 Strategic Management: Strategic Managment Gregory G. Dess,
University of Texas at Dallas
G.T. Lumpkin,
University of Illinois--Chicago
The Internet and E-Commerce: Creating Value Through E-Business Strategies
Chapter Overview| The Internet is changing the way business is conducted. This has enormous implications that today’s managers need to take into account when formulating and implementing firm strategies. Two factors are especially important: First, Internet-based technologies are creating new capabilities that are altering the rules of competition. These technologies are allowing businesses to interact with each other and customers in faster, smarter, cheaper ways that are forever changing the competitive landscape. But the technologies themselves do not create the new conditions. It is the use of these technologies—by suppliers, buyers, intermediaries, alliance partners, and others—that will ultimately determine how the Internet affects the economy. As Internet-based capabilities and related information technologies become more widespread in all parts of the globe, strategic managers need to increasingly integrate the Internet into their strategic plans.
In terms of a firm’s competitive environment, most of the changes brought about by the Internet can be understood in the context of Porter’s five-forces model of industry analysis. The threat of new entrants is expected to increase as Internet technologies reduce many barriers to entry. The process of disintermediation has enhanced the power of some suppliers by simplifying supply chains, but it may also shift bargaining power to customers. Buyer power has increased for many end users due to lower switching costs, but in some industries the Internet has become a new source of channel conflict. The threat of substitutes will generally be higher because Internet technologies are providing new methods for achieving old tasks. Finally, the Internet heightens the intensity of rivalry among similar competitors as competition tends to be more price-oriented and technology-based advantages are easily imitated.
The way companies formulate and deploy strategies is also changing because of the impact of the Internet on many industries. Overall low-cost strategies may be more important as some firms use Internet technologies to lower transaction costs and increase the efficiency of their operations. Differentiation strategies may be harder to achieve for many firms because the Internet is eroding some of their most unique features. Further, Internet technologies are enabling the mass customization capabilities of greater numbers of competitors. Focus strategies are likely to increase in importance because the Internet provides highly targeted and lower-cost access to narrow or specialized markets. These strategies are not without their pitfalls, however, and firms need to understand the dangers as well as the potential benefits of Internet-based approaches.
Thus, the Internet, while promising to provide new opportunities for creating value and fostering firm growth, may make the competitive landscape more challenging for many incumbent firms. In this chapter we have addressed both the pitfalls and the possibilities provided by the rapidly expanding presence of the Internet in today’s economy. Companies that seize these possibilities may achieve competitive advantages which, in some cases, may be sustainable. But the Internet has also created the very factors that are contributing to the erosion of competitive advantages. Strategic managers will need to stay ahead of the changes and closely monitor their competition in order to sustain their Internet-based advantages.
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2002 A McGraw-Hill Online Learning Centre