Tutorial Chapter 2

True/False:

1. A competitive advantage is typically temporary, unless its a first-mover advantage.
 ( TRUE )

2. An entry barrier is typically used to influence the threat of new entrants. 
(TRUE )

3. Switching cost are typically used to influence the threat of substitute products or services.
( TRUE )

4. The Five Forces Model helps to determine the relative attractiveness of an industry.
(FALSE )

5. Organizations can add value by offering lower prices or by competing in a distinctive way.
(TRUE)

6. An entry barrier is typically used to influence the rivalry among existing competitors.
 ( TRUE)

7. Competitive advantage occurs when an organization can significantly impact its market  

share by being first to market with a an advantage.
(FALSE)

8. Buyer power, supplier power, threat of products or services, threat of new entrants and 

rivalry among existing competitors are all included in Porter's Five Forces Model.
(TRUE)

9. Switching costs are typically used to influence the threat of substitute products or services. 
(TRUE)

Long Essay.

1. Describe three (3) Porter Generic Strategies. Support your answer with examples. (12 marks)

There are three Porter Generic Strategies. Firstly, 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. For example is Tesco. The central goal of Tesco is to keep retail prices low and the company has been very successful at this. Secondly, 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. For example is McDonald's. Thirdly, focused strategy. It's target to a niche market and concentrates on either cost leadership or differentiation. For example is Habib Jewels.

2. Porter's Five Forces Model is a one of common tools used in industry to analyze and develop

    competitive advantages. List and describe each of the five (5) forces in Porter's Five Forces

    Model.                                                                                                                        (20 marks)

a) Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.

b) Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.

c) Rivalry Among Existing Competitors: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.

d) Threat of Substitute Products or Services: This is affected by the ability of your customers to find a different way of doing what you do. for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.

e) Threat of New Entrants: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.

Chapter 2: Identifying Competitive Advantage

Introduction

• Competitive advantage is a product or service that an organization's customers place a greater value on than similar offerings from a competitor. Unfortunately, competitive advantage is temporary because competitors keep duplicate the strategy. Then, the company should start the new competitive advantage.
• Michael Porter's Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

The Five Forces Model

1. Buyer Power

• 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

The Competitive Environment

Bargaining Power of Customers or Buyer Power.

• Customers can grow large and powerful as a result of their market share.
• Many choices of whom to buy from.
• Low when comes to limited items.
• Example; used loyalty programs (jusco card, tesco card - being a members to get a discount)

2. 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 advantage.

An organization within the Supply Chain

Supplier power is the converse of buyer power.

 

3. 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 few substitutes of their product or service.
• Best practices of IT.
• Example: Electronic product - same function different brands.

The competitive Environment

Threat of Substitutes:

• To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists.
• Example: electronic product - same function different brands.
• Switching cost - costs can make customer reluctant to switch to another product or service.

4. Threat of new entrants

• High - when competition 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.

The Competitive Environment

Threat of New Entrants

• Many threats come from companies that do not yet exist or have a presence in a given industry or market.
• The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.

5. 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 suppliers using IT-enabled system for communication and track product at aisles by effective tagging system.
• Reduce cost by using effective supply chain.

The Competitive Environment

Rivalry Among Existing Firms.

• Existing competitors are not much on the threat.
• However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long term survival from existing firms.
• Example: 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 not pay on debt. (MAS&AIR ASIA) 

The Three Generics Strategies

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.

3.Focused Strategy

• Target to a niche market.
• Concentrates on either cost leadership or differentiation.

The Value Chains- Targeting Business Processes

• 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.

END OF CHAPTER TWO

Chapter 1: Business Driven Technology

Information Technology's Role in Business

• Information technology is everywhere in business. Nowadays, technology is always around us. So that people can use this opportunity to make and expand their own business.

Information Technology's Impact on Business Operations

Business Functions that receiving the most or greatest benefits from information technology is customer service. For example is if our bank card is missing, we will call the customer service first to ask many of the possible questions.

• Organizations typically operate by functional areas or functional silos.
• Functional areas are interdependent.

Information Technology Basics

What is Information Technology(IT)?

• IT is a field concerned with the use of technology in managing and processing information.
• IT is actually an important enabler of business success and innovation.

What is Management information systems (MIS)?

• MIS is a general name for the business function and academic discipline covering the application of people, technologies, and procedures to solve business problems.
• MIS is a business function, similar to Accounting, Finance, Operations, and HR.

Information

• DATA is the raw facts that describe the characteristics of an event
• INFORMATION is the data converted into a meaningful and useful context.
• BUSINESS INTELLIGENCE is an applications and technologies that are used to support decision-making efforts.

IT Resources

• People use information technology to work with information.

IT Cultures

• Organizational information cultures include:

1. Information-Functional Culture - employees use information as a means of exercising influence or power over others.
2. Information-Sharing Culture - employees across departments trust each other to use information to improve performance.
3. Information-Inquiring Culture - employees across departments search for information to better understand the future and align themselves with current trends and new