Digitalization and Business: A View From Porter's Five Forces

Introduction

Digitalization, which came to the agenda with the Fourth Industrial Revolution (or Industry 4.0), is considered a requirement for businesses that want to keep up with the new world and ensure sustainability by gaining a competitive advantage. Initially, digitalization had its greatest effect on manufacturing, specifically in the automotive sector, where it altered the methods of production. More recently, comparable advancements have taken place in other industries (Brynjolfsson & McAfee, 2014),

Today digitalization is becoming a top business concern worldwide (Fitzgerald et al. 2013; Kaufman & Horton 2015; Broccardo et.al.,2023), and a phenomenon that affects economies and society by integrating digital technologies (Kagermann 2015).

Digitalization is transforming the competitive landscape for many industries by leveraging the power of the internet, computers, tablets, and smartphones. This transformation is not limited to these devices alone, but also extends to the internet of things, cloud computing, big data, and analytics. As the economy increasingly relies on information and technology, digitalization presents opportunities for businesses that can embrace it. With the exponential growth of information technology, organizations can gain valuable insights from other industries through access to varied information. Digitization also enables companies to easily gather knowledge about suppliers and competition, leading to better decision-making. This demonstrates how digitalization can help businesses stay ahead of the curve in today's ever-changing business environment (Kohnova &Salajova, 2023).

Unlike Industry 3.0, which focuses primarily on machine and process automation, Industry 4.0 focuses on the digitization of physical assets and an integrated digital ecosystem (PWC, 2016). In this digital ecosystem, from product development and purchasing to production, logistics, and service are expected to be vertical, and from suppliers to customers are expected to be horizontally digitalized and integrated. Digital products and services are offered to customers with complete solutions with developed digital business models. It is precisely for these reasons; successful digitalization will not just depend on the technologies. In fact, the first and most significant stage in the digitization process is the incorporation of these technologies into overall business strategies (Kane et al., 2015).

Digitalization of business processes in the line with the business strategy is the main source of value creation and critical competitive advantage (Goerzig & Bauernhansl, 2018). Strategies based on information technology or information technology outsourcing investments allow firms to distinguish themselves from rivals (Mithas et.al, 2013). Therefore, digitalization and all these effects on business strategy have become a remarkable subject in the literature and also involve more in-depth work in the development of the idea. It has been argued that existing strategy frameworks, models and tools are not applicable to this new digitalization effect. Some of these arguments are based on the five forces model Porter, which has contributed to the field of strategy and strategic management since 1980. According to Porter (1980), each industry has some basic economic and technical characteristics that affect the conditions of competitiveness. For this reason, he emphasized that businesses should formulate a competitive strategy after analyzing the industry structure and conditions and suggested the five forces model.

In this study, the impact of digitalization on business strategies in the field of structure and people is addressed conceptually differently from the only IT-focused studies in the literature. In this context with the focus on Porter’s (1980) five forces (threat of new entrants, the threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing competitors), the reflection of the effects of digitalization on business are discussed.