A useful tool in gathering information about the competitive environment

Wk 2 Discussion 3 [Due Tomorrow. Provide At Least On Answer And Respond To Each Peer]

Review this week’s course materials and learning activities, and reflect on your learning so far this week.

Respond to one or more of the following prompts in one to two paragraphs:

Choose a topic from this week’s course materials, and summarize what you learned about the topic. Provide citation and reference to the material(s) you discuss. Describe what you found interesting regarding this topic, and why.
Discuss a key knowledge, skill, or ability you gained from your learning this week. Describe how you will apply that learning in your daily life, including your work life.
Describe 2 to 3 ideas, topics, or concepts from this week’s course materials for which you would like to learn more, and why. Describe what may be unclear to you, and what you would like to learn.
Students need to contribute two substantive posts in this discussion by the due date indicated. The substantive posts can be any combination of responses and replies.

Aligned with discussion (3)

2.12.1 Summarize when a business should use metrics to measure strategic initiatives to achieve success.Goal Set & CategoryCMGT_556Course Objective
2.22.2 Plan an IT metrics effectiveness and efficiency strategy for an organization.

Goal Set & CategoryCMGT_556Course Objective

2.32.3 Discuss the impact the evolution of data, information, business intelligence, and knowledge has on organizations.

Goal Set & CategoryCMGT_556Course Objective

PEER 1

Business process is a set of activities and or tasks when completed will be in a position to realize the goals of the organization. For business process to remain valid there is the need for involvement of the multiple defined input but a single output. The three most important types of business processes include management processes, operational processes and at the same time, supporting operations. All the operations are capitalized mutually to realize the goals of the organization. In its definition, it begins with mission objectives and is concluded with the achievement of the specific objectives. Therefore, in simpler words, the business process is the set of activities needed to accomplish a common goal in an organization.

PEER 2

“Metrics are measurements that evaluate results to determine whether a project is meeting its goals. Two core metrics are critical success factors and key performance indicators. Critical success factors (CSFs) are the crucial steps companies perform to achieve their goals and objectives and implement their strategies (see Figure 4.2). Key performance indicators (KPIs) are the quantifiable metrics a company uses to evaluate progress toward critical success factors. KPIs are far more specific than CSFs.” (Baltzan, 2018, ).

Before reading these chapter, I didn't realize all the ways we have at our disposal to evaluate different operating procedures. Some of these methods are pretty simply practices to improve effectiveness. Being able to go through a simple method of running through each step and seeing if you need it or can improve it, helps to shave down a ton of unneeded or ineffective actions.

Reference:

´Baltzan, P. (2018). Business Driven Technology (7th ed.). Retrieved from The University of Phoenix eBook Collection database.

1. .1. Explain why competitive advantages are temporary along with the four key areas of a SWOT analysis.

2. 2.2. Describe Porter’s Five Forces Model and explain each of the five forces.

3. 2.3. Compare Porter’s three generic strategies.

4. 2.4. Demonstrate how a company can add value by using Porter’s value chain analysis.

Identifying Competitive Advantages
LO 2.1 Explain why competitive advantages are temporary along with the four key areas of a SWOT analysis.

Running a company today is similar to leading an army; the top manager or leader ensures all participants are heading in the right direction and completing their goals and objectives. Companies lacking leadership quickly implode as employees head in different directions attempting to achieve conflicting goals. To combat these challenges, leaders communicate and execute business strategies (from the Greek word stratus for army and ago for leading).

A business strategy is 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. A stakeholder is a person or group that has an interest or concern in an organization. Stakeholders drive business strategies, and depending on the stakeholder’s perspective, the business strategy can change. It is not uncommon to find stakeholders’ business strategies have conflicting interests such as investors looking to increase profits by eliminating employee jobs. Figure 2.1 displays the different stakeholders found in an organization and their common business interests.

Good leaders also anticipate unexpected misfortunes, from strikes and economic recessions to natural disasters. Their business strategies build in buffers or slack, allowing the company the ability to ride out any storm and defend against competitive or environmental threats. Of course, updating business strategies is a continuous undertaking as internal and external environments rapidly change. Business strategies that match core company competencies to opportunities result in competitive advantages, a key to success!

