Question

Use the five competitive forces model to describe how information technology might be used to provide a winning position for each of these businesses:

a. A global advertising agency

b. An insurance company

Answer 1

Porter’s five forces model analyzes five forces on the businesses

1. Bargaining power of buyers
2. Bargaining power of suppliers
3. Threat of new entrants
4. Rivalry among the competitors
5. Threat of any alternative or substitute product

Bargaining power of suppliers

Advertising Agency- High

In advertising agency supply is less than demand. Because of it the suppliers have the bargaining power with them.

Insurance Company- Low.

In insurance company there are various players dealing into the market and because of this the bargaining power of suppliers get reduced. The company can choose another supplier if current supplier is charging heavy. Because of the information technology the customers have options to search various information and the bargaining power has become very low.

Bargaining power of buyers-

Advertising Agency- HIGH

Advertising agency - the buyers have bargaining power with them because the Agencies has to maintain long term relationship which helps the buyers to get the bargaining power. Longer relationship means more bargaining power.

Insurance Company- High

There are various market players for insurance company and customers have tools to search for information. So buyers have bargaining power with them and they can go for whatever they feel like.

Threat of new Entrants-

Advertising Agency- low

Advertising agency is a capital intensive business. The projects or engagement are done for maintaining a longer period of relationship and because of this it requires intensive capital. Because of this threat of new entrants have less chances of giving tough competition

Insurance company- Low

Spaces are very crowdy already, and if a new comer is there into the business then it will be very difficult to meet the demand and handling the bigger clients.

Threat of substitute product –

Advertising Agency- Low

In advertising agency if the information technology is increasing then the substitute will increase but being a costly space new entrants are less lucrative.

Insurance company- high

Because there is lot many options available in to the market and customers can choose from whatever they feel like.

Rivalry among the existing players-

Advertising Agency- High

Rivalry is high among the current players. The number of existing players are low in the industry and clients are more so getting the best client is priority of every advertising agency because of this the rivalry is very high

Insurance company – High

The rivalry is very high because there are various competitors dealing into the market. With the help of Information technology the customers have various options to choose from.