Competitive Strategy, Resources, and Competencies - Assignment Example

Competitive Strategy, Resources, and Competencies Introduction To survive in the increasingly competitive business and corporate environment, firms must identify the right direction and long-term objectives then strategize with the most effective strategies, resources, and competencies to achieve the required market advantages. A firm’s corporate and competitive strategies must therefore include its long-term direction, scope of activities, competitive advantages, competencies, values, aspirations, and resources (Porter, 1998). There are several types of analyses and business techniques that organizations carry out to identify all or some of the above mentioned aspects and elements of competition. These analyses include SWOT, Pestle, and Ansoff matrix among others. This paper explores and explains the meanings of some of these analyses, including SWOT, pestles, BCG, Porter’s five forces, core competencies, industry life cycle, and Ansoff matrix. Pestle Sometime referred to as PEST, PESTLE analysis is a tool used by businesses analyze their marketing competitiveness. Generally, PESTLE helps firms to study and track the environment in which they operate or are intending to venture into. It is thus a vital tool for any business intending to launch a new product/project or markets. Each letter in the word PESTLE stands for certain factors that are vital to business operations and viability. While the P denotes Political, E stands for Economic, S for Social, T for Technological, L for Legal and E for Environmental factors (Porter, 1998). To keep track of the environment in which it operates, a business should consider all the factors that affect its productivity and profitability and PESTLE comes in handy as a tool for analyzing the whole environment for business ideas or plans. In fact, in recent times, ethical concerns have been added to PESTLE analysis. In a PESTLE analysis, a business must recognize the political situation (government influences), the prevalent economic factors (inflation rate, interest rates, foreign exchange rates,), the culture of a market (cultural trends, demographics, and population analytics), technologies (automation, research, and development), legislations (consumer laws, safety standards, labor laws), and the environmental concerns (climate, weather, geographical location) (Porter, 1998). SWOT Analysis SWOT analysis is perhaps the most common business analysis tool used in scanning internal and external environments for business strategic planning. These factors are categorized as internal: strengths (S) or weaknesses (W), and external, which are opportunities (O) and threats (T). An analysis of these factors in a business’ strategic environment is called a SWOT analysis through which a business is best placed to match its capabilities and resources with the needs of the competitive markets (Porter, 1998). SWOT analysis is thus a rather crucial tool for formulating, selecting, implementing, and reforming competitive strategies. The strengths of a business are its capabilities and the resources by which it gests competitive advantages. These strengths include good reputation, strong brand name, and access to distribution networks, cost advantages, quality resources, and patent. Among the weaknesses are poor patent protection, high cost structure, and poor quality resources, inaccessibility of resources and markets, and bad reputation (Porter, 1998). Businesses should also be on the look out for any opportunities such as new technologies, reduction or removal of trade barriers, unfulfilled customer need, and less strict regulations that might present it with improved productivity. Similarly, threats such as increased trade barriers, new substitute products, strict regulations, and shifts in consumer tastes to which a business may be exposed should be addressed and include. BCG Matrix Model BCG Matrix is a model that relates with marketing and is an acknowledged management tool in product life cycle theory. BCG assists businesses to organize and prioritize products regarding the funding and attention that products should target. According to the BCG model, products are classified into categories depending on factors such as market growth and market share in comparison to the largest competitor in the industry (Porter, 1998). Unfortunately, most businesses may not know when to use the BCG matrix model. However, experts recommend it BCG for both high-growth products and low-growth products. While a high-growth product could refer to a new one, which is expected to get to some market, a low-growth product refers to an established and known product. The BCG matrix thus helps firms to know the status of their products so that they know which of the products to promote more than the other. Five forces In addition to analyzing its internal and external environment, a business should strategize in relation to the nature and trends in its industry. That is, an industry analysis should equally be a central part to a business’ marketing strategy. Michael Porter's five forces analysis is an industry analysis framework, which deals with the five forces that affect a firm’s competitive intensity (Porter, 1998). In other terms, a firm must consider the attractiveness of the industry it intends to join. One of the forces is the threat rival competition, which is quite intense in markets that have high returns and attract new businesses. The presence of many players in a given market further results in decreased profitability, a situation that makes it necessary that the existing players strategize to block new entrants into the market. The other force is the economies of product differences such as customer loyalty, brand equity, capital requirements, and access to distribution. Third is the threat of substitute products or services outside the dominion of the