A competitive advantage is a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors. Competitive advantages provide the same product or service either at a lower price or with additional value that can fetch premium prices. Unfortunately, competitive advantages are typically temporary, because competitors often quickly seek ways to duplicate them. In turn, organizations must develop a strategy based on a new competitive advantage. Ways that companies duplicate competitive advantages include acquiring the new technology, copying the business operations, and hiring away key employees. The introduction of Apple’s iPod and iTunes, a brilliant merger of technology, business, and entertainment, offers an excellent example.

In early 2000, Steve Jobs was fixated on developing video editing software when he suddenly realized that millions of people were using computers to listen to music, a new trend page 22in the industry catapulted by illegal online services such as Napster. Jobs was worried that he was looking in the wrong direction and had missed the opportunity to jump on the online music bandwagon. He moved fast, however, and within four months he had developed the first version of iTunes for the Mac. Jobs’s next challenge was to make a portable iTunes player that could hold thousands of songs and be completely transportable. Within nine months the iPod was born. With the combination of iTunes and iPod, Apple created a significant competitive advantage in the marketplace. Many firms began following Apple’s lead by creating portable music players to compete with the iPod. In addition, Apple continues to create new and exciting products to gain competitive advantages, such as its iPad, a larger version of the iPod that functions more as a computer than a music player.1

FIGURE 2.1 Stakeholders’ Interests.

When a company is the first to market with a competitive advantage, it gains a particular benefit, such as Apple did with its iPod. This first-mover advantage occurs when a company can significantly increase its market share by being first with a new competitive advantage. FedEx created a first-mover advantage by developing its customer self-service software, which allows people to request parcel pickups, print mailing slips, and track parcels online. Other parcel delivery companies quickly began creating their own online services. Today, customer self-service on the Internet is a standard feature of the parcel delivery business.

Competitive intelligence is the process of gathering information about the competitive environment, including competitors’ plans, activities, and products, to improve a company’s ability to succeed. It means understanding and learning as much as possible as soon as possible about what is occurring outside the company to remain competitive. Frito-Lay, a premier provider of snack foods such as Cracker Jacks and Cheetos, does not send its sales representatives into grocery stores just to stock shelves; they carry handheld computers and record the page 23product offerings, inventory, and even product locations of competitors. Frito-Lay uses this information to gain competitive intelligence on everything from how well competing products are selling to the strategic placement of its own products.2 Managers use four common tools to analyze competitive intelligence and develop competitive advantages as displayed in Figure 2.2.

FIGURE 2.2 Business Tools for Analyzing Business Strategies.

SWOT ANALYSIS: UNDERSTANDING BUSINESS STRATEGIES
A SWOT analysis evaluates an organization’s strengths, weaknesses, opportunities, and threats to identify significant influences that work for or against business strategies (see Figure 2.3). Strengths and weaknesses originate inside an organization, or internally. Opportunities and threats originate outside an organization, or externally, and cannot always be anticipated or controlled.

· Potential Internal Strengths (Helpful): Identify all key strengths associated with the competitive advantage including cost advantages, new and/or innovative services, special expertise and/or experience, proven market leader, and improved marketing campaigns.

· 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 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.

FIGURE 2.3 Sample SWOT Analysis

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· Potential External Threats (Harmful): Identify all threats or risks detrimental to your organization, including new market entrants, substitute products, employee turnover, differentiating products, shrinking markets, adverse changes in regulations, and economic shifts.

The Five Forces Model—Evaluating Industry Attractiveness
LO 2.2 Describe Porter’s Five Forces Model and explain each of the five forces.

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.

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 industry. 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. This section details each of the forces and its associated MIS business strategy (see Figure 2.4).3

BUYER POWER
Buyer power is the ability of buyers to affect the price they must pay for an item. 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. If buyer power is high, customers can force a company and its competitors to compete on price, which typically drives prices down.

