COMPETITIVE STRATEGIES AS ASKED FROM THE POINT OF VIEW OF BUSINESS STRATEGY Reviewed by Momizat on .   ASKED HOW COMPETITIVE STRATEGIES? Competitive strategies are possible courses of action available to the company to better compete in certain markets with spe   ASKED HOW COMPETITIVE STRATEGIES? Competitive strategies are possible courses of action available to the company to better compete in certain markets with spe Rating: 0
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COMPETITIVE STRATEGIES AS ASKED FROM THE POINT OF VIEW OF BUSINESS STRATEGY

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ASKED HOW COMPETITIVE STRATEGIES?

Competitive strategies are possible courses of action available to the company to better compete in certain markets with specific products or services in such a way as to generate an advantage for it. They are, therefore, the level of business strategies.

How to build a competitive advantage.

For a business property can be considered as a competitive advantage must meet three requirements:

It needs to be related to a key success factor in the market.

It must be substantial enough to pose a real difference.

Needs to be sustainable against environmental changes and competitor actions, although long-term, none is unassailable.

But the foregoing is a competitive advantage only if they result in increased profitability for the company. Thus, the concept of competitive advantage necessarily brings us to the concept of profitability or value creation. Thus, any distinguishing feature of a business is a competitive advantage if it provides additional revenue.

From the internal point of view, the source of competitive advantage can be in the way the company uses its resources and capacities available to meet four generic factors source of these benefits: efficiency, quality, innovation, and customer satisfaction . The route by which a company can achieve competitive advantage is the competitive strategy. Therefore, the competitive strategy is seen as the way in which a company faces its competitors to try and get superior performance to theirs. The foundation for this outperformance is to achieve a sustained competitive advantage.

Cost advantages will be achieved through learning and experience, but we will see that these is not enough, especially if we want to build differentiating advantage. Therefore, development of experience curves to learning and knowledge management to generate more efficient organizational routines.

Organizational routines, or patterns are defined as regular and predictable patterns of activities that are formed by a sequence of coordinated actions by individuals.

The routines are the basis for capacity building. Organizational behavior can be understood as well as a large network of routines. Establish routines to develop the particular tasks in the organization is the basis for the emergence of distinctive competencies.

The following considerations are important for understanding the concept of routine:

The ability of senior management to ensure cooperation and coordination between the resources is a necessary condition for the development of routines and the motivation of the people who perform.

The routines are for the organization that people skills. Are applied almost automatically, without conscious and deliberate coordination, known situations, which implies a high component of tacit knowledge.

They are the major storage form of information and knowledge within the organization (so that past routines affect the current way of operating, to think or solve problems.

The interest in intangible resources and organizational capabilities, all based on knowledge, has made the Theory of Resources and Capabilities to extend and enrich generating the so-called Vision Theory and Knowledge-based company. From this perspective the firm is conceived as a set of intangible assets based on knowledge or intellectual capital, so that management should focus on how to generate and exploit to create value, which is called knowledge management.

COST-BENEFIT IN A firm has cost advantage when it has lower costs than its competitors for a product or service similar or comparable in quality. With this advantage, the company tries to have a cost as low as possible, bringing it in ahead of their competitors, suppliers and customers.

Sources of cost advantage. Traditionally been considered the main source of competitive advantage in costs stems from experience that effect, in turn, has its origin in the learning effect. The learning effect is that the manufacturing time of one unit of output decreases as they are producing more units of that product. That is, the time it takes to make one unit of output is less than has been previously produced other units as a result of learning achieved. This reduction in execution time is therefore a decrease in unit costs of direct labor and, consequently, a decrease in unit costs of the product. However, we must extend this approach with the following strategies for reducing costs:

Economies of scale occur when the increase in the amount of inputs used in production leads to a more than proportional increase in total outputs produced. Therefore, the increased scale of production results in decreased unit costs. Economies of scale are conventionally associated with manufacturing operations, but can also occur in other activities such as, for example, purchasing, research and development, distribution and advertising.

Learning economies relate to the experience effect and are the result of the establishment and improvement of collective organizational routines within a company and produced improvements in individual skills.

The development or adoption of a new process technology or a product redesign to reduce production costs by simplifying the production process, automated, reducing the number of components, saving the cost of materials, storage or distribution.

Favorable conditions of access to raw materials and other key supplies, financial sources, service contracts and maintenance, etc..

Conditions favorable location of the company, which can affect issues such as wage differentials, transportation and energy costs, etc.

A high bargaining power with suppliers allows the company to put pressure on his behalf in the price and margin capture part of the supplier.

Establishing cooperative relationships with customers or suppliers (vertical links) that lower final costs.

