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
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