Monday 1 July 2013

Chapter 2 Mgt 300- Identifying the competitive advantage


1. What is competitive advantage?
v  A product of service that an organization’s customers place a greater value on then similar offerings from a competitor
v   CA is temporary because competitors keep duplicate the strategy.
v  The company should start the new competitive advantage.
2. In this chapter we will learn about Michael Porter’s Model. These models are useful tool to aid organizations in challenging decision whether to join new in industry or industry segment.
3. The Five Forces Model
        i.            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
·         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
§  Low when comes to limited items.
§  E.g.: used loyalty programs (Jusco card, Tesco card, -being a members to get the discount)

      ii.            Supplier Power
*      High – when buyers have a few choices of whom to buy from
*      Low – when their choices are many
§  Best practices of IT create competitive advantage.
§  E.G. B2B marketplace – private exchange allow a single buyer to posts it need and then open the biddings to any supplier who could care to bid. Reverse auction is an auction format which increasingly lowers bids.
   

    iii.            Threat of Substitute products & Services
*      High – when there are many alternatives to a product or services
*      Low – when there are few alternatives from which to choose
*      Ideally, an organizations would like to be on a market in which there are few  substitutes of their products  or services.
§  Best practices of IT
§  E.g. Electronics products – same function different brands
    The Competitive Environment
    Threat of Substitutes
*      To the extent that customer can use different products to fulfill the same need, the threat of substitutes exists.
*      E.g. Electronic product – same function different brands.
*      Switching cost - costs can make customer reluctant to switch to another product or service.

     iv.            Threat of new entrants
*      High -  when it is easy for new competitors to enter a market
*      Low – when there a significant entry barriers to entering a new market
*      Entry barriers is a product or service feature that customers have come to expect from organization and must be offered by entering organization to compete and survive.
*      Best practices of IT
§  E.g. new bank must offers online paying bills, account monitoring to compete.

 The Competitive Environment
 Threat of New Entrants
*      Many threats come from companies that do not yet exists or have a presence in a given industry or market.
*      The threats of new entrants’ forces top management to monitor the trends, especially in technology, that might give rise to new competitors.
*       E.g. new bank ( online paying bills, account monitoring )

       v.            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 supply chain.
§  Reduce cost by using effective supply chain

The Competitive Environment
Rivalry Among Existing Firms
*      Existing competitors are not much of the threats : typically each firm has found its “niche”
*      However, changes in management, ownership, ownership, or “the rules of the game” can give rise to serious threats to long term survival from existing firm.
*      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 )

4. The Three Generics Strategies
        i.            Cost Leadership
Ø  Becoming a low-cost producer in the industry allows the company to lower prices to the customers.
Ø  Competitors with the higher cost cannot afford to compete with the low-cost leader on price.



      ii.            Differentiation
Ø  Create competitive advantage by distinguishing their products on one more features important to their customers
Ø  Unique features or benefits may justify price differences and or stimulate demand.
Ø  Ex: I-care by Proton

    iii.            Focused Strategy
Ø  Target to a niche market
Ø  Concentrating on either cost leadership or differentiation

                                         

Example :

5. The value Chains – Targeting Business Processes
*      Supply chain – a chain or series of processes that adds value to products & service for customer

*      Add value to its products and services that support a profit margin of the firm.

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