the activities within a firm should add value to the commodities produced by the firm and that all the activities should take place at an optimum level in order to allow the firm to gain any form of competitive advantage. If the activities are carried out in an efficient manner, the value achieved should be more than the costs of running them, as customers will be able to return to the firm and continue with transactions freely. Even though primary activities add direct value to the process of production, they are not particularly more significant that the support activities. Currently, competitive advantages mainly originate from technological enhancements as well as innovation regarding business models and processes. This makes support activities like information systems along with research and development the most important sources of advantage in terms of differentiation. Additionally, primary activities are mainly the sources of cost advantage making the costs easily identifiable for every activity and thus properly managed (Harvard Business Publishing, 2008). Value chain and competitive forces in Porter’s model The main aim of value chain activities is offering the customers value that will surpass the costs of the activities so that it can lead to profit margins. The primary activities associated with the value chain include inbound logistics that involves receiving and warehousing materials that will be used for production as well as distributing them to the manufacturing department when they are needed. Other activities are operations, which entail the process of transformation of inputs into finished commodities, and outbound logistics that involves storing the finished goods in warehouses and distributing them when needed. Marketing and sales, involving identifying the needs of the customers and generating sales as well as service that supports customers after they have bought the commodities are also activities that are associated with the value chain. These activities are supported by among other things technological development, which comes up with various technologies that support the activities of creating value (Netmba.com, 2010). Porter’s five forces assume five significant forces that define the level of competition in a business environment including supply power that evaluates the ease with which suppliers can increase prices depending on the number of suppliers on every key input, how unique the commodity is and the costs associated with switching from one commodity to the other among others. If the choice of suppliers is limited, then they will have more power in terms of setting prices. Another aspect is the power of the buyers and if they can drive a price downwards, which is affected by the number of buyers, the significance of every buyer to the business and costs associated with switching to different commodities among others. In this case, a limited number of buyers have a higher chance of dictating terms. In regard to competitive rivalry, the most important aspect is the number and ability of the competitors as many competitors offering superior commodities results in limited power. This is because the suppliers and buyers will prefer to go to a different company if they are not given a good deal. On the other hand, the threat of substitution is influenced by an ability of the customers to get a different method of doing what a particular company does and in the event that substitution is easy and viable, then the power of the organization will be significantly reduced. Lastly, threats of new entrants affected power especially if the costs, in terms of money and time, associated with entering an industry and competing effectively are low. This also applies when the business has little protection for its key technologies and if the economies of scale that exist are limited, as it will allow the competitors to weaken a company’s position. A favorable market position can only be preserved and taken advantage of only if the company has put in place durable barriers to entry (Porter, 2008). Effect of value chain and competitive advantage on organizations The organizations that take advantage of the benefits associated with ERP through decreasing their costs of operation and maintaining low prices are in a better position to withstand the risks that arise from substitute products or new companies entering the market. Companies in the same industry sectors typically utilize the same ERP packages and this leads to a risk of them losing their exceptional organizational aspects that differentiate them from their competitors. This is particularly true for the organizations whose competitive advantage is centered on service elements as they may encounter imitators who will replicate their processes with the same level of efficiency. Organizations should be able to identify the appropriate balance between the creation of process standardization measures that are founded on ERP while at the same time maintain the required degree of process diversity that will assure it of customer loyalty and considerable differentiation. Firms should include a need to develop strong relationships with their suppliers and customers in their strategic planning and ERP systems in order to take advantage of the associated technology in the identification of opportunities for embracing a focused strategy for niche marketing. If an organization adheres to the homogeneous technical dynamics of ERP systems in all its processes and in its entire business strategy, it will have an ability to maximize growth and profitability through completely integrating primary and support activities that constitute the value chain. Hence various departments including HR, management and procurement should be in total harmony with all the dynamics of marketing, sales and logistics; inbound and outbound, so that it can achieve a competitive advantage using the five forces model developed by Porter (Wailgum, 2007). Strategies organizations undergo to respond to sustainability Numerous aspects may be learnt concerning overcoming managerial hurdles to achieve sustainability through assessing leading companies as well as value creation. Companies should make sure they understand and express the effect of sustainability in their firms through gathering a full set of facts and incorporating the resultant knowledge into the manner in which they frame and define sustainability from an economic and strategic point of view. Companies also embrace a system-wide view when considering the relevant aspects and needs of all the stakeholders, for instance, through pushing suppliers to become better at sustainability. Companies also develop robust business cases for sustainability through the creation of value and assessing sustainability in the same manner that they would do for investments by systematic evaluation of value creation levers like intangibles. Successful companies also integrate their sustainability strategy throughout the organization, as they are aware that sustainability is a source of value creation. As a consequence, they work towards integrating it deep into their culture while at the same time entrenching it fully in to the strategy and the rest of the relevant dynamics of the company. The companies with successful sustainability approaches are the ones that have adopted aggressive tactics, adapted their organization and created newer sources of advantages in the delivery of measurable business results (Berns, Townsend, Khajat, Bagopal, Reeves, et al. 2009). References Berns, M., Townsend, A., Khajat, Z., Bagopal, B., Reeves, M., et al. (2009). The Mini-cases: 5 companies, 5 strategies, 5 transformations. The Magazine MIT Sloan Management Review Special Report. Retrieved from http://files.meetup.com/1325336/MITSloan%20Mgmt%20Review%20The%20Biz%20of%20Sustainability.pdf Harvard Business Publishing (2008). The Five Competitive Forces That Shape Strategy. Retrieved 31 January 2015, from http://www.youtube.com/watch?v=mYF2_FBCvXw NetMBA.com,. (2010). Value Chain Analysis. Retrieved 31 January 2015, from http://www.netmba.com/strategy/value-chain/ Porter, M. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review. Retrieved 31 January 2015, from https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Wailgum, T. (2007). ERP Definition and Solutions. CIO. Retrieved 31 January 2015, from http://www.cio.com/article/2439502/enterprise-resource-planning/erp-definition-and-solutions.html Read More