Social Exchange Theory

Social Exchange Theory Social Exchange Theory is a perspective of the field of social psychology and sociology to explain social change and stability, representing them as a process of negotiated exchanges between people. Social exchange theory can be described as the theory, according to which, human interaction is a unique transaction, which seeks to increase the rewards and to reduce the costs. The social exchange theory advocates that all human relationships are formed by using a cost-benefit analysis and comparison with alternatives.ÂÂ  For example, when a person perceives the costs of a relationship over the profits made, the person, according to this theory, leaves the relationship.ÂÂ  This theory has its roots in economics, psychology and sociology. The social exchange theory is linked to the rational choice theory and structuralism, its major features. Exchange theory arose as a reaction to functionalism, which focused on the impact of a phenomenon on the system.ÂÂ  This is not a single theory, but rather the band theory, describing the social world as a system of exchanges of goods (tangible and intangible) between individuals and social groups.ÂÂ  Social exchange theorists see every interaction as a transaction something for something.ÂÂ  It is like a theory of individual self-interest.ÂÂ  If a person takes any action, it does so with the prospect of benefit for himself.ÂÂ  Often it is the intangible benefit, such as respect from others, obedience, satisfaction, etc. Social exchange theory is a theory in social science which states that there are elements in social relations without discipline, sacrifice, and benefits that affect each other. This theory explains how humans view their relationships with others in accordance with the assumption of human self is to: the balance between what is given to the relationship and what is excluded from that relationship. There is no unified sociology of exchange, but one can distinguish three main theoretical points of theories. Taking the example of the mutual exchange of between the bride and groom, so this could be either a civil contract between two different-actors to the mutual exclusive use of their bodies, or a mutually donated sacrament, by which ChristianityÂÂ  continues, or view as an institutional and thus pacification a driver or will form. Exchange of individuals.ÂÂ  Sociological theorists think consider the assumption that individuals always act when exchanged (individualistic, paired, antagonistic perspective).ÂÂ  No matter what they share in a particular case, there are always sociological social sanctions.ÂÂ  As positive sanctions, for example, congratulations or goods, but as negative there are insults or threats.ÂÂ  Often in the exchange theory only positive or ambivalent sanctions are treated, but include more general approaches and negative sanctions. In the distribution of conflict the actors face each other with conflicting interests. The one advantage is the other drawback: any one tried if it goes to positive sanctions, and spend as little as possible from the opponent to gain as much as possible.ÂÂ  In economics, this strategy, which it called only for positive sanctions (such as goods for money in markets), is the minimax principle.ÂÂ  And also, if people have antagonistic re lations and negative social sanctions (for example acts of violence against violence, such as in war) taken into account, the exchange ends here trying to minimize its losses and maximize the opponent. Considering the criticism, critical is pointed out that this is based on Homans and Blau, Exchange Theory as a variant or mutation of the behaviorism. It had become a rational choice model, and this methodological simplification was achieved at a price, as compared toÂÂ  classical and other approaches in sociology would be neglected by extra-economic motivations, norms and institutions and their history in general. Durkheim or Mauss expected to behave in exchange for all social collectives (community, systemic view).ÂÂ  Controlled by the exchange, the consideration to the group received the actors (mostly positive) from each other sanction.ÂÂ  The players share a common interest in the welfare of the collective, which is the individuals self-interest.ÂÂ  Each exchange includes the end and always a compromise in favor of the collective, even as a loyal member of a community and even with regard to his own advantage.ÂÂ  The Collective is always with a person, which is reflected in valid rituals (for example the handshake) or norms (such as the Commercial Law) that express stability.ÂÂ  Because of that, all exchange behavior is also spoken of as amphibole exchange. The theorist Clausen considers one of some forms of exchange that, in addition to the nature of man involves him into it with acting. Here, the parties conduct an exchange so that the survival of the human speci es will be encouraged to nature and other species.ÂÂ  So it is not only a sociological but also the anthropological institution.ÂÂ  This refers in particular to reproduction, child care and fighting prowess.