Benefits Of Strategic Management

Benefits Of Strategic Management

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Competitive Advantage in Strategic Management
A business without strategy is a business without direction. A strategy
without a competitive advantage is a business without a precondition of
success. Managing strategically is to make decisions and implement strategies
that allow an organization to develop and maintain competitive advantage.
Competitive advantage is a concept that motivates strategists to replicate the
strategies that make most successful companies successful. According to this,
we can learn that competitive advantage is a very important concept in
strategic management. Next, I will look deeper into ¡°what¡¯s competitive
advantage¡±.
Competitive advantage is what sets and organization apart. When a firm
sustains profits that exceed the average for its industry, it has something that
other competitors don¡¯t does something better than other firms do, or does
something that others can¡¯t, the firm is said to possess a competitive
advantage over its rivals. The goal of much of business strategy is to achieve a
sustainable competitive advantage. Getting and keeping it is what managing
strategically is all about. It¡¯s tough to do, and getting tougher.1
There are 2 major views of alternative model of superior returns. Industrial
organization (I/O) view and resource-based view. The industrial organization
view focuses on the structural forces within an industry, the competitive
environment of firms and how these influence competitive advantage. The
external environment determines the potential for profits. Firms within the
same industry have similar resources and pursuer similar strategies.
Resources are mobile across firms (because of this, seemingly unique
differences among firms in the same industry will quickly vanish, competing
firms will adopt or purchase similar resources. Resource-based view takes the
approach that a firm¡¯s resources are more important than industry structure in
getting and keeping competitive advantage. It sees firms as very different
collections of assets and capabilities. The internal resources and capabilities
are the source of a firm¡¯s profitability, not the external environment. Firms each
have unique resources and capabilities. Resources are not necessarily mobile
across firms.2 Although the resource-based view focuses on analyzing
internal organizational factors, it doesn¡¯t ignore important external factors. It
links an organization¡¯s internal capabilities with its external environment.
Competitive advantage will accrue to the firm that possesses unique assets or
capabilities. A resource-based view emphasizes that a firm utilizes its
resources and capabilities to create a competitive advantage that ultimately
results in superior value creation. According to the resource-based view, in
order to develop a competitive advantage the firm must have resources and

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capabilities that are superior to those of its competitors. Without this, the
competitors simply could replicate what the firm was doing and any
advantage quickly would disappear.
below is to compare the I/O and RBV views of strategic management.3.
Table 2-1: comparison of I/O and Resource-based Views
Factor I/O Resource-Based View
Competitive Advantage Positioning in industry Possessing unique organizational assets or capabilities
Determinants of Profitability Characteristics of industry; firm's position within industry
Type, amount, and nature of firm's resources
Focus of Analysis External Internal
Major Concern Competition Competencies¡ªResources
Strategic Choices Choosing attractive industry; appropriate position Developing unique resources and capabilities
Resources are the firm-specific assets useful for creating a cost or
differentiation advantage and that few competitors can acquire easily. It can
include all of the financial, physical, human, intangible, and structural-cultural
assets used by a firm. The following are some examples of such resources:
Patents and trademarks, proprietary know-how, installed customer base,
reputation of the firm and brand equity and so on. Capabilities refer to the
firm's ability to utilize its resources effectively. An example of a capability is the
ability to bring a product to market faster than competitors. Such capabilities
are embedded in the routines of the organization and are not easily
documented as procedures and thus are difficult for competitors to replicate.
The firm's resources and capabilities enable innovation, efficiency, quality, and
customer responsiveness, all of which can be leveraged to create a cost
advantage or a differentiation advantage.
Cost advantages and differentiation advantages are two type of competitive
advantage, which are identified by Michael Porter. A competitive advantage
exists when the firm is able to deliver the same benefits as competitors but at a
lower cost is cost advantage, or the firm is able to deliver benefits that exceed
those of competing products called differentiation advantage. Using resources
and capabilities to achieve either a lower cost structure or a differentiated
product creates competitive advantage. A firm positions itself in its industry
through its choice of low cost or differentiation. The cost advantage protects
from new entrants. It can reduce price to protect from new entrants. But the
risk is that competitors may leapfrog the technology, nullifying the firm¡¯s
accumulated cost reductions and they may imitate the technology, just like IBM
clones in PC industry. And the differentiation advantage has actual product
quality. It insulate company from threats from these five forces: price increases
from powerful suppliers can be passed onto customers who are willing to pay;
buyers have only one source of supply; brand loyalty protects from substitutes
and brand loyalty is a barrier to new entrants.4 However, we don¡¯t know how
long can the firm sustain a particular differentiation advantage and how high
can the managers raise the firm¡¯s price before customers will be willing to
switch. Also, imitations are more of a threat today because of production
technology. Thus, a competitive advantage enables the firm to create superior
value for its customers and superior profits for itself, we also should be careful
to consider all of its factors.
Competitive advantage exists when firm has an edge in defending against
competitive forces and securing customer. To win a competitive advantage, a
firm can become the low-cost producer, make the best-made product, provide
customer more value for the money, save customer money or provide superior
superior
customer service. Even, a firm can enhance performance buyer gets, provide
more convenient locations or make a more reliable and durable product. Offer
buyers a good product at a lower price or use differentiation to provide a better
product buyers think is worth a premium price are the key terms to success. In
ordre to success, a firm can open up a sustainable cost advantage over rivals,
using lower-cost edge as basis to underprice rivals and reap market share
gains or earn higher profit margin selling at going price. It should find ways to
drive costs out of business year after year. IKEA is the best example for the
low-cost company. Also, a firm can also find ways to differentiate to create
value for buyers that are not easily copied by rivals. A successful differentiation
advantage allows firm to command a premium price and increase unit sales
and build brand loyalty. To achieve the differentiation competitive advantage, a
firm can incorporate product attributes and user features that buyer¡¯s costs in
using product, incorporate features that raise performance buyer gets out of
product or incorporate features to enhance buyer satisfaction. Grasp these
points will help a firm to success in business.
Competitive advantage is a necessary ingredient for a firm ¡®s long-term
success and survival. The pursuit of competitive advantage leads to
organizational success or failure. Consider all the factors from industrial
organization view or resource-based view, and open up with cost advantage or
differentiation advantage, making good competitive strategy will make your
organization success.
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