Management Consulting/STRATEGIC MANAGEMENT
1. Differentiate between competitive advantage of a country and a corporate. Discuss how this can help a firm to win over competition and grab more market share.
2. How do corporate strategies relate to the other organizational strategies (i.e., competitive and functional). What is the difference between single and Multi-business organisastions? Provide examples.
3.Differentiate between competitive advantage of a country and a corporate. Discuss how this can help a firm to win over competition and grab more market share.
competitive advantage of a country
A business environment that fosters national competitiveness pays dividends across the board. Whatever its stage of development, export strategies that support innovation and use of technology will help a country move forward.Recent studies of national competitiveness have two messages for strategy-makers:Competitive advantage can be created or, at the very least, raised significantly.The improvement of competitiveness within an economy should be a key element of national export strategy.This means strategic initiatives should address competitiveness issues not only at the level of the individual product and service sector but at the national level as well.Why national rather than simply sectoral? First, what makes a nation more competitive on the international scene are factors that are cross-sectoral rather than simply industry-specific. Second, the measures needed to increase competitiveness will vary with the stage of a country's economic development and the opportunities for exporters.As Michael Porter, Director of the Institute for Strategy and Competitiveness at the Harvard Business School, noted, regarding the concept of the competitive advantage of nations: "National prosperity is created, not inherited." The lesson for the strategy-maker, as agreed by participants in the Executive Forum 2002, is that in a world of increasingly liberalized trade, strategy must concentrate on generating and maintaining competitive advantage.Competitiveness 'diamond'In looking at national competitiveness, Porter defined the competitive advantage of a nation as its capacity to entice firms (both local and foreign) to use the country as a platform from which to conduct business. He introduced what has become known as the 'diamond of national competitiveness' with four 'facets' determining the competitive strengths and weaknesses of countries and their major sectors.They are:the existence of resources (e.g. human resources and research and information infrastructures);a business environment that invests in innovation;a demanding local market; andthe presence of supporting industries.In many developing countries, resources may be the only part of the 'diamond' where strategy-makers see an opportunity to raise competitiveness, and thereby improve performance, in the short term. This should not deter the strategy-maker from taking action in a concerted manner to improve the overall business environment.Different challenges at different stagesThere are three broad stages of economic development. The national competitiveness strategy should have a different orientation at each stage.Resource-driven stageAt the most basic level of economic development, competitive advantage is determined by resources, such as low-cost labour and access to natural resources.Many developing countries, and most least developed countries, are mired in this stage. The export mix is extremely narrow and typically limited to low value-added products. Dependence on international business intermediaries is high, and margins are low and susceptible to swings in prices and terms of trade. Technology is assimilated through imports, imitation and foreign direct investment (FDI).In this stage, strategy-makers should design strategies to attract capital investment and to invest the proceeds of economic growth into the wider determinants of national competitiveness, specifically health, education and infrastructure.Investment-driven stageOne level up is the investment-driven stage, where countries begin to develop competitive advantage by improving their efficiencies and developing increasingly sophisticated products. Improvements are made to imported technologies; there is extensive joint venturing and heavy investment in trade-related infrastructure (roads, telecommunications and ports).The focus of the national export strategy at this second stage should be on further improving the business environment through revisions in regulatory arrangements (customs, taxation and company law). Strategy should assist prospective exporting firms to extend their capabilities within the international value chain. As production shifts from commodities towards manufacturing, sector-level strategy should seek to support greater value-addition nationally within the value chain. While promotion of FDI should, of course, continue to be a strategic priority, strategy-makers should focus increasingly on encouraging in-country business alliances (see article on pages 11-13).Innovation-driven stageAt the final stage in the competitiveness process, the innovation-driven stage, the country's competitive advantage lies in its ability to innovate and produce products and services at the frontier of global technology.Strategy should focus on technological diffusion and on establishing an increasingly efficient national environment for innovation. The emphasis should be on supporting institutions and extending incentives that reinforce innovation within the business sector. Companies should be encouraged to compete on the basis of unique strategies. The development of service export capacities should be a priority objective.However, strategy-makers should not take