Page 125 -

124 Part One Organizations, Management, and the Networked Enterprise

Firms that “do better” than others are said to have a competitive advan-
tage over others: They either have access to special resources that others do
not, or they are able to use commonly available resources more efficiently—
usually because of superior knowledge and information assets. In any event,
they do better in terms of revenue growth, profitability, or productivity growth
( efficiency), all of which ultimately in the long run translate into higher stock
market valuations than their competitors.
But why do some firms do better than others and how do they achieve
competitive advantage? How can you analyze a business and identify its
strategic advantages? How can you develop a strategic advantage for your own
business? And how do information systems contribute to strategic advantages?
One answer to that question is Michael Porter’s competitive forces model.

PORTER’S COMPETITIVE FORCES MODEL

Arguably, the most widely used model for understanding competitive advantage
is Michael Porter’s competitive forces model (see Figure 3.8). This model
provides a general view of the firm, its competitors, and the firm’s environment.
Earlier in this chapter, we described the importance of a firm’s environment
and the dependence of firms on environments. Porter’s model is all about the
firm’s general business environment. In this model, five competitive forces
shape the fate of the firm.

Traditional Competitors
All firms share market space with other competitors who are continuously
devising new, more efficient ways to produce by introducing new products and
services, and attempting to attract customers by developing their brands and
imposing switching costs on their customers.

New Market Entrants
In a free economy with mobile labor and financial resources, new compa-
nies are always entering the marketplace. In some industries, there are very
low barriers to entry, whereas in other industries, entry is very difficult. For

FIGURE 3.8 PORTER’S COMPETITIVE FORCES MODEL

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined
not only by competition with its traditional direct competitors but also by four other forces in the
industry’s environment: new market entrants, substitute products, customers, and suppliers.

MIS_13_Ch_03_Global.indd 124 1/17/2013 2:26:23 PM