ANSWER FOR TUTORIAL QUESTIONS FOR CHAPTER 2 (MGT300)

True/False:

1. A competitive advantage is typically temporary, unless its a first-mover advantage.                        (FALSE)

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 a 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)

       The are three Porter Generic Strategies is broad cost leadership,broad differentiation and focused strategy. Firstly is broad cost leadership. Broad cost leadership is broad strategies reach a large market segmentation.The firm can compete on the price with every other industries and earn higher units profit.Cost reduction provides the focus of the organisation's strategy.For example Wal-Mart.Walt-malt is to keep retail price low and the company has been very successful at this.Secondly is broad differentiation.Broad differentiation is focused strategies target a niche market.Customers perceive the product to be different and better than that of rivals.Differentiation can be based on product image or durability,after-sales,quality,additional features.For example Mc Donald's.Mc Donald's strove to meet a customer wait time at no more than one minute in line and 30 second at the counteAnd the lastly is focused strategy. Focused strategy is concentrate on either cost leadership or differentiation.A firm using a focus strategy often enjoys a high degree of customer loyalty,and this entrenched loyalty discourages other firms from competing directly. For example, food and beverages(PEPSICO).

2. Porter's Five Forces Model is a one of common tools used in industry to analyze and develop
    competitive advantages. List and describe each of the five (5) forces in Porter's Five Forces
    Model.                                                                                                                                 (20 marks)

    Five(5) forces in Porter’s five forces:

          1) Threat of substitute products or service

    2) Buyer power

    3) Threat of new entrants

    4) Supplier power

    5) Rivalry among existing competitors

   

         There have five forces in Porter's model.Firstly, is threat of substitute products or services.

This 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,if the price of coffee rises substantially,a Milo drinker is likely to switch over to a beverage like cocoa because the products are so similar.

            Secondly,is buyer power the high when buyers have many choices of whom to buy low when their choices are few.For example,cement industry.The number of players in this industry is relatively small so that the customers does not have a strong bargaining position.

           

            Thirdly is threat of new entrants there will become high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market.For example,barrier to entry is very large amount of capital to start a business in the industry especially oil and gas industry.

             Next is supplier power there will become high when buyers have few choices of whom to buy from and low when their choices are many.For example, lack of bargaining power of supplier is IKEA.

IKEA can easily switch supplier if his raise prices because there are many other supplier entering.

            Finally,rivalry among existing competitors.This is high when competition is fierce in a market and low when competition is more complacent.

3. Michael Porter's Five Forces Model is one of the tools used by the organization to analyze and
    develop competitive advantages. Explain how information technology can develop a competitive
    advantage for each force in Five Forces Model.                                                                                                                                                                                                              (20 marks)

    Information technology is permeating the value chain at every point, transforming the way value activities are performed and the nature of the linkages among them. it also is affecting competitive scope and reshaping the way products met buyer needs. These basic effects explain why information technology has required strategic significance and is different from the many other technologies business use.

     Every value activity has both a physical and an information-processing component. The physical component includes all the physical tasks required to perform the activity. The information-processing component encompasses the steps required to capture, manipulate, and channel the data necessary to perform the activity.

     Every value activity creates and uses information of some kind. logistics activity, for example, uses information like scheduling promises, transportation rates, and production planes to ensure timely and cost-effective delivery. A service activity uses information about service requests to schedule calls and order parts, and generates information on product failures that a company use to revise product designs and manufacturing methods.

     An activity's physical and information-processing components may be simple or quite complex. Different activities require a different mix of the two components. For instance, metal stamping uses more physical processing than information processing; processing of insurance of claims requires just the opposite balance.

     For most of industrial history, technological progress principally affected the physical component of what businesses do. During the Industrial Revolution, companies achieved competitive advantage by substituting machines for human labor. Information processing at the time was mostly the result of human effort.

    From the power of buyer, information technology can develop a competitive advantage based on loyalty program in travel industry. For example, rewards on free airlines tickets or hotel stay. If the supplier power wants the best practices of IT, they need to create competitive advantage. For example, B2B marketplace is private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who would care to bid. Reverse auction is auction format in which increasingly lower bids. An organization would like to be on market in which there are few substitutes of their product or services. The best practices of IT is electronic product. It has same function but different brands.For best practices of IT such as Wal-mart and its suppliers using IT was enabled system for communication and track product at aisles by effective tagging system.