Tutorial 1

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. (FALSE)

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

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)

10.



Long Essay.

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

There are three Porter Generic Strategies in competitive advantage. Firstly is the cost leadership. Cost leadership can be defined as it becoming a low-cost producer in the industry allows the company to lower prices to customer. Then, competitors with higher costs cannot afford to compete with the low-cost leader on the price. For example, a local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu, rapid table turnover and employs staff on minimum wage. Innovation of products or processes may also enable a startup or small company to offer a cheaper product or service where incumbents' costs and prices have become too high.

Second strategy is differentiation. This strategy can create competitive advantage by distinguishing their products on one more features important to their customers and unique features or benefits may justify price differences or stimulate demand. As example there is i-care by Proton

Thirdly is focused strategy. This dimension is not a separate strategy for big companies due to small market conditions. Big companies which chose applying differentiation strategies may also choose to apply in conjunction with focus strategies. On the other hand, this is definitely an appropriate strategy for small companies especially for those wanting to avoid competition with big ones. Examples of firm using a focus strategy include Southwest Airlines, which provides short-haul point-to-point flights in contrast to the hub-and-spoke model of mainstream carriers, United, and American Airlines.

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)

Michael Porter’s five forces model is useful to aid organization in challenging decision whether to join a new industry or industry segment. First force model is buyer power. Buying power becomes high when buyers have many choices of whom to buy but becomes 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. The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program

Second force model is supplier power. Supplier power become high when buyers have few choices of whom to buy and become low when their choices are many. For example, is B2B market place. It is 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.

After that is threat of substitute products and services. It becomes high whereby there are many alternatives to a product or service and it becomes low when there are few alternatives from which to choose. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense.

Then, there is threat of new entrants. It becomes high when it is easy for new competitors to enter a market and become 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

Lastly is rivalry among existence competitors. It becomes high when competitors is fierce in a market and become low when competition is more complacent. Existing competitors are not much of the threat; typically each firm has found its “niche”. As example, the airlines 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.

3. Michael Porter's Five Forces Model is one of the tools used by the organization to analyze and
    develop competitive advantages. Explain how information technology can develop a competitive
    advantage for each force in Five Forces Model.                                                         (20 marks)

Substitute Product or Service. The internet enables new substitutes to emerge with new approaches to meeting needs and performing functions.

Customers Bargaining Power. Availability of global prices and product information shifts bargaining power to customers. Customers can easily switch to competitors' products or force firms and competitors to compete on price issues.

Suppliers Bargaining Power. The ability to gather supplies over the Internet tends to raise bargaining power over suppliers. Suppliers can also benefit from reduced barriers to entry and from the elimination of distributors and other intermediaries standing between them and their users. The more suppliers a firm has, the greater control it can exercise over suppliers.

Threat of New Entrants. Reduce barriers to entry, provides technology for driving business processes. Example for the reduce barriers to entry is need for sales force declines.

Positioning and Rivalry Among Existence Competitors. Widens market, increasing competitors and reducing differences among competitors and puts pressure to compete on price.

Chapter 2 : Identifying Competitive Advantage

Introduction

What is competitive advantage?

• -          A product or services that an organization’s 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

Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment

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, for example rewards on free airline tickets or hotel stays

The Competitive Environment

Bargaining Power of Customers/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 the 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

-    Example, 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

An organization within the Supply Chain

• -          Supplier power is the converse of buyer power

1.       Threat of Substitute products and 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 services

- Best practices of IT

- Example, Electronic product – same functions 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, electrical product – same function different brands
• -          Switching cost – costs can make customer reluctant to switch to another product or service

2.       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 except from organizations and must be offered by entering organization to complete and survive

·         Best practices of IT

-     Example, new bank must offers online paying bills, acc. monitoring to compete

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
• -          Example, new bank (online paying bills, acc. monitoring)

3.       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 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 of the threat: typically each firm has found its “niche”.
• -          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 the debts while slashing fares against those healthy airlines who do pay on debt. (MAS & AIR ASIA)

The Value Chains – Targeting Business Processes

• Supply Chain – a chain or series of processes that adds value to product and service for customer

•  Add value to its products and services that support a profit margin for the firm

Chapter 1 – Business Driven Technology

Chapter 1 – Business Driven Technology

Why we need to study Information Technology (IT)?

IT is everywhere in business. Understanding IT provides great insight to anyone learning about business.

Information Technology’s Impact on Business Operations

• -          Organization typically operate by functional areas or functional silos
• -          Functional areas are interdepends

Information Technology Basics

• -          Information technology (IT) – A field concerned with the use of technology in managing and processing information. IT is an important enabler of business success and innovation
• -          Management information system (MIS) – 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 Human Resources.

-          When beginning to learn about information technology it is important to understand

·         Data, information and business intelligence

·         IT resources

·         IT cultures

-          Data, information and business intelligence

·         Data is a raw facts that describe the characteristics of an event

·         Information is a 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;

• Information-Functional Culture – Employees use information as a means of exercising influence or power over others. For example, a manager in sales refuses to share information with marketing. This causes marketing to need the sales manager’s input each time a new sales manager’s input each time a new sales strategy is developed.
• Information-Inquiring Culture – Employees across departments search for information to better understand the future and align themselves with current trends and new directions.
• Information-Discovery Culture – Employees across departments are open to new insight about crisis and radical changes and seek ways to create competitive advantages.
• Information-Sharing Culture – Employees across departments trust each other to use information (especially about problems and failures) to improve performance.