Chapter 2 : Identifying Competitive Advantages

Learning Outcomes

• Explain why competitive advantages are typically temporary
• List and describe each of the five forces in Porter's Five Forces Model
• Compare Porter's three generic strategies
• Describe the relationship between business processes and value chains

Identifying Competitive Advantages  

-To survive and thrive an organization must create a competitive advantage

1. Competitive advantage - a product or service that an organization customer place a greater value on than similar offerings from a competitor
2. First mover advantage - occurs when an organization can significantly impact its market share by being first to market with a competitive advantage
3. Environmental scanning - the acquisition and analysis of events and trend in the invironment external to an organization

Three common tools : 

Porter's Five Forces Model (industry attractiveness)

Porter's Three Generics Strategies (business focus)

Value Chains (business strategy)

• Buyer Power

- High when buyers have many choices of whom to buy from and low when their choices are few

Way to reduce buyer power is though loyalty programs

1. Loyalty program - rewards customers based on the amount of business they do with particular organization
2. Switching costs - costs that can make customers reluctant to switch to another product or service

• Supplier Power 

- High when buyers have few choices of whom to buy from and low when their choices are many

- Low when their choices are many

- Supply chain - consists of all parties involved in the procurement of a raw product or raw material

Two types of business-to-business (B2B) marketplaces

• Private exchange - single buyer posts its needs and then opens the bidding to any supplier who would care to bid
• Reverse auction - auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price

Threat of Substitute Products of Service

- High when they are many alternatives about products service

- Low when there are few alternatives about products service

Threat of New Entrants

-High when it is easy for new competitors to enter market

-Low when they are significant entry barriers to enter market

Rivalry among Existence Competitor

- High when competition is fierce in market

- Low when competition is more complacent

The Three Generic Strategies

Cost Leadership

• Becoming a low cost producer in the industry allows the company to lower prices to the customer
• Competitors with higher costs cannot afford to compete with low costs reader on price

Focus Strategy

• Target to a niche market
• Concentrate on either cost on leadership or differentiation

Relationships between business process and value chain

Supply chain - a chain or series of processes that adds value to products and service for customer

Supply chain diagram