progress from one stage to the next for granted. As Peter Cornelius of the World Economic Forum pointed out at the Executive Forum 2002: "The transition through the different stages is not necessarily linear or gradual. Nor does it happen automatically."Technology boosts progressNo matter at which stage of development a country is situated, sustained improvement in export performance depends on technology and innovation. Ganeshan Wignaraja, Managing Economist at Maxwell Stamp PLC, presented his recent study of the Mauritius garment industry to the Executive Forum 2002 in Montreux. Looking at technical/innovation aspects such as product engineering, quality management, linkages, investment in human capital and information-seeking, he found that these have a positive and statistically significant effect on the export performance of individual firms. He recommended that strategy-makers promote technology diffusion and innovation through:a national partnership involving complementary actions by the govern-ment and the private sector;a 'liberalization-plus' approach involving a mixture of incentive and supply-side policy measures; andwhere appropriate on economic grounds, policies to promote the competitiveness of particular industrial clusters.Priority sectors shape strategyThe message from the Executive Forum debates is that specialization matters. Countries need to focus on sectors with high value-added growth potential. Hence, creating competitive advantage in growth sectors should be one of the overriding concerns not only of companies but also of governments. It requires a strong public-private partnership.Strategies should focus on cross-cutting or 'horizontal' initiatives in areas such as trade finance, customs, logistics and priorities (e.g. small and medium-sized enterprises and foreign direct investors) and target markets should determine the priorities among these initiatives. - =====================
competitive advantage of a corporate
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support.
Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage.
There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.
The concept of competitive advantage lies at the heart of understanding a firm's performance in competitive markets; above average performance in the long-run can only be generated by creating a sustainable competitive advantage. Porter's ideas about competitive advantage can be used to examine how Information Systems affect the performance of a business organization by changing the relationships within the five forces that shape its competitive environment.
The Concept of Value and Competitive Advantage
Porter's analysis of the competitive advantage stems from two fundamental questions. These are firstly, how attractive, from the viewpoint of long-term profitability, are different types of industry, and secondly what is an enterprises relative position in that industry? He bases his analysis on the twin concepts of value and competitive advantage. He argues that:
"Competitive advantage grows fundamentally from the value a firm is able to create ... Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset higher prices." ( Porter, 1985, p 3)
"A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy. Value, instead of cost, must be used in analyzing competitive position ..." ( Porter, 1985, p 38)
Three generic competitive strategies
Porter argues that the fundamental basis for above average performance in the long run is a sustainable competitive advantage; without a sustainable competitive advantage, all a company can do is "harvest" the windfall i.e. skim off the largest profits it can for as long as it is able to do so. Porter postulates two basic types of competitive advantage: cost leadership and product differentiation. These two basic types of competitive advantage, combined with the scope of the activities open to a particular firm, lead to three basic strategies for pursuing competitive advantage: cost leadership, differentiation and focus.
Cost leadership is intuitively the easiest strategy to understand. The firm sets out to become the lowest cost producer in its particular industry rather than one of several firms vying for that position. To be a cost leader the company must do more than simply move down the learning curve. It must seek out and exploit every source of potential cost advantage. Typically, cost leaders sell a basic product or commodity and are concerned with pursing economies of scale and absolute cost advantages. While the product may be relatively unsophisticated, the company must comply with the industry norms i.e. the product and/or service must be perceived as acceptable and comparable to its competitor's. A cost leader must therefore maintain some degree of parity with its competitor's performance in other areas while out performing them based on price.
The second generic strategy is differentiation. Here a firm seeks to be the best performer in its industry grouping along some dimension or dimensions of the product or service other than cost. This attribute of its product / service must be something that a majority of its customers perceive as important, and the company must position its self uniquely to meet those needs. Its singular position will then be rewarded by a premium for its distinctive product or service. The premium is paid for the company's uniqueness, although the company must also maintain some degree of parity with its competitors cost levels in order that the cost of "uniqueness" does not begin to exceed the premium that the customer is prepared to pay. Unlike cost leadership, several different firms can simultaneously pursue successful differentiation strategies in the same industrial sector - if sufficient scope exists.
