Competitive strategy refers to how a
company competes in a particular business (note: overall strategy for
diversified firms is referred to as corporate strategy).
Competitive strategy is concerned with how a company can gain a
competitive advantage through a distinctive way of competing.
Among
the audience A
survey of new media
The
era of mass media is giving way to one of personal and participatory
media, says Andreas Kluth. That will profoundly change both the media
industry and society as a whole ...
more
By C.K. Prahalad A focus on access, affordability, and availability for low-income
consumers is driving established firms to adopt a constraint-based
methodology for innovation. But because of those limits, great
breakthroughs occur—starting with health care and other services in
India.
Read on...
From: Strategy: Winning in the Marketplace:
Core Concepts, Analytical Tools, Cases, 2/e
Arthur A. Thompson Jr., University of Alabama
John E. Gamble, University of Southern Alabama
A.J. Strickland III, University of Alabama
Competition
existed long before strategy. Competition began
with life itself. The first one-cell organisms
required certain resources for maintenance of
life. When those resources were adequate, then
each generation became greater in number than
the preceding one. If there had been no
limitation on required resources, then
exponential growth would have led to infinite
numbers.
But as life evolved,
the single-cell life form became a food resource
for more complex life. With increasing
complexity, each level became the resource for
the next higher level. When two competitors were
in perpetual competition, one inevitably
displaced the other, unless something prevented
it. In the absence of some counterbalancing
force to maintain a stable equilibrium between
the two competitors by giving each an advantage
in its own territory, only one competitor
survived.
More...
Even when it is obvious to
you that change in your organization is necessary, the
difficulties that loom for creating that change can be
intimidating. Or perhaps the change effort is well underway in
your organization, but faltering. John Kotter, Harvard Business
School's leadership and change guru, sits down with
BetterManagement to talk about what he has learned about
changing organizations, why some change management efforts
succeed, and why others fail.
This interview provides guideposts
for measuring your own change effort, using Kotter's eight-step
process for successful change. These are:
Create a sense of urgency
Pull together the guiding team
Develop the vision and change
strategy
Communicate for understanding
and buy-in
Empower others to act
Produce short-term wins
Don’t let up
Create a new culture
The lessons you can draw from
this interview will serve you well on the job, in your family
and in your community. Based on John Kotter’s pioneering work on
how to make smart change happen faster and better, the interview
provides invaluable guidance no matter where you are in the
organization—executives, managers and aspiring leaders at any
level will all benefit. And the lessons are becoming ever more
important as the world around us changes faster and faster.
No organization
today -- large or small, local or global -- is
immune to change. To cope with new
technological, competitive, and demographic
forces, leaders in every sector have sought to
fundamentally alter the way their organizations
do business. These change efforts have paraded
under many banners -- total quality management,
reengineering, restructuring, mergers and
acquisitions, turnarounds.
Yet according to most assessments, few of
these efforts accomplish their goals. Fewer than
15 of the 100 or more companies I have studied
have successfully transformed themselves. The
particulars of every case vary, but I have found
that the change process involves eight critical
stages. Mismanaging any one of these steps can
undermine an otherwise well conceived vision,
but four mistakes in particular are the source
of most failures.
More...
Although we know a good deal
about the conditions and processes of change,we
have no satisfactory explanation of why change
occurs. Possibly the explanation lies in the
human capacity for becoming bored. Most of the
higher species, whenever not hunting, eating, or
mating, simply go to sleep - as much as twenty
hours a day. Humans cannot sleep that much, and
human boredom may be the true cause of social
change [Hirschman, 1982]
Another
asnwer is simply to assume that change is a
constant in the universe, which needs no
explanation. A constant is something which is
always present. Populations grow and decline;
fashions come and go; mountains are pushed
upward and erode away; even the sun is gradully
burning itself out.
More...
To prepare an effective marketing strategy, a company
must study its competitors as well as its actual and
potential customers. Companies need to identify competitors'
strategies, objectives, strengths, weaknesses, and reaction
patterns. They also need to know how to design an effective
competitive intelligence system.
