Introductory Finance <\/p>\n
(Author\u2019s name)<\/p>\n
(Institutional Affiliation)<\/p>\n
Competitive Advantage<\/p>\n
Porter\u2019s 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). <\/p>\n
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 Some of these things might include; declining or decreasing sales, outdated systems of running businesses, or a business or company using procedures and systems of business that are not up to date, and doing or operating a business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). <\/p>\n
To sustain competitive advantage, the following formula can be followed (O’Sullivan & Sheffrin, 2010);<\/p>\n
CAP = (value X WACC- NOPAT) (1+ WACC)\/ 1 (R- WACC)<\/p>\n
NOPAT is net operating profit after tax<\/p>\n
WACCC is weighted average cost of capital<\/p>\n
CAP is competitive advantage period<\/p>\n
R is rate of return on capital that has been invested on<\/p>\n
I is annualized new investment in both fixed and working capital (O’Sullivan & Sheffrin, 2010)<\/p>\n
Conclusion<\/p>\n
These are things that a company or a firm has to improve on in order for it to be more profitable and productive.<\/p>\n
References<\/p>\n
Baltzan, P. & Phillips, A. (2009). Business driven information systems. USA: McGraw Hill Companies Inc.<\/p>\n
O’Sullivan, A. & Sheffrin, M. (2010). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall<\/p>\n
Porter, M.E. (1979). How Competitive Forces Shape Strategy. Harvard business Review.<\/p>\n","protected":false},"excerpt":{"rendered":"
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