MGT300-CHAPTER 2

                             
                              CHAPTER 2 : IDENTIFYING                              COMPETITIVE ADVANTAGE

INTRODUCTION

What is competitive advantages?

• A product or services that an organizations customers place a greater value on that similar offerings from a competitors.
• 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 tools to aid organization in challenging decision whether to join a new industry or industry segment.

FIVE FORCES MODEL

1. Buyer power
2. Supplier power
3. Threat of substitute product or services
4. Threats of new entrants
5. Rivalry among existing companies

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 competitive advantage) , an organization must make it more attractive to buy from the company not from the competitors.
• Best practices of IT-based 

            -Loyalty programme 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 from
• Low when comes to limited items
• Eg : used loyalty programme (jusco card, tesco card, -being a members to get discount)

2. 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.

          -E.g. B2B Marketplace - private exchange allow a single buyer to posts it needs and than open             the bidding to any supplier who would care to bid.Reverse auctions is an auction format in                   which increasingly lower bids.

3. Threats of substitute products and services.

• High - when there are many alternatives to a product or sevice.
• Low - when there are a few alternatives from which to choose.
• Ideally, an organization would like to be on a market in which there are a few substitutes of their product or services.

      - Best practices of IT

      - e.g. Electronic product-same function different brands

The competitive environment

Threats of Substitutes

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

Threats 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 customer have come to expect from organizations and must be offered by entering organization to compete and survive.
• Best pratice of IT

       - E.g. new bank must offers online paying bills, acc monitoring to compete

The competitive environment

Threats of new entrants

• Many threats can 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.
• E.g. new bank (online paying bills, acc monitoring)

5. Rivalry among existence competitors

• High - when competition is fierce in a market
• Low - when competition is more complacent
• Best practice 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 threat : typically each firm has found its "niche"
• However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to a long term survival from existing firms.
• E.g.the airline industry faces serious threats from airlines operating in bankrupcy, 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 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/ or stimulate demand.
• Eg. i-care by Proton

3. Focused Strategy

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

THE VALUE CHAINS - TARGETTING BUSINESS PROCESS

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

THE END......