ÂÂ  The most common example is the dyad between infant and caregiver time (usually, but not necessarily the mother), is expected to result that in the both the exchange is biologically supported and the happier they are, the better it is for others. Exchange theory by Homans. According to George Homans, the social behavior is an exchange of material goods, and it is also intangible, such as the symbols of approval and prestige. Homans, George tried to explain the behavior defined in the broadest sense as a result of interaction in which individuals acquire, sell, or share resources. He tried to explain social behavior using fundamental concepts of behavior, developed by behavioral psychologists, and neoclassical economists.ÂÂ  Behavioral model of operant conditioning is based on the utilitarian principle that individuals will seek to maximize enjoying and to avoid or minimize the pain.ÂÂ  It is assumed that individuals will respond as expected to reward and punishment.ÂÂ  Any interaction provides an opportunity to share resources, in which each party tries to get resources, with a higher value in comparison with that which he or she gives or which refuses. All social organizations were created on the basis of the network exchanges.ÂÂ  The organization needs the unit to be fulfilled by other bodies belonging to this organization.ÂÂ  Homans has developed five general provisions relating to social behavior and resource sharing.ÂÂ  Three of them reproduce the model of behavioral psychologists. The first statement directly follows from the model of operant conditioning, and says: In respect of any acts performed by people, the more often a person is rewarded for a particular action, the more that person will perform this action.ÂÂ  The second situation is linked to recognition of the role of past experience: In the past, the emergence of a particular stimulus or set of incentives has created a situation in which human action is rewarded, the more the present-day incentives are similar to those past stimuli, the more that person will perform the same or similar toÂÂ  his action in the present.ÂÂ  However, the third provision states that for their actions when a person does not receive the expected rewards or receive unexpected penalty, he goes berserk and can behave aggressively.He created a series of allegations, among them are the claim of success, the assertion of deprivation and that there is saturation of aggression. These statements are a part of seven and, according to crowning this list is the assertion of rationality, which says that the body of the two alternative measures will choose the one which gives the most likely results to achieve greater benefits. The basic proposition is: success: the more action the individual is rewarded with, the more likely it is to take this action. the stimulus: if the past occurrence of a specific stimulus or combination of stimuli was a circumstance, in which individual action has been rewarded, the more likely it is that the unit would take this or a similar effect. value: the more the action is for the individual securities, the more likely that it will be demonstrated this action. -saturation of deprivation: the more frequently in the recent past, the unit received a particular prize, the less valuable it becomes for each additional unit of the award. frustration-aggression: If the unit does not bring action to obtain a reward or punishment received by the entity, which they did not expect, it will react with anger, and anger aggressive behavior results will have a reward value. Exchange Theory by Peter Blau. Peter Blau introduced the analysis of exchange, which processes the term marginal utility, which says that the more the expected rewards entity obtains from a particular act, the less valuable this action is, and the less likely it will be.ÂÂ  The idea is that if in a result of the exercise we get some action on the awards, you will have less value, which will be a new round of the award.ÂÂ  Another concept introduced by Blau is the concept of standards for fair exchange, which indicates what should be the ratio of rewards to costs in the exchange relationship.ÂÂ  If these standards are shaken, then the injured party may disclose to aggressive behavior. Blau concept differs from the concept of Homans that provides conflict situations. Balance in one relationship, which is impaired by homeostasis seen in another.ÂÂ  Blau has another concept, which is social attraction that is the perception of opportunities for reward.ÂÂ  This is according to sociologist factor, necessary for the existence of the exchange ratio, which is based on the belief that people who give awards, in turn, you will receive the award as payment for the goods delivered.ÂÂ  There are four types (classes): the prize money, social acceptance, respect (deference) and submission.ÂÂ  Of these, the greatest value is the submission, then the respect, acceptance, and the least appropriate reward in the relations of social exchange is money. Submission is the most valuable prize because for Blau it is inherent in the relationship of power, and this in turn gives a possibility of denying rewards to those who do not want to comply with the standards.ÂÂ  Power is born when the value of services exceeds the value of services received in return.ÂÂ  If people have to choose only one or a few alternative sources of awards, then it also comes to forcing submission.ÂÂ  This is further facilitated if people are not giving to the possibility to use the coercion and opposition to a person providing services.