CHAPTER 2 : IDENTIFYING COMPETITIVE ADVANTAGE

PORTER'S 5 FORCES MODEL

Michael Porter's 5 forces model is useful tool to aid organization in challenging decision whether to join new industry or industry segment. the forces that contain in 5 forces are :-

buyer power - it is high when buyers have many choices of whom to buy. meanwhile, it is low when the customers choices are few. to reduce the 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 airlines tickets or hotel stays.

supplier power - it is high when buyers have few choices of whom to buy from. it is low when buyers choices  are many. best practices of IT to create competitive advantage. for example like B2B(business to business) marketplace -private exchange allow a singe buyer to post 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.

threat of substitute products and services - it is high when there are many alternatives to a product or services. meanwhile it isl ow 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 practice of IT for example electronic product that is in same function but different brands. to the extent that customers can use different products to fulfill the same need, the threat of substitutes exist.
switching cost- costs can make customer reluctant to switch to another product or services.

threat of new entrants- it is high when it's easy for new competitors to enter a market. it's low when there are significant entry barriers to entering a market. entry barriers is a product or service feature that customer have come to expect from organization and must be offered by entering organization to compete and survive. best practices of IT for example new bank must offers online paying bills, account monitoring to compete.

rivalry among existence competitors- it is high when competitors is fierce in a market.it is low when competition is more complacent. best practices of IT for example wal-mart and its suppliers using IT enable system for communication and track product at aisles by effective tagging system.it also reduce cost by using effective supply chain.