The Five Generic Competitive Strategies

Assalamualaikum ^_

hello.. its already week 5.. time goes without we realize it.. time is like a sword, in case you do not cut it, surely it cut you.. hope we do not belong to dispose of their time, insya Allah :)

ok, in this week we learn about generic competitive strategies. We have asked to give an example for every subtopics. The interesting in this week is we try a new things.. But.. It cost a little.hehe..

There are three strategies which is cost leadership, differentiation, focus (market segmentation) and under focus has cost focus and differntiation focus. I will insert an example for every subtopics.. ^_

The cost leadership strategy

A firm tries to reduce its overall production and distribution costs. It wins market share by appealing to cost-conscious customers. It sets the lowest prices in the target market segment, or at least the lowest price to value ratio.

Three ways to achieve it was economies of scale, low direct and indict operating cost and control over the supply chain.

Achieved market share by keeping low inventories and only building computers to order, procurement advantages from preferential access to raw materials or backward integration.

Differentiation

A company concentrates on differentiating the products in some way in order to compete successfully. In order words, making their products or services different from and more attractive than their competitors. Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

Differentiated through brand power

Focus (Market Segmentation)

The firm focuses its marketing effort on serving a defined, focused market segments with a narrow scope by tailoring its marketing mix to these specialized markets, it can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency.

It is most suitable for relatively small firms but can be used by any company. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.

Serve highest end of wristwatch market (premium pricing and image)

The focus strategy has two variants, which is

1.   Cost Focus

A firm seeks a cost advantage in its target segment, it exploits differences in cost behavior in some segments.

Focus on the lower cost

2.   Differentiation Focus

A firm seeks differentiation in its target segment. It exploits the special needs of buyers in certain segments.

Ferrari, targets high performance sports car segment and due to differentiation based on design, high performance grand prix records which allows it to charge a premium price.

ok, that all for this time..

Internal Environment

Hai.. This week we have learnt about internal environment. Among them are..

SWOT analysis

SWOT analysis (alternatively SWOT Matrix) is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. A SWOT analysis can be carried out for a product, place, industry or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective.

Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization.

·         Strengths: characteristics of the business or project that give it an advantage over others

·  Weaknesses: characteristics that place the team at a disadvantage relative to others

·     Opportunities: elements that the project could exploit to its advantage

·        Threats: elements in the environment that could cause trouble for the business or project

Identification of SWOTs is important because they can inform later steps in planning to achieve the objective.

SWOT analysis aims to identify the key internal and external factors seen as important to achieving an objective. The factors come from within a company's unique value chain. SWOT analysis groups key pieces of information into two main categories:

1.   internal factors – the strengths and weaknesses internal to the organization

2.   external factors – the opportunities and threats presented by the environment external to the organization

Analysis may view the internal factors as strengths or as weaknesses depending upon their effect on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses (distractions, competition) for another objective.

Value Chain

A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The concept comes from business management and was first described and popularized by Michael Porter.

"The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources - money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits."

Evaluating A Company’s External Environment

The macro-environment encompasses the broad environmental context in which a company's industry is situated that includes strategically relevant components over which the firm has no direct control.

PESTEL analysis

PESTEL analysis is a popular framework for organizing these factors and trends and isolating how they influence industries and the firms within them. There is six dimensions associated with PESTEL analysis: political, economic, social, technological, environmental and legal.

The Five Competitive Forces

Just like its title, it have 5 subtopics, which is competition from rival sellers, competition from potential new entrants, competition from producers of substitute products, supplier bargaining power and customer bargaining power.

• Rival Competitors

Best position to compete on the basis of price, use the appeal of lower price to grab sales from rivals, to remain profitable in the face of strong price competition, to survive price wars, to earn returns after its competitors have competed away their profits through rivalry.

• Entry Barriers

Pricing power provides substantial entry barriers in terms of scale economies or cost advantages. It can use price-cutting to make it harder for a new rival to win customers.

• Substitutes

Positioned to use low price as defense against companies trying to gain market inroads with a substitute.

• Suppliers

Defense again powerful suppliers by providing more flexibility to cope with input cost increases.

• Buyers

Powerful defense because buyers can exert power only to drive down prices to the level of the next most efficient competitor.

Vision Mission

In the topic two it is more about The Business Vision and Mission.

When we talk about vision and mission, did you have  think about it before? The common think that we always asked since childhood is “what do we want to became”, right? And I think, even since childhood there have been many career that we want to be. But, did we have decided what is better for ourselves? Just take a minutes, think.

Ok, back to the topics.. For your little information,  the vision came with the short statement, preferably one sentence, and as many managers as possible should have input into developing the statement. To more clearly, it is a view of an organizationís future direction and busines course, a guiding for what the organization is trying to do and to become.

Meanwhile, mission statement is about a declaration of an organization’s “reason for being” and it will  answers the pivotal question “what is our business?”. A mission statement broadly outlines the organizationís future direction and serves as aquiding concept for what the organization is to do and to become. Overriding premise in line with the values or expectations of stakeholders. It is essential for effectively establishing objectives and formulating strategies.

For an organization, it is incomplete if they do not have any vision and mission. So, let we see the importance of vision and mission statements:

1.   To ensure unanimity of purpose within the organization

2.   To provide a basis, or standard, for allocating organizational resources

3.   To establish a general tone or organizational climate

4.   To serve as a focal point for individuals to identify with the organization’s purpose and direction

5.   To facilitate the translation of objectives into a work structure

6.   To specify organizational purposes

The Nature of Strategic Management

Assalamualaikum

Hai, I’m back.. hehe.. this week we have learn about strategy. Talking about strategy, the strategy is a comprehensive plan for accomplishing an organization’s goals. Meanwhile, strategic management is a way of approaching business opportunities and challenges aimed at formulating and implementing effective strategies. There are three stage of strategies, which is

Strategy formulation

The set of processes involved in creating or determining the organization’s strategies. It focuses on the content of strategies in order to developing vision and mission.

Strategy Implementation

The method by which strategies are operationalized or executed within the organization. It focuses on the processes through which strategies are achieved. In other words, its requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed and is often called the action stage.

Strategy evaluation

It defined as reviewing external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions

This three activities occur at three hierarchical levels in a large organization: corporate, divisional or strategic business unit, and functional. It helps a firm function as a competitive team.