CHAPTER 2 :IDENTIFYING COMPETITIVE ADVANTAGES

LEARNING OUTCOMES

2.1 Explain why competitive advantages are typically temporary

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

2.3 Compare Porter's three generic strategies 

2.4 Describe the relationship between business processes and value chains

1)Organization must create a competitive advantage :

i)Competitive advantage -a greater value that different from the competitor(example: If customers buy online from Dell ,they will send to home and setup without charge)

ii)First-mover advantage-first to market with a competitive advantage. It also for temporary but people always remember.(example :Air Asia introduce cheap ticket ,and all competitors follow Air Asia).

2)Organizations watch their competition through ENVIRONMENTAL SCANNING(acquisition & analysis of events and trends in the environment external to an organization .example : You have to know who your supplier ,customers and competitors)

3)Three common tools to analyze and develop competitive advantages :

i)Porter's Five Forces Model
ii)Porter's three generic strategies
iii)Value chains

3.i)Porter's Five Forces Model

a)Buyer power- high when many choices ,low when few choices.To reduce buyer power by : Loyalty programs and switching costs .

b)Supplier power-high when few choices ,low when many choices.To reduce supplier by business-to-business(B2B)marketplace-an Internet-based service that brings together many buyers and sellers(between two industries)

2 types of B2B marketplaces:
i)Private exchange -Buyers will asks supplier who sells the needs ,then the buyers will choose the lower price.

ii)Reverse auction-Supplier will list all the price ,that lower price but higher in quality.

c)Threat of substitute products or services-high threat when many alternatives, low threat when few alternatives from which to choose by :

i)Switching costs-costs that can make customers reluctant to switch to another product/service.

d)Threat of new entrants -high threat if free entry ,low threat if entry barrier.
i)Entry barrier -Must be offered by an entering organization to compete and survive(fulfill criteria )examples : TNB ,Air Asia and MAS.

e)Rivalry among existing competitors- high when competition fierce,low when competition complacent.examples:Telecommunication (Celcom,Maxis,Digi and Umobile)

3.ii)Porter's three generic strategies

i)COST LEADERSHIP STRATEGY(LOW COST)- under broad markets

                                                                                       - cheap price eg: hypermarket(Tesco,Giant)

ii)DIFFERENTIATION (HIGH COST) - high price ,high quality, high class brand eg:Audi cars

iii)FOCUSED STRATEGY (LOW COST)- one or two product ,focused low cost(clothes&shoes)

iv)FOCUSED STRATEGY (HIGH COST)- focused high cost example: Rafflesia focused pearl.


3.iii)Value creation- can use tools such as value chain to determine the success or failure of its chosen strategy :

a)Business process-have their own business process to fulfill customers order.
b)Value chains-analysis which part that can create competitive advantage.

*VALUE CHAIN

The competitive advantage 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.