Management Info Systems Chapter 2

entry barrier

A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival

If supplier power is high, the supplier can influence the industry by:

Charging higher prices. Limiting quality or services. Shifting costs to industry participants

rivalry among existing competitors

High when competition is fierce in a market and low when competitors are more complacent

threat of new entrants

High when it is easy for new competitors to enter a market and low when there are significant entry barriers

Threat of substitute products or services

High when there are many alternatives to a product or service and low when there are few alternatives

Potential Internal Weaknesses (Harmful):

Identify all key areas that require improvement. Weaknesses focus on the absence of certain strengths, including absence of an Internet marketing plan, damaged reputation, problem areas for service, and outdated technology employee issues.

Potential Internal Strengths (Helpful):

Identify all key strengths associated with the competi-tive advantage including cost advantages, new and/or innovative services, special expertise and/or experience, proven market leader, and improved marketing campaigns.

Potential External Opportunities (Helpful):

Identify all significant trends along with how the organization can benefit from each, including new markets, additional customer groups, legal changes, innovative technologies, population changes, and competitor issues.

Potential External Threats (Harmful):

Identify all threats or risks detrimental to your organi-zation, including new market entrants, substitute products, employee turnover, differentiating products, shrinking markets, adverse changes in regulations, and economic shifts

Michael Porter, a university professor at Harvard Business School, identified the following pressures that can hurt potential sales:

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.

product differentiation

Occurs when a company develops unique differences in its products or services with the intent to influence demand

Managers use four common tools to analyze competitive intelligence and develop competitive advantage:

SWOT analysis the five forces model the three generic strategies value chain analysis

supplier power

The suppliers' ability to influence the prices they charge for supplies (including materials, labor, and services)

Value Chain Analysis

Views a firm as a series of business processes that each add value to the product or service

talk about value chain analysis

When performing a value chain analysis, a firm could survey customers about the extent to which they believe each activity adds value to the product or service. This step generates responses the firm can measure, shown as percentages in Figure 2.10, to describe how each activity adds (or reduces) value. Then the competitive advantage decision for the firm is whether to (1) target high value-adding activities to further enhance their value, (2) target low value-adding activities to increase their value, or (3) perform some combination of the two

competitive advantage

a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors

business strategy

a leadership plan that achieves a specific set of goals or objectives such as increasing sales, decreasing costs, entering new markets, or developing new products or services

stakeholder

a person or group that has an interest or concern in an organization partner/suppliers, shareholder/investors, community, employees, customers, government

business process

a standardized set of activities that accomplish a specific task, such as processing a customer's order

Primary value activities

acquire raw materials and manufacture, deliver, market, sell, and provide after-sales services. 1. Inbound logistics: acquires raw materials and resources and distributes to manufacturing as required. 2. Operations: transforms raw materials or inputs into goods and services. 3. Outbound logistics: distributes goods and services to customers. 4. Marketing and sales: promotes, prices, and sells products to customers. 5. Service: Provides customer support after the sale of goods and services.

Ways that companies duplicate competitive advantages include:

acquiring the new technology, copying the business operations, and hiring away key employee

in a typical supply chain, a company will be...

both a supplier (to customers) ad a customer (of other suppliers)

when supplier power is high...

buyers lose revenue bc they cannot pass on the raw material price increase to their customers

Formally defined, Porter's Five Forces Model analyzes the ...

competitive forces within the environment in which a company operates to assess the potential for profitability in an indus-try. Its purpose is to combat these competitive forces by identifying opportunities, competitive advantages, and competitive intelligence. If the forces are strong, they increase competition; if the forces are weak, they decrease competition.

it is not uncommon to find that a lot of stakeholders interests...

conflict with employee interests

supply chain

consists of all parties involved, directly or indirectly, in obtaining raw materials or a product

switching costs

costs that make customers reluctant to switch to another product or service include financial as well as intangible values

If buyer power is high...

customers can force a company and its competitors to compete on price, which typically drives prices down

SWOT analysis

evaluates an organization's strengths (core competencies, market leaders, cost advantages, excellent management), weaknesses (lack of strategic direction, obsolete technologies, lack of managerial talent, outdated product line), opportunities (expended product line, increase in demand, new markets, new regulations), and threats (new entrants, substitute products, shrinking markets, costly regulatory requirements) to identify significant influences that work for or against business strategies

Support value activities include:

firm infra-structure, human resource management, technology development, and procurement. Not surprisingly, these support the primary value activities. Firm infrastructure: includes the company format or departmental structures, environment, and systems. Human resource management: provides employee training, hiring, and compensation. Technology development: applies MIS to processes to add value. Procurement: purchases inputs such as raw materials, resources, equipment, and supplies.

Porter's Three Generic Strategies

generic business strategies that are neither organization nor industry specific and can be applied to any business, product, or service: broad cost leadership, broad differentiation, and focused strategy should only adopt one

Value chain analysis is a highly useful tool that provides..

hard and fast numbers for evaluat-ing the activities that add value to products and services.

The goal of value chain analysis is to..

identify processes in which the firm can add value for the customer and create a competitive advantage for itself, with a cost advantage or product differentiation.

Strengths and weaknesses originate...

inside an organization, or internally.

one way to reduce buyer power is by...

manipulating switching costs or loyalty programs

Factors used to assess buyer power include:

number of customers, their sensitivity to price, size of orders, differences between competitors, and availability of substitute products

factors used to appraise supplier power include:

number of suppliers, size of suppliers, unique-ness of services, and availability of substitute products.

first-mover advantage

occurs when a company can significantly increase its market share by being first with a new competitive advantage

a company can reduce the threat of substitutes by...

offering additional value through wider product distribution, or offer various add-on services

Business strategies that match core company competencies to ...

opportunities result in competitive advantages, a key to success

Opportunities and threats originate...

outside an organization, or externally, and cannot always be anticipated or controlled

stakeholders' interests often include:

partner/suppliers (reliable contracts, ethical materials handling, responsible production) shareholders/investors (maximize profits, grow market share, high return on investment) community (professional associations, ethical recycling, increase employment) Employees (fair compensation, job security, ethical conduct, treatment) customers (exceptional customer service, high-quality products, ethical dealing) government (adhere to regulations/laws, increase employment, ethical taxation reporting)

The value chain groups a firm's activities into two categories:

primary value activities, and support value activities.

loyalty programs

reward customers based on their spending

companies can use differentiation to reduce ____

rivalry

buyer power

the ability of buyers to affect the price they must pay for an item

competitive intelligence

the process of gathering information about the competitive environment, including competitors' plans, activities, and products, to improve a company's ability to succeed

the five forces model includes:

threat of substitute products or services buyer power Rivalry among existing competitors supplier power three of new entrants