1) Explain why competitive advantages are typically temporary.
- A product or service that an organization`s customers place a greater value on than similar offerings from a competitor. Unfortunately, competitive advantages are typically temporary because competitors keep duplicate the strategy. Then, the company should start the new competitive advantages.
Michael Porter`s Five Forces Model is useful tool aid organization in challenging decision whether to join a new industry or industry segment.
2) List and explain each of the five forces in Porter`s Five Forces Model.
Buyer Power:
- High - when buyers have many choices of whom to buy from.
- 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).
Supplier Power
- High - when buyers have few choices of whom to buy from.
- Low - when their choices are many.
- Best practices of IT to create competitive advantages.
- 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
Threat of Substitute Products & Services
- 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 service.
- Best practices of IT.
- E.g. Electronic product - same function different brands.
Threat of New Entrants
- 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 IT. E.g. new bank must offers online paying bills, acc monitoring to compete.
Rivalry among Existence Competitors
- 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 products at aisles by effective tagging system.
- Reduce cost by using effective supply chain.
3) Compare Porter`s three generic strategies.
4) Describe the value chain.
- Supply Chain - a chain or series of processes that adds value to product & service for customer.
- Add value to its products and services that support a profit margin for the firm.
