Sunday, 7 July 2013

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 Porters 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

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 Porters three generic strategies when entering a new

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

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

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