Business Strategy

& Competitive
advantage
Unit 3
Deciding how to compete.

Elements of a proper organizational

Vision
Vision
• Vision guides a business and its • Informed: A vision should be based on
intentions for the future. a proper understanding of the
• A vision is a clear expression of what it company’s business and should be
will take for the business to succeed in able to forecast its future prospects.
future. An organization without a • Shared: An organizational vision is
vision is likely to react to situations more powerful than the strong
rather than being proactive and conviction and motivation of an
identifying opportunities. individual. Therefore, in order to
• A vision is where a company expects realize a vision, the leader should
to be in future whereas a mission is share it at all levels of the
the basic purpose for which one is in a organization.
business. • Competitive: The vision should create
• A company’s vision can be realized a passion in the employees for winning
only if there is proper leadership and the competition.
leaders have to communicate the • Enabling: A vision can only be realized
vision for the organization to the if the managers of the organization
employees and involve them in the have the proper authority to deploy
pursuit of the vision. strategies and tactics in the market.
Organizational change

Organizational change i Business strategy Global competition

• Organizational change • Business strategy attempts • Increasing globalization
involves analyzing business to identify ways and means across the world has
strategy and identifying the to achieve a competitive changed the rules of
terms of global competition advantage. It consists of competition in different
and restructuring. the decisions made by the industries. In a global
top management and the environment, the
resulting actions taken to organizations have to be
achieve the objectives set market-oriented and
for the business. customer-oriented.
• Global competition has two
important issues that need
to be considered:
• Does the company have
the resources and
relevant capabilities to
compete globally?
• Does the company have
knowledge of customer
requirements to sustain
its competitive position in
the global markets?
Organizational restructuring

• Minimizing the structural layers

• Minimizing the layers in the traditional
organizational structure is necessary.
Organizational • The resultant organizational structure is
horizontal.
restructuring • The horizontal structure has more specialized
can take the units that perform various functions.
• Restructuring
form of • In restructuring, the existing structure is
downsizing, modified and a new structure is designed.
• The new organizational structure aims at
expanding identifying the needs of the customers, providing
operations, superior value to the customers, and retaining
existing customers.
etc. • Forming networks
• Forming networks and forging new relationships
is an important activity for the renewal of an
organization.
Competitive
advantage

Competitive advantage occurs when

an organization acquires or develops an
attribute or combination of attributes
that allows it to outperform its
competitors.

These attributes can include access to

natural resources, such as high grade
ores or inexpensive power, or access to
highly trained and skilled personnel
human resources.
New technologies such as robotics and
information technology can provide
competitive advantage, whether as a
part of the product itself, as an
advantage to the making of the product,
or as a competitive aid in the business
process.
Bases of competitive advantage
Enhanced resources are Better controls determine
Improved skills are the
tangible requirements in the „how well‟ the enhanced
unique capabilities of the
competition; they have a resources and improved
key personnel that help to
physical presence and are skills are able to achieve a
develop competitive
accounted for in the financial synergy to deliver superior
advantages.
reports. performance.
• Distribution network • In-depth knowledge of the • Better controls include cost
• Cost of raw materials and requirements of a specific controls, quality controls,
the amount of raw market segment customer satisfaction
materials purchased • Ability to maintain good monitoring, inventory
including the agreements relations with the controls, etc.
involved with the suppliers customers and retailers • Controls help in identifying
• Size of manufacturing • Capability to respond the profitable market
facilities and the capacity quickly to changes in the segments based on which
utilization environment crucial decisions can be
• Investment in new • Ability to manage complex made.
technology information systems and • Better controls also play
• Amount spent on deliver information to the role of communicating
advertisements and remote locations over a to the employees the
promotions network management’s
• Financial structure • Ability to identify, expectations by setting
• Number of sales and negotiate, and manage standards for performance.
service personnel based on alliances.
the markets, regions, or
territories
Advantageous position & Results
Advantageous position
• Superior bases of advantage can be used to attain positions of
advantage and these positions can be achieved by providing
superior customer value or by achieving lower relative costs.
• Higher value to the customers: A firm can differentiate itself from
its competitors by providing superior value to the customers at a
premium price.
• Lower costs relative to the competitors: A company can achieve a
competitive position by reducing its costs compared to that of its
competitors.
Results
• Market share and profitability are indicators of a company’s
competitive advantage.
• Market share is considered a very important indicator of a
company’s success. Although market share is generally a measure
of the competitive advantage of a company, it is not a very reliable
indicator of measurement.
• Profitability is a result of past advantages of a company. Since it is a
result of the activities performed in a different time period, it
cannot be relied upon to measure present advantages and predict
future ones.
Analysis of competitive position (Competitor oriented
methods)
Direct
Identifying Analysis of
comparison of
unique strengths and
resources and
competencies weaknesses
capabilities