common product boundaries, which increases the predilection of clients to switch to other choices. Customers’ bargaining power is the other market force that businesses should strategize for since changes in customers’ purchasing power could place extra pressure on firms (Porter, 1998). Similarly, suppliers of labor, raw materials, components, and expertise services also have a bargaining power, which has a lot of competitive strategy implications for businesses. Industry life cycle Knowledge on an industry’s lifecycle is also important for the competitive performance of a business. Industry lifecycle refers to the various stages that an industry undergoes from the moment the first product enters the market to its decline. There are five typical stages in an industry’s life cycle. In the first stage, the early stages phase, alternative products are designed and positioned and an industry’s range and boundaries are established. The second stage is the innovation phase during which product innovativeness declines while process innovation pick up. It is at this stage that a dominant product and design is identified (Porter, 1998). The third stage is the cost or shakeout phase in which firms identify and settle on the design and product considered dominant and is likely to achieve economies of scale, forcing small businesses to merge. Barriers to entry also become high as large-scale consolidation occurs. The fourth stage is the maturity phase in which business or industry growth is not the focus having been replaced by market share and cash flow as the primary objectives of companies. Finally, the decline stage is characterized by declining revenues as an industry gets displaced by a new one (Porter, 1998). Ansoff matrix The ansoff matrix is the other strategizing tool used by businesses in relation to product market and growth. According to Ansoff product and market matrix, whether a business grows or not depends on whether its products are new or it is selling old products in new or existing markets. The Ansoff product/market matrix thus gives a series of suggestions on the best direction that a business should strategize along. These directions include market penetration and development, product development, and diversification. In market penetration, a business should strategize to sell existing products in accessible markets to maintain and/or increase its market share (Porter, 1998). A combination of advertising, sales promotion, competitive pricing, and dedication of more resources to personal selling could be quite useful in market penetration. Market penetration also secures dominance of growth markets and increases the loyalty of existing customers. On the other hand, market development strategies include exploring new geographical markets, new product packaging, distribution channels, and pricing policies to attract and retain customers and start new market segments (Porter, 1998). In product development, a firm could design new products and take them to establish markets. Diversification on the other hand refers to the strategy by which a business markets new products in new markets. Core Competencies Core competences refer to a firm’s capabilities and strengths by which it attains competitive advantage in a market and/or industry. Prior to analyzing its core competencies, a business must recognize that market competition depends on the identification and mastery of its competencies. Since it is quite difficult to spotlight on all the activities a business indulges in, management teams should focus on competencies that have great ramification for its competitive advantages. That is, companies tend to develop certain key strengths and areas of expertise distinctive to them and their short-, medium-, and long-term. In modern times, managers are judged on their abilities to identify, cultivate, and exploit organizational and individual core competencies by which growth and development could be fostered (Porter, 1998). Porter’s Value Chain The Value Chain recommends that businesses be modeled as chain of activities that create and increase values. Michael Porter opines that certain sets of interrelated and generic activities and processes, which consist of operations, inbound and outbound logistics, marketing, sales, and service, are core to value the chain (Porter, 1998). In most cases, these activities create values that surpass the costs of producing goods and services, thus increasing profit margins. Among the inbound logistics activities that add value to a business are warehousing, receipt, and inventory control of incoming materials. The other value-adding activities are marketing and sales, which are associated with getting customers to purchase a firm’s products through advertising and pricing among other strategies (Porter, 1998). There are also operations and support activities that facilitate the primary value chain activities mentioned. Although they could be industry-specific, the common among the support activities are procurement, technological development, human resource management, and firm infrastructure. Conclusion Many managers of large and small companies, investment analysts, consultants, students, and scholars have embraced business analysis ideas and extensively apply them while assessing their industries so that they understand their competitors and choose competitive and profitable activities and strategies. These business analyses include BCG, SWOT, PESTLE, and core competencies among others. Generally, these analysis tools assist businesses in addressing the fundamentals issues of competition, helping them in choosing the best ways to go about competing. Competitive Strategy has thus prompted management thinking and establishes enduring foundation for competitive strategy. Reference Porter, M. E. (1998) Competitive strategy: techniques for analyzing industries and competitors, first edition. Free Press. Read More