The Importance of Tacit Knowledge in Strategic - Research Proposal Example

ESSAY ON STRATEGY Strategic management and analysis is essential part of every business scheme, which is observed and applied by every corporate firm, organisation and corporation at large. “All corporate organisations are”, Johnson & Scholes submit, “faced with the need to manage strategies: some developing from the position of strength; some needing to overcome significant problems.” (1993, pp.3-4) Consequently, devising, implementation and revising of the effective strategy has obtained imperative place in corporate environment for the last many decades. Theories have been developed and researches have been conducted to explore the socioeconomic phenomena on the concrete foundations of in-depth observation and existing realities. The global corporate culture has been adopting and following the Five Factors Model presented by famous theorist and strategic analyst Michael E. Porter in 1980. The theorist submits to state that since the contemporary era experiences the state of perfect competition in the wake of tremendous technological advancement, five-factor model is vehemently supportive in developing their strategic schemes and revising them according to the fast changing market situation. “The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.” (learnmarketing.net) Porter has described the following five factors as the part of his strategic model: Competitive Rivalry between Existing Players Bargaining Power of Suppliers Bargaining Power of Customers Threat of New Entrants Threat of Substitutes Porter views these five factors to be regulating the future of a product as well as the organisation producing the product. Porter declares competitive rivalry between the firms as the most dynamic factor, which explains that the easier the entry in a business or industry, the higher the level of competition in that business area. Since such products are similar to one another in respect of characteristics, formulae and even outlook, the probabilities of their availability are also almost one and the same. Consequently, it is also flexible for the customers and consumers to switch from one product to its rival brand. For example, KFC is offering almost the same fast food items as being produced by McDonalds; the same is the case with Coca-Cola, RC Cola and Pepsi, where only few people are brand conscious and take these drinks as the substitute of one another. Thus, consumers take advantage of such a state of affairs, and the companies have to devise innovative plans and strategies in order to combat with the situation of perfect competition. Porter also views bargaining power of suppliers as an important business phenomenon, which is helpful in determination of corporate strategy. By suppler, porter simply means the providers of the raw material for the production purposes of various commodities. If the raw material is available in abundance, it will certainly affect the bargaining power of the suppliers. On the contrary, scarcity of raw material keeps them in a better and superior position, though entry to such a business venture is comparatively hard and difficult one. Thus, the companies have been in contact with the suppliers may easily enter in the relevant business, and can achieve their targets within short period of time. On the other hand, if the companies face obstacles on their way to have access to the suppliers, all the corporate ventures go into jeopardy. The theorist views bargaining power of the customers as the third important factor of strategy development. Since customers serves as the most important phenomenon, for whom the entire commodities, products and services are prepared and offered, the brands maintaining access to the wide range of consumers and clients can make huge progress and earn huge profit provided they are in a position to capture the attention of the wide range of consumers. “Buyers or customers”, Porter observes, “can exert influence and control over an industry in certain circumstances. This happens when: there is little differentiation over the product and substitutes can be found easily, and customers are sensitive to price. In addition, switching to another product is not costly.” (learnmarketing.net) Thus, it is also challenging for the corporations not to let their buyers slip away to some other brand. Hence, if the entry barriers are low and flexible, it is very easy for the new entrants as well as for the substitute brands to introduce their business ventures within the particular industry. In order to combat this challenge, the already existing firms have to improve and maintain the quality of their products or services or both on the one hand, and control the price of the products on the other. “A real challenge for the firms”, Bennett III argues, “is to capture, control and develop a working knowledge or interpretation of both the internal and external environments of the firm. The top management teams of organisations should go to great lengths to develop useful interpretations of the organization and its environment.” (1998, p. 590) The reputed brands like Microsoft Corporation, Virgin and others can successfully tackle with this situation; otherwise, it is really difficult for almost all industries to sustain strong entry barriers. Porter’s five factor model can be compared and contrasted with the Blue Ocean Strategy Model recently introduced and articulated by Kim & Mauborgne in 2005. The theorists presented their theoretical framework in the light of their thorough research on one hundred and fifty strategic moves made during the last twelve decades. “BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000). It is the simultaneous pursuit of differentiation and low cost, aims of which is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant.” (blueoceanstrategy.com) Blue