Area Man Achieves Your Dream
NOVEMBER 7, 2006 | ISSUE 42•45 The Onion
CHARLOTTE, NC—After almost two decades of dreaming on
your part, 34-year-old Stephen Hochenko achieved your goal
of opening up a small bookstore and café last Thursday,
coincidentally in the exact location you had planned to open
yours.
"This proves that no matter what your dreams are, someone
out there can achieve them if they just do a little homework,
save their money, and believe in themselves," said a satisfied
Hochenko as he arranged tables and chairs for a Monday
night wine tasting and reading featuring acclaimed author Neil
Gaiman. "I'm happier than you can even imagine or will
probably ever experience yourself."
Hochenko joins a long list of people who have achieved your
dreams, including the creators of YouTube, Grand Prix
motorcycle-racer Valentino Rossi, and the people who
married your longtime crush and potential soul mate in April
1998, June 2001, and last Saturday.
Agenda for Today
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Feasibility plan: competitive
advantage
Lucent case
IBM case
Corporate entrepreneurship:
overcoming barriers
Feasibility Plan:
Competitive Analysis
February 26, 2006
Competitive Advantage
What is it?
Competitive Advantage
Factors
Internal to
The Firm
•Resources
•Capabilities
Competitive
Advantage
•Rivalry
Factors
External to
The Firm
•Barriers to Entry
•Power: suppliers
and buyers
Competitive Advantage: External
Factors
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Porter’s five forces model
Supplier
power
Barriers
to entry
Degree of
rivalry
Threat of
substitutes
Buyer
power
Rivalry
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Degree of aggressiveness in
attempting to gain advantage
Varies across industries
• Industry concentration ratios
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Percentage of market share held by the four
largest firms
Threat of substitutes
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Substitute products
• Products in other industries
• Threat exists when demand is affected
by the price change of substitutes
• Constrain the ability to raise prices
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E.g. dial-up vs. cable or DSL
Buyer Power
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The impact of customers on the
industry
Occurs in a monopsony
• One buyer, many suppliers
• The buyer sets the price
When are buyers powerful?
Buyer Power
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Buyers are powerful if:
• A few buyers with significant market
share (e.g. DOD)
• Buyers purchase a significant proportion
of output (e.g. Sears and appliance
manufacturers)
• Buyers threat of backward integration
(e.g. auto manufacturer purchasing
tires)
Examples From:
QuickMBA.com
Supplier Power

Suppliers are powerful if:
• Forward integration threat (e.g.,
acquisition of distributors)
• Suppliers are concentrated (e.g., drug
industry and hospitals)
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Buyers are fragmented: e.g. consumer
markets
• Significant costs to switch suppliers
(e.g. non-standardized products)
Examples From:
QuickMBA.com
Barriers to entry

Barriers to entry
• Anything which places potential entrants
at a disadvantage as compared with
established firms (Bain, 1956)
• A characteristics that protect the high
profit levels of firms and inhibit
additional rivals from entering
Barriers to entry
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Types of barriers to entry
• Government – induced barriers

Creation of monopolies such as utilities
• Patents and intellectual property
• Asset specificity
• Economies of scale
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Minimum efficiency scales vary by industry
(e.g. 10% market share in long-distance
communications)
• Capital requirements
• Price deterring strategies
What Barriers Can You Establish?
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Intellectual property: patents, trade
secrets, copyrights, trademarks, etc
Switching costs to your target
market
Customer loyalty/brand
Agreements with customers,
suppliers, strategic partners
Control of the distribution channel
Competitive Advantage: Internal
Factors
Resources
Distinctive
Competencies
Capabilities
Cost Advantage
or
Differentiation
Advantage
Value Creation
Sustainable Competitive
Advantages
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Resources and capabilities
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Valuable
Rare
Inimitable
Non substitutable
Example: technology
Identify Your Resources
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Financial: access to capital (equity & debt), cash
reserves, government grants, etc.
Physical assets: plant & equipment, raw materials,
location, working capital, etc.
Human: social, employee knowledge, experience,
accumulated wisdom, labor cost and skills, etc.
Intangible: patents, trade secrets, know-how,
copyrights, databases, etc.
Organizational: culture, contacts, policies, Boards of
Directors & Advisors, suppliers, service providers, etc.
Network - well developed, high-quality, accessible contacts
that take years to build
• Relationships - regulators, politicians, investors
Identify Your Capabilities
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Marketing - differentiation, branding,
positioning
Product/service - design features &
benefits
Sales & distribution
Total operational approach - Wal-Mart
Supply chain management
Competitive Advantage
Challenges
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Intellectual property
Agreements with
customers or suppliers
Long term contracts
Control of costs
Control of prices
Control of channel
Location
Differentiation
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First to market
World class
management
Expertise
Development lead
time
Brand
Quality
Service
Execution
Relationships
Sustainable Competitive
Advantage
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Understand the market
Understand the competition
Differentiation
Resources & capabilities
Really understand the market &
competition
Why is this so hard?
Feasibility Plan: Competition
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Describe key competitors
Direct, indirect, future
Prepare a competitive matrix
• Product/Services
• Marketing
• Management
• Financial
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Image – website, brochures,
literature, advertisements