IDENTIFYING COMPETITIVE ADVANTAGES

                                                   

WHY COMPETITIVE ADVANTAGES ARE TYPICALLY TEMPORARY?

• To survive and thrive an organization must create a competitive advantages.

             Competitive advantage    
A product or service that an organization's customers place a greater value on than similar offerings from a competitor.

             First-mover advantage
Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage.

• Organizations watch their competition through environmental scanning

            Environmental scanning 
The acquisition and analysis of events and trends in the environment external to an organization

• Three common tools used in industry to analyse and develop competitive advantages include :

          - Porter's Five Forces Model
          -Porter's three generic strategies
          -Value chains

             
           The Five Forces Model Evaluating Business Segments

• Portal's Five Forces Model determines the relative attractiveness of an industry 

           

  


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 

1)  Loyalty program - rewards customers based on the amount of business they do with a particular organization.

2)  Switching costs - costs that can make customers reluctant to switch to another product or service.

Supplier Power

• High when buyers have few choices of whom to buy from and low when their choices are many.

1) Supply chain - consists of all parties involved in the procurement of a product or raw material.




                               

• Organizations that are buying goods and services in the supply chain can create a competitive advantages by locating alternative supply sources (decreasing supplier power) through B2B marketplaces 

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

• Two types of business to business (B2B) marketplaces 

1)  Private exchange - a single buyer posts its needs and then opens the bidding to any supplier who would care to bid
2) Reverse auction - an auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price.


Threat of Substitute Products or Services

• Threat of Substitute Products or Services - high when there are many alternatives to a product or service and low when there are few alternatives from which to choose 

           Switching costs - costs that can make customers reluctant to switch to another product or service.

Threat of new entrants 

• 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 barrier - 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.

Rivalry among Existing Competitors

• Rivalry among Existing Competitors - high when competition is fierce in a market and low when competition is more complacent.
• Although competition is always more intense in some industries than in others, the overall trend is toward increased competition in just about every industry.

The Three Generic Strategies - Creating a Business Focus

• Organizations typically follow one of Porter's three generic strategies when entering a new market.

                                 



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 service for each customers.

• Customers determine the extent to which each activity adds value to the product or service 
• 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