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MGT 300 Chapter 2

Rivalry among
existing
competitors

Porters Buyer power


Five
Forces Supplier power
Model
Threat of new
Threat of entrants
substitute
product

Cost leadership

Competitive Porters 3
Advantage generis Differentiation
strategies
Focused
strategies

Relationship
between business
process and value
chain
1. Explain why competitive advantages are
typically temporary.
2. List and explain each of the five forces in
Porters Five Forces Model.
3. Compare Porters three generic strategies.
4. Describe the relationship between business
processes and value chain.
What is competitive advantage?
A product or service that an organizations
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.
Five Forces
Model

1. Buyer power
2. Supplier power
Michael Porters Five Forces
3. Threat of Model is useful tool to aid
substitute
products or organization in challenging
services. decision whether to join a new
4. Threats of new
entrants. industry or industry segment.
5. Rivalry among
existing
companies.
Source: Adapted from Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review 57, no. 2 (March/April 1979): 137145.
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 )
Bargaining Power of Customers./Buyer power
o Customers can grow large and powerful as a result of their
market share.
o Many choices of whom to buy from
o Low when comes to limited items
o E.g.: used loyalty programs (jusco card, tesco card, - being a
members to get the discount)
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.
Supplier power is the converse of buyer
power.

Suppliers Organization Customers

Organizations want Organizations want


supplier power to be supplier power to be
low here high here
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 substitutes of
their product or services.
Best practices of IT
E.g. Electronic product -same function different
brands
Threat of Substitutes.
o To the extent that customers can use
different products to fulfill the same need,
the threat of substitutes exists.
o E.g: electronic product -same function
different brands
o Switching cost- costs can make customer
reluctant to switch to another product or
service
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 expect from organizations
and must be offered by entering organization to
compete and survive.
Best practices of IT
E.g. new bank must offers online paying bills, acc
monitoring to compete.
Threat of New Entrants.
o Many threats come from companies that do
not yet exist or have a presence in a given
industry or market.
o The threat of new entrants forces top
management to monitor the trends, especially
in technology, that might give rise to new
competitors.
o E.g. new bank (online paying bills, acc
monitoring)
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.
Reduce cost by using effective supply chain.
Rivalry Among Existing Firms.
o Existing competitors are not much of the threat: typically
each firm has found its "niche".
o However, changes in management, ownership, or "the rules
of the game" can give rise to serious threats to long term
survival from existing firms .
o E.g: the airline industry faces serious threats from airlines
operating in bankruptcy, who do not pay on the debts while
slashing fares against those healthy airlines who do pay on
debt. (MAS & AIR ASIA)
Rivalry among
existing
competitors

Porters Buyer power


Five
Forces Supplier power
Model
Threat of new
Threat of entrants
substitute
product

Cost leadership

Competitive Porters 3
Advantage generis Differentiation
strategies
Focused
strategies

Relationship
between business
process and value
chain
1. 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.

2. 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/or stimulate demand.
Ex: i-care by Proton
3. Focused Strategy

Target to a niche market


Concentrates on either cost
leadership or
differentiation.
Cost Strategy
Low Cost High Cost

Broad Cost
Market Differentiation
Leadership
Competitive
Scope

Narrow
Market Focused Strategy
Cost leadership strategy Differentiation strategy

H YUNDAI AUDI
Broad BCL strategy BD
market low cost DIFF. $

KIA HUMMER
FCL strategy FD
Focused
market low cost
Rivalry among
existing
competitors

Porters Buyer power


Five
Forces Supplier power
Model
Threat of new
Threat of entrants
substitute
product

Cost leadership
Porters 3
Competitive
generis
Advantage Differentiation
strategies
Focused
strategies

Relationship
between business
process and value
chain
Supply Chain - a chain or series of
processes that adds value to product &
service for customer.

Addvalue to its products and services that


support a profit margin for the firm
A chain or series of processes that adds value to product &
service for customer.

Administrative Coordination & Support Services


Human Resource Management
Technology Development
Procurement of Resources

Marketing
Inbound Outbound Customer
Operations and
Logistics Logistics Service
Sales
Threat of new
entrants
Supply chain Demand Chain

Firm infrastructure (3.1%)- automated office systems


HRM (7.1%)-Employee Skills Database.
Supplier power

Buyer power
Technology Development (4.2%)- CAD
Procurement of Resources(27%)- EDI with suppliers Value
added
Receive & Service
Make the Deliver
Store raw Market & After
P/S the P/S
material Sell Sale
40.3% 6.6%
5.2% 4.3% 2.2%

Threat of substitute
product or services
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