ÂÂ  Inability to work around without data prizes also affects positively the opportunity to force the submission by the person in possession of these awards. Exchange in social psychology. Social psychology also speaks about human relations as relations of exchange. These systems are based on the so-called rule of reciprocity, under which we are committed to the future for favors, gifts, invitations and the goods that we have received.ÂÂ  According to social psychologists one of the important principles is governing the human investigation.ÂÂ  This commitment to the rematch probably exists in all human societies.ÂÂ  Researchers say that this rule has developed in order to encourage people to contact, based on mutual exchange of services without fear of giving something to another, and we lose it forever.ÂÂ  Another form of this rule is called reciprocal concessions, namely: if someone goes to hand us, we do it to him, too.ÂÂ  Thus we can safely take the first step to someone, as he will be obliged to give us a similar sacrifice.ÂÂ  This rule is valid according to social psychologists and it is an effective r egulator of social relations. The emergence of social exchange theory. In general, the social exchange theory consists of social relations rather than public. The societies have viewed the behavior influence of each other in the relationship; there are also elements of discipline, of sacrifice and gain that reflect social exchange.ÂÂ  The reward is all that through the sacrifice, when the sacrifice can be avoided, and the benefit is reduced by the rewards of sacrifice.ÂÂ  So the social behavior of the exchange at least between two people is based on the cost-benefit calculations.ÂÂ  For example, patterns of behavior in the workplace, romance, marriage and friendship. Analogy from the case, at some point people can feel in any of their friends, who, usually, are always trying to get something from you.ÂÂ  At that time you always give what a friend needs from you, but the opposite is actually happening when you need something from your friends.ÂÂ  Each individual course has a goal to be fri ends with each other.ÂÂ  These individuals would be expected to do something for others, help each other if needed, and provide mutual support.ÂÂ  However, maintaining friendly relations also requires the costs, such as the lost time and energy and other activities.ÂÂ  Although these costs are not seen as something that is expensive or burdensome when viewed from the point of reward obtained from these friendships.ÂÂ  However, these costs should be considered if we are to objectively analyze the relationships that exist in a friendly transaction.ÂÂ  If the cost seems not in accordance with the compensation, what happens is the uneasy feeling of a person who feels that the benefits received were too low compared to the cost or sacrifice that has been given. An analysis of the social relationships that occur according to the cost and reward is one characteristic of the exchange theory.ÂÂ  This exchange theory has focused on micro-level analysis, particularly at the interpersonal level of social reality.ÂÂ  In this discussion the focus will be on the notion of exchange theory by Homans and Blau.ÂÂ  Homans in his analysis insisted on the necessity to use the principles of individual psychology to explain social behavior rather than merely describing it. But Blau, on the other hand, was trying to move from the level of interpersonal exchanges at the micro level to the macro level of social structure.ÂÂ  He attempted to show how larger are the social structures that emerged from the basic exchange processes. Unlike the analysis described by the theory of symbolic interaction, exchange theory was mainly seen as the real behavior, not the processes that are purely subjective.ÂÂ  This was also adopted by Homans and Blau, who were not focused on the subjective level of consciousness or reciprocal relationships between the levels of dynamic interaction of subjective.ÂÂ  Homans further argued that scientific explanations should be focused on real behavior and then can be observed and measured empirically. The process of social exchange has also been expressed by the classical sociologists.ÂÂ  As expressed in the classical economic theory of the 18th and 19th century, the economists like Adam Smith have analyzed the economic market as a result of a comprehensive collection from a number of individual economic transactions.ÂÂ  He assumes that transactions will happen only if both parties can gain from these exchanges, and welfare of the community in general can be very well s ecured when the individuals are left to pursue personal interests through negotiated exchanges in private. Conflicts of individualistic and social exchange in collectivism. Conflict that occurs is a result of the growing contradiction between the individualistic orientation and collectivism.ÂÂ  Homans is probably someone who was very stressed on an individualistic approach to the development of social theory.ÂÂ  This is certainly different from the explanation that the Levi-Strauss, a collectivist, in issues especially regarding to marriage and kinship patterns. Levi-Strauss is an anthropologist who comes from France. He developed a theoretical perspective of social exchange on the practice of marriage and kinship system of primitive societies. A general pattern of analysis is when a man marries his mothers daughter.