Identifying Competitive Advantages (Baltzan 16-22):
Introduction:
Running a company today is similar to leading an army; the top manager or leader ensures all
participants are heading in the right direction and competing their goals and objectives. Companies
lacking leadership quickly implode as employees head in different directions attempting to achieve
conflicting goals. To combat these challenges, leaders communicate and execute business strategies.
A business strategy is a leadership plan that achieves a specific set of goals or objectives such as:
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Developing new products or services
Entering new markets
Increasing customer loyalty
Attracting new customers
Increasing sales
Decreasing costs
A competitive advantage is a feature of a product or service on which customers place a greater
value than they do on similar offerings from competitors.
The Five Force Model – Evaluating Industry Attractiveness
Porter identified the following pressures that can hurt potential sales:
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Knowledgeable customers can force down prices by pitting rivals against each other
Influential suppliers can drive down profits by charging higher prices for supplies
Competition can steal customers
New market entrants can steal potential investment capital
Substitute products can steal customers
Porter’s Five Force Model analyzes the competitive forces within the environment in which a
company operates to assess the potential for profitability:
1. Buying power
is the ability of buyers to affect the price they must pay for an item. Factors used to access
buyer power include number of customers, their sensitivity to price, size of orders,
differences between competitors, and the availability of substitute products.
Factors to reduce buying power:
1.1. To manipulate switching costs: This makes customers reluctant to switch to another
product or service.
Microsoft gave its Web browser away for free. Microsoft knows that the greater the user
base using Internet Explorer, the more likely organizations were to purchase Microsoft’s
proprietary software to help manage their websites (Oz 60).
1.2. Introducing loyalty programs: Reward customers based on their spending.
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The airline industry is famous for its frequent-flyer programs. Because of the rewards
travelers receive (free airline tickets, upgrades, or hotel stays).
2. Supplier Power
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw
materials or a product. Supplier’s power is the ability to influence the prices they charge for
supplies like materials, labor, service, etc. Factors used to appraise supplier power include
number of suppliers, size of suppliers, uniqueness of services, and availability of substitute
products. If supplier power is high, the supplier can influence the industry by
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Charging higher prices
Limiting quality or services
Shifting costs to industry participants
Cancer patients have no power over the price and must pay whatever the drug company
asks because there are few available alternatives.
To reduce supplier’s power, a collective group of 15 000 students from a University has far
more power over price when purchasing laptops than a single student.
3. Threat of Substitute Products or Services
Is high when there are many alternatives to a product or service and low when there are few
alternatives from which to choose. For example, aluminum is a substitute for steel in
automobiles; trains are a substitute for cars; television and videogames are substitutes for
each other. Substitutes can reduce demand for a particular type of product as customers
switched to alternatives (Johnson 57).
4. Threat of new Entrants
is high when it is easy for new competitors to enter a market and low when there are
significant entry barriers to joining market. An entry barrier is a feature of a product or
service that customers have come to expect and entering competitors must offer the same
for survival. For example, a new bank must offer its customers an array of MIS-enabled
services, including ATM’s, online bill paying, online account monitoring.
5. Rivalry among existing competitors
The wider competitive forces all impinge on the direct competitive rivalry between an
organization and its most immediate rivals. Thus low barriers to entry increase the number
of rivals; powerful buyers with low switching costs force their suppliers to high rivalry in
order to offer the best deals. In general then, rivalry is high when competition is fierce in a
market and low when competitors are more complacent.
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Task 1:
Analyzing the airline industry:
Let us bring the five forces together to look at the competitive forces shaping an industry and
highlight business strategies to help it remain competitive. Assume a shipping company is deciding
whether to enter the commercial airline industry. Now if analyze correctly, it will assist in
determining that this move will be profitable:
Buyer Power:
Supplier Power:
Threat of substitute products and services:
Threat of new entrants:
Rivalry among existing competitors:
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Strategies: Choosing a Business focus
Once top management has determined the relative attractiveness of an industry and decided to
enter it, the firm must formulate a strategy for doing so.
Porter has identified three generic business strategies for entering a new market:
Broad cost leadership, broad differentiation and focused strategy:
Cost Strategy
Low Cost
Broad Market
Competitive
Scope
Narrow Market
High Cost
Cost Leadership Differentiation
Focus Strategy
Trying to be all things to all people is a recipe for disaster, since doing so makes it difficult to project
a consistent image to the marketplace. Therefore, Porter suggests adopting only one of the three
generic strategies.
Task 2:
Discuss how Information Systems can be helpful in analysing the company’s market strength. This
will alter us to subtle changes and trends and generally giving us market intelligence.
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Supplier bargaining Power:
Competitive rivalry:
Buyers bargaining Power:
Thread of substitutes:
Threat of new entrants:
Works Cited
Baltzan, P. Business Driven Technology. New York: McGraw-Hill Irwin, 2013.
Johnson, G., Whittington, R., Scholes, K. Exploring Strategy. Essex: Pearson, 2011.
Oz, E,. Jones, A. Managemnt Information Systems. Andover: Course Technology, 2008.
Stair, R., Reynolds, G., Chesney, T. Fundamentals of Business Information Systems. Hampshire:
Cengage Learning, 2012.
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