Chapter 2.
IDENTIFYING COMPETITIVE ADVANTAGE.
Competitive Advantage :
- A product or service that an organization's customers place a greater value on than similar offerings from a competitor.
- Unfortunately, CA is temporary because competitors keep duplicate the strategy.
- Then, the company should start the new competitive advantage.
The Five Forces Model.
* Michael Porter's Five Forces Model -> useful tool to aid organization in challenging decision whether to join a new industry segment.
Five Force Model.
¡High – when buyers have many choices of whom to buy.¡Low – when their choices are few.¡To reduce buyer power (and create competitive advantage), an organization must make it more attractive to buy from the company not from the competitors.¡Best practices of IT-based§Loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays )
The Competitive Environment.
Bargaining Power of Customers./ Buyer power.
- customers can grow large and powerful as a result of their market share.
- many choices of whom to buy from.
- low when comes to limited items.
- E.g: used loyalty programs( Jusco card, Tesco card,-being a members to get the discount).
2.Supplier Power.
¡High – when buyers have
few choices of whom to buy from.
¡Low – when their choices are many.
§Best practices of IT
to create competitive advantage.
§E.g. B2B marketplace – private exchange
allow a single buyer to posts it needs and then open the bidding to any
supplier who would care to bid. Reverse auction is an auction format
in which increasingly lower bids.
An organization within the Supply Chain
¡ Supplier power is the
converse of buyer power.
Suppliers ---(*)---> Organization ----(#)----> Customers.
(*) = Organization want supplier power to be low here.
(#) = Organization want supplier power to be high here.
3. Threat of Substitute products & Services.
¡ High – when there are many alternatives to a product or
service.
¡ Low – when there are few alternatives from which to choose.
¡ Ideally, an
organization would like to be on a market in which there are few substitutes of
their product or services.
§ Best practices of IT
§ E.g. Electronic product -same function
different brands
The Competitive Environment.
Threat
of Substitutes.
o To the extent that customers can use
different products to fulfill the same
need, the threat of substitutes exists.
o E.g:
electronic product -same function different brands
o Switching cost- costs can make customer reluctant to
switch to another product or service
4.
Threat of new entrants.
¡ Low – when there are significant entry barriers to entering a market.
¡ Entry barriers is a product or service feature that customers have come to expect from organizations and must be offered by entering organization to compete and survive.
¡ Best practices of IT
§ E.g. new bank must offers online paying bills, acc monitoring to compete.
The Competitive Environment.
Threat
of New Entrants.
o Many threats come from companies that
do not yet exist or have a presence in a given industry or market.
o The threat of new entrants forces top
management to monitor the trends, especially in technology, that might give
rise to new competitors.
o E.g. new bank (online paying bills, acc
monitoring)
5. Rivalry among existence competitors.
¡High – when
competition is fierce in a market
¡Low – when
competition is more complacent
¡Best Practices of IT
§Wal-mart and its
suppliers using IT-enabled system for communication and track product at aisles
by effective tagging system.
§Reduce cost by using
effective supply chain.
The Competitive Environment.
Rivalry
Among Existing Firms.
o Existing competitors are not much of
the threat: typically each firm has
found its "niche".
o However, changes in management, ownership, or "the rules of the
game" can give rise to serious
threats to long term survival from existing
firms .
o E.g: the airline
industry faces serious threats from airlines operating in bankruptcy, who do not pay on
the debts while slashing fares against those healthy airlines who do pay on
debt. (MAS & AIR ASIA)
Competitive Advantage.
•Porter’s 3 generics strategies
.
*1. Cost Leadership
•Becoming a low-cost
producer in the industry allows the company to lower prices to customers.
•Competitors with higher
costs cannot afford to compete with the low-cost leader on price.
*2. Differentiation
•Create competitive
advantage by distinguishing their products on one or more features important to
their customers.
•Unique features or
benefits may justify price differences and/or stimulate demand.
•Ex: i-care by Proton
*3.
Focused Strategy
•Target
to a niche market
•Concentrates
on either cost leadership or differentiation
3 Three Generic Strategies.
3 Three Generic Strategies.
Competitive Advantage.
•Relationship between business process and value chain
The
Value Chains- Targeting Business Processes.
q Supply Chain - a chain or series of
processes that adds value to product & service for customer.
q Add value to its products and services
that support a profit margin for the firm
*Supply Chain Diagram.
- A chain or series of processes that adds value to product & service for customer.
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