This strategy is not based on the selection of desirable attributes for a product or service across the whole of an industry grouping but upon the selection of a particular segment or group, within the industry as a whole, which is to be targeted, i.e. the company looks to exploit a niche market. A company whose strategic advantage lies in focus will select its niche and, having found it, will tailor its strategy specifically to serve the needs of that particular client group. The focuser seeks competitive advantage in its own segment, although it need not possess an overall competitive advantage. To be successful the focuser must exploit the under-performance of its more broadly based competitors in that niche based either on cost or of differentiation.
The following steps may help a business in fully exploiting certain attributes and practices that are deemed competitive advantages:
1. Define the competitive advantage you have in your business, specifically and precisely.
Recognize certain attributes in your current product and services offers and determine if they can fully gain the enterprise. You can recognize not just one but many competitive advantages. Certain practices can also become competitive advantages.
I believe, many enterprises fail to account that they have certain advantages over their competitors and they just slip them away by closing the business down or seeking for another venture that they think would provide better outcome than their previous enterprises.
2. If you recognize certain attributes in your business that can gain you certain advantages over a competitive market, determine if those attributes have also been being perceived by your market the same way you do.
This process can be attained by conducting:
• Customer feedback and surveys
• Observed behaviour in actual shopping
By conducting certain steps to know your market, you can identify, classify and clarify your key competitive advantages.
3. Fully understand your key competitive advantages after identifying and verifying them.
Make sure that you have fully understood what your market has seen in you and your offers. By determining it, you can make strategic decisions to utilize certain attributes that are deemed advantages on your part over other businesses.
4) Don’t take risks without further calculating the impacts on your competitive advantages in making strategic decisions. Never make strategic decisions unless you fully determine certain possible impacts on recognized competitive advantages.
Collect and collate possible scenarios in applying the competitive advantages of your business or enterprise before setting up the strategic and implementing strategic decisions.
5) Analyze and scrutinize your competitive advantages and make it certain if they can drive the development of a strategy set on your business.
After determining your competitive advantages, the question this time is: How to fully exploit them?
There is no better way to exploiting your competitive advantages than by integrating them in your strategic planning and implementations. By taking those steps mentioned above, you could gain full advantage to certain attributes that can bring positive growth to your enterprise and make other businesses envious when those advantages bring more customers and profitable impact and growth on your business.
Recognizing competitive advantages and exploiting them can be applied in blogging, too. If you are an expert to a certain niche and have extensive knowledge to a subject worth sharing through blogging, then your expertise and know-how to a certain subject or subjects can be your competitive advantage. Providing readers with quality information and even though-provoking opinions could attract readership as well as traffic on your blog site.
develop competitive advantage and build barriers to entry.
1. Exercise Strategic Leadership: The top management team leading your company must develop a vision for the organization; obtain employee commitment to achieving that vision; and build effective relationships with key stakeholders (e.g., partners, customers and suppliers). At the same time, management must be a catalyst for change.
A good top management team has varied expertise and knowledge. Most importantly, top managers must learn to think in a nonlinear manner, in order to develop successful strategies when faced with new – and possibly contradictory – information
2. Leverage Core Competencies: One key to sustaining a competitive advantage is to develop a core set of competencies that customers want and that are difficult for others to imitate. These competencies can be exploited and leveraged to develop new products or to go after new markets. The ability to leverage core competencies across geographic and product business units helps firms to achieve economies of scale and scope.
3. Know Your Marketplace: Provide employees with strong information and decision-support systems that enable them to develop strategies in response to market conditions. Your organization must have superior knowledge and understanding of your competitors, your customers and your customers’ perceptions of your products and/or services. Defining and measuring criteria, and then interpreting and communicating results, is crucial to the process.
4. Develop Customer Loyalty: Every business seeks satisfied customers who return again and again because they trust a company’s product or service. Their repeat business comes at a much lower cost to you than that of a customer who must be constantly enticed to continue buying.
In addition to working on core product and service attributes to build customer loyalty (such as treating each customer as a valued individual), businesses must work on such issues as instilling a helpful staff attitude, delivering on advertising promises, developing a favorable return policy and providing accurate product information.
