Module 2

Competitive Advantage

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Unit Syllabus

• External Environment – PESTEL Analysis, SWOT Analysis, Porter’s Five Forces

Model, The Competitive Profile Matrix (CPM), Globalization and Industry Structure
• Resources, Capabilities and competencies – Value Chain Analysis – Core
competencies, generic building blocks of Competitive Advantage
• Distinctive Competencies - Avoiding failures and sustaining competitive advantage.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Business
Environment
PESTEL & SWOT Analysis

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Business Environment
• The word 'business environment' indicates the aggregate total of all
people, organisations and other forces that are outside the power of
industry but that may affect its production.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Environment Analysis
• An environmental analysis is a strategic technique used to identify all internal
and external factors that could affect a company’s success. Internal components
reveal the strengths and shortcomings of a company, while external components
represent the opportunities and risks. This exists outside of the company.
• Environmental analysis is also called as, “Environmental Scanning”

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Environment Analysis Process

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
PESTLE ANALYSIS

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Porter’s Five Force Model
• Porter's Five Forces is a simple but powerful tool that you can use to identify the
main sources of competition in your industry or sector.
• Porter's five forces refers to a framework that examines the level of
competition within an industry by analysing five key forces: the threat of new
entrants, the bargaining power of suppliers, the bargaining power of buyers, the
threat of substitute products or services, and the intensity of competition.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Who Created the Five Forces Model?

• The tool was created by Harvard Business School professor Michael Porter. Since its
publication in 1979, it has become one of the most popular and highly regarded
business strategy tools.
• Porter recognized that organizations like to keep a close watch on their rivals, but, in
his Harvard Business Review article, 'How Competitive Forces Shape Strategy,' he
encouraged business leaders to look beyond the actions of their competitors and
examine the forces at work in their wider business environment.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

What Are Porter's Five Forces?

According to Porter, there are five forces that represent the key sources of
competitive pressure within an industry
1. Competitive Rivalry.
2. Supplier Power.
3. Buyer Power.
4. Threat of Substitution.
5. Threat of New Entry.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Threat of new entrants

Factors of entry barriers include:

New entrants to the market can
threaten your own sales volume and • Cost of entry,
market share. The harder it is to
• Brand loyalty,
enter the market the easier it is to
maintain a market position. • Government policies,
• Specialist knowledge.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Bargaining power of Suppliers

Factors determining the power of suppliers:

Bargaining power of suppliers is
the ability of suppliers to influence • Number of suppliers
the prices and quality of the goods
• Size of suppliers
and services they provide. When
there are few suppliers, and a • Uniqueness of the product or service
product is new or specific, it might
be difficult and expensive for a • Suppliers' ability to substitute
company to switch suppliers.
• Switching costs

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Bargaining power of Buyers

Factors determining the power of buyers:

Bargaining power of buyers is the
ability that customers have to drive •Number of customers,
prices lower or higher.
•Order size,
Buyers' power is high when there
•Differences between competitors,
are few large players and
proportionally many suppliers. If •Buyers' ability to substitute,
many sources are available, buyers
may shop around for other materials •Price sensitivity,
or supplies which may include a risk
of losing a key client. •Information availability.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Threat of substitutes
Most products can be substituted by
their alternatives, not necessarily in
the same category. This is known as
the threat of substitutes.
Threat of substitutes depends on the following
factors:
• Availability of substitutes
• Price of substitutes
• Type of good (for example, necessities, luxury
goods, comfort product)
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Competitive Rivalry

Therefore, it is important to know your

The type of competition can vary competitors:
depending on the balance of the
competitive relationship. The competitive • Number of competitors,
rivalry is high when there are numerous
• Quality differences,
competitors because then consumers can
easily switch to competitors offering • Concentration of industry,
similar products or services. Similar size
companies are likely to be more fierce than • Brand loyalty,
when there are large and small companies.
• Market growth.

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Competitive Profile Matrix (CPM)
The Competitive Profile Matrix
(CPM) is a strategic analysis that
allows you to compare your
company to your competitors, in
such a way as to reveal your relative
strengths and weaknesses.
Competitive Profile Matrix once completed will
give you the insight you need to:
•Inform your strategic decision making.
•Highlight the relative strengths and weaknesses of
both your competitors and your own organisation.
•Uncover potential opportunities in the
marketplace.
•Help you articulate your value proposition, as well
as highlighting the value proposition of your
competitors.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Competitive Profile Matrix (CPM)

There are 4 key components to a CPM:

1.Critical Success Factors

2.Weight (0.1 to 1.0) -----Total – 1.0
3.Rating
4.Score & Total Score

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

What Is a Value Chain?

A value chain is a series of consecutive steps

that go into the creation of a finished product,
from its initial design to its arrival at a
customer's door.
The chain identifies each step in the process
at which value is added, including the
sourcing, manufacturing, and marketing
stages of its production.

Value chain
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Value chain Analysis

Value chain analysis is a strategic

process that can increase profit margins
and provide a competitive advantage for
companies of all sizes.
Within this analysis, businesses identify
areas where the value of specific
production and sales activities can be
increased.
Value chain analysis
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Value chain analysis of Amazon
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Globalization
Globalization refers to the spread of the flow
of financial products, goods, technology,
information, and jobs across national borders
and cultures.
In economic terms, it describes an
interdependence of nations around the globe
fostered through free trade.
• Greater free trade.
• Greater movement of labor.
• Increased capital flows.
• Growth of Multi-national companies.
• Increased communication and
improved transport, effectively
reducing barriers between countries.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Globalization

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Industry Structure – Product based
Industry Structure – Geographical

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Industry Structure – Decentralized
Industry Structure – Strategic Business
Industry Structure – Matrix

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Resources, capabilities and competencies

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Core competencies in Business
Core competencies are the
resources and capabilities
that comprise the strategic
advantages of a business.
• Greatest Quality Products
• Most Innovative Technology
• Best Customer Service
• Largest Buying Power
• Strongest Company Culture
• Fastest Production or Delivery
• Highest Degree of Flexibility
• Lowest Cost Provider
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
 Difference between Competitive Advantage and Core Competence
Competitive Advantage Core Competence
Describes how well a company performs compared Differentiates a company from its competitors due to
to its competitors. its unique strengths or abilities.

Customer demand or market conditions are usually This is usually determined by internal factors, such
the determining factors. as the company's resources and capabilities.

Depending on market conditions and competition, Long-lasting and more stable.

changes may occur over time.

Market-driven company that focuses on winning. Creates a competitive advantage that is sustainable.

Distribution, marketing, and pricing strategies are Building efficient systems, creating unique products,
the means of achieving this. and nurturing a strong company culture are ways to
achieve this.
Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.
Generic Building Blocks of Competitive
advantage:
• Superior Quality
• Superior Efficiency
• Superior Customer responsiveness
• Superior Innovation
• Competitive advantage
• Low cost
• Differentiation

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Distinctive competencies and steps to
avoid failure

• Focus on the building blocks of competitive advantage

• Institute continuous improvement and learning
• Track best industrial practice and use benchmarking
• Overcome inertia
• The role of luck

Compiled by Ms. Sridevi M – Asst. Professor(MBA), AMC College.

Thank you