chapter 2: identifying competitive advantages

CHAPTER 2: IDENTIFYING COMPETITIVE ADVANTAGES

       Competitive advantages is the product or services that an organization’s customer place a greater value on than similar offerings from a competitor

       Unfortunately, competitive advantages is typically temporary because competitors often seek ways to duplicate the strategy

       When organization is the first to market with a competitive advantage, it gains a first-mover advantage.

       The first-mover advantage occurs when an organization can significantly impact its market with a competitive advantage. Eg: FedEx

      Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment

1.       BUYER POWER– is assessed by analyzing the ability of buyers to directly impact the price they are willing to pay for an item. If buyer power is HIGH they can force a company and its competitors to compete on price which price down. To reduce buyer power is by using switching costs which is can make customers reluctant to switch to another product or services. Loyalty program in travel industry (eg:  rewards on free airlines tickets or hotel stays)

2.       SUPPLIER POWER- is assessed by the suppliers’ ability to directly impact the price they are charging for supplies. If supplier power is HIGH the supplier can directly influence the industry by charging higher price, limiting quality or services and shifting costs to industry participants. Supply chain is supplier power is the converse of buyer power

3.       THREAT OF SUBTITUTE PRODUCTS OR SERVICES- is HIGH when there are many alternatives to a product or services and LOW when there are few alternatives from which to choose. Ideally, an organization would like to be on a market in which there are few substitutes of their product or services

4.       THREAT OF NEW ENTRANTS-is HIGH when it is easy for new competitors to enter a market and LOW when there are significant entry barriers to entering a market. Entry barrier is a product or services feature that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive

5.       RIVALRY AMONG EXISTING COMPETITORS- is HIGH when competition is fierce in a market and LOW when competition is more complacent. Best practices of IT is Wal-mart and its suppliers using IT enabled system for communication and track product at aisle by effective tagging system. Reduce costs by using effective supply chain. Existing competitors are not much of the treat: typically each firm has found its “niche”

       3 generics strategies :

      Cost Leadership: becoming a low cost producer in the industry allows the company to lower prices to customers. Competitors with the higher costs cannot afford to compete with the low cost leader on price

      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

      Focused strategy: target to a niche market. Concentrate on either costs leadership or differentiation

      Relationship between business processes and value chain

      Business process is a standardized set of activities that accomplish a specific task such as processing a customer’s order. To evaluate the effectiveness of its business process

      Value chain approach view an organization as a series of processes each of which adds value to the product or services for each customers