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ISA 235 Chapter 3

Five Forces Model
Competitive Forces:
Competition from vendors and substitutes
Competition from new entrants
Competition from rivalry
Bargaining Power Forces:
Bargaining power of customers
Bargaining power of suppliers
Competitive Stratigies
Cost-Industry wide, Cost-Focus, Industry wide-differentiation, Focus-differentiation
Amount of money a customer is willing to pay for a resource
Difference between the value an activity generates and the cost of the activity
Value Chain
Network of value creating activites
Primary Activites
Business functions that relate directly to the production of the organizations products or services
Support Activites
Business functions that assist and facilitate the primary activities
Business Process Vs. Value Chain
Business process is a more detailed value chain, value chain is more focused on costs vs. benefits
Primary Activities
Inbound Logistics, Operations/Manufacturing, Outbound Logistics, Sales and Marketing, Customer Service
Inbound Logistics
Receiving, storing, and disseminating inputs to the product
Transforming inputs into the final product
Outbound Logistics
Collecting, storing and physically distributing the product to buyers
Sales and Marketing
Inducing buyers to purchase the product and providing a means for them to do so
Customer Service
Assisting the customers use of the product and thus maintaining and enhancing the products value
Supporting Activites
Technology, Human Resources, Firm Infastructure
Research and development, developing new techniques, methods and procedures
Human Resources
Recruiting, compensation, evaluation, and training of employees
Firm Infastructure
General management, finance, accounting, legal and government affairs
Business Processes and Value Chains
Business processes implement value chains or portions of value chains. Each value chain is supported by one of more business processes.
Principles of Competitive Advantage
Product Implementations or enhancing and differentiation

Process Implementations or dealing with the business process

Product Implementation
1. Create a new product or service
2. Enhance product or service
3. Differentiate product or service
Process Implementation
1. Lock in customers and buyers
2. Lock in suppliers
3. Raise barriers to market entry
4. Establish alliances
5. Reduce costs
High-switching costs
Making it difficult or expensive for customers to switch to another product

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