Business is a game and only the team with the best players will win. To beat the competition will require everyone’s collective effort. It is not just a task for the marketing department or top management; it is everyone’s responsibility. So, as one of the marketers of your business, it is very important that you enlist the support of the whole organization once you are agreed on the strategies to adopt in dealing with your competition.
In a business sense, a strategy is a set of related actions that a business takes to increase its performance in a particular field. In the case of marketing strategy, it is about how to win the hearts of chosen customers. It is not just beating the competition.
Competitive advantage
If a company’s strategies make use of the attributes that allow a company to outperform its competitors, it is said to have a competitive advantage. A competitive advantage must be difficult, if not impossible, to duplicate. If it is easily copied or imitated, it is not considered a competitive advantage.
Here are few examples of competitive advantage: (1) Access to natural resources that are restricted to competitors, (2) Highly skilled labor, (3) A unique geographic location, (4) Access to new or proprietary technology, (5) Ability to manufacture products at the lowest cost, (6) Brand image recognition.
Strategies
There are three strategies for establishing a competitive advantage: (1) Cost Leadership, (2) Differentiation, and (3) Focus (Cost-focus and Differentiation-focus).
#1 Cost Leadership: In a cost leadership strategy, the objective is to become the lowest-cost producer. This is achieved through large-scale production where companies can exploit economies of scale. If a company is able to utilize economies of scale and produce products at a cost lower than competitors, the company is then able to establish a selling price that is unable to be replicated by companies. Therefore, a company adopting a cost leadership strategy would be able to reap profits due to its significant cost advantage over its competitor
#2 Differentiation: In a differentiation strategy, a company’s products or services are differentiated from that of its competitors. This can be done by delivering high-quality products or services to customers or innovating products or services. If a company is able to differentiate successfully, the company would be able to set a premium price on its products or services.
#3 Focus: In a focus strategy, a company focuses its product or services towards a narrow target market segment. This strategy is successful if customers have different needs and want and the company is able to successfully create products/services that can cater to these customers. The focus strategy also has two variants; (1) Cost-focus: Lowest-cost producer in a narrow market segment, (2) Differentiation-focus: Differentiated products/services in a narrow market.
Here are two great marketplace examples of competitive advantage.
(1) McDonald’s main competitive advantage relies on a cost leadership strategy. The company is able to utilize economies of scale and produce products at a low cost and as a result, offer products at a lower selling price than that of its competitors. (2) Amazon has 70% market share of physical book sales online. Their twin competitive advantages are their huge customer base and their mastery of logistics. The near flawless, certainly industry-leading, logistical performance has been a key from the beginning.
Business model
If a company has a sustained competitive advantage, it is likely to gain market share from its rivals, and thus grow its profits more rapidly than those of rivals. The key to understanding competitive advantage is appreciating how managers pursue different strategies over time and create activities that fit together to make a company unique or different from its rivals and able to persistently outperform them.
This is where the concept of Business Model comes into existence. A business model is a kind of mental model, prepared by the managers of how the various strategies (with capital investments made by a company) should fit together to generate above-average profitability and profit growth.
A business model encompasses the totality of how a company will: (1) Select its customers, (2) Define and differentiate its product offerings, (3) Create value for its customers, (4) Acquire and keep customers, (5) Produce goods or services, (6) Deliver effectively those goods and services to the market, (7) Organize activities within the company, (7) Configure its resources, (8) Achieve and sustain a high level of profitability, (9) Grow the business over time.
It is important to recognize that in addition to its business model and marketing strategies, a company’s performance is also determined by the characteristics of the industry in which it competes. Different industries are characterized by different competitive conditions.
In some, demand is growing rapidly, and in others it is contracting. Some might be beset by excess capacity and persistent price wars, others by excess demand and rising prices. In some, technological change might be revolutionizing competition. Others might be characterized by a lack of technological change.