One way to reduce buyer power is by manipulating switching costs , costs that make customers reluctant to switch to another product or service. Switching costs include financial as well as intangible values. The cost of switching doctors, for instance, includes the powerful intangible components of having to build relationships with the new doctor and nurses, as well page 25as transferring all your medical history. With MIS, however, patients can store their medical records on DVDs or thumb drives, allowing easy transferability. The Internet also lets patients review websites for physician referrals, which takes some of the fear out of trying someone new.4

FIGURE 2.4 Porter’s Five Forces Model.

Companies can also reduce buyer power with loyalty programs , which reward customers based on their spending. The airline industry is famous for its frequent-flyer programs, for instance. Because of the rewards travelers receive (free airline tickets, upgrades, or hotel stays), they are more likely to be loyal to or give most of their business to a single company. Keeping track of the activities and accounts of many thousands or millions of customers covered by loyalty programs is not practical without large-scale business systems, however. Loyalty programs are thus a good example of using MIS to reduce buyer power.5

SUPPLIER POWER
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw materials or a product. In a typical supply chain, a company will be both a supplier (to customers) and a customer (of other suppliers), as illustrated in Figure 2.5. Supplier power is the suppliers’ ability to influence the prices they charge for supplies (including materials, labor, and services). Factors used to appraise supplier power include number of suppliers, size of suppliers, uniqueness of services, and availability of substitute products. If supplier power is high, the supplier can influence the industry by:

· Charging higher prices.

· Limiting quality or services.

· Shifting costs to industry participants.6

Typically, when a supplier raises prices, the buyers will pass on the increase to their customers by raising prices on the end product. When supplier power is high, buyers lose revenue because they cannot pass on the raw material price increase to their customers. Some powerful suppliers, such as pharmaceutical companies, can exert a threat over an entire industry when substitutes are limited and the product is critical to the buyers. Patients who need to purchase cancer-fighting drugs have no power over price and must pay whatever the drug company asks because there are few available alternatives.

Using MIS to find alternative products is one way of decreasing supplier power. Cancer patients can now use the Internet to research alternative medications and practices, something that was next to impossible just a few decades ago. Buyers can also use MIS to form groups or collaborate with other buyers, increasing the size of the buyer group and reducing supplier power. For a hypothetical example, the collective group of 30,000 students from a university has far more power over price when purchasing laptops than a single student.7

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
The threat of substitute products or services is high when there are many alternatives to a product or service and low when there are few alternatives from which to choose. For example, travelers have numerous substitutes for airline transportation including automobiles, trains, and boats. Technology even makes videoconferencing and virtual meetings possible, eliminating the need for some business travel. Ideally, a company would like to be in a market in which there are few substitutes for the products or services it offers.

Polaroid had this unique competitive advantage for many years until it forgot to observe competitive intelligence. Then the firm went bankrupt when people began taking digital pictures with everything from video cameras to cell phones.

A company can reduce the threat of substitutes by offering additional value through wider product distribution. Soft-drink manufacturers distribute their products through vending page 26machines, gas stations, and convenience stores, increasing the availability of soft drinks relative to other beverages. Companies can also offer various add-on services, making the substitute product less of a threat. For example, iPhones include capabilities for games, videos, and music, making a traditional cell phone less of a substitute.8

FIGURE 2.5 Traditional Supply Chain.

THREAT OF NEW ENTRANTS
The threat of new entrants is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to joining a market. An entry barrier is a feature of a product or service that customers have come to expect and entering competitors must offer the same for survival. For example, a new bank must offer its customers an array of MIS-enabled services, including ATMs, online bill paying, and online account monitoring. These are significant barriers to new firms entering the banking market. At one time, the first bank to offer such services gained a valuable first-mover advantage, but only temporarily, as other banking competitors developed their own MIS services.9

RIVALRY AMONG EXISTING COMPETITORS
Rivalry among existing competitors is high when competition is fierce in a market and low when competitors are more complacent. Although competition is always more intense in some industries than in others, the overall trend is toward increased competition in almost every industry. The retail grocery industry is intensively competitive. Kroger, Safeway, and Albertsons in the United States compete in many different ways, essentially trying to beat or match each other on price. Most supermarket chains have implemented loyalty programs to provide customers special discounts while gathering valuable information about their purchasing habits. In the future, expect to see grocery stores using wireless technologies that track customer movements throughout the store to determine purchasing sequences.

