For an industry or public service consider how the strategic capabilities that have been the basis of competitive advantage (or best value in the public sector) have changed over time. Why have these changes occurred? How did the relative strengths of different companies or service providers change over this period? Why?
Effective strategic management is essential for the success of any industry in the market. Proper strategic management policies provide the firm with competitive advantage over its competitors. In public and private sectors, the highest value is determined by the skills applied to ensure that the vision and mission of the firm are achieved. Various forces shape the strategy of the industry. Change can be attributed to the following factors.
There exists internal rivalry among existing competitors. Modern firms are aiming to increase the quality of their products in order to attain more market dominion. For this reason, most firms in the industry face competition as they struggle to outdo their competitors. Bargaining power of buyers is another factor. Unlike before, buyers nowadays are more knowledgeable and are aware of what they want. As a result, they are able to bargain effectively with the firm before they settle for the price they are to pay.
The industry is further comprised of more substitute goods and products. These goods do not only create competition to existing goods but also pose a threat to a firm. The firm has to be observant during setting of its prices as well as its response to consumers. Bargaining power of suppliers is also a factor that leads to changes in strategies of a firm. The final factor that has seen changes in strategic capabilities is a threat posed by new entrants in the market. Various companies have been affected differently by the above changes. Some have experienced fatal closures as they could not cope with the changes of their strategic policies. In industries, such as airlines, where these forces are intense, the ROI is relatively low.
What is the relationship between competitive advantage, strategic capabilities, organisation culture, strategy development and the challenge of managing strategic change?
There exists a relationship between competitive advantage, strategic capabilities, organisational culture, and strategic development. Within organisational setting, these are the factors that determine the direction of a firm. Organisational culture refers to the behaviour accepted in a company. Every organization has values and attributes that hold it together and determine working environment of the organization. Every culture that an organization adopts is simulated to ensure that the company enjoys competitive advantage over its competitors. For example, it is the norm of manufacturing companies to bid their employees with an oath that prohibits them from sharing organizations secrets. Culture of the organisation determines how it relates with customers, suppliers, and the outside world.
Organisational culture further determines strategic development of the firm. This is because it focuses on the way the organization treats its employees, customers, supplies, and the community at large. It determines how employees and external contributors influence the business in terms of decision making, personal expression as well as incorporating new ideas in the organization. This affects the way the organization formulates its strategic capabilities. For example, a firm that incorporates its shareholders in decision making may take a long time before implementing a strategy for response. This is contrary to an organization that does not incorporate shareholders in decision making.
It is evident that the above factors are closely related. For this reason, management faces a challenge when it comes to managing strategic change. This is because a well-evaluated portfolio has to be followed to incorporate all changes from organization culture, competitive advantage as well as strategy development. Since one factor affects the rest, care has to be taken when it comes to evaluating the changes to incorporate in the organization.
You have been appointed personal assistant to the chief executive of a major manufacturing firm, who has asked you to explain what is meant by ‘differentiation’ and why it is important. Write a brief report addressing these questions.
A firm may enjoy competitive advantage if it applies differentiation strategy. This strategy enables a firm to develop its uniqueness in the market and gain more market power as opposed to its competitors. For example, a marketing firm may enjoy a competitive advantage by undertaking an advertising campaign. This may be costly in the short term. However, when firm’s product is established in the market and the product earns customer loyalty, the long run return of differentiation will be achieved. The method may be expensive, especially during a campaigning phase. This calls for the firm to be well prepared to face the challenge of covering advertisement cost as well as convincing potential customers about the advantages of its product.
Just like any other marketing strategy, the challenge lies in finding a competitive advantage and the most sustainable way to increase the return on investments. If the wrong campaign method is adopted, competitive advantage will not be achieved and the firm will be at risk. The aim of leading from a differentiation point of view is that the firm aims at expanding its wings to a much wider market. To effectively implement this strategy and adopt the most favourable campaign method, the firm should strive to select a criterion that is used more by the buyers in the market. The business then focuses on attaining that criterion. This is mainly done by adjusting prices of the product to ensure it reflects the production cost and consumer added value other than the profits of the firm.
The method is important as it draws customers to liking the product more as opposed to similar but less differentiated products. Various ways can be used to achieve this, one of them is branding the product to achieve customer recognition. This implies constant promotion and advertising to make more buyers aware. Distributing the product to reach wider markets is also a method that works well, especially for new differentiated products.
For any large multi-business corporation plot the business units on a portfolio matrix (BCG matrix). Justify any assumptions about the relative positions of businesses on the relevant axes of the matrix. What managerial conclusions do you draw from this analysis?
The figure below represents business units of a large computer industry.
The above business enjoys 10% market share, and the competitor firm enjoys 20% of the same market. This analysis shows a 0.5 to 1 ratio. It should be noted that the size of the dot represents the volume of sales relative to other strategic business units in the same matrix. For example, 10x means that the sales are 10 times greater than the next largest competitor. The matrix is divided into four. Every portion in the BCG matrix represents a different kind of business. The essence of the matrix is to classify business and products into different dimensions. Two most relevant strategies include relative business strengths and market attractiveness. An assumption that the business is able to cover its operating cost is made. From the above analysis, it is clear that for successful business management, the management must cover all business portfolios. This includes managing culture of the business, competitive advantage as well as strategies to be adopted by the business.