What is
competitive advantage?
Ø A product or services that an
organization’s customers place a greater value on than similar offerings from a
competition.
Ø Unfortunately, CA is temporary
because competitors keep duplicate the strategy.
Ø Then, the company should start the
new competitive advantages
Michael Porter’s Five Forces Model is useful tool to aid
organization in challenging decision whether to join a new industry or industry
segment
-
Buyer Power
Ø High – when buyers have many
choices of whom to buy
Ø Low – when their choices are few
Ø To reduce buyer power (and create
competitive advantage), an organization must make it more attractive to buy
from the company not from the competitors
Ø Best practices of IT based
§ Loyalty program in travel industry,
for example 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
§ Example, used loyalty programs
(Jusco card, Tesco card, being a members to get the discount)
2. Supplier Power
Ø High – when buyers have few choices
of whom to buy from
Ø Low – when their choices are many
Ø Best practices of IT to create
competitive advantage
Ø Example, 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
An organization within the Supply Chain
.. Supplier power is the converse of buyer power
1. Threat of Substitute products and services
v High – when there are many
alternatives to a product or service
v Low – when there are few
alternatives from which to choose
v Ideally, an organization would like to be on a
market in which there are few substitutes of their product or services
v Best practices of IT
v Example, Electronic product – same
functions different brands
THE COMPETITIVE ENVIRONMENT
Threat of Substitutes
-
To the extent that customers can use different products to fulfill
the same need, the threat of substitutes exists
-
Example, electrical product – same function different brands
-
Switching cost – costs can make customer reluctant to switch to
another product or service
2. Threat 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 customers have
come to except from organizations and must be offered by entering organization
to complete and survive
·
Best practices of IT
·
Example, new bank must offers online paying bills, acc. monitoring
to compete
THE COMPETITIVE ENVIRONMENT
Threat of New Entrants
-
Many threats come from companies that do not yet exist 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
-
Example, new bank (online paying bills, acc. monitoring)
3. 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 tagging system
·
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 long term survival from existing
firms
- Example, the airline industry faces serious threats from airlines
operating in bankruptcy, who do not the debts while slashing fares against
those healthy airlines who do pay on debt. (MAS & AIR ASIA)
The Value Chains – Targeting Business Processes
Supply Chain – a chain or series of processes that adds value to
product and service for customer
Add value to its products and
services that support a profit margin for the firm