ÂÂ  A pattern that happens is that people rarely marry the daughter of his fathers brother. This latter pattern was analyzed further by Bronislaw Malinowski, who advanced by the exchange of nonmaterial. In explaining this, Levi-Strauss distinguishes two exchange systems, which include restricted and generalized exchange.ÂÂ  In restricted exchange, members of the dyad groups are directly involved in the exchange transaction, each member of the couple give each other a personal basis.ÂÂ  And in the generalized exchange, members of a group of triads or even larger accept something other than a dyad who gives something useful. In these exchanges the impact is on the integration and solidarity groups are inÂÂ  a more effective manner.ÂÂ  The main purpose of this exchange process is not to allow couples who are involved in an exchange to meet the needs of individualization. An analysis of marriage and kinship behavior is a criticism of Sir James Frazers explanation of a British expert who studies the economic anthropology on patterns of exchange that occurs between mating pairs in primitive society. The theory of exchange today does not represent a single school of thought.ÂÂ  Strictly speaking, there are several theories that share a common position that human interaction is a process of exchange.ÂÂ  In addition, each of them has their own views on human nature, society and social science. Theories of exchange have been and still are often criticized for the lack of freshness, the evidence of certain statements, ignoring the existence of a forced situation.ÂÂ  Most can be found with the view that this point of view narrows the social life and relations between people only to the physical assets. As a fact, social forms of exchange are perceived differently and communicated, as a sociological and anthropological analysis would be expected to.ÂÂ  As the question of justice, including equivalence of an exchange is directed according to dominant values, or it is judged differently from the representatives of warring values. Social exchange theory Social exchange theory Main dependent factor(s): Value and utility: profit, rewards, approval, status, reputation, flexibility, and trust Main independent factor(s): Exchange relation, dependency, and power Summary of theory Social exchange theory was formed by the intersection of economics, psychology and sociology. The theory was developed to understand the social behaviour of humans in economic undertakings, according to the theorys initiator Hormans (1958). There is a fundamental difference between the two the theories: economic exchange and social exchange theories, which is the way in which the actors are seen. Exchange theory views actors (persons or a firm) as dealing not with another actor but with a market (Emerson, 1987, P.11), reacting to various market characteristics; while social exchange theory sees the exchange relationship between specific actors as actions contingent on rewarding reactions from others. (Blau, 1964, P.91) Nowadays, various forms of social exchange theory exist, but all of them possess the same driving force which essentially is the same central concept of actors exchanging resources via a social exchange relationship. Where social exchange (e.g., Ax; By) is the intentional transfer of resources (x, y ) between several actors (A, B) (Cook, 1977). A network model (Cook, 1977) with market properties (Emerson, 1987) is the evolved form of the theory which previously was a dyadic model. The core of the theory is best captured in Homanss own words (1958, P.606) Social behaviour is an exchange of goods, material goods but also non-material ones, such as the symbols of approval or prestige. Persons that give much to others try to get much from them, and persons that get much from others are under pressure to give much to them. This process of influence tends to work out at equilibrium to a balance in the exchanges. For a person in an exchange, what he gives may be a cost to him, just as what he gets may be a reward, and his behaviour changes less as the difference of the two, profit, tends to a maximum.In conclusion, social exchange theory is best understood as a framework for explicating movement of resources, in imperfect market conditions, between dyads or a network via a social process (Emerson, 1987). Agency Theory or Principal-Agent Problem Key dependent factor(s) Efficiency, alignment of interests, risk sharing, successful contracting Key independent factor(s) Information asymmetry, contract, moral hazard, trust Summary of Theory In economics, the principal-agent dilemma treats the technical hitches that come up under conditions of unfinished and asymmetric information when a principal hires an agent. A variety of mechanisms could possibly be used in an attempt to align the interests of the agent with those of the principal, for instance piece rates/commissions, profit sharing, efficiency wages, the agent posting a bond, or fear of firing. The principal-agent problem is seen in the majority of employer/employee relationships. Agency theory is focussed at the ever-present agency