Product differentiation occurs when a company develops unique differences in its products or services with the intent to influence demand. Companies can use differentiation to reduce rivalry. For example, while many companies sell books and videos on the Internet, Amazon differentiates itself by using customer profiling. When a customer visits Amazon.com repeatedly, Amazon begins to offer products tailored to that particular customer based on his or her profile. In this way, Amazon has reduced its rivals’ power by offering its customers a differentiated service.

To review, the Five Forces Model helps managers set business strategy by identifying the competitive structure and economic environment of an industry. If the forces are strong, they increase competition; if the forces are weak, they decrease it (see Figure 2.6).10

ANALYZING THE AIRLINE INDUSTRY
Let us bring Porter’s five forces together to look at the competitive forces shaping an industry and highlight business strategies to help it remain competitive. Assume a shipping company is page 27deciding whether to enter the commercial airline industry. If performed correctly, an analysis of the five forces should determine that this is a highly risky business strategy because all five forces are strong. It will thus be difficult to generate a profit.

FIGURE 2.6 Strong and Weak Examples of Porter’s Five Forces.

Weak Force: Decreases Competition or Few Competitors

Strong Force: Increases Competition or Lots of Competitors

Buyer Power

An international hotel chain purchasing milk

A single consumer purchasing milk

Supplier Power

A company that makes airline engines

A company that makes pencils

Threat of Substitute Products or Services

Cancer drugs from a pharmaceutical company

Coffee from McDonald’s

Threat of New Entrants

A professional hockey team

A dog walking business

Rivalry among Existing Competitors

Department of Motor Vehicles

A coffee shop

FIGURE 2.7 Five Forces Model in the Airline Industry.

Strong (High) Force: Increases Competition or Lots of Competitors

Buyer Power

Many airlines for buyers to choose from forcing competition based on price.

Supplier Power

Limited number of plane and engine manufacturers to choose from along with unionized workers.

Threat of Substitute Products or Services

Many substitutes including cars, trains, and buses. Even substitutes to travel such as video conferencing and virtual meetings.

Threat of New Entrants

Many new airlines entering the market all the time including the latest sky taxis.

Rivalry among Existing Competitors

Intense competition–many rivals.

· Buyer power: Buyer power is high because customers have many airlines to choose from and typically make purchases based on price, not carrier.

· Supplier power: Supplier power is high since there are limited plane and engine manufacturers to choose from, and unionized workforces (suppliers of labor) restrict airline profits.

· Threat of substitute products or services: The threat of substitute products is high from many transportation alternatives including automobiles, trains, and boats, and from transportation substitutes such as videoconferencing and virtual meetings.

· Threat of new entrants: The threat of new entrants is high because new airlines are continuously entering the market, including sky taxies offering low-cost on-demand air taxi service.

· Rivalry among existing competitors: Rivalry in the airline industry is high, and websites such as Travelocity.com force them to compete on price (see Figure 2.7).11

The Three Generic Strategies—Choosing a Business Focus
LO 2.3 Compare Porter’s three generic strategies.

Once top management has determined the relative attractiveness of an industry and decided to enter it, the firm must formulate a strategy for doing so. If our sample company decided to join the airline industry, it could compete as a low-cost, no-frills airline or as a luxury airline providing outstanding service and first-class comfort. Both options offer different ways of achieving competitive advantages in a crowded marketplace. The low-cost operator saves on expenses and passes the savings along to customers in the form of low prices. The luxury airline spends on high-end service and first-class comforts and passes the costs on to the customer in the form of high prices.