Ocean Strategic Model contains both similarities and dissimilarities with Porter’s Five Factor Models. One of the most prominent similarities between both the two models includes that both of them look for the exploration of new avenues and dimensions in the form of new markets and consumers instead of continuing rivalries and competition with the limited number of firms and companies within the confined and limited scenario. Somehow, Porter supports rivalry by declaring it the healthy method of launching and enhancing commercial activities; on the contrary, blue ocean strategy (BOC) looks for the exploration of new horizons instead of sticking to one area or field of business. Exploration of new horizons will not only be helpful in the expansion of profit volume, but also it will increase the chances of offering the products in the markets of remotest areas and regions of the globe at large. Moreover, Porter favours the developing of links and connections with suppliers and consumers; on the contrary, BOC lays stress upon discovering new lands where new customers and suppliers could be contacted and communicated. By critically analysing BOC, it becomes evident that Kim & Mauborgne do not deny the very existence of competition; on the other hand, they motivate the firms and companies for negating the rivalries and invent broader ways for the launching and placement of their products and services. In other words, BOC stands for designing of alternative methods to capture the attention of the customers and suppliers. By adopting this strategic scheme, the companies can escape the dependency of suppliers and consumers. For instance, instead of imitating the footprints of the rival companies, Air Asia eliminated free food in the plane in order to reduce the prices of fares. Thus, Air Asia concentrated upon increase in the number of flights to provide its consumers multiple chances of travelling. “Air Asia reduced luxury facilities provided by Airport Lounge along with denial of attendance service on the plane.” (ezinearticles.com) On the contrary, Porter’s five factor model vehemently urges the companies to expand their business relations with consumers and suppliers in order to increase their sales magnitude and profit volume as well. Like all theorists, Porter also considers consumers as the most important stratum, as all corporate plans and adventures are designed and implemented just for the consumers. In addition, Porter’s model looks for the development of customer relationship; on the contrary, BOC lays stress upon marketing relationship. Though customer relationship and marketing relationship are aptly taken as synonymous to each other, yet it is reality beyond suspicion that both the two contain divergences in their scope. “Some of these two themes”, according to Nevin, “offer a narrow functional marketing perspective, while others offer a perspective that is somewhat broad and paradigmatic in approach and orientation.” (1995, p. 329) Thus, Porter’s model supports the inclusion of strong entry barriers in order to combat with the competitor threats, while Blue Ocean Strategy urges for putting these fears aside and work out in some other direction for the achievement of goals and targets established the companies. To conclude, it becomes evident that both these models maintain similarities and divergences in their scope. Both these models describe the significance of the rivalry and competition for the increase of business ventures and profit earnings as well as for the growth of the companies and organisations. Both the models submit to the imperative importance of suppliers, consumers and competitor brands and firms, without which the growth and development of the companies is impossible. Both these models articulate the phenomena like entry threats and entry prospects for the new companies. Similarly, Porter’s model considers innovation as a dynamic method adopted to counter the entry of the new firms and companies; and same is applied on BOC. Innovative ideas and adopting of alternative avenues and strategies is the most prominent characteristic of BOC. However, there are many divergences and dissimilarities too between the two. The most important difference between the two is this that Porter’s model encourages surviving under the state of perfect competition by devising a strong strategy and revising it according to the changing market scenario, while BOC considers competition unnecessary and somewhat irrelevant, as rivalries confine the vision of the companies within the limited canvas instead of imagining higher and higher. Hence, Porter’s model takes rivalry and competition as a health corporate activity, while BOC takes it irrelevant and somewhat negative trend that draws hurdles and obstacles on the way to progress of the companies. REFERENCES 1. Bennett III, Robert H. (1998). The Importance of Tacit Knowledge in Strategic Deliberations and Decisions Management Decisions Volume 36 issue 9. 2. Johnson, Gerry & Scholes, Kevan (1993) Exploring Corporate Strategy: Text and Cases. Third Edition Prentice Hall New York 3. Kim, W. Chan & Mauborgne, Renee (2005) Blue Ocean Strategy retrieved from http://mindsetandattractionmarketing.com/Blue_Ocean_Strategy.pdf 4. Lamb, Charles W, Hair, Joseph F & McDaniel, Carl (2005) Essentials of Marketing South-Western College Pub; Eighth edition 5. Nevin, J. R. (1995) Relationship Marketing and Distribution Channels: Exploring Fundamental Issues. Journal of the Academy Market Sciences pp 329-330 6. Piow, Ko Su (2009) Blue Ocean Strategy: Example in Asia Retrieved from http://ezinearticles.com/?Blue-Ocean-Strategy-Example-in-Asia---Example-1&id=1031603 7. Blue Ocean Strategy Quoted in http://www.blueoceanstrategy.com/abo/what_is_bos.html 8. Porters Fives Forces Model: Industry analysis model Quoted in http://www.learnmarketing.net/porters.htm Read More