relationship, which basically is: one party (the principal) entrusts work to another (the agent), who carries out that work. The resolution of the two problems in an agency relationship that can occur is the primary concern of agency theory. Firstly, is the agency problem which surfaces when (a) the desires or goals of the principal and agent conflict and (b) its difficult or expensive for the principal to authenticate what the agent is actually doing. The predicament here is the principal cant confirm that the agent has behaved fittingly. Secondly, is the problem of risk sharing that arises when the principal and agent have dissimilar attitudes towards the risk. The problem at this point is that the principal and the agent may fancy different actions since they have different risk preferences. Relationship between theory and Information Systems Agency theory sees the firm as a nexus of contracts amongst interested individuals. The owner employs agents (employees) to execute work on his/her behalf and delegates some decision-making power to the agents. Agents must be under constant supervision and management; this stems the introduction of management costs. As firms grow consequently management costs rise. Information technology minimises agency costs by providing information without difficulty so that managers can oversee a larger number of people with fewer resources. Simply, technological changes support the agency theory, which enables managers to supervise more employees at a reduced cost. Technology in general, and information systems particularly, save companies lots of money by reducing the number of managers needed to oversee larger numbers of workers. Transaction Cost Theory or Transaction cost economics Main dependent factor(s) Governance structure, degree of outsourcing, outsourcing success, inter-organizational coordination and collaboration Main independent factor(s) Coordination costs, transaction risk (opportunity costs), coordination costs, operational risk, opportunism risk, asset specificity, uncertainty, trust Summary of Theory In the field of economics and its related disciplines, a transaction cost is a cost incurred while making an economic exchange. A variety of transaction costs exist, for instance, search and information costs are the costs incurred in determining if a required good is available on the market, who has the lowest price, etc The costs required to achieve a satisfactory agreement with the other party to the transaction, drawing up an suitable contract, etc., is known as the bargaining cost. Policing and enforcement costs are costs that make sure the other party abide the terms of the contract, and taking appropriate action (regularly through the legal system) if this turns out not to be the case. Transaction costs consist of costs incurred in the process of looking for the best supplier/partner/customer, the cost of drawing-up a supposedly air-tight contract, and the costs of monitoring and enforcing the carrying out of the contract. Transaction cost theorists state that the total cost incurred by a firm can be grouped basically into two components: transaction costs and production costs. Transaction costs, which are often referred to as coordination costs, are the costs of all the information processing necessary to coordinate the work of people and machines that perform the primary processes, whereas production costs comprise the costs incurred from the physical or other primary processes necessary to create and distribute the goods or services being produced. Relationship between theory and Information Systems Transaction cost theory is based on the notion that a firm incurs transaction costs when the firm buys on the marketplace in comparison to making products for itself. Traditionally, in an attempt to reduce transaction costs firms wouldve gotten bigger, hired more employees, integrated vertically and horizontally, and wouldve taken over small-company. IT helps firms reduce the cost of market participation (transaction costs) and helps firms minimise their size while producing the same or even greater amount of output. In simplified terms, transaction cost theory supports the idea that assistance or through the help of technology businesses can minimize their costs of processing transactions with the same emphasis and enthusiasm that they attempt to minimize their production costs. Frameworks Traditionally, the Chief Information Officer (CIO)s job description entailed ensuring that the Business Strategy and Information Systems strategy were aligned. Successful information technology/business alignment, however, entails more than executive level communication and strategy translation. Achieving alignment is usually done by establishing a set of well-planned process improvement programs that systematically tackle obstacles and go further than executive level conversation to filter through the entire IT organization and their culture. IT/Business Alignment Cycle A generally used methodology is the IT/Business Alignment Cycle, which introduces a straightforward framework that the IT organization can take on to manage a broad range of activities. The cycles four phases are: plan, model, manage, and measure. Organization-wide shared expectations between business and IT managers are fostered utilizing