Porter’s three generic strategies are generic business strategies that are neither organization nor industry specific and can be applied to any business, product, or service. These three generic business strategies for entering a new market are: (1) broad cost leadership, (2) broad differentiation, and (3) focused strategy. Broad strategies reach a large market segment, while focused strategies target a niche or unique market with either cost leadership or differentiation. Trying to be all things to all people is a recipe for disaster, since doing so makes it difficult to project a consistent image to the entire marketplace. For this reason, Porter suggests adopting only one of the three generic strategies illustrated in Figure 2.8.12

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FIGURE 2.8 Porter’s Three Generic Strategies.

FIGURE 2.9 Examples of Porter’s Three Generic Strategies.

Figure 2.9 applies the three strategies to real companies, demonstrating the relationships among strategies (cost leadership versus differentiation) and market segmentation (broad versus focused).

· Broad market and low cost: Walmart competes by offering a broad range of products at low prices. Its business strategy is to be the low-cost provider of goods for the cost-conscious consumer.

· Broad market and high cost: Neiman Marcus competes by offering a broad range of differentiated products at high prices. Its business strategy offers a variety of specialty and upscale products to affluent consumers.

· Narrow market and low cost: Payless competes by offering a specific product, shoes, at low prices. Its business strategy is to be the low-cost provider of shoes. Payless competes with Walmart, which also sells low-cost shoes, by offering a far bigger selection of sizes and styles.

· Narrow market and high cost: Tiffany & Co. competes by offering a differentiated product, jewelry, at high prices. Its business strategy allows it to be a high-cost provider of premier designer jewelry to affluent consumers.

Value Chain Analysis—Executing Business Strategies
LO 2.4 Demonstrate how a company can add value by using Porter’s value chain analysis.

Firms make profits by taking raw inputs and applying a business process to turn them into a product or service that customers find valuable. A business process is a standardized set of activities that accomplish a specific task, such as processing a customer’s order. Once a firm identifies the industry it wants to enter and the generic strategy it will focus on, it must then choose the business processes required to create its products or services. Of course, the firm page 29will want to ensure the processes add value and create competitive advantages. To identify these competitive advantages, Michael Porter created value chain analysis , which views a firm as a series of business processes that each add value to the product or service.

Value chain analysis is a useful tool for determining how to create the greatest possible value for customers (see Figure 2.10). 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.

The value chain groups a firm’s activities into two categories, primary value activities, and support value activities. Primary value activities , shown at the bottom of the value chain in Figure 2.10, 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.13

Support value activities , along the top of the value chain in Figure 2.10, include firm infrastructure, 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.

It is easy to understand how a typical manufacturing firm takes raw materials such as wood pulp and transforms it into paper. Adding value in this example might include using high-quality raw materials or offering next-day free shipping on any order. How, though, might a typical service firm take raw inputs such as time, knowledge, and MIS and transform them into valuable customer service knowledge? A hotel might use MIS to track customer reservations and then inform front-desk employees when a loyal customer is checking in so the employee can call the guest by name and offer additional services, gift baskets, or upgraded rooms. Examining the firm as a value chain allows managers to identify the important business processes that add value for customers and then find MIS solutions that support them.

FIGURE 2.10 The Value Chain.

page 30When 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.

MIS adds value to both primary and support value activities. One example of a primary value activity facilitated by MIS is the development of a marketing campaign management system that could target marketing campaigns more efficiently, thereby reducing marketing costs. The system would also help the firm better pinpoint target market needs, thereby increasing sales. One example of a support value activity facilitated by MIS is the development of a human resources system that could more efficiently reward employees based on performance. The system could also identify employees who are at risk of quitting, allowing a manager time to find additional challenges or opportunities that would help retain these employees and thus reduce turnover costs.

Value chain analysis is a highly useful tool that provides hard and fast numbers for evaluating the activities that add value to products and services. Managers can find additional value by analyzing and constructing the value chain in terms of Porter’s Five Forces Model (see Figure2.11). For example, if the goal is to decrease buyer power, a company can construct its value chain activity of “service after the sale” by offering high levels of customer service. This will increase customers’ switching costs and reduce their power. Analyzing and constructing support value activities can help decrease the threat of new entrants. Analyzing and constructing primary value activities can help decrease the threat of substitute products or services. Revising Porter’s three business strategies is critical. Firms must continually adapt to their competitive environments, which can cause business strategy to shift.14

FIGURE 2.11 The Value Chain and Porter’s Five Forces Model.