A company's closest competitors are those seeking to
satisfy the same customers and needs and making similar
offers. A company should also pay attention to latent
competitors, who may offer new or other ways to satisfy the
same needs. A company should identify competitors by using
both industry and market-based analyses.
Competitive intelligence needs to be collected,
interpreted, and disseminated continuously. Managers should
be able to receive timely information about competitors.
Managers need to conduct a customer value analysis to
reveal the company's strengths and weaknesses relative to
competitors. The aim of this analysis is to determine the
benefits customers want and how they perceive the relative
value of competitors' offers.
A market leader has the largest market share in the
relevant product market. To remain dominant, the leader
looks for ways to expand total market demand, attempts to
protect its current market share, and perhaps tries to
increase its market share.
A market challenger attacks the
market leader and other competitors in an aggressive bid for
more market share. Challengers can choose from five types of
general attack, challengers must also choose specific
strategies: discount prices, produce cheaper goods, produce
prestige goods, produce a wide variety of goods, innovate in
products or distribution, improve services, reduce
manufacturing costs, or engage in intensive advertising.
A market follower is a runner-up
firm that is willing to maintain its market share and not
rock the boat. A follower can play the role of
counterfeiter, cloner, imitator, or adapter.
A market nicher serves small
market segments not being served by larger firms. The key
to nichemanship is specialization.
As important as a competitive
orientation is in today's global markets, companies should
not overdo the emphasis on competitors. They should maintain
a good balance of consumer and competitor monitoring.
[2] Marketing, 8/e by Roger A. Kerin; Eric N.
Berkowitz; Steven W. Hartley; & William Rudelius Chapter 2
Developing Successful Marketing and Corporate
Strategies
Kerin
8e Sample Chapter 2 (1703.0K)
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(21 pages)
[3]
On
Competition by Michael Porter Strategy Five
classic factors that
determine your competitive position and corporate strategy
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A company’s profitability depends in part
on the structure of the industry in which it competes. Industry
structure resides in five basic forces of competing: the intensity of
rivalry among existing competitors; the threat of new entrants; the
threat of substitute products or services; the bargaining power of
suppliers; and the bargaining power of buyers. Industry structure is
relatively stable, but industries are sometimes transformed by changes
in buyer needs, regulation, or technology. Companies can shape industry
structure rather than passively react to it.
Profitability is the only reliable measure
of the economic value of a company. Other metrics of performance mislead
investors while producing bad corporate decisions. The Institute, in
collaboration with Professor Anita McGahan at Boston University, has
assembled a large body of data on the performance of all publicly traded
business segments and companies in the United States over the 1981 to
1999 period. This data not only sheds light on the causes of company
performance, but also provides benchmarks for practitioners to compare
performance across companies and industries.
"What Do We Know About Variance in Accounting Profitability?" Anita M. McGahan and Michael E. Porter Management Science
Volume 486, Number 7, July 2002
In this paper, we analyze the variance of accounting profitability among
a broad cross-section of firms in the American economy from 1981 to
1994. The purpose of the analysis is to identify the importance of
year, industry, corporate-parent, and business-specific effects on
accounting profitability among operating businesses across sectors. The
findings indicate that industry and corporate-parent effects are
important and related to one another. As expected, business-specific
effects, which arise from competitive positioning and other factors,
have a large influence on performance. The analysis reconciles the
results of previous studies by exploring differences in method and
data. We also identify the broad contributions and limitations of the
research, and suggest avenues for further study. New approaches are
necessary to generate significant insights about the relationships
between industry, corporate-parent, and business influences on firm
profitability.
Full text of this article is available at
Informs PubsOnline.
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Location, Internationalization, and
Global Strategy
Competition is increasingly crossing
borders. However, location still matters, with the most successful
competitors in an industry often based in the same few geographic areas.
