The Essentials of Business Success - Literature review Example

The Essentials of Business Success Introduction There is no unanimous opinion among the researchers about the appropriate organizational styles, strategies, structure, cultural convergence; and the range of influence these factors exert on the efficiency of business settings. However, there has been a considerable shift in entrepreneurial focus for the recent decades as modern business researchers like Porter (1985) and Robert M Grant (2008) and others began to emphasize on the significance of the competitive advantages in business. This paper tends to explore the influence of the external environment and internal resources and capabilities on business profitability with a major focus on Robert Grant’s findings. He says, “…….it has become increasingly apparent that competitive advantage rather than industry attractiveness is the primary source of superior profitability” (Grant 2008: 125). What is Strategy? Strategy in business management is entirely a different approach therefore in order to understand an organization, one needs distinguish its practice and evaluation possesses. In order to achieve the intended goal, an organization requires defining its vision and methodology. Strategy covers almost all areas including but not limited to marketing, finance, and all human resource (HR) concerns. Therefore, strategies as a whole intend to create and maintain competitive advantages for the firm by carefully aligning the internal and external resources. According to Porter (1985), a firm should have a clear choice about the type of competitive advantage it is aiming and the scope and methodology that can be applied for attaining them. What all aspects come within the strategy of an organization could be listed as follows; Firm’s size and location Capacity requirements of the organization The range of technology Workforce and wage policies Organizational structure, reward system, and role of staff product/service quality monitoring and intervention (Source; Shim & Siegel 1999, p.6). Competitive Advantages Although there are no clearly defined formulae for business success, it is enough to say that fundamentals found in various studies would provide sufficient guidelines for business operation in the modern business scenario. As noted above, the most vital success factor of modern business is an organization’s competitive advantages which might vary from firm to firm according to its size and nature. However, as Porter (1985) states, it includes each and every activity a firm performs in designing, producing, marketing, delivering, and supporting its products and services; and in order to assess the source of competitive advantage of a firm it is important to make a systematic way of examination of the entire activities of the firm in particular. Value Chain In order to be sustainable in the organizational sequence a firm should possess strong value chain. The value chain includes all industrial process which connects the activities of almost all the department in the operational management. As stated by Ross (1998), “value chain management is the synchronization of competencies along the whole chain to create unique, innovative, and individualized source of consumer value.” (Cited in, Bidgoli 2010, p. 2). According to Value Chain theory, for the profitable management of a firm, there should be competitive infrastructure, effective human resources management, improved technology, and prompt procurement of raw materials; moreover, at the strategic level the firm should ensure inbound logistic management, operations management and outbound logistics management. The sustainability of competitive advantage depends on understanding not only a firm’s value chain but also the extent to which the firm fits in the overall system (Porter 1985). In addition to this physical management, the company has to create and promote product value through the effective management of marketing and sales that involves channel selection, advertising, and pricing etc. Competitors Another external force that determines the profitability of a firm is its competitors in the market. The competitive scope of a firm may differ from that of its competitors based on the firm’s unique value chain which can be promoted perhaps by focusing on a particular segment or service area (Porter 1985). Unlike the traditional mode of personal management, modern business operation has become rather collaborated information sharing and problem solving. Therefore, a firm today can create a competitive advantage either by narrowing or by widening its markets, and by establishing long term alliance with other firms. Simultaneously, it is necessary for the management to move more scientifically prepared to safeguard the unique identity of the original product both technically and legally. A competitor becomes a threat when he introduces a similar product with more or less equal quality at a lower price. Therefore the market can be a competitive advantage to a firm only if it succeeds to minimize the cost of operation to avail lower price. In other words, a company can stand in the long run only if it attains its identity of product value. As Grant (2008) suggests, competitive advantage is transitory and if advantages are found not sustainable, the firm has to continually recreate and review its competitive advantages to maintain sustainable performance. Creating disequilibrium in the marketplace is another tactic the author identifies as an effective effort to sustain the market hold which involves ‘generating new competitive advantages and destroying, or neutralizing the opponent’s competitive advantage’. Natural Environment Natural environment is one of the macro economic factors that determine the competency of a firm. The trends associated with the availability of raw materials, existing regulations, and the firm’s policy on natural resource management are important aspects that either weaken or strengthen the profitability of every organization. The suppliers of raw material play a vital role in the operation. They should par with the norms of the company’s purchase policies because a company’s value in the market depends on the incessant release of products and services. Together with the efforts for maintaining stability in the market, a company should promote a collective enthusiasm among the employees to work for the promotion of company’s product. In the same way, in order to avert the scarcity of raw materials or other unfavorable situations, organizations should develop their own alternatives. For instance, a firm with good strategic management would possibly place its production unit close to the best accessible source of raw materials. In such a context, we can say that the natural environment is a competitive