Chapter 2 - IDENTIFYING COMPETITIVE ADVANTAGES

Identifying Competitive Advantages

Competitive advantage (CA) is a product or service that an organization's customers place a greater value on than similar offerings from a competitor. Unfortunately, CA is temporary because competitors keep duplicate the strategy. Then, the company should start the new competitive advantage.

The Five Forces Model-Evaluating Industry Attractiveness

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. Buying 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 program in travel industry 
• E.g. rewards on free airline tickets or hotel stays.

2. Supplier power

• High - when buyers have few choices of whom to buy from.
• When their choices are many.
• Best practice of IT to create competitive advantage.
• E.g. 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 birds.
• Supplier power is the converse of buyer power.

3. Threat of Substitute products & 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 are few substitutes of their product or services.
• Best practices of IT.
• E.g. Electronic product - same function different brands.

4. 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 expect from organizations and must be offered by entering organization to compete and survive.
• Best practice of IT
• E.g New bank must offers online paying bills, acc monitoring to compete.

5. 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 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 the 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 just justify price differences and/or stimulate demand.
• E.g. i-care by Proton.

3.Focused Strategy

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

The Value Chains - Targeting Business Processes

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

Competitive Advantage