CHAPTER 2 - IDENTIFYING COMPETITIVE ADVANTAGE

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.

Michael Porter's Five Forces Model

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).

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).

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 substitute of their product or services.

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 expert from organization to compete and survive.
• best practices of IT - e.g. new bank must offers online paying bills, acc monitoring to compete.

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.

The Three Generics Strategies

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.

Differentiation

• create competitive advantage by distinguishing their products on one or more features important to their customers.
• unique features or benefits may justify price differences and stimulate demand.
• ex : i-care by Proton.

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 value to product & service for customer.
• add value to its products and services that support a profit margin for the firm.