Information System Strategy

Before learning about Information System Strategy, we need to understand about business environment. We can understand the business environment by observing the Porter's 5 Forces.



Let's break these forces one by one.
Industry or Competitive Rivalry

• In this force, we are asked to understand our own industry. 
• We need to know the number of competitors inside the same industry. Let's say if we are selling clothes, we need to know who our competitors are in clothing or textile industry.
• The quality differences are not less important.
• Besides quality, there will also be other differences, including the uniqueness of the product itself compared to its competitors.
• We should also know about the switching cost, which is the cost of moving or shifting from our products to the competitor's product or vice versa.

Threat of New Entry

• We need to know how easy it is for new competitors to enter the market and how much the cost is.
• Our business should also have the specialized knowledge so it will be difficult to imitate our products.
• Economic of scale - where the cost per unit become cheaper as the quantity of the products produced are increased - should be achieved.
• Cost advantages
• Technology Protection that can be done in the form of patent or copyrights. It is better to do a business that are not harming others, in this case is the right of others on their own creation or specialization. 
• What about the barriers to enter the market? This will be related to the barriers and regulations to enter the market.

Bargaining Power of Supplier

• How many suppliers are there to support our product line? We should know which suppliers are better, which offers better prices, which have better qualities, etc.
• If the supplier's size is bigger, then it will be more difficult to bargain.
• It will be better if our product offer some unique services for the suppliers. 
• Can we substitute the suppliers? If there are lots of suppliers which performances are just the same as our current suppliers, and might have better supplies, then it will also be easy for us to switch between one to another supplier.
• Don't forget that there will also be a switching cost between suppliers.

Threat of Substitution

• Do not ever forget that customers or buyers can always switch the products, either to our rival or our substitutes.
• Let's say we have a bike, in case that the bike does not satisfy us, we are able to substitute the bike with other transportation. It can be either we travel through trains, bus, or online transportation, or we can also choose to buy another substitute products as car and motorbike.
• There will also be a cost of change between the products, as there are also products that need to be set up- which cost more to change from one to another.

Bargaining Power of Buyers

• Business should know how big the customer is.
• The size of the orders will also determine the power of buyers.
• The differences between competitors and the ability to substitute will cause the buyers to switch the products.
• Is the customer price sensitive? If they are, the price of your products will be crucial. It might cause you to lose some of your loyal customers if you decide to increase the price of the products.
• Just like the other forces, there will also be cost of changing between one to another product.

After understanding about Porter's Five Forces, then we can determine the Information System Strategy. There are several strategies that we can carry out.

1. Low Cost Leadership.
2. Product Differentiation
3. Focus in Market Niche
4. Increase Switching Cost for Customers.

For the low cost leadership, in Indonesia, we can take Lion Air as the example. It provides a flight with a very cheap price. However, like what I have written in the first few posts, the low cost leadership strategy will not be a good long term strategy as other competitors are always able to create a product with a cheaper price.

Rolex watch is not made by machine, it is assembled by human hand. This makes Rolex expensive and at the same time luxury and irreplaceable. This is called product differentiation. Another example will be Starbucks as they brew their own coffee and is well known for the quality of the products. The product differentiation usually results in an expensive product which is more suitable for Class A and B. However, this also creates a market that is new and loyal to the products.

The best example of focusing in market niche is Harley Davidson. Focusing in market niche means we focus on something that has an implicit meaning. If people ride Harley Davidson, it shows the manliness and also the FREEDOM that is tried to be expressed by the riders of Harley Davidson.

Apple is best known for its switching cost. The switching cost does not always come in the form of monetary value, but also experience. We know that Apple usually does not lag, good experience and also other advantages that are now owned by the Android. Therefore, those who have use Apple's products rarely switch their products to Android.

To be better than other businesses, it is important for a business or a company to do the value chain method, in order to improve each and every value in the company. The value chain covers the administrative, human resources, production and technology development, procurement (vertically), inbound logistics, operations, outbound logistics, sales and marketing and also servicing (horizontally). It is important to do synergies with other businesses as collaboration results to things that will be difficult to achieve on our own. We should always develop and maintain our core competencies as it is one of the most important values for the customers. As the information and technology is developing rapidly, business should always implement a network based strategy in order to leverage a larger market and retain more customers.

See you on the next post, captivators :)