Chapter 2 Identifying Competitive Advantages

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

Learning Outcomes
2.1

Explain why competitive advantages are typically temporary List and describe each of the five forces in Porters Five Forces Model Compare Porters three generic strategies escribe the relationship between b!siness processes and val!e chains
2-2

2.2

2.3

2.4

Identifying Competitive Advantages

" #o s!rvive and thrive an organi$ation m!st create a competitive advantage
% Competitive advantage % a prod!ct or service that an organi$ation&s c!stomers place a greater val!e on than similar offerings from a competitor % First-mover advantage % occ!rs when an organi$ation can significantly impact its mar'et share by being first to mar'et with a competitive advantage
2-3

Identifying Competitive Advantages

" (rgani$ations watch their competition thro!gh environmental scanning
% Environmental scanning % the ac)!isition and analysis of events and trends in the environment external to an organi$ation

" #hree common tools !sed in ind!stry to analy$e and develop competitive advantages incl!de*
% Porter&s Five Forces Model % Porter&s three generic strategies % +al!e chains
2-4

T e !ive !orces "ode# $ %va#uating &usiness 'egments

" Porter&s Five Forces Model determines the relative attractiveness of an ind!stry

2-5

&uyer )o*er
" Buyer power % high when b!yers have many choices of whom to b!y from and low when their choices are few " (ne way to red!ce b!yer power is thro!gh loyalty programs
% Loyalty program % rewards c!stomers based on the amo!nt of b!siness they do with a partic!lar organi$ation
2-(

'upp#ier )o*er
" Supplier power % high when b!yers have few choices of whom to b!y from and low when their choices are many
% Supply chain % consists of all parties involved in the proc!rement of a prod!ct or raw material

2-+

'upp#ier )o*er
" (rgani$ations that are b!ying goods and services in the s!pply chain can create a competitive advantage by locating alternative s!pply so!rces ,decreasing s!pplier powerthro!gh .2. mar'etplaces
% Business-to-Business (B2B) mar etplace % an Internet/based service that brings together many b!yers and sellers

2-,

'upp#ier )o*er
" #wo types of b!siness/to/b!siness ,.2.mar'etplaces
% !rivate e"change % a single b!yer posts its needs and then opens the bidding to any s!pplier who wo!ld care to bid % #everse auction % an a!ction format in which increasingly lower bids are solicited from organi$ations willing to s!pply the desired prod!ct or service at an increasingly lower price
2--

T reat of 'u/stitute )roducts or 'ervices

" $hreat o% su&stitute products or services % high when there are many alternatives to a prod!ct or service and low when there are few alternatives from which to choose
% Switching cost % costs that can ma'e c!stomers rel!ctant to switch to another prod!ct or service

2-1.

T reat of 0e* %ntrants

" $hreat o% new entrants % high when it is easy for new competitors to enter a mar'et and low when there are significant entry barriers to entering a mar'et
% Entry &arrier % a prod!ct or service feat!re that c!stomers have come to expect from organi$ations in a partic!lar ind!stry and m!st be offered by an entering organi$ation to compete and s!rvive
2-11

1iva#ry Among %2isting Competitors

" #ivalry among e"isting competitors % high when competition is fierce in a mar'et and low when competition is more complacent " Altho!gh competition is always more intense in some ind!stries than in others0 the overall trend is toward increased competition in 1!st abo!t every ind!stry
2-12

T e T ree 3eneric 'trategies $ Creating a &usiness !ocus

" (rgani$ations typically follow one of Porter&s three generic strategies when entering a new mar'et

2-13

T e T ree 3eneric 'trategies $ Creating a &usiness !ocus

2-14

4a#ue Creation
" (nce an organi$ation chooses its strategy0 it can !se tools s!ch as the val!e chain to determine the s!ccess or fail!re of its chosen strategy
% Business process % a standardi$ed set of activities that accomplish a specific tas'0 s!ch as processing a c!stomer&s order % 'alue chain % views an organi$ation as a series of processes0 each of which adds val!e to the prod!ct or service for each c!stomer
2-15

+al!e Creation
" Combining Porter&s Five Forces and three generic strategies create b!siness strategies for each segment

2-1(

4a#ue Creation
" +al!e Chain

2-1+

4a#ue Creation
" +al!e chains with Porter&s Five Forces

2-1,

O)%0I03 CA'% 'T567 85%'TIO0' Apple % Merging #echnology0 .!siness0 and Entertainment 23 4ow can Apple !se environmental scanning to gain b!siness intelligence5 23 6sing Porter&s Five Forces Model0 analy$e Apple&s b!yer power and s!pplier power

2-1-

O)%0I03 CA'% 'T567 85%'TIO0' Apple % Merging #echnology0 .!siness0 and Entertainment 73 8hich of the three generic strategies is Apple following5 93 8hich of Porter&s Five Forces did Apple address thro!gh the introd!ction of the iPhone5

2-2.

C9A)T%1 T:O CA'% :ay ;Charge It< with =o!r Cell Phone
" .y associating a credit card with a cell phone0 ban's and credit card companies hope to convince cons!mers to b!y prod!cts0 s!ch as soda0 with their cell phones instead of poc'et change " A transaction fee will be charged for each transaction " #he ability to charge items to a cell phone has significant b!siness potential
2-21

C apter T*o Case 8uestions

23 o yo! view this technology as a potential threat to traditional telephone companies5 If so0 what co!nterstrategies co!ld traditional telephone companies adopt to prepare for this technology5

23 6sing Porter&s Five Forces describe the barriers to entry for this new technology
2-22

C apter T*o Case 8uestions

73 8hich of Porter&s three generic strategies is this new technology following5 93 escribe the val!e chain of the b!siness of !sing cell phones as a payment method

>3 8hat types of reg!latory iss!es might occ!r d!e to this type of technology5 ?3 4ow co!ld Apple&s iPhone !se this technology to 2-23 gain a competitive advantage5