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How does a business model relate to the industry structure model (Porter's ICA model)? Evaluate their utility for the management of IT at the senior management level. What utility would understanding these models and their relationships have for a beginning IT manager?
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The business model (business concept, capabilities and value) has a high degree of co-relation with Porter's industry structure model, which illustrates five forces (internal rivalry among firms, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers) affecting the profitability of any company.
An organization's business concept defines its strategy (and opportunity), and that depends on the industry structure. Two factors affecting 'concept' are competitive dynamics of the industry - the 'heart' of the industry structure model and the threat of new entrants. Competition and threat of new entrants in an industry depends on factors including entry/exit barriers, brand identity, switching costs, product differences, capital requirements, government policies, access to distribution and industry growth. Based on these factors, the 'concept' of the business can be formulated.
Some examples are:
1) If capital requirements to enter an industry are less, the entry barriers are considerably reduced. So the concept may include a provision to erect entry barriers through some other means, for example, by creating proprietary product differences.
2) If the switching costs are low, then the concept may include provisions for generating multiple revenue streams. This can be achieved by diversifying the business.
3) If the window of opportunity is small, the concept should have provisions to become the market leader in a short time. Low product price to achieve rapid adoption can achieve this goal.
4) The strategy for capturing a dominant ...
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