MGT300 - 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, competitive advantage is temporary because of competitors keep duplicating the strategy. Then, the company should start the new competitive advantage. 

What is Porter's Five Forces Model?

Michael Porter's Five Forces Model is a useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

• A model for industry analysis
• When company understand their environment, they can adjust strategy accordingly.

For example, you could take fair advantage of a strong position or improve a weak one, and avoid taking wrong steps in future.

1. Buyer Power
HIGH - When buyers have many choices of whom to buy
LOW - When their choices are few

     To reduce buyer power (and create the competitive advantage), an organization produce attractive product compared the competitors.

⇨ Best practices of IT-based
⇨ Loyalty program in the travel industry.
⇨ Example: rewards on free airline tickets or hotel stays

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
• Example: used loyalty programs such as Jusco card, Tesco card, - being a member to get the discount

2. Supplier Power

HIGH - When the buyers have few choices of whom to buy from

LOW - When their choices are many

⇒ Best practices of IT to create competitive advantage

⇒ Example: 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. A reverse auction is an auction format in which increasingly lower bids.

3. A 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 for their product or services.

⇨Best practices for IT

⇨Example: Electronic product -same function different brands

A Threat of Substitute

• To the extent that customers can use different products to fulfill the same need, the threat of substitute exists.
• Example: electronic product - same function different brands
• Switching cost - costs can make customer reluctant to switch to another product or service

4. A 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 organization to compete and survive.
• Best practices of IT
• Example: new bank must offer online paying bills, account monitoring to compete

The Competitive Environment

• Many threats come from companies that do not yet exists or have a presence in a given industry or market
• The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors
• Example: new bank (online paying bills, account monitoring)

5. Rivalry among existance 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

Existing competitors are not much of the threat: typically each firm has found its "nice". However, changes in management, ownership, or 'the rules of the game' can give rise to serious threats to long-term survival from existing firms. 

Example: 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)

The Three 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. /Superior profit/

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.

3. Focused Strategy

• Target to a nice market
• Concentrates on either cost leadership or differentiation.

Example

Relationship between business process and value chain?

Supply Chain - a chain or series of processes that add value to product and service for customer.

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 and service for the customer.