Porter and the Internet: An Empirical Assessment of Porter's Strategic Thinking as Applied to Online Strategies for Pet Supply Stores in the San Diego, CA Metropolitan Area

Journal of Applied Management and Entrepreneurship, Jul 2003 by Stretch, Robert T "Bob"

Porter and the Internet: An Empirical Assessment of Porter's Strategic Thinking as Applied to Online Strategies for Pet Supply Stores in the San Diego, CA Metropolitan Area

Executive Summary

Porter's (2001) insights on the impact of Internet technologies on strategy are examined in light of a local retail industry that sells high tactile-value goods. Porter's Five Forces model (1980, 1985) is utilized to determine the strategic level of Internet involvement. Surprisingly, a strong Internet presence was not found to be in the best interest of the industry and the exploratory research indicated that in fact very few of the firms in the industry took advantage of the Internet at all.

Current thinking on Internet strategy is discussed and an examination made of the online experiences of industry proxies. Managers are cautioned against moving into the Internet retail arena without first making a strategic assessment of the potential impacts. This article presents an empirical assessment of Porter's strategic concepts (1980, 1985, 2001) as reflected in the Internet presence of firms within the pet supply industry in the San Diego, California metropolitan area. The current rationales and strategic thinking about using this particular marketing channel are discussed, as are the experiences of proxy industries. The particular industry factors and forces that may drive such firms to create an Internet presence are discussed using Porter's (1980) competitive forces framework as a guide. Finally, the actual Internet presence of these firms will be determined and compared the presence anticipated through Porter's (2001) concepts on strategic Internet usage.

In this article only rudimentary data are presented, but even such low-level processing should be sufficient to point out some of the initial trends and provide an assessment of Porter's (2001) observations on strategy and the Internet.

Literature Review

As is typical of a new field of endeavor such as Internet strategy, there are problems developing common terminology and little-to-no consensus on proper methods or purpose. Various models have been brought forth in the recent literature and will be outlined herein as will the current controversy over the supremacy of either price or service quality as the driving force behind Internet success. Finally, a detailed examination of the strategic positioning of the pet supply industry using Porter's (1980) Five Forces model will be presented and the anticipated strategic Internet presence described.

General Importance of the Internet to Strategy

Porter (2001) states that the Internet is an enabling technology that can be used as part of any strategy in any industry. He further believes that the presence of the Internet alters industry structures, levels the competitive playing field and generally dampens profitability within the industry. Others take a far more positive and far-reaching view.

The Internet is seen as a "disruptive innovation" by Lee (2001); a paradigm shift that radically changes all the traditional ways of doing business. Industries who have embraced the Internet move very quickly because they now operate under an entirely different set of rules and principles (Lee). This "brave new world" thesis is echoed in the work of Evans and Wurster (1999) who announce that this new technology "deconstructs" the very definitions of what makes up a business or industry. More conservative observers note that players in this new marketplace no longer use proven decision making tools such as return on investment (ROI) to assess the practicality of Internet projects and instead are trapped in a game of "catch-up" to see who has the most applications running (Damanpour, 2001).

The supposed benefits of utilizing the Internet as a key component of a business strategy are varied and wide-ranging. Gaertner and Smith (2001) in reviewing the available literature discovered 32 different advantages of e-commerce. The top three advantages noted were better customer service, increased selection of goods, and more timely access to information. These benefits are mirrored in the work of others along with an emphasis on gaining a competitive advantage over other firms in the industry (Wen, Chen, & Hwang, 2001 ; Damanpour, 2001; Fraser, Fraser, & McDonald, 2000). Some commentators point to the importance of disintermediation (the removal of links from the supply chain) as a key to success in the Internet marketplace (Javalgi & Ramsey, 2000).

But no matter which benefit is most touted, calmer voices are now heard after the tumultuous bursting of the dot-corn bubble asking for, (with apologies to Herbert Hoover), a return to normalcy. They advocate the use of more fundamental business principles when examining the applications and deployment of Internet-based activities (Porter, 2001; La & Kandampully, 2002). Porter (2001) reinforces his earlier (1980,1985) work on the two universal factors that determine if strategic changes (such as exploitation of the Internet) will provide economic value: the existing industry structure and the ability to create a sustainable competitive advantage. He warns however that the Internet alone is not sufficient to create such a sustainable advantage.