Identifying the Comparison of

Assessment of
enhanced costs of the
skills
position value chain

Comparing
Identifying the
Experience the winning
important
curves across competitors
success
sections with the losing
factors
ones
Analysis of competitive position (Customer Oriented
Analysis)
Positional
Preference Conjoint
advantage
models analysis
s
Relative
Customer
Market performan
satisfactio
mapping ce
n
measures

Customer
loyalty
Pitfalls in analysis of competitive position
Pitfalls in competitor-oriented Pitfalls in customer-oriented
methods methods
• Competitor-oriented methods • Customer-centered methods are
are appropriate when the appropriate in the turbulent
market demand is predictable markets characterized by
and the competitive structure is intense competition, highly
stable. segmented markets, and many
• Competitor-oriented methods competitors.
focus on costs and internal • Companies using customer-
factors and hence overlook the centered methods for identifying
opportunities for innovative its competitive position may fail
selling and new distribution to consider the position of
channels. competitors in the market.
• The companies adopting
competitor-oriented methods
tend to imitate or adopt the
practices of the competitors.
Thus, affecting the company’s
ability to innovate.
Developing sustainable competitive advantage

The three major

areas for
sustaining
competitive
The competitive advantages are Size of the Restrictions on
advantage of a size of the company Accessibility
competitors
• Economies of scale: • Know-how
company can be company in the • Government policy
• Economies of scope • Inputs
easily imitated by targeted market, • Advantages of • Markets
• Defensive actions
rival companies. access to superior experience
• Slow response.
resources, and
restrictions on the
competitors in an
industry.
Strategies for developing a sustainable marketing
advantage
Developing customer Understanding Sensitivity to changes
orientation competition in market environment
• Customer orientation should • The competitor’s strategic • An organization should
be developed across every moves and plans play a vital constantly monitor the
function at every role in sustaining the changes in the market
organizational level and company’s competitive environment, as it has
should not be confined to the advantage. become mandatory for a
marketing department. company to track market
changes in order to survive.

Segmenting markets Product differentiation Identifying strengths

• The ability to segment the • Product differentiation and weaknesses
markets by identifying ensures that a company is • An organization should
similarities in preferences not competing on the same perform an internal and
and then developing a terms i.e. with similar external analysis to know its
product is the key to the products in the same target strengths and weaknesses
success of a company. markets, with its competitors. and the threats and
opportunities in the
environment.

Understanding the Analyzing the product

evolution of portfolio
products/markets • A company should have a
• The nature of evolution of the balanced portfolio that has
product/market helps the both cash cows and stars that
management to sustain a enables it to develop new
competitive advantage based products.
on the phase of the evolution.
Market entry barriers

Market entry barriers tend to slow down the speed

with which potential players can enter a particular
market segment.
Market entry barriers give a competitive advantage
to the existing players in the market.

The market entry barrier analysis includes:

Identifying the barriers Analyzing the effect of Identifying the
and their relative entry barriers on differences in entry
importance to the different stages of a barriers in different
company product life cycle markets
 Major entry barriers

There is free market

Market entry barriers entry in monopolistic
depend on the nature and pure competition
of the competition in markets. Despite the
the markets. In pure presence of market
monopoly and strict entry barriers,
oligopolistic companies that try to
conditions, the market enter new markets
barriers range from sometimes perform
high to low. better than the
existing players.

The strategies for early Late market entry

market entry are as refers to entering the
follows: market when it is in
• Entering a market through the saturation phase.
the creation of a new • Entering a market by
business entity in the imitating the market leaders‟
industry products or strategies
• Entering a market through • Entering a market by
acquisition adopting innovative and
• Sequenced entry, which unconventional strategies
involves initial entry into one • Entering a market with an
group and subsequent enhanced product or service
mobility from one group to compared to those existing in
another. the market.
Business Strategy
A business strategy helps to strengthen the competitive position of a company or its
products in a specific industry or market, in which the company operates and plays a
vital role in developing and sustaining the competitive advantage.

Corporate Mission: According to Peter Drucker, a corporate mission is the basis

for formulating strategies and preparing plans. It is the starting point for designing
the managerial structure and managerial jobs along with the responsibilities. The
mission statement is for the short term should essentially answer

Which How are

What are e
customers their needs
their competitive
are being being
needs? advantage.
satisfied? satisfied?
Summary
Competitive advantage
helps a business gain
Organizational change
market share and
involves analyzing
profitability. A business
business strategy and
can gain a competitive
identifying the terms of
advantage by providing
global competition and
superior value or
restructuring.
lowering the relative
costs.

The components for

The strategy should
obtaining competitive
define the mission
advantage are bases of
statement, core
competitive advantage,
competencies and the
the advantageous
corporate objectives.
position and the results.