Characteristics
Managers are the lynchpin in the strategy-making process. It is individual managers who must take responsibility for formulating strategies to attain a competitive advantage and for putting those strategies into effect.
One of the key strategic roles of both general and functional managers is to use all their knowledge, energy, and enthusiasm to provide strategic leadership for their subordinates and develop a high-performing organization.
There are 6 key characteristics of good strategic leaders that do lead to high performance:
(1) Vision, eloquence and consistency: Strong strategic leaders seem to have a clear and compelling vision of where the organization should go, are eloquent enough to communicate this vision to others within the organization in terms that energize people, and consistently articulate their vision until it becomes part of the organization’s culture.
(2) Commitment: Strong leaders demonstrate their commitment to their vision and business model by actions and words, and they often lead by example.
(3) Being well informed: Effective strategic leaders develop a network of formal and informal sources who keep them well informed about what is going on within their company.
(4) Willingness to delegate and empower: High-performance leaders are skilled at delegation. They recognize that unless they learn how to delegate effectively, they can quickly become overloaded with responsibilities. They also recognize that empowering subordinates to make decisions is a good motivation tool and often results in decisions being made by those who must implement them. At the same time, astute leaders recognize that they need to maintain control over certain key decisions.
(5) Shrewd use of power: Effective leaders tend to be very shrewd in their use of power. They must often play the power game with skill and attempt to build consensus for their ideas rather than use their authority to force ideas through; they must act as members of a coalition or its democratic leaders rather than as dictators.
(6) Emotional intelligence: Emotional intelligence is a bundle of psychological attributes that many strong and effective leaders exhibit:
? Self-awareness - the ability to understand one’s own moods, emotions, and drives, as well as their effect on others,
? Self-regulation - the ability to control or redirect disruptive impulses or moods, that is, to think before acting,
? Motivation - a passion for work that goes beyond money or status and a propensity to pursue goals with energy and persistence,
? Empathy - the ability to understand the feelings and viewpoints of subordinates and to take those into account when making decisions
? Social skills - friendliness with a purpose
Leaders who possess these attributes exhibit a high degree of emotional intelligence. They tend to be more effective than those who lack these attributes.
Formulation
We can now turn our attention to the process by which managers formulate and implement strategies. This process has five main steps:
1. Select the corporate mission and major corporate goals.
2. Analyze the organization’s external competitive environment to identify opportunities and threats.
3. Analyze the organization’s internal operating environment to identify the organization’s strengths and weaknesses.
4. Select strategies that build on the organization’s strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats. These strategies should be consistent with the mission and major goals of the organization. They should constitute a viable business model.
5. Implement the strategies.
Components
The first component is the task of analyzing the organization’s internal environment and then selecting appropriate strategies. The action is two-fold. As the first step, such issues as identifying the quantity and quality of a company’s resources and capabilities and ways of building unique skills and company-specific competencies are considered.
Second step includes taking actions consistent with the selected strategies of the company at the corporate and functional levels, allocating roles and responsibilities among managers (typically through the design of organization structure), allocating resources (including capital and money), setting short-term objectives, and designing the organization’s control and reward systems.
The second component of the strategic management process is an analysis of the organization’s external operating environment. The essential purpose of the external analysis is to identify strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission. Three interrelated environments should be examined at this stage: the industry environment in which the company operates, the national environment, and the wider socioeconomic environment.
The third component of strategic thinking requires the generation of a series of strategic alternatives, or choices of future strategies to pursue, given the company’s internal strengths and weaknesses and its external opportunities and threats. Its central purpose is to identify the strategies that will create the business model that will best align, fit, or match a company’s resources and capabilities to the demands of the environment in which it operates.
The End Note - The strategic planning is always ongoing; it never ends. Once a strategy has been implemented, its execution must be monitored to determine the extent to which strategic goals and objectives are actually being achieved and to what degree competitive advantage is being created and sustained.
(Lionel Wijesiri is a retired company director with over 30 years’ experience in senior business management. Presently he is a freelance feature writer.)
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