Chapter 2

Competitive Advantage

Agenda

• Introduction• Competitive advantage• Porter ’s Model• Competitive advantage using e-commerce• Summary

The Competitive Environment

Threat of New

Entrants

Rivalry AmongExisting

Competitors

Bargaining Powerof Customers

Bargaining Powerof Suppliers

Threat ofSubstitutes

Competitive Strategy?

• To survive requires the competitive positions not less than the other company within its market sector.

• Technology can change the way businesses compete.

Strategic Information Systems

• Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.

Porter’s Competitive Forces Model

To survive and succeed, a business must develop and implement strategies to effectively counter the:– Rivalry of competitors within its industry– Threat of new entrants into an industry and its markets– Threat posed by substitute products which might

capture market share– Bargaining power of customers– Bargaining power of suppliers

Porter’s Model of Competitive Forces

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New Entrants

Threat of New Entrants

Rivalry Among Competing Firms in

Industry

Rivalry Among Competing Firms in

Industry

Bargaining Power of Buyers

Bargaining Power of Buyers

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces

Model of Competition

Threat of New Entrants

• The ease with which a new company or a company in a different product area can enter a given trade sector.

• Barrier to entry into market include the need of capital, knowledge and skills.

• IT can be barrier to entry to a given market. Ether existing players in the sector are well or the converse is that development of IT may leave existing players.

• Examples: Internet bookshops like amazon.com compare to traditional bookshops, Internet banks compare to branch bank.

Threat of substitution

• It’s a threat to a existing players where a new product becomes available that supplies the same function as the existing product or services.

• Example: replacing of glass bottles by plastic alternative in packaging industry.

• IT industry has itself substituted of many products.

• Example: replacement of typewriter by the word processor, downloaded music from the artist’s web site being substitute for conventional supply chains.

•

Bargaining power of buyers

• There are number of competitors in the market or a surplus of supply the buyer is in a strong position to bargain for a low price.

• The braded products are defensive that the store will feel obliged to stock because customers expect it. Example: KFC

• ICT facilitate a level of service that will keep the customer loyal.

• Examples: short cycle times, quick response supply, and reliable services enabled by E-commerce technology.

Bargaining power of Suppliers

• E-commerce used to reshape the supply chain. • Organization directly deal with small trade and

members of the public using e-commerce that replacing the intermediaries.

• Competitive advantage, in all three categories, can be achieved using e-commerce for direct sale.

• This process of disintermediarisation can save cost of distribution, allow an organization to differentiate its products or focus its attention on selected segments of the market.

Bargaining power of supply

• The organization always trying to get adequate price from its buyer will be looking to get favorable terms from its own suppliers at the nest stage along the value chain.

• For supplier, the strategies of price and differentiation such as branding or quality of services give a strong competitive position.

• Trade electronically is the factor in the quality of service and now it’s the requirement from the buyer organization.

Competition between Existing Players• The competition is to get the buyers and to trade at a

price that produces an acceptable profit. • Competition won by the generic competitive

advantage of price, differentiation or focus.• The use of E-commerce:

– To reduces the administration costs of trading.– To reduce stockholding cause to increase logistic efficiency

and greater reliability of supply.– To meet the requirements of trading partner that trade is

conducting electronically.– To differentiate the product or services from the competitors.– To disintermediarisation.– To provide new market or service.

E-commerce for competitive advantage

Force System Competitive Advantage

New Entrants/ Substitution

InternetE-Commerce

•Reduces entry cost•New sales channel•New service opportunity

Suppliers(& Trading Buyers)

E-commerceLogistics(EDI)

•Cost reductions•Quick response•Lockin

Buyers(Consumers)

InternetE-commerce

•New sales channel•Disintermediarisation•Customer Information

Competitive Revelry E-commerce •Cost leadership•Differentiation•Focus

16

Review

• Competitive environment• Competitive Strategy• Strategic Information system• Porter competitive Forces