Every business has a competitive strategy. However, some strategies are implicit, having evolved over time, rather than having been explicit (evolved by deliberate planning process).
Analysis for Developing a
Every business has a competitive strategy. However,
some strategies are implicit, having evolved over time, rather than having been
explicit (evolved by deliberate planning process). Implicit strategies lack focus,
produce inconsistent decisions, and unknowingly become obsolete. Without a
well-defined strategy, organizations will be driven by current operational
issues rather than by a planned future vision. The broad considerations in an
effective competitive strategy can be extended into a generalized approach to
the formulation of strategy. In order to do this, the organization must be in a
position to answer the following questions:
the current strategy, implicit or explicit?
assumptions have to hold for the current strategy to be viable?
What is happening in the industry, with our
competitors, and in general?
our growth, size, and profitability goals?
products and services will we offer?
customers or users?
How will the
selling/buying decisions be made?
we distribute our products and services?
technologies will we employ?
capabilities and capacities will we require?
ones are core?
What will we make, what will we buy, and what will
we acquire through alliance?
basis will be compete?
now discuss three analytical procedures given by Porter, Mckinsey and Ohmae in
Porter’s five forces analysis of competition
A useful approach to formulating business
strategies is based on Michael Porter’s “competitive analysis”. Porter’s model
provides a process to make your competitive strategy explicit so it can be
examined for focus, consistency, and comprehensive. Porter’s approach is based
on the analysis of five competitive forces (see Figure 7-2).
power of suppliers,
power of buyers,
among existing firms.
Threat of New Entrants
Firms entering an industry bring new capacity and a
desire to gain market share and profits, but whether new firms enter an
industry depends on the barriers to entry. ( A number of these are shown in
Figure7-2). In addition, established firms in an industry may benefit from “experience
curve” effects. That is, their cumulative experience in producing and marketing
a product often reduces their per-unit costs below those of inexperienced
firms. Is general, the higher the entry barriers, the less likely outside firms
are to enter the industry.
Bargaining Power of Suppliers
Suppliers can be a competitive threat in an
industry because they can raise the price of raw material or reduce their
quality. Powerful suppliers can reduce the profitability of an industry if
companies in the industry cannot pay higher prices to cover price increases
that the supplier imposes. Some determinants of supplier power are listed in Figure7-2
Buyers compete with the industry by forcing prices
down, bargaining for higher quality or more services, and playing competitors
off against each other all at the expense of industry profitability. Some
determinants of buyer power are shown in Figure 7-2
In a broad sense, all firms in an industry are competing
with industries producing substitute products. Substitutes limit the potential
return in an industry by placing a ceiling on the prices that firms in the
industry can profitably chare. The more attractive the price-performance
alternative offered by substitutes, the tighter the lid on industry profits.
For example, the price of candy, such as Raisinettes chocolate-covered raisins,
may limit the price Del Monte can charge for “healthy snacks,” such as
Strawberry Yogurt Raisins. Some determinants of the degree of substitution
threat are shown in Figure 7-2
Among Existing Competitors
Rivalry determinants include industry growth, product differences
and barriers. This is the conventional type of competition in which firms try
to take customers from one another. Strategies such as price competition,
advertising battles, new product introductions, and increased customer service
are commonly used to attract customers from competitors. The factors
influencing intensity of rivalry are shown in Figure 7-2.
Tags : Strategic Management - Environmental Analysis and Diagnosis
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