Chapter 2: IDENTIFYING COMPETITIVE ADVANTAGE

WHAT IS 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

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

FIVE FORCES MODEL

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 must make it more attractive to buy from the company not from the competitors.
Best practices of IT-based

Barganing 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 (jusco card, tesco card, being a members to get the discount

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
Example: B2B marketplace- private exchange allow a single buyer to posts it need and then open the bidding to any supplier who would care to bid. Reverse auction is an auction format in which increasingly lower bids.

Supplier power is the converse of buyer power.

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 a market in which there are few substitues of their product or services
Example: Elctronic product ( same function different brands)

Threats of new entrants

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

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 or survive
Example: new bank must offers online paying bills, acc monitoring to compete

Threat of new entrants

Many threats come from comapnies 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, acc monitoring)

RIVARLY 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

Rivarly among existing firms

Existing competitiors are not much of the threat: typically each firm has found its "niche"
However, changes in managemnt, 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 the airlines operating in bankruptcy, who do not pat on the debts whiile slashing fares against those airlines who do pay on debt. (MAS & AIRASIA)

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

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 stimulate demand
Example: i-care by proton

3. Focused strategy

RELATIONSHIP BETWEEN BUSINESS PROCESS AND VALUES 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.

MGT300 NOTES