16.01.2017

Porter's Five Forces Tool and Management Information Systems Interaction

Michael Eugene Porter's Five Forces Tool is actually a simple but powerful tool for understanding where the power lies in a workplace. I will share my comments on the process related with the interactions of Five Forces Analysis and Management Information Systems with each other.

While it is known to be a very useful model, it is supported by many consultants and sector representatives since it helps you understand the strength of your current competitive position. In addition, it supports the process of providing access to information related to revision of your prospective competitive position.

Five Forces Analysis assumes that there are five important forces that determine competitive power in a business environment.

Supplier Power: Here you assess how easy it is for the suppliers to raise their prices. This is driven by the number of suppliers of each input, the uniqueness of the product or service, their strength and control, the cost of switching from one to another, and so on. The fewer supplier choices you have and you are in a position of asking help from your suppliers, the more powerful your supplier’s are.

Buyer Power: Here we can ask ourselves how easy it is for buyers to drive prices down. Again, this is related with the number of buyers, the importance of each individual buyer to your business, the cost of switching from your products and services to those of someone else, and so on. If you deal with a few, powerful customers, then they often direct the conditions to you in written form.

Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors and if you offer equally attractive products and services, then you'll have less powerful situation. Because suppliers and buyers will go elsewhere if they don't make a good deal with you. On the other hand, if no one else can do what you do, then you can often have tremendous strength.
Threat of Substitution: In this situation your customers will be affected by your adding value or different interpretation to something done.
Threat of New Entry: Power, at the same time, triggers the ability of people to enter your market. If it costs little to enter your market and compete effectively or if there is no economies of scale, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take advantage of it.

When we apply this power balance to our businesses, we can clearly understand where the power lies and so we can gain a fair advantage from a power situation and / or improve the weakness of the power balance and avoid taking wrong steps.

Thus, decrease of internal power wars we experience in the ERP projects will be in question.  Because power or powers negatively affects ERP projects in general.

Traditionally, this tool is used to determine whether new products, services, or businesses have the potential to be profitable. However, when used to assess power balances in other situations, obtaining very illuminating data also provides a positive contribution.

Here we see once again the importance of dominance over the data in order to provide all these 5 power balances in an applicable form.

If we do not manage all of the proposals, deadlines etc we have experienced with our suppliers in a system and if we do not have command over them, we will not be able to reach the information necessary for keeping the communication with supplier after a certain time. This causes us losing money and time.

Keeping track of necessary information about our sales and Customer Satisfaction,   for example, very simply, sale of products to whom, when, how much, at what discounts, etc.  will provide quite an advantage. Regular studies can also be done with the available data in the system, and it will be possible to bring customer satisfaction to standard level.

Also for Competitive Rivalry, Threat of Substitution, New Entry Threat,   the importance of keeping information of every process that we have in our operation in the system and reaching the necessary information for taking action by making sense of it, is increasing day by day.

Author: Ahmet Savaş Göktürk