this cycle, and a universal framework is defined for a wide-range of activities that jointly serve to align IT and business objectives. Within the cycle the best practices and common processes within and between IT functional groups are identified which makes IT/business alignment sustainable and scalable. When integrated and automated with software applications and monitoring tools the framework functions optimally. Plan Phase: In this phase business objectives are translated into quantifiable IT services. This phase aids in closing the gap between what business managers need and expect and what IT can deliver. Giga Research reports that IT leaders in poorly aligned organizations are still trying to elucidate technology management issues to their business colleagues and havent made that leap to comprehending business issues and communicating with them on a business-minded level. To bridge the gap between what business expects and what IT can deliver, IT must have an ongoing dialogue to elucidate business needs in business terms. Without any ongoing dialogue, its difficult for IT to determine which IT services to offer or how to efficiently allot IT resources to maximize business value. Also, when business needs change, IT ought to adjust and modify the service offering and IT resources fittingly. CIOs should consent the use of a regimented service level management process that will lead to agreement on precise IT services and service levels required to support business objectives. IT management can then translate service definitions and service levels into fundamental rules and priorities that empower and guide IT resources. Lastly, IT needs a method to measure and track both business level services and the underlying capabilities that support the services. Model Phase: An infrastructure should be designed to optimize business value. The model phase pinpoints resources needed to deliver IT services at dedicated service levels. This phase involves mapping IT assets, processes, and resources back to IT services, then prioritizing and planning resources that support those business critical services. The bottom line in measuring the triumph of an alignment is the extent in which IT is working on the things which business managers care about. This implies that IT must have processes in place for prioritizing projects, tasks, and support. To effectively prioritize resources, IT needs a service impact model and a centralized configuration and asset management repository to connect the infrastructure components back to particular IT services. This amalgamation is vital if IT is to efficiently plan, prioritize, and constantly deliver services at agreed-upon service levels while also minimising costs. Manage Phase: Results should be driven through fused service support. The manage phase permits the IT staff to deliver pledged levels of service. Assurance from the CIO that the organization meets expectations by providing a single location for business users to submit all service requests and by prioritizing those requests based on pre-defined business precedence. Without a single point-of-service request, it isnt easy to manage resources to achieve agreed-upon service levels. Furthermore, lacking a system for effectively managing the IT infrastructure and all changes, the IT staff is faced with the danger of causing failures. In order for the IT staff to ensure the effectiveness of the service desk they need to provide: A technique for prioritizing service requests based on business impact. A well-organized change management process to reduce the risk of negatively affecting service level commitments. An IT event management system to monitor and manage components that support business critical services. The basic operational metrics that enable service delivery at promised levels, in addition to the means for measuring and tracking the advancement of service level commitments using these metrics. Measure Phase: Involves the verification of commitments coupled with improvement of operations. Cross-organization visibility into operations and service level commitments is improved in this phase. Conventional IT management tools operate in functional silos which confines data collection and operational metrics to focused areas of functionality, relating more to technology than to business objectives. Component-level metrics and measures are definitely essential for continuing service availability. Nevertheless, to support real-time resource allotment decisions, these measures must be construed in a broader business context, with the inclusion of their connections to business-critical services. Without a business context for construing measures and metrics, isolated functional groups cant get a holistic view of IT services that sustain business objectives. By committing to the cycle and integrating and automating activities using software solutions, its possible to align a whole organization to make logical improvements that prevail over obstacles. Competitive Forces Model Porters competitive forces and strategies is one of the popular and effective models for formulating a strategy. After studying a number of business organizations, Michael E. Porter proposed that mangers can formulate a strategy that makes an organization achieve a higher level of