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OPENING CASE STUDY QUESTIONS
1. Imagine you are working for Costco as a manager in its Chicago store. Using Porter’s Five Forces Model, analyze buyer power and supplier power for Costco.

2. Which of the three generic strategies is Costco following?

3. Only members of Costco can purchase products at Costco. Which of Porter’s Five Forces did Costco address through the introduction of its members-only program?

Chapter Two Case: Michael Porter on TED—The Case for Letting Business Solve Social Problems
Micheal Porter is a university professor at Harvard Business School, where he leads the Institute on Strategy and Competitiveness, studying competitiveness for companies and nations—and as a solution to social problems. He is the founder of numerous nonprofits, including The Initiative for a Competitive Inner City, a nonprofit, private-sector organization to catalyze inner-city business development.

Fortune magazine calls Michael Porter simply “the most famous and influential business professor who has ever lived.” His books are part of foundational coursework for business students around the world; he’s applied sharp insight to health care systems, American competitiveness, development in rural areas. Now he’s taking on a massive question: the perceived disconnect between corporations and society. He argues that companies must begin to take the lead in reconceiving the intersection between society and corporate interests—and he suggests a framework, that of “shared value,” which involves creating economic value in a way that also creates value for society.15

Visit TED.com to watch Michael Porter’s video on why business can be good at solving social problems.

https://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems

Questions

1. In today’s global business environment, does the physical location of a business matter?

2. Do you agree or disagree that business can solve social problems? Justify your answer.

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* LEARNING OUTCOME REVIEW
2.1. Explain why competitive advantages are temporary along with the four key areas of a SWOT analysis.

A competitive advantage is a feature of a product or service on which customers place a greater value than they do on similar offerings from competitors. Competitive advantages provide the same product or service either at a lower price or with additional value that can fetch premium prices. Unfortunately, competitive advantages are typically temporary because competitors often quickly seek ways to duplicate them. In turn, organizations must develop a strategy based on a new competitive advantage. Ways that companies duplicate competitive advantages include acquiring the new technology, copying business processes, and hiring away employees.

A SWOT analysis evaluates an organization’s strengths, weaknesses, opportunities, and threats to identify significant influences that work for or against business strategies. Strengths and weaknesses originate inside an organization, or internally. Opportunities and threats originate outside an organization, or externally, and cannot always be anticipated or controlled.

2.2. Describe Porter’s Five Forces Model and explain each of the five forces.

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 industry.

· Buyer power is the ability of buyers to affect the price they must pay for an item.

· Supplier power is the suppliers’ ability to influence the prices they charge for supplies (including materials, labor, and services).

· Threat of substitute products or services is high when there are many alternatives to a product or service and low when there are few alternatives from which to choose.

· Threat of new entrants is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market.

· Rivalry among existing competitors is high when competition is fierce in a market and low when competition is more complacent.

2.3. Compare Porter’s three generic strategies.

Organizations typically follow one of Porter’s three generic strategies when entering a new market: (1) broad cost leadership, (2) broad differentiation, and (3) focused strategy. Broad strategies reach a large market segment. Focused strategies target a niche market. Focused strategies concentrate on either cost leadership or differentiation.

2.4. Demonstrate how a company can add value by using Porter’s value chain analysis.

To identify competitive advantages, Michael Porter created value chain analysis, which views a firm as a series of business processes, each of which adds value to the product or service. 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. The value chain groups a firm’s activities into two categories—primary value activities and support value activities. Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide after-sales services. Support value activities, along the top of the value chain in the figure, include firm infrastructure, human resource management, technology development, and procurement. Not surprisingly, these support the primary value activities.

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* REVIEW QUESTIONS
1. What is the relationship between a business strategy and stakeholders?