5. Innovate Strategically: Whether you are a first or late mover, innovation creates sustainable advantage. The pioneering company plays a central role in defining both the concept and buyer preferences for a category. But if the originator doesn’t understand the market, a late mover can identify a superior but overlooked product position and undercut the pioneer. The key is innovation based on the market’s needs.
6. Engage in Growth Strategies: Identify opportunities such as geographic expansion or new target markets that will enable your company to grow. Enter those markets using the most effective method (e.g., strategic alliance, outsourcing, direct). Where risks are high and/or adequate internal resources are unavailable, search for a partner who can join in developing a cooperative venture. Select partners with complementary resources and appropriate strategic intent.
7. Attract and Retain Human Capital: Companies must start by investing appropriately to recruit and select top-quality employees. Then they must invest in training and development to continuously build employee skills and develop a corporate culture that promotes loyalty, commitment and cohesion. Finally, employees must be rewarded for skill development.
8. Make Effective Use of New Technology: Identify the newest and most effective technology relevant to your business (e.g., information technology, manufacturing technology). Make a commitment and allocate the resources to have the newest and best technology – and employees with the skills to use it.
9. Protect Intellectual Property: Products, technologies, business methods, patents, trademarks, copyrights and other forms of intellectual property can significantly enhance a company's ability to secure and defend sources of marketplace advantage, even in times of rapid technological change. Intellectual property is a means of creating a proprietary, defensible market advantage.
10. Stay Flexible: Sustaining competitive advantage requires a continuous rethinking of current strategic actions, organization structure, communication systems, corporate culture, asset deployment and investment strategies. In short, every aspect of a firm's operations must be examined frequently in order to maximize their long-term health. Strategic flexibility gives any firm the ability to respond quickly to changing conditions and thereby develop and/or maintain a significant competitive advantage
4.How do corporate strategies relate to the other organizational strategies(i.e.,competitive and functional).what is the difference between single and multi-business organisations?provide examples.
Developing a strategic direction, supported by the necessary reallocation of resources and coordinated business unit plans, and designing a sustainable strategy development process
An expression of how an organization needs to evolve over time to meet its CORPORATE objectives along with a detailed assessment of what needs to be done. Developing an organizational strategy for a CORPORATE involves first comparing its present state to its targeted state to define differences, and then stating what is required for the desired changes to take place
There are four key aspects of corporate strategy. The first has to do with the strategic management of the current set of businesses in the company’s portfolio and the allocation of resources among them. The second related aspect is the creation of shareholder value through corporate strategy. These first two aspects—portfolio techniques and value-based planning—will be covered in this part. The third aspect has to do with the realization of synergies across businesses and the identification and management of direct linkages between businesses. The fourth aspect is the strategy of diversification, whether through acquisition or internal development.
DIFFERENCES BETWEEN CORPORATE AND BUSINESS ORGANIZATION STRATEGIES
For a company that has not diversified beyond its core business, corporate and business strategies are inseparable. For example, the Bacardi Corporation has been in the rum business since its founding, and, with the exception of a local beer in one small market, it manufactured no other spirits besides rum. Bacardi’s corporate strategy was to be in the "light spirits" business. Its business strategy focused on becoming the number-one-selling spirits brand in the world. It manufactured no vodka, scotch, or bourbon (keeping its focus on a differentiated, premium rum). Its corporate strategy was simply to locate its production facilities in a few strategic locations (close to sugar cane or close to markets) and to allocate its rum distillate and marketing talent to the most promising markets around the world. In this setting, notice how corporate and business strategies intermingle.
In 1993, however, Bacardi acquired Martini and Rossi, the Italian ver-mouth maker who had more than 100 brands and products in almost as many markets. Now Bacardi had a portfolio of liqueurs, scotches, cordials, and wines, as well as a hotel and a foods distribution business. The attention of senior management turned from the selling of rum to rationalizing a very diverse portfolio of products, brands, and operating companies (corporate strategy). Meanwhile operating management around the world focused on the specifics of competing in their various markets and businesses (business strategy).
