CHAPTER 2 : IDENTIFYING COMPETITIVE ADVANTAGE

What is competitive advantage?

• A product or service that an organization’s customers place a greater value 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 PORTER’S FIVE FORCES MODEL

•  Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.
•  A model for industry analysis.

 

Buyer Power

·         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 produce attractive product compared the competitors.

·         Best practices of IT-base

Ø  Loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays)

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      Supplier Power

·         High – when buyers have few choices of whom to buy from.

·         Low – when their choices are many.

Ø  Best practices of IT to create competitive advantage.

Ø  E.g. B2B marketplace – private exchange allow a single buyer to post 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.

-        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.

Ø  Best practices of IT

Ø  E.g. Electronic product – same function different brands.

-        Threat of new entrants

·         High – when it is easy for new competitors to enter a market.

·         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

Ø  E,g. new bank must offers online paying bills, acc monitoring to compete.

-        Rivalry among existence competitors

·         High – when competition is fierce in a market.

·         Low – when competition is more complacent.

Rivalry Among Competitors

1. Threat of new entrants

2. Bargaining power of customers

3. Threat of substitutes

4. Bargaining power of suppliers

THE THREE GENERIC 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.

·         Superior profits.

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.

                              Focused strategy

·         Target to a niche market.

·         Concentrates on either cost leadership or differentiation.

RELATIONSHIP BETWEEN BUSINESS PROCESS AND VALUE CHAIN

• Supply chain – a chain or series of processes that adds value to product and service for customer.
• Add value to its products and services that support a profit margin for the firm.