Chapter Two: Identifying Competitive Advantages

Competitive Advantages

Competitive advantages are typically temporary because competitors often seek ways to

duplicate the competitive advantage. In turn, organizations must develop a strategy based

on a new competitive advantage.

Five forces in Porter’s Five Forces Model

a) Buyer power: 

High when buyers have many choices of whom to buy from and low when

their choices are few

b) Supplier power: 

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

many

c) 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

d) 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

e) Rivalry among existing competitors

High when competition is fierce in a market and low when competition is more complacent

Porter’s three generic strategies

Organizations typically follow one of Porter’s three generic strategies when entering a new

market.  

1. Broad cost leadership

2. Broad differentiation

3. Focused strategy

Broad strategies reach a large market segment.  Focused strategies target a niche

market.  Focused strategies concentrate on either cost leadership or differentiation.

The relationship between business processes and value

chains

A business process is a standardised set of activities that accomplish a specific task, such

as processing a customer’s order.  The value chain approach views an organization as a

chain, or series, of processes, each of which adds value to the product or service for each

customer.  The value chain helps an organization determine the “value” of its business

processes for its customers.

•Competitive advantages are important for an organization

•It is even more important to understand that competitive advantages are typically temporary

since competitors are quick to copy competitive advantages

1. Example of companies that achieved success through competitive advantages:

a) United was the first airline to offer a competitive advantage with its frequent flyer mileage

(this first-mover advantage was temporary)

b) Sony had a competitive advantage with its portable stereo systems (this first-mover

advantage was temporary)

c) Microsoft had a competitive advantage with its unique Windows operating system