The Bacardi-Martini example highlights some of the differences between corporate and business strategic management. As further illustration, listen to the different words used in conversation by managers engaged in each. At corporate headquarters of a diversified firm, you might hear executives speaking of major acquisitions in the works that are (or are not) synergistic with current business, how this might affect EPS and the tax picture, and what the cash-flow implications are. Finally, they might discuss whether or not the proposed acquisition will help move them more solidly into the "energy business" or "technology business." These corporate strategy discussions tend to be somewhat abstract in nature.
Now, at the division level you might hear discussions about working more closely with supplier X, meeting customer Y at a particular trade show, or planning a negotiating strategy for the next labor contract. This discussion might be coupled with speculation about how particular competitors are going to be handling the same issues. These are business strategy discussions.
Note how they reflect a world of tangible events, people, and things, whereas the corporate-level discussion dealt with more abstract concepts.
The classic argument that the railroads might have prospered in the wake of the growth of our highway system if they had defined their business as "transportation" rather than "railroads" was simply a suggestion to think of one’s business in more abstract (corporate) terms. Saying that your business is "transportation" does not tell you how to compete; that is, it does not define your business strategy—it merely helps to define your scope of activities. Although recognizing a business’s scope is important to survival in a changing world, it is clearly not enough. All three—corporate, business, and functional—are necessary strategic management activities.
CORPORATE STRATEGY IDENTIFICATION
When firms expand into a variety of businesses, they frequently transfer successes in the initial business to the subsequent businesses. For example, when Bic Pen Corporation expanded beyond ballpoint pen production into disposable cigarette lighters, it used the same plastic-injection molding technology and similar distribution channels to sell what was essentially another mass-marketed, disposable consumer item. The additional learning required to design and produce this new product was relatively low, given that the same technology was employed in the factory: plastic was injected into a mold to form a casing, into which dispensable liquid was poured, and metal parts were attached to dispense the fluid.
When firms adopt similar business strategies in different lines of business, they have adopted what we might term a generic business strategy across all their businesses. Hewlett-Packard and Texas Instruments are two firms that compete in various segments of the electronics industry, that employ generic strategies in many of their product lines, and whose generic strategies are quite distinct (see Table 6-1).
Using generic strategies to build a corporation from a variety of businesses implies the cloning of an original strategy onto new businesses. This, of course, is only one means of extending the boundaries of the corporation into new domains. To the extent that a corporation expands by building upon a core business and the set of skills embodied in that business, we can say that it is realizing synergies across its businesses.
At the other extreme are pure conglomerates, which are built through the acquisition of unrelated business. It was not unusual during the 1960s and the early 1980s for corporations to build conglomerates based on the theory that the acquisition of unrelated businesses in countercyclical industries would smooth out the cash flows for the whole corporation. This led to the development of a variety of portfolio planning techniques for managing corporate strategy by such firms as the Boston Consulting Group and McKinsey and Company. These techniques typically plotted the variety of businesses on a two-dimensional grid, with market position or market share on one dimension and industry growth or attractiveness on the other. The theory was that high-market-share businesses were likely to be lower-cost manufacturers than smaller-share businesses, simply as a result of volume or scale economies, which allowed those businesses to realize higher profit margins and greater cash throw-off per dollar of sales. With a portfolio of businesses, the cash throw-off from the better-positioned firms could be used to fund the growth of more promising—perhaps smaller-market-share—businesses in the portfolio.
Essentially, these portfolio techniques were cash management methods for diversified corporations. The details of this approach are outlined in the next chapter, "Note on Portfolio Techniques for Corporate Strategic Planning."
Examples of Generic Business ORGANIZATION Strategies
Hewlett-Packard Texas Instruments
Industrial and some Consumer and industrial
consumer markets markets
High-tech, custom High-volume, low-cost
products standard products
Premium price, lag Low price,push
experience curve experience curve
Promote quality/ Promote availability/
Small plants Large plants for large volume
Small-batch/job-shop Mass-production technology
technology with automation and robotics
Build capacity with Build capacity ahead of
Self-funding ("pay as Allocate cash among
you go") within divisions divisions according to need
Make profits early on Fund ahead of experence
through high margins curve
First to market with Improve existing products
new products in proven markets
Primarily product R&D Both product and process R&D
Features and quality Cost driven
Design for product Design for cost reduction