profitability and reduce vulnerability if they understand five forces in the industry environment. Porter found the following forces determine a companys position vis-ÃÆ'Â  -vis competitors in the industry: The rivalry among existing competitors The threat of new entrants The threat of substitute products and services The bargaining power of buyers The bargaining power of suppliers Porters framework (competitive forces model) has long been acknowledged as a valuable tool for business people to utilize when thinking about business strategy and the impact of IT. Porters framework illustrates why some firms do better than others and how they gain competitive advantage. It also analyzes a business and identifies its strategic advantages, as well as, demonstrating how entrepreneurs can develop strategic advantages for their own business. And lastly, it shows information systems contribute to strategic advantages. The threat of new entrants: The threat of new entrants to an industry can create pressure for established organizations, which might need to hold down prices of increase their level of investment. The threat of entry from in an industry depends largely on the amount and extent of potential barriers, such as cost. The power of suppliers: Large, powerful suppliers can charge higher prices, limit services of quality, and shift costs to their customers, keeping more of the value for themselves. The concentration of suppliers and availability of substitute suppliers are significant factors in determining supplier power. The power of buyers: Powerful customers, the flip side of powerful suppliers, can force prices down, demand better quality or services, and hence drive up costs for the supplying organization. The threat of substitutes: The power of alternatives and substitutes for a companys product or service maybe affected by changes in cost, new technologies, social trends that will deflect buyer loyalty, and other environmental changes. Rivalry among existing competitors: In most industries, especially when there are only a few major competitors, competition will very closely match the offering of others. Aggressiveness will depend mainly on factors like number of competitors, industry growth, high fixed costs, lack of differentiation, capacity augmented in large increments, diversity in type of competitors and strategic importance of the business unit. Information Systems Competitive Advantage In order to be competitive, companies must have a degree of quickness, nimbleness, flexibility, innovativeness, productivity, thriftiness and customer centricity. It must also align its IS strategy with general business strategies and objectives. Given the five market forces mentioned above, Porter and others have proposed a number of strategies to attain competitive advantage: Low-Cost Leadership Information systems can be used achieve the lowest operational costs and the lowest prices. For instance, Wal-Mart has utilized IT to develop anefficient customer response systemthat directly links customer behaviour back to distribution, production, and supply chains. Product Differentiation Information systems can be used in the process of enabling new products and services, or significantly changing the customer convenience in the use of an existing products or services. Mass customization enables organizations to offer individually tailored products or services through the use of mass production resources. Focus on Market Niche Using information systems enables a firm to pinpoint a specific market focus, and thus allowing them to serve this narrow target market better than competitors. Information systems can support this strategy because it can be used to produce and analyze data for use in finely tuned sales and marketing techniques. Companies can now analyze customer buying patterns, tastes, and preferences closely so that they efficiently and effectively pitch advertising and marketing campaigns to smaller and smaller target markets. Strengthen Customer and Supplier Intimacy The use of information systems tightens linkages with suppliers and develops intimacy with customers. Switching costs increase when and where therere strong linkages between customers and suppliers (expense a customer or company incurs in lost time and expenditure of resources when changing from one supplier or system to a competing supplier or system). STRENGTHS OF THE FIVE COMPETITIVE FORCES MODEL The model is a strong tool for competitive analysis at industry level, compared to PEST analysis It provides useful input for performing a SWOT Analysis LIMITATION OF PORTERS FIVE FORCES MODEL Care should be taken when using this model for the following: do not underestimate or underemphasize the importance of the (existing) strengths of the organization (Inside-out strategy). The model was designed for analyzing individual business strategies. It does not cope with synergies and interdependencies within the portfolio of large corporations. From a more theoretical perspective, the model does not address the possibility that an industry could be attractive because certain companies are in it. Some people claim that environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation. Sometimes it may be possible to create completely new markets instead of selecting from existing ones.