advantage to the firm. However, firms can maintain this advantage only if they genuinely utilise the resources, comply with regulations, and consider the environmental concerns of the region. Workforce Human Resource (HR) is an important internal resource that determines the competency of every firm. However, if strategy formulation and implementation flaw, it will initially affect the workforce as a whole; and subsequently affect production, supply, customer satisfaction, and interpersonal relationship. Group activities, structural changes, and healthy interactions will make communication effective among the employees. It means organizations must be flexible enough to develop scientific approach to employee retention and reward system according to the firm’s environmental changes. In short, as suggested by Armstrong (2006), HR strategy should align with the business strategy (vertical integration) and must be apt to the organizational culture. Technology Enormous application of technology is the notable feature of modern organizations which is also subject to the rapid pace of change as one of the major macro environment factors. Both Porter and Grant believe that regardless of the unique feature of every industry, competition and profitability are attributed to the structure of the industry. Technology based Human Resource Management (HR) has become the main competitive advantage of many companies which is technically termed as Human Resource Information System (HRIS). Despite its advantages, sometimes certain aspects of the technological dependence would become a challenge to the firm as it demands further developments according to the technological environment. Such changes will have a direct impact not only on firm’s HR but also on production, marketing, and other areas. According to Grant (2008), competitive environment is an important ingredient of a successful strategy along with the effectiveness of the firm’s industry environment. Innovative Ideas Anything that adds to the profitability of a firm can be called a competitive advantage. It can either be an internal factor or an external source. There are many entrepreneurs who heed higher attention to create innovative ideas in business operation or marketing. To illustrate, people like Steve Jobs, the CEO of Apple is always concerned about the design of the product and its higher utility. His ability to foresee the changes in firm’s technological and environmental trends has helped Apple to launch new products according to the requirement of the changing world. According to his vision, the esthetic appeal of the product is a competitive advantage to the firm as it has considerable influence on people. Robert Grant terms it as ‘strategic innovation’ which involves new approaches and new business concepts; and in business it is more important than product innovation. Thus in the ever changing business scenario, innovation at the concept level is inevitable for firms to create and uphold competitive advantages. Leadership Style: Leadership style as well as the organizational structure of the business has its influence on the overall performance of a firm. Today’s’ leadership has changed its face from conventional thoughts where the leader spoke and subordinates followed. In the modernized approach, leaders are partners in works with their people in many an organization. Leadership is surely a process whereby an individual influences a group to work for the achievement of a common goal. Compassionate feelings and great workmanship are the index of a good leader. Every subordinate expects individual attention and appreciation of his superior. If the leader does not care for his people, their attitude drives in a negative way and the process of managing the group becomes very difficult. Selfishness and dictatorship are the two traits that make a bad leader. These negative attributions would kill employees’ enthusiasm and would propel unethical spirit against the employer and the group a as whole. However, as it is in the case of organizational structure and management systems, leadership style should also par with the corporate strategy of the firm (Grant 2008). Sustainability of Competitive Advantage Business is all about making an unshakeable brand value in the market in order to sustain the relationship with the customers in the most profitable way. As mentioned earlier, the profitability of a firm is highly dependant on the sustainability of its competitive advantages. However, though ones established, the competitive advantages require continual renewal or improvements. According to Grant (2008), the speed of change in the competitive advantage depends on how effectively a company prevents imitation. This process is termed as ‘isolating mechanism’ which indicates the barriers of imitation that companies establish by creating their own competitive advantages. The competitors usually seek opportunities to imitate or establish the competitive advantages of the successful organizations. The imitation happens; a) As the imitator identifies its rival’s competitive advantages b) As the imitator realizes that it can also benefit from the same source c) As it identifies the rival’s strategies that created the competitive advantages d) As the competitor acquires the resources and capabilities required for the same advantage (Source: Grant 2005: 212) Conclusion Sustainable business operation depends on effective strategic management and competitive advantages including numerous external and internal resources of an organization. Business strategy is not a set of principles or assumptions; instead, tactics taken for the overall betterment of the firm (Design strategy) and actions taken to deal with evolving situations (Emergent Strategy). A company will have to rely on both strategies according to the emerging changes and challenges of the industry (Grant 2008). Regardless of the size and nature of business, today every firm has to strive in a highly complex, competitive market. An array of factor including the changing trends in firm’s natural and technological environment, changing consumer behavior, and growing corporate merger have intensified the competition. In this context, preserving both internal and external competitive advantages have become highly inevitable concern of strategic management. References Armstrong, M 2006, A Handbook of Human Resource Management Practice, (edn10), Kogan Page Publishers. Bidgoli, H. (Ed.) 2010, The Handbook of Technology Management, John Wiley & Sons. Hoboken, New Jersey. Grant, RM 2008, Contemporary Strategy Analysis, (Edn6), Blackwell Publishing, U.S. Porter, M E, 1985, Competitive advantage: Creating, and sustaining Superior Performance, Free Press, New York. Shim J K., & Siegel J G., 1999, Operations Management, Barrons Educational Series. Read More