AB - The business organisation, stakeholders

and the external environment

DEFINITION:

Being competitive means that you have to do something, or a number of things, that make it an attractive business
for customers to come to and buy your products and services.

Competitive factors:

1) Attractive price;
2) High quality product;
3) Unparalleled customer service;
4) Brand;
5) Location; 6) Reputation; 7) Origin.

SWOT ANALYSIS:

SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) helps to assess what a business is doing right,
and doing wrong, in being a competitor.

Note: An organisation should develop a course of key actions under each main area, which will drive its
competitiveness forward.
QUESTIONS TO BE ASKED:

Strengths: Weaknesses:

- How strong is customer loyalty? - How large is the cost base?

Opportunities: Threats:

- Is there demand in other unexploited markets? - Are there new competitors on the horizon?

- Is there a new trend we can take advantage of? - Is the government going to raise taxes?

- Is there a new technology? - Could there be a union strike?

Example:

Abacus Ltd produces baked goods for supermarket chains under supermarket own brands but also sells under the
Abacus brand in a number of its own local shops in the region. A SWOT analysis has been carried out and from it
and we want to identify possible sources of competitive advantage the company has:

Strengths: Weaknesses:

- A well-recognised brand; - Large cost base (expensive rent, expensive - A good reputation
for quality; staff).
- Good locations.

Opportunities: Threats:
 - The youth market is a growing consumer of baked - Major international provider, who can offer the
products; same products at a lower margin, is about to
- There is a growing trend of luxury brands enter the market to supply supermarkets.
appearing in luxury department stores.

Solution:

Having looked at these outputs, what should Abacus consider doing?

1) It should reinforce and capitalise on its brand and the perception of quality;
2) It should minimise weaknesses by relocating its shops outside of cities or employing cheaper staff, but this is
not necessarily. It should get its costs as low as possible but must be careful not to damage accessibility to
customers or the quality of the product being made;
3) It should consider entering youth market and luxury department stores. However, more understanding might
be required;
4) It should consider lowering its prices further in order to take this possible competitor on in the market. However,
price doesn’t appear to be a competitive strength and, therefore, Abacus might consider not trying to compete
on it and focus on improving its brand and quality.

THE VALUE CHAIN:

The customer is ready to pay extra cost, because it believes that the company is adding value to the product and
is prepared to pay for it.

The process by which the value is being added at Manufacturing, Finishing, and Sales stages is called a value
chain, as each stage adds more value to the end product and, therefore, adds value to the customer.

Porter’s value chain:

Each of these activity types suggests an area in value chain where value can be added to boost the organisation’s
margin.
Key activities from a Porter’s value chain that can have a material impact on the organisation’s competitiveness:

1) Purchasing:
 - Wide net of suppliers allows businesses to buy raw materials cheaper;

- Purchasing negotiations allow businesses to obtain access to high quality raw materials;

- Ability to understand the value network and existing supplier’s value chain allows businesses to
influence supplier to produce cheaper or better inputs. 2) Production:
- If a product line can operate with lower waste output, its total costs will be lower;

- If the products have fewer flaws and failure rates than other manufacturers, the organisation will be
competitive on the basis of its quality;

- If the organisation employs the best designers, this is also a source of competitiveness.
3) Marketing:
- Ability to appeal to the emotions of a customers will encourage them to buy;

- Ability to produce more effective marketing than others is a source of competitiveness.

- Ability to measure client’s satisfaction and understand what actions the company must take would be
a competitive advantage;

- High speed in getting spare parts for a customer would be a competitive advantage.

Porter identified that value can also be added across a value network as the organisation is linked to other external
elements in a value chain manner.

For example, there might be a company (Company A) which is the end producer of a product that has inputs from
suppliers who provide assemblies. Within Company A it executes strategies to maximise value within its own value
chain. However, working back from the end manufacturer to these assembly suppliers and back to the component
suppliers, each of them will create the value along the way from the initial sourcing of the core material right through
to the end product which Company A supplies.

This may be a very useful for a producer to understand where the value is being created, with a view to seeing if
it can influence the creation of further value.

Example:

A Bell Ltd is a computer manufacturer which sells its computers to customers. It has two suppliers of assemblies:
Tron Ltd and Trek Ltd. Tron Ltd is supplied by two component suppliers: Marvel and DC. It may be that Bell
understands that Marvel can do a better job with its capacities and should be able to produce far more durable
products than it is currently doing. It might talk to Tron about demanding more from Marvel or about changing its
supplier thus adding value to the end product deliverable to the customer.

PORTER’S FIVE FORCES:

Porter identified various forces in an industry external to the organisation itself that could impact the organisation’s
competitiveness:
Example:

Let's examine the bakery products of Abacus Ltd on the supermarket shelf:

1) Supplier bargaining power. This is probably weak as many suppliers want to supply supermarkets given
the huge volumes that supermarkets can sell. This is good for the industry, as it can keep supplier
prices down;
2) Buyer bargaining power. This is probably strong as there are many supermarkets to go to. So buyers
can easily move, which is bad because participants cannot easily raise prices without losing customers;
3) There is always the threat of new entrants. However, it is a significant hurdle to set up a new
supermarket. This is good as the barriers to entry are high preventing others coming in and forcing
prices lower again;
4) Competitive rivalry is probably quite high as well which is typical for supermarkets driving prices and
margins lower;
5) It is not easy to substitute bread, which is good for the industry.

It is the combination of these forces and their relative strength that will determine the overall position of the
company.