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.

    FALSE

7. Competitive advantage occurs when an organization can significantly impact its market share by being first to market with 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)

        Cost Leadership Strategy. A firm sets out to become a low-cost producer in the industry which allows the company to lower the prices to customers. Competitors with higher costs cannot afford to compete with the low-cost leader on price. For example, Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level of service.

        Differentiation Strategy. An organization must create competitive advantage by distinguishing their products on one or more features important to their customers. Unique features or benefits may justify price differences or stimulate demand. One of the company that uses this strategy is Proton. Proton launched a service called Proton i.Care.

        Focused Strategy. This strategy rests on the choice of narrow competitive scope within an industry. The firm targets to a niche market and concentrates on either cost leadership or differentiation. 

2. Porter's Five Forces Model is a one of common tools used in industry to analyse and develop competitive advantages. List and describe each of the five (5) forces in Porter's Five Forces Model.

        Buyer Power. The buyer power is high when buyers have many choices of whom to buy. It is low when their choices are few. To reduce buyer power, an organization must make it more attractive to buy from the company not from the competitors.

        Supplier Power. Supplier power is high when the buyers, which are the owners, have few choices of whom to buy from, but when their choices are many it means the supplier power is low.

        Threat of Substitute Products and Services. The threat is considered high when there are many alternatives to a product or service. It is considered low if 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 products or services.

        Threat of New Entrants. The threat of new entrants is high when it is easy for new competitors to enter a market. On the other hand, it can be low if there are significant entry barriers to enter 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.

        Rivalry among Existence Competitors. Low rivalry when competition is more complacent and high rivalry among firms when competition is fierce in a market.

END OF TUTORIAL FOR CHAPTER 2 

CHAPTER 2: IDENTIFYING COMPETITIVE ADVANTAGE

INTRODUCTION

• What is competitive advantage?
• A product or service that an organization's customers place a greater value on than similar offerings from a competitor.

THE FIVE FORCES MODEL

• Introduced by Michael Porter, which is useful tool to aid organization in challenging decision whether to join a new industry or industry segment.

Figure 2.1 Porter's Five Forces Model

• 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.

• Supplier Power
• High - when buyers(the owner) have few choices of whom to buy from.
• Low - when their choices are many.
• Supply chain:

Figure 2.2 The Supply Chain

• 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.
• The threat: 
• Customers can use different products. E.g: electronic product (same function but different brands)
• Switching cost - costs can make customer reluctant to switch to another product or service.

• Threat of New Entrants
• High - when it is easy when new competitors to enter a market.
• Low - when there are significant entry barriers to entry a market.
• The threat forces top management to monitor the trends, especially in technology. E.g: new bank (online paying bills)

• Rivalry Among Existence Competitors
• High - when competition is fierce in a market.
• Low - when competition is more complacent.
• Rivalry among existence firms:
• Changes in management, ownership, or "the rules of the game" can give rise to serious threat to long term survival from existing firms.

THE THREE GENERICS STRATEGIES

• 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.

• 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.

• Focused Strategies
• 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 2

CHAPTER 1: BUSINESS DRIVEN TECHNOLOGY

This is the first chapter of Information Technology in Business; the introduction.

INFORMATION TECHNOLOGY'S ROLE IN BUSINESS

• Information technology (IT) is everywhere in business nowadays.

INFORMATION TECHNOLOGY'S IMPACT ON BUSINESS OPERATIONS

Figure 1.1 Business Functions Receiving the Greatest Benefits from Information Technology

• From the graph above, we can see that Customer Service department gets the benefits from IT the most. It is because this department works directly with customer before, during and after purchasing and using goods or services.

Figure 1.2 Information Technology Project Goals

• Organizations typically operate by functional areas or functional silos.

• Functional areas are interdependent.

INFORMATION TECHNOLOGY BASICS

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

• Management information systems (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
• raw facts that describe the characteristics of an event

• Information

• data converted into a meaningful and useful context

• Business intelligence

• 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-Function 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 strategy is developed.

• Information-Sharing Culture - Employees across departments trust each other to use information (especially about problems and failures) to improve performance.

• 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 insights about crisis and radical changes and seek ways to create competitive advantages.