Rigid cost controls of different activities, such as indirect costs in R & D expenses, sales expenses, customer service, advertising, etc..

In industries subject to significant fluctuations in demand, the ability to adjust production capacity quickly to the actual level of demand can be an important source of cost advantage since both under-utilization of facilities as its overuse can pose a unit costs higher than normal.

In some industries, the determinants of differences in costs, such as scale, technology, design, cost factors and capacity utilization, only explain part of the cost differences between firms. Indeed, there is a margin of difference in costs between companies producing similar products and which is determined by a residual inefficiency called organizational slack or X-inefficiency. Its main source is simply the desire of managers and employees to afford some relaxation in his work and make every effort to avoid any possible source of inefficiency. Logically, this feature of the company is linked, for better or for worse, with the values ​​and the prevailing organizational culture.

Conditions for implementing the strategies in cost:

Price competition is intense in the industry and is a key success factor.

The product is standardized and offer multiple bidders.

There are few ways to achieve product differentiation that are meaningful to buyers.

Customers of companies in the industry have a high bargaining power due to its large size or low costs for changing supplier, which can push for lower prices.

Risks of cost advantage. However, this strategy is subject to certain risks that may cause the disappearance of competitive advantage:

It requires constant attention to costs, monitor the superfluous (organizational slack), quickly adopting new process technologies, reinvesting in modern equipment, etc.

Excessive use of the experience effect may lead to adverse strategic consequences, for example, sustained growth to gain market share by excessive rigidity standardization of products, not to detect changes in demand requires new products or product attributes to or process and find it difficult to accept innovations.

When the base of the advantage is the experience effect, it can be withdrawn rapidly as a result of the emergence of substitute products, major changes in the product or process, product differentiation from competitors, and so on.

Fast learning or imitation by competitors or new competitors set to nullify the effect achieved experience.

Cost inflation may cause the company can not maintain a price differential enough to make your product attractive relative to other differentiated product.

Competitors who act only in certain segments can achieve even lower costs in the segments they cover, than those who operate in the industry as a whole.

ADVANTAGE AS A DIFFERENTIATION. Competitive advantage in product differentiation. A company has a competitive advantage in product differentiation when offering a product or service, being comparable with that of another company, has certain attributes that get customers to perceive it as unique. Therefore, customers are willing to pay more for a product (or service) of a company from another.

Sources of product differentiation. A company can differentiate their offerings to customers in a number of ways. The variables that you can build differentiating advantage related to the technical characteristics of a product with the characteristics of their markets, with the characteristics of the company or with other variables are difficult to classify as the time or attention to social responsibility criteria.

Application conditions:

Despite the variety of factors on which to build an advantage in product differentiation, for a given firm is not always possible to get it.

In general, opportunities for differentiation are reduced to simple technical products that meet simple needs and are produced with a specific technical standard. By contrast, the greater the complexity and variety of the characteristics of the products or services, tastes and needs of clients and suppliers firm characteristics, the greater the chances of obtaining a competitive advantage of differentiation.

In addition to the above conditions, the product differentiation strategy is most appropriate when there are any of the following circumstances:

Customers give special importance to aspects such as product quality or use to differentiate socially.

Few competitors choose the same criteria of differentiation because, otherwise, it is more difficult to achieve and value the customer perceives the product as different.

The distinctive features are difficult to imitate, at least quickly and cheaply.

From this it follows that the differentiation strategy typically prevents a high share in the market because it requires a perception of exclusivity that is often incompatible with high market share.

Risks of differentiation advantage. In any case, product differentiation is also affected by a number of risks that may reduce its benefits among which we find the following:

The difference in price between competitors who follow a strategy of low cost and differentiated business may be too large for customers to maintain brand loyalty. In that case, customers will give up some of the features, services or image provided by the company to achieve distinct cost savings.

You can reduce the need or appreciation of the buyer by the factor of differentiation.

The imitation of competitors limited the perceived difference, which is quite common as the industry matures.

Competitors with segmentation strategy can achieve a greater differentiation in segments that cover than those who do for the whole industry, because they can offer those customers specific products that best meet their needs.

The growth and development of the company.

Another type of decision involves choosing the set of activities or businesses in which the company wants to operate, are located at the corporate level of the company and are what is called the definition of the field of activity. Since then, the company evolves in time and makes decisions that affect their future growth and development. The strategic development directions refer to the different possibilities that the company has expansion (growth), rearrangement or reduction (restructuring) of its activity in the future. In addition to distinguishing between growth and development, we present the basic problems of development strategies (address and method), and the identification of the main directions of development (expansion, diversification, integration).

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