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Chapter 3 Information Systems, Organizations, and Strategy 131

TABLE 3.5 IMPACT OF THE INTERNET ON COMPETITIVE FORCES AND INDUSTRY STRUCTURE

COMPETITIVE FORCE IMPACT OF THE INTERNET
Substitute products or services Enables new substitutes to emerge with new approaches to meeting needs and performing functions
Customers’ bargaining power Availability of global price and product information shifts bargaining power to customers
Suppliers’ bargaining power Procurement over the Internet tends to raise bargaining power over suppliers; suppliers can also benefit
from reduced barriers to entry and from the elimination of distributors and other intermediaries standing
between them and their users
Threat of new entrants Internet reduces barriers to entry, such as the need for a sales force, access to channels, and physical
assets; it provides a technology for driving business processes that makes other things easier to do
Positioning and rivalry among Widens the geographic market, increasing the number of competitors, and reducing differences among
existing competitors competitors; makes it more difficult to sustain operational advantages; puts pressure to compete on price

over the Internet. Likewise, the Internet has had a significant impact on
the retail, music, book, retail brokerage, software, telecommunications, and
newspaper industries.
However, the Internet has also created entirely new markets, formed the basis
for thousands of new products, services, and business models, and provided
new opportunities for building brands with very large and loyal customer
bases. Amazon, eBay, iTunes, YouTube, Facebook, Travelocity, and Google are
examples. In this sense, the Internet is “transforming” entire industries, forcing
firms to change how they do business.
For most forms of media, the Internet has posed a threat to business models
and profitability. Growth in book sales other than textbooks and professional
publications has been sluggish, as new forms of entertainment continue to
compete for consumers’ time. Newspapers and magazines have been hit even
harder, as their readerships diminish, their advertisers shrink, and more people
get their news for free online. The television and film industries have been
forced to deal with pirates who are robbing them of some of their profits. The
chapter-ending case explores the impact of the Internet on retail bookstores
and book publishers.

THE BUSINESS VALUE CHAIN MODEL

Although the Porter model is very helpful for identifying competitive forces
and suggesting generic strategies, it is not very specific about what exactly to
do, and it does not provide a methodology to follow for achieving competi-
tive advantages. If your goal is to achieve operational excellence, where do you
start? Here’s where the business value chain model is helpful.
The value chain model highlights specific activities in the business
where competitive strategies can best be applied (Porter, 1985) and where
information systems are most likely to have a strategic impact. This model
identifies specific, critical leverage points where a firm can use information
technology most effectively to enhance its competitive position. The value
chain model views the firm as a series or chain of basic activities that add
a margin of value to a firm’s products or services. These activities can be
categorized as either primary activities or support activities (see Figure 3.9
on p. 132).

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