The Idea of Competitive Advantage - Report Example

The Idea of Competitive Advantage Introduction Business competition is just like about trying to win the game and in order to get the prize, it is important that there must be something like a very unique force that will enable a competing team stands a cut above the other. That special force must be something of an advantage that the other should not necessary have. In order to obtain such advantage, it is important to obtain strategy. The strategy is to give direction in order to obtain specific advantage over the opponents. This paper tries to discuss the importance of obtaining competitive advantage in a highly competitive world where competition is everywhere. It is also the point of this paper to emphasize that in order to obtain competitive advantage; it is a prior activity to consider competitive strategy. In order to understand more about this, the specific concept of competitive advantage is explained based on its applications in the business setting. Competitive Advantage The bottom line of competitive advantage is profit. A company is said to have a competitive advantage if its profitability is significantly higher than the average in its industry while ensuring to sustain this over a long period of time (Hills & Jones, 2009). Profit is considered primary and important corporate goal in order for business to survive and stay for a longer period of time in the industry it belongs. Thus, it is important to consider that the more profit, the better it is for the company so as to consider itself successful in its specific industry. There are many ways on how to obtain more profit and they vary depending on the specific industry a business belongs. However, there is a general rule in order to obtain such profit and this includes creating a specific move which involves more than just the standard set by the company. In reality, it is not the standard of the company that always prevails but everything works out based on the idea of needs and demands of customers or the target market. It is therefore important to consider that in order to gain considerable market power; a company must be able to sustain the prevailing needs and demands in the market. There are two conditions that determine profitability of the company according to Hills and Jones (2009). The first condition is value creation. The more value is placed by customers on products and services, of a certain firm, the more competitive they are over the other in the industry. Even if the price of such product or service is high but the customers are placing more value on it, then the firm has always the competitive advantage to maintain such price over a long period of time. The second condition is the company’s cost of production. The higher the cost of production, the higher will it turn out for the products’ final price for the customers. Therefore, it is wise enough to reduce production cost in order to create a product price with corresponding affordability. However, affordability may not be necessarily applicable to all customers especially in buying a product or acquiring a service since aside from the concept of needs and demand; it may also depend on income or buying capacity of an individual. That is why Porter (1980) emphasized that focus is important strategic action in order to come up with competitive advantage. Focus is about trying to give specific and important consideration on a particular buyer or segment of the product line or geographic market. This is very important considering that the main targets of whatever products and services are customers. This is to ensure that each customer is given specific focus in order to create a better management approach. It is clear that the challenge for management is to create an environment where it could produce a competitive advantage over its distinctive competence and resources (Porter & Montgomery, 1991). However, there is corresponding consideration of competitive advantage with respect to time. In food retailing sector in the UK, competitive advantage is understood with respect to competitive eras, the past, present and the future (Harris & Ogbonna, 2001). Competitive strategy Porter (1980) emphasized the importance of competitive strategy in order to gain competitive advantage in a competitive market setting. His understanding of what it means to be a cut above the other means doing the right thing and that is to come up with competitive strategy. Competitive strategy is the most specific activity that a company can have to strategically obtain its corporate goals. For instance, in the age of rapid technological innovation, success of a company is no longer a question about how it utilizes technological capabilities. The most important idea is that every business requires to compete given with the same capabilities with that of the other businesses. The study of Ortega (2009) found out that technological capabilities serve only as enhancer of the relationship between quality orientation and performance and cost orientation and performance. The point is that with the aid of technological innovation, a business must be able to utilize whatever technology it has in an efficient manner in order to compete. However, a business requires specific important discoveries such as management of performance, management of cost and more. These are important strategies that are explained by Porter (1980). It is important to consider that technologies are just tools in order to properly implement the real strategic options of a company. Thus, it is important to consider that a competitive strategy is necessary in order to make use in an efficient manner whatever resources or tools a business possesses. As for the idea of Porter (1980), another purpose of competitive strategy is also to stop new entrants from entering the market. In as much as possible a business wants to monopolize its products and services and to ward off competition is one of the most essential ways to do it. This can only be implemented by trying to discourage competitors in joining the competition. Competitive strategy can be generic in its nature and according to Porter (1980), it is important to consider cost leadership, differentiation and focus. From other sources, it turns out that the most commonly cited generic strategies are differentiation and cost leadership. Porter (1980) however emphasized focus since it means trying to consider particular buyer group, segment of the product line and geographic market. On the other hand, cost leadership is one of the most important strategies viewed by businesses in order to have strong market power. It is important to consider cost because it always determines the final price of the products to be offered in the market. The lower the cost incurred in the creation of product or services, the greater opportunity it is for the company to obtain its remarkable profit. Differentiation is another important strategic move of a company in order to prevent new entrants from entering or penetrating in the market. Differentiation is the effect of customers’ loyalty on a specific product or services due to promotion and trust given by the customers or target market. Conclusion It is important to consider that companies are working their way to the top and it is implied that prior to doing it is to gain considerable competitive advantage. This advantage is to ensure that the business will stay on top of the competition by making necessary strategic moves in the process. Competitive advantage therefore is inevitable considering that competition is everywhere and everyone or every business wants to be on top. Thus, it is important to consider competitive strategies in order to necessary gain such competitive advantage. In doing so, every strategic move of a company seems to remind that competition is the reason why there is a necessity to hold competitive advantage. References Harris, L. C. & Ogbonna, E. (2001). Competitive advantage in the UK food retailing sector: past, present and future. Journal of Retailing and Consumer Services, 8(3), 157-173. Hill, C., & Jones, G. (2009). Essentials of Strategic Management. Canada: Cengage Learning. Montgomery, C. A. & Porter, M. E. (1991). Strategy: seeking and securing competitive advantage. USA: Harvard Business Review. Ortega, M. J. R. (2009). Competitive strategies and firm performance: Technological capabilities’ moderating roles. Journal of Business Research. Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press. Read More