However, past experience, well established markets, and tried and trusted business models may not adequately prepare today’s business leaders to withstand the competitive forces that are being created by digital technologies.
Here we use an established business framework to explore how digital technologies are influencing competitive business forces.
TradeMe was not developed by auctioneers, Amazon was not created by a publishing company - both were conceived and launched by entrepreneurs and software developers, taking advantage of emerging digital technologies.
In 1979, Harvard University Professor Michael Porter identified that in any industry, competition is driven by five competitive forces:
• Bargaining power of buyers
• Nature and intensity of the rivalry among existing competitors
• Threat of new entrants
• Threat of substitute products or services
• Bargaining power of suppliers
In 2008 Porter published a follow-up to his original research. In an interview with CIO New Zealand, Porter re-affirmed that in the digital era: “the fundamental way of thinking about competition” doesn’t change, but “new technology changes how those forces are applied”.
Using this framework we explore how digital technologies have the power to unsettle (or disrupt) any and all of these forces; not just for small, medium and large scale businesses, but potentially whole commercial sectors and entire industries.
The internet enables customers to source and compare products, services, pricing and reputation through, websites that offer this service (e.g. PriceSpy, Amazon, TradeMe), social media and other online information sources. Recent research by Deloittes identified that: “although perhaps only 3-5% of domestic sales are online … at least 80% of domestic apparel sales are influenced by online research”
Even in business to business relationships, customers may be looking to maintain their own competitive advantage by analysing and where necessary changing their current supply chains, to take better advantage of digital resources and technologies.
Businesses operating in the digital era, need to recognise that the balance of power has shifted in favour of the customer.
They will need to identify suitable strategies for establishing and maintaining profitable and long-term customers; an approach that may require closer co-operation and tighter integration with customer’s and with their customer’s digital environments (see Power of Suppliers below).
It will also require co-operation and tighter integration within the business, e.g. between those charged with product development, marketing, sales and business technology.
Next: Existing competitors and new entrants
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