2. Who are the top three most important stakeholders in a business?

3. When would you use a SWOT analysis to help you make business decisions?

4. What is the role Porter’s Five Forces Model plays in decision making?

5. How could a company use loyalty programs to influence buyer power?

6. How could a company use switching costs to lock in customers and suppliers?

7. What are Porter’s three generic strategies and why would a company want to follow only one?

8. How can a company use Porter’s value chain analysis to measure customer satisfaction?

* MAKING BUSINESS DECISIONS
1. SWOT Your Students

What is your dream job? Do you have the right skills and abilities to land the job of your dreams? If not, do you have a plan to acquire those sought-after skills and abilities? Do you have a personal career plan or strategy? Just like a business, you can perform a personal SWOT analysis to ensure your career plan will be successful. You want to know your strengths and recognize career opportunities while mitigating your weaknesses and any threats that can potentially derail your career plans. A key area where many people struggle is technology, and without the right technical skills, you might find you are not qualified for your dream job. One of the great benefits of this course is its ability to help you prepare for a career in business by understanding the key role technology plays in the different industries and functional areas. Regardless of your major, you will all use business driven information systems to complete the tasks and assignments associated with your career.

Perform a personal SWOT analysis for your career plan, based on your current skills, talents, and knowledge. Be sure to focus on your personal career goals, including the functional business area in which you want to work and the potential industry you are targeting, such as health care, telecommunications, retail, or travel.

Personal Career SWOT Analysis

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After completing your personal SWOT analysis, take a look at the table of contents in this text and determine whether this course will eliminate any of your weaknesses or create new strengths. Determine whether you can find new opportunities or mitigate threats based on the material we cover over the next several weeks. For example, project management is a key skill for any business professional who must run a team. Learning how to assign and track work status will be a key tool for any new business professional. Where would you place this great skill in your SWOT analysis? Did it help eliminate any of your weaknesses? When you have finished this exercise, compare your SWOT with your peers to see what kind of competition you will encounter when you enter the workforce.

2. Keeping Sensitive Data Safe When It’s Not in a Safe

In the past few years, data collection rates have skyrocketed, and some estimate we have collected more data in the past four years than since the beginning of time. According to International Data Corporation (IDC), data collection amounts used to double every four years. With the massive growth of smart phones, tablets, and wearable technology devices, it seems as though data is being collected from everything, everywhere, all the time. It is estimated that data collection is doubling every two years, and soon it will double every six months. That is a lot of data! With the explosion of data collection, CTOs, CIOs, and CSOs are facing extremely difficult times as the threats to steal corporate sensitive data grows. Hackers and criminals have recently stolen sensitive data from retail giant Target, Home Depot, TJ Maxx, and even the Federal Reserve Bank.

To operate, sensitive data has to flow outside an organization to partners, suppliers, community, government, and shareholders. List 10 types of sensitive data found in a common organization. Review the list of stakeholders; determine which types of sensitive data each has access to and whether you have any concerns about sharing this data. Do you have to worry about employees and sensitive data? How can using one of the four business strategies discussed in this section help you address your data leakage concerns?

3. Pursuing Porter

There is no doubt that Michael Porter is one of the more influential business strategists of the 21st century. Research Michael Porter on the Internet for interviews, additional articles, and new or updated business strategies. Create a summary of your findings to share with your class. How can learning about people such as Thomas Friedman and Michael Porter help prepare you for a career in business? Name three additional business professionals you should follow to help prepare for your career in business.

4. Choosing a Career

Choosing a career can be an overwhelming task! Let’s face facts, you are going to spend countless hours working day-and-night at your job. If you choose the right career you can lead a life filled with excitement, opportunities, and happiness. Choose the wrong career and you can lead a life filled with boredom, suffering, and pain. The good news is the choice is yours! Create a list of your top three career choices and then perform a SWOT analysis of each career. Be sure to include such things as expectations, longevity, perks, benefits, and personal career goals. Hopefully, this great little exercise can start you thinking about the numerious opportunties that will be available to you in the near future.