Competitive Advantage

Introductory Finance

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Competitive Advantage

Porter’s Five Forces Model is an important tool that many businesses utilize to create effective decisions and strategies when entering a business industry with a new or different business concept. The model can be used to find out the profitability or the attractiveness of a company or firm, and the five forces in this model include such things as; buyer power, threat that results from substitute products or services, the kind of threat that s an outcome of new entrants or competitors, supplier power, and competition or rivalry among existing businesses (Porter, 1979).

There are a number of things that can make an organization or a business unsuccessful or unproductive. Some of these things might include; declining or decreasing sales, outdated systems of running businesses, or a business or company using procedures and systems of business that are not up to date, and doing or operating a business through manual means (Porter, 1979). If a business has nit computerized its systems then it is likely to waste a lot of time and make errors that can cost the company a lot of money (Baltzan & Phillips, 2009). Prices also have to be reviewed from time to time, if a business does not want to operate loses. In addition to this, a company or firm has to establish a rewards program for its customers so as to attract them to their business. This can have numerous benefits for a business in that it can increase the number of customers frequenting the business, and as a result increase the sales, productivity, and profitability of the business (Baltzan & Phillips, 2009).

To sustain competitive advantage, the following formula can be followed (O’Sullivan & Sheffrin, 2010);

CAP = (value X WACC- NOPAT) (1+ WACC)/ 1 (R- WACC)

NOPAT is net operating profit after tax

WACCC is weighted average cost of capital

CAP is competitive advantage period

R is rate of return on capital that has been invested on

I is annualized new investment in both fixed and working capital (O’Sullivan & Sheffrin, 2010)

Conclusion

These are things that a company or a firm has to improve on in order for it to be more profitable and productive.

References

Baltzan, P. & Phillips, A. (2009). Business driven information systems. USA: McGraw Hill Companies Inc.

O’Sullivan, A. & Sheffrin, M. (2010). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall

Porter, M.E. (1979). How Competitive Forces Shape Strategy. Harvard business Review.

Competitive Advantage

Competitive Advantage

Associated Objectives
Explain how value is created from a firm’s resources and capabilities

Discussion Question
Pick any pair of well-known rival companies (such as Nike/Adidas, Samsung/Apple, and Hilton/Marriott) and explain how one outperforms another. What does each need to do to remain competitive?

Should be 250 to 300 words in length
Must include at least one source outside of your textbook, and it should be included in the reference list at the end of the post
All sources should be used in the content of the post, using APA format

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