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Competitive strategy and strategic direction - Coggle Diagram
Competitive strategy and
strategic direction
Strategy formulation in THE contexts
how can advantage over competitors be achieved? (
competitive strategy)
which products or services should be developed and in which markets should they be sold?
(strategic direction)
what methods of development should be adopted?
(strategic methods).
Competitive strategy
concerned with the bases on which a strategic business unit (SBU) might achieve
competitive advantage in its chosen market or markets
THE organizations in the private sector competitive advantage is clear
Organizations need to compete with the competitors in their particular sector in order to gain customers and to achieve profitability for the benefit of the business owners
.
Michael Porter’s generic strategies
Cost leadership strategy
(2)
is based upon a business organizing and managing its value adding activities so as to be the lowest cost producer of a product or service within an industry
Benefits
Can earn higher profits by charging a price equal to or even below that of competitors because its costs are lower.
Provides the possibility of increasing both sales and market share by reducing price below that charged by competitors
Allows the possibility to enter a new market by charging a lower price than competitors.
Can be particularly valuable in a market where consumers are price sensitive.
Creates an additional barrier to entry for organizations wishing to enter the industry
Differentiation strategy
(3)
is based upon persuading customers that a product is superior in some way to that offered by competitors
Benefits
its products will command a premium price
demand for its product will be less price elastic than demand for competitors’ products
above-average profits can be earned
it creates an additional barrier to entry to new businesses wishing to enter the industry
Achieved by
Creating products which are superior to competitors by virtue of design, technology...
Offering a superior level of service
Having access to superior distribution channels.
Creating a strong brand name through design, innovation, advertising, loyalty programmes and public
relations.
Distinctive or superior product promotion
Focus strategy
(1)
is aimed at a segment of the market for a product rather than at the whole market
Benefits
requires a lower investment in resources compared to a strategy aimed at an entire market;
allows specialization and greater knowledge of the segment being served; and
makes entry to a new market simpler and less costly
Requirements
identification of a suitable target customer group which form a distinct market segment;
identification of the specific needs of that group;
establishing that the segment is sufficiently large to sustain the business;
establishing the extent of competition within the segment;
production of products to meet the specific needs of that group; and
deciding whether to operate a differentiation or cost leadership strategy within the market segment.
Criticisms of Porter’s generic strategy framework
(4)
Six limitations
Price can sometimes be used to differentiate.
The resource/competence-based strategy has arguably superseded the generic strategy framework.
Differentiation strategies can be used to increase sales volumes rather than to charge a premiumprice.
A business can apparently employ a successful ‘hybrid’ strategy without being ‘stuck in the middle’.
Cost leadership does not, in and of itself, sell products
A ‘generic’ strategy cannot give competitive advantage.
Competitive strategies for THE – Poon’s framework
put customers first
be a leader in quality
develop radical innovations
strengthen the organization’s strategic position within the industry’s value chain
Competence-based competitive advantage
Core competence
: the collective learning of the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies
Process of building new core competencies or extending existing ones
Customer perceptions
Uniqueness
Continuous improvement
Collaboration
Organizational knowledge
Knowledge management as a source of competitive advantage
Knowledge and organizational learning: a shared collection of principles, facts, skills, and rules.
Sustainable competitive advantage
Durability
Transparency
Replicability
The VRIO framework
Value
– A resource or capability must enable the organization to exploit opportunities or counter threats effectively.
Rarity
– If a resource is widely available, it cannot provide a lasting competitive advantage.
Imitability
– Resources that can be easily copied lead to only temporary advantages. Sustainable advantage requires uniqueness.
Organizational Capability
– The company must have the ability to structure and utilize its resources efficiently to maximize their competitive potential.
Strategic directions
Growth – Igor Ansoff’s product–market framework
market penetration – increasing market share in existing markets utilizing existing products;
market development – entering new markets and segments using existing products;
product development – developing new products to serve existing markets;
diversification – developing new products to serve new markets.
Stability strategies (maintain the activities of the SBU)
Pause/Proceed with Caution
– A temporary strategy allowing the organization to stabilize and make incremental improvements before pursuing further growth or retrenchment. Often used after rapid expansion or decline.
No Change
– A decision to maintain the status quo, continuing current operations as long as returns remain satisfactory, avoiding unnecessary risks associated with growth.
Profit Strategy
– A response to a declining market position, focusing on maintaining profitability by cutting costs and reducing investments rather than seeking immediate growth
Retrenchment strategies (reduce the activities of the SBU)
Turnaround
– Focuses on improving efficiency through cost-cutting (contraction) followed by stabilization (consolidation).
Captive Company
– Sacrifices independence by aligning with a major customer for long-term security.
Sell Out/Divestment
– Sells the entire business or weak units to generate funds for stronger areas.
Bankruptcy/Liquidation
– Involves court-appointed management (bankruptcy) or complete closure and asset sale (liquidation) when survival is no longer viable.
Risk and balance
Smallest when development is largely based upon existing core competencies and when it takes place in existing markets.
Greatest when development requires entry to unrelated markets.