COMPETITIVE ADVANTAGE
- Porter's Five Forces Model : - Rivalry among existing competitors
- Buyer power
- Supplier power
- Threat of new entrants
- Threat of substitute product
- Porter's 3 Generis : - Cost leadership
- Differentiation
- Focused strategies
- Relationship Between Business Process and Value Chain
What is Competitive Advantage ?
- 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
5 Forces Model
1.Buyer power
2.Supplier
power
3.Threat of substitute
products or services.
4.Threats
of new entrants.
5.Rivalry
among existing companies.
INTRODUCTION
Michael Porter’s Five
Forces Model is useful tool to aid organization in challenging decision whether
to join a new industry or industry segment.
THE 5 FORCES MODEL
1 . BUYER 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 )
THE COMPETITIVE ENVIRONMENT
Bargaining
Power of Customers./Buyer power
oCustomers can grow large and powerful as a result of their market
share.
oMany choices of whom to buy from
oLow when comes to limited items
oE.g.: used loyalty programs (jusco
card, tesco card, - being a members to get the discount)
2 . SUPPLIER POWER
High – when buyers have
few choices of whom to buy from.
Low – when their choices are many.
§Best practices 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 bids
AN ORGANIZATION WITHIN THE SUPPLY CHAIN
- Supplier power is the converse of buyer power
3. THREAT OF SUBSTITUTE PRODUCTS AND 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
THE COMPETITIVE ENVIRONMENT
Treat of substitutes
-To the extent that customers can use
different products to fulfill the same
need, the threat of substitutes exists.
-E.g: electronic product -same function
different brands
-Switching cost- costs can make customer reluctant to
switch to another product or service
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 practices of IT
§E.g. 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.
-E.g. new bank (online paying bills, acc
monitoring)
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 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 .
-E.g: the airline
industry faces serious threats from airlines operating in bankruptcy, who do not pay on
the debts while slashing fares against those healthy airlines who do pay on
debt. (MAS & AIR ASIA)
THE 3 GENERICS STRATEGIES
- Supply chain - a chain or series of processes that adds value to product and service for customer
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| Supply Chain diagram |
