Strategic Management for a Medium Sized Firm - Research Paper Example

 Strategic Management for a Medium Sized Firm According to Philip Kotler (2005), one of the “megatrends” which is needed to consider by business organizations is a major economic force called “hypercompetition.” This state is characterized as “a period where the rate of change in the competitive rules of the game are in such flux that only the most adaptive, fleet, and nimble organizations survive (D’Aveni 1994).” Hypercompetition can be examined using Porter’s Five Forces model. This framework takes into account five factors which shape the strategies of a firm namely, supplier power, barriers to entry, threat of substitutes, buyer power and intensity of rivalry. In a hypercompetitive industry, what is apparent is the high bargaining leverage of buyers. This can be seen by the fact that customers are getting more educated. The access to internet also balances the information asymmetry in the market making customers knowledgeable of the price and features of competing products. Customers look for products the way they want it. With this development, essential issues should be addressed by the company as firms are producing more than they can sell which significantly drives down prices. This situation poses more intense rivalry from competitors requiring companies to develop an efficient and sustainable strategy. For a medium sized firm operating in a hypercompetitive industry which embarked on a follower strategy should seek to have a more efficient marketing strategy. Follower strategies or “me too” strategies are only able to compete on price. Thus, followers are deemed to reduce prices forever, squeezing their margins and profitability. Possible strategic alternatives which it can bank on are differentiation and innovation strategies. Differentiation strategy in a hypercompetitive market is imperative and “not discretionary.” As customers have higher bargaining leverage, a firm should introduce product features which adds value its buyers. Instead of simply following the strategies and move of the market leader, a medium size firm should embark on developing innovative products. This is very important taking note of the fact that the market is unstable. Oftentimes, the case is that buyers are dissatisfied with the present alternatives and are looking for new options. Competition through differentiation and innovation are two strategic options which are always more effective than price competition. Can a core competence be bought in a short-term strategic solution or does it have to be developed over a long term? Use examples to support your answer. The idea of core competence was introduced by Pralahad and Hamel in 1990. In a Harvard Business Review article, they wrote that a core competence is “an area of specialized expertise that is a result of harmonizing complex streams of technology and work activity.” Furthermore, a core competence should pass three conditions: it provides customer benefit; it is hard for competitors to imitate; and it can be applied widely to many products and market (Pralahad & Hamel 1990). These definition and characterization of core competence will be utilized to extend the discussion whether core competence should be a short-term strategic solution or developed over the long-term. The idea of a core competence being difficult to imitate is a manifestation that a core competence allows a company to produce products which are superior than the ones offered by its competitors. It should be noted that as the environment of the firm changes, the core competence of a company must continuously give the firm it superior position. Due to this, it is imperative that the company continuously reaffirm this strategy and develop its skills in order to defend its core competence. Thus, a core competence should not be short-term strategic solution but should be built and reinforce in the long term. With the above discussion, it can be deduced that a core competency should yield long term advantage to company. If the core competency is able to do this, then is its referred to as a sustainable competitive advantage which greatly helps the company in the success and survival of the company A good example of a company which became very successful in using its core competency is Honda which focused on its expertise on engines in order to provide a wide array of products like lawn mowers, snow blowers, trucks, and automobiles. On the other hand, Volvo’s core competence is on safety. These companies’ core competencies were able to sustain the success of their operations and strategies. There is no best corporate strategy. What matters is the consistency among four aspects of corporate strategy'. Discuss this statement with reference to various corporations of your choice. True enough, there is no best corporate strategy. In the real world, we can see that the most successful companies in the world are pursuing different strategies to sustain their operations. It is said that what matters most is the consistency among the four aspects of corporate strategy namely marketing, production, financial, and R&D strategies. In crafting its strategy, it is imperative that a business maintain consistency in these areas in order to create a well-rounded image to its stakeholders. This section will examine how two companies pursuing different strategies became successful by striking a consistency of the four essential aspects mentioned above—Texas Instruments and Hewlett-Packard. The marketing strategy of Hewlett-Packard is essentially focused on the provision of industrial and some consumer markets with high tech, custom products. The company does this by promoting quality, reliability, and service. With this image, the company is able to put a high premium on their prices. In terms of production strategy, the company operates in small plants using small batch, job-shop technology. As its products are customized, production is demand driven. Consistently, as the company ca put a high premium on products, financial strategy is to make profits through high margin. As the company wants to become the leading provider of state of the art, high tech products, it invests a lot on R&D and make sure that it is first to launch new products in the market, emphasizes innovative features, and develops new designs. Meanwhile, Texas instruments targets industrial and consumer markets with its high-volume, low cost standard products. Thus, Texas Instruments charge low prices while promoting availability. In terms of production strategy, the company utilizes large plants for high volume production. The company also set up a mass production technology with automation and robotics. As products are standardized, the company manufactures ahead of demand. The financial strategy of Texas Instruments is to gain profits by selling a high volume of standardized products. In terms of R&D, the company focuses on improving its operations by finding a way to reduce production costs. Should the firm or industry be the focus for strategy? Give reasons for your views. Can competitive advantage be sustainable over a long term? It is irrefutable that the current market is becoming more and more customer focused and market-driven. As discussed above, hypercompetition gives customers high bargaining leverage thus, strategies should be more focused on buyers and their needs. Companies today should not strive to create strategies for the sole benefit of the firm. In contrast, the company should find a way to create itself considering the needs and expectations of its market. As the customers are the primary deciding factor in the success or even survival of the company, they should be the center of every strategy to be crafted. Competitive advantage can be sustainable in the long-term. As discussed above, a core competence which becomes the cornerstone of a company’s operation is called competitive advantage. Like a core competency, it serves as an ability which is distinctive and is hard to replicate. An example of a sustained competitive advantage is P&G’s ability to derive superior consumer insights and implement them in managing its brand portfolio and Coca-cola’s strong brand equity. References Core Competency. (2006). Retrieved 12 May 2006, from Wikipedia Web site: ttp://en.wikipedia.org/wiki/Core_competency D’Aveni, R. (1994). Hypercompetition Kotler, P. (2005). According to Kotler. Retrieved 12 May 2006, from American Management Association Site website: http://www.amacombooks.org/books/ catalog/0814472958_ch.htm Prahamad, CK & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review, vol. 68, no. 3, May-June Read More