Chapter 2 - Identifying Competitive Advantages

WHAT IS COMPETITIVE ADVANTAGE:

  • Competitive Advantage is a product or service that an organization's customers lace a greater value on the similar from competitor.
  • It is temporary because competitors keep duplicate the strategy.
  • First-mover Advantage is occurs when an organization can meaningfully impact its market shareby being first to market with a competitive advantage.



    • There are three common tools used in industry to analyze and develop:
    1. Porter's Five Forces Model
    2. Porter's Three Generic Strategies
    3. Value Chains

    THE FIVE FORCES MODEL - Evaluating Business Segments.
    Porter's Five Forces Model determines the relative attractiveness of an industry (Have their own calculate)
    1.  BUYER POWER 
    • High when buyers have many choices.
    •  Low when their choices are few.

    Way to reduce buyer power is through Loyalty Program & Switching Costs.
    • Loyalty Program: rewards customers based on the amount of business.
    • Switching Costs: costs that can make customer reluctant to switch to another product or services.
       2.   SUPPLIER POWER 
    • High when buyers have few choices of whom to buy.
    • Low when their choices are many ( Have many supplier )

    Supply Chain consists of all parties involvedin the sale of product or raw material.

    Supplier power is the converse of buyer power.
    Best practices of IT to create competitive advantage: 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. Reverse auction is an auction format in which increasingly lower bids.

      3.  THREAT OF SUBSTITUTE PRODUCT OR 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 a few substitutes of their product or services.
    • Best practices of IT: Electronic product- same function different brands.
    - Threat of new entrants: High when it is easy for new competitors to enter a           merket.  Entry Barrier is a product feature that customers have to expect from organizations in a particular. 
      4.  RIVALRY AMONG EXISTING COMPETITORS 
    • High when competition is fierce in a market.
    • Low when competition is more complacent
    • Best practice 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 THREE GENERIC STRATEGIES - Creating a Business Focus
     VALUE CREATION

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

    • Customers determine the extent to which each activity adds value to the product or service.
    • The Competitive Advantage is to:
    1. Target high value-adding activities to further enhance their value.
    2. Target low value-adding activities to increase their value
    3. Perform some combination of two.

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