CHAPTER 2 : IDENTIFYING COMPETITIVE ADVANTAGES

CHAPTER 2 : IDENTIFYING COMPETITIVE ADVANTAGES

QUESTION FROM THIS CHAPTER:

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

IDENTIFYING COMPETITIVE ADVANTAGES

Running a company today is similar to leading an army like the top manager or leader ensures all participants are heading in the right direction and completing their goals and objectives. To combat these challenges, leaders must communicate and execute business strategies.

Competitive advantage- a product or service that an organization's customers place a greater value on than similar offerings from a competitor. eg: DELL have a services online.

Why competitive advantages are typically temporary?

• Its because competitors often quickly seeks way to duplicate them.
• Organization must develop a strategy based on a new competitive advantages. eg: The introduction of Apple's iPod and iTunes, a brilliant merger of technology, business, and entertainment, offers an excellent example.

First-mover advantage- occurs when an organization can significantly impact its market with a competitive advantage. eg: AirAsia which is the first airline that operates Asia's largest low fare.

Organization watch their competition through environmental scanning. Environmental scanning is the acquisition and analysis of events and treads in the environment external to an organization.

THE FIVE FORCES MODEL- EVALUATING BUSINESS SEGMENT

• This tool was created by Harvard Business School professor, Michael Porter, to analyze the attractiveness and likely-profitability of an industry. Since publication, it has become one of the most important business strategy tools. 

List and describe each of the five forces in Porter's Five Model:

• 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 through loyalty programs and switching costs. 

Loyalty programs is a rewards customersbased on the amount of business they do with particular organization.                                          

Switching costs is costs that can make customers reluctant to switch to another product or services. eg: Airline system; MAS. Buyer power is low because has no choice

• SUPPLIER POWER- high when buyers have few choices of whom to buy from and low when their choices are many.
•  Supply chain is consists of all parties involved in the procurement of a product or raw material.

Decreasing supplier power through Business-to-Business(B2B)marketplace. 

Business-to-Business(B2B)marketplace is an Internet-based service that brings together many buyers and sellers.

• THREAT OF SUBSTITUTE PRODUCTS AND SERVICES- high when there are many alternatives to a product or service and low when there are few alternatives from which to choose. eg; coffee
• THREAT OF NEW ENTRANTS- 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 barriers is a product or service 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. eg: Tenaga Nasional Berhad

• RIVALRY AMONG EXISTING COMPETITORS- high when competition is fierce in a market and low when competition is more complacent.

THE THREE GENERIC STRATEGIES-CREATING FOCUS A BUSINESS FOCUS

 Comparation Porter's Three Generic Strategies:

• Organizations typically follow one of Porter's three generic when entering a new market. First, Broad cost leadership, second, Broad Differentiation, third, Focused Strategy. Broad cost leadership strategies reach a large market segment. Focused strategies concentrate on either cost leadership or differentiation.

VALUE CREATION

➤ Once an organization chooses its strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy.

BUSINESS PROCESS➡ a standardized set of activities that accomplish a specific task,                                                      such as processing a customer's order

VALUE CHAIN➡ views an organization as a series of processes, each of which adds                                                value to the product or services for each customer

Describe the relationship between business processes and value chain:

• A business process is a standardized set of activities that accomplish a specific task, such as processing a customer's order.
• The value chain approach views an organization as a chain, or series, of processes, each of which adds value to the product or service for each customer. The value chain helps an organization determine the "value" of its business processes for its customers.

The competitive advantages is to:

• Target high value-adding activities to further enhance their value
• Target low value-adding activities to increase their value 
• Perform some combination of the two

                                             

VALUE CHAINS WITH PORTER'S FIVE FORCES