CIT 300 chapter 2 notes / identifying competitive advantages

learning outcomes:

• explain why competitive advantages are temporary

  • what are the 4 key areas of a SWOT analysis

• describe porter’s five forces model and explain each force

• compare porter’s 3 generic strategies

• demonstrate how a company can add value using porter’s chain value analysis

identifying competitive advantages

• business strategy: a leadership plan that achieves a specific set of goals/objectives such as increasing sales, decreasing costs, entering new markets, or developing new products or services

• stakeholder: a person or group that has an interest or concern in an organization. stakeholders drive business strategies, and depending on the stakeholder’s perspective, the business strategy can change

• competitive advantage: a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors

  • example: raising canes and kfc. in certain places, canes may have a competitive advantage over kfc because of their cane’s sauce being close in price value to regular kfc sauces.

• first-mover advantage: occurs when a company can significantly increase its market share by being first with a new competitive advantage

  • example: when apple introduced itunes with the ipod before other companies included software with their mp3 players

• competitive intelligence: the process of gathering information in a competitive environment in order to increase a businesses chance at succeeding

different stakeholders found in businesses

• partners/suppliers

  • reliable contracts

  • ethical materials handling

  • responsible production

• shareholders/investors

  • maximize profits

  • grow market share

  • high return on investment

• community

  • professional associations

  • ethical recycling

  • increase employment

• employees

  • fair compensation

  • job security

  • ethical conduct/treatment

• customers

  • exceptional costumer service

  • high-quality products

  • ethical dealing

• government

  • adhere to laws and regulations

  • increase employment

  • ethical tax reporting

business tools for analyzing business strategies

• SWOT analysis: evaluates project position

  • evaluates an organization’s Strengths, Weaknesses, Opportunities, and Threats to identify things that work for or against business strategies

    • potential internal strengths: strengths associated with the competitive advantage

    • potential internal weaknesses: areas that require improvement

    • potential external strengths: trends that the organization can benefit from

    • potential external weaknesses: outside risks detrimental to an organization

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• the five forces model: evaluates industry attractiveness

  • analyzes the competitive forces within the environment in which a company operates to access the potential for profitability in an industry

    • threat of substitute products/services:

      • power of customers to buy alternatives

        • becomes high when there are many alternatives, and low when there are few

    • buyer power:

      • power of customers to drive down prices

        • switching costs: costs that make customers reluctant to switch to different products/services

        • loyalty programs: rewards customers based on their spending

    • threat of new entrants:

      • power of competitors to enter a new market

        • high when there are few entry barriers to enter a new market and low when there’s many

          • entry barrier: a feature of a product or service that customers have come to expect and that new competitors must offer in order to survive in the market

    • supplier power:

      • power of suppliers to increase the price of materials

        • supplier can increase power by:

          • charging higher prices

          • limiting services or quantity

          • shifting costs

          • and this power can be decreased by:

            • using MIS to find alternative products

              • supply chain: consists of all parties involved in getting raw materials or a product

  • rivalry among existing competitors:

    • high when competitive is fierce in a market and low when there’s less competition

      • product differentiation: occurs when a company develops unique differences in its product/services in order to influence demand

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• portner’s three generic business strategies: chooses business focus

  • generic business strategies that are neither organization nor industry specific and can be applied to any business, product, or service

    

  • broad market, low cost: loads of different products at low costs

    • example: walmart

  • broad market, high costs: loads of different products at high costs

    • example: erewhon

  • narrow market, low costs: a specific product at low costs

    • example: payless shoe stores, cheap shoes

  • narrow market, high costs: a specific product at high costs

    • example: jimmy choo, expensive shoes

—

• value chain analysis: executes business strategy

  • views a firm as a series of business processes that each add value to a product or service

    • business process: a set of activities that accomplish a certain task

      

• primary value activities: acquire materials, and manufacture, deliver, market, sell and provide after-sales services

  • inbound logs

  • operations

  • marketing and sales

  • service

• support value activities: help with firm infrastructure, HR development, tech. development, and procurement

  • firm infastructure

  • HR

  • tech dev.:

  • procurement

• digital value chain: digitizes work across primary and supporting activities

case study questions:

1. porter’s five forces evaluate how “attractive” a market could be to a business, i.e, how profitable that market could be. this “attractiveness” is calculated using “five forces,” which are: the threat of alternative products, the threat of new entrants, the threat of existing competition in the market, and buyer and supplier power

   1. so, if you’re planning on opening a coffee shop in a small town, you could think about the alternative to your place that people could go to get coffee for cheaper, how many new coffee shops may enter the market where you live, if you already have coffee shops in your town, and you could think about how you could get buyer and supplier power on your side, possibly by making a rewards program or by up charging on your coffee

2. it would be difficult to operate in more than one of porter’s generic strategies because each business strategy operates in a specific market with specific prices

learning outcomes are on page 30

review questions on page 31