Companies must harness the advantages of locations but compete with a
regional or global strategy.
Corporate strategy refers to the overall
strategy for a diversified company. It is concerned with the mix of
businesses the company should compete in, and the ways in which
strategies of individual units should be coordinated and integrated.
The Internet is a powerful new technology.
The question is not whether to deploy the Internet, but how to
understand its impact on each particular industry and integrate the
technology into overall strategy.
“Strategy and the
Internet”
Michael E. Porter Harvard Business Review, March 2001.
Many of the pioneers of Internet business, both dot-coms and established
companies, have competed in ways that violate nearly every precept of
good strategy. Rather than focus on profits, they have chased customers
indiscriminately through discounting, channel incentives, and
advertising. Rather than concentrate on delivering value that earns an
attractive price from customers, they have pursued indirect revenues
such as advertising and click-through fees. Rather than make trade-offs,
they have rushed to offer every conceivable product or service.
It did not have to be this way—and it does not have to be in the future.
When it comes to reinforcing a distinctive strategy, Michael Porter
argues, the Internet provides a better technological platform than
previous generations of IT. Gaining competitive advantage does not
require a radically new approach to business; it requires building on
the proven principles of effective strategy.
Porter argues that, contrary to recent thought, the Internet is not
disruptive to most existing industries and established companies. It
rarely nullifies important sources of competitive advantage in an
industry; it often makes them even more valuable. And as all companies
embrace Internet technology, the Internet itself will be neutralized as
a source of advantage. Robust competitive advantages will arise instead
from traditional strengths such as unique products, proprietary content,
and distinctive physical activities. Internet technology may be able to
fortify those advantages, but it is unlikely to supplant them.
Porter debunks such Internet myths as first-mover advantage, the power
of virtual companies, and the multiplying rewards of network effects. He
disentangles the distorted signals from the marketplace, explains why
the Internet complements rather than cannibalizes existing ways of doing
business, and outlines strategic imperatives for dot-coms and
traditional companies.
"Q&A: Caught in the Net"
John A. Byrne BusinessWeek, August 27, 2001.
Harvard Business School’s Michael Porter reflects on how companies
misread the first great dot-com wave—and suggests ways the New Economy
may evolve.
European Clusters
Christian Ketels, Harvard Business School, Boston MA, USA
Clusters have become the focal point of many new policy initiatives
in the last few years, in Europe as elsewhere around the globe. The
challenge set out by the Lisbon European Council in 2000 to make Europe
“the world’s most competitive and dynamic knowledge based economy” in
particular has sparked interest in new approaches to economic policy for
competitiveness. Mobilizing the potential of clusters is seen as
critical to reach this ambitious goal.
Michael E. Porter (1998) defines clusters as “geographically proximate
groups of interconnected companies and associated institutions in a
particular field, linked by commonalities and complementarities”.i
Clusters are important,
because they allow companies to be more productive and innovative than
they could be in isolation. And clusters are important because they
reduce the barriers to entry for new business creation relative to other
locations. They
can only play this role, because the firms and institutions in a
particular cluster share four critical characteristics:
• Proximity; they need to be sufficiently close in space
to allow any positive spill-overs and the sharing of common resources to
occur
• Linkages; their activities need to share a common goal,
for example, final market demand, for them to be able to profit from
proximity and interaction
• Interactions; being close and working on related issues
is not enough – for positive cluster effects to occur some level of
active interaction has to be present
• Critical mass; finally, there needs to be sufficient
number of participants present for the interactions to have a meaningful
impact on companies’ performance.
Understanding the importance of these four dimensions is much more
important than defining specific benchmarks along them that a group of
firms and institutions has to meet to be called a cluster.
Interest in clusters has grown because they are a leverage point for
action, not just a description of economic reality. European policy
makers in particular have turned
to cluster policy because of a shift in priorities from macro to
microeconomic issues. Monetary and fiscal policies are increasingly well
understood, and many European countries have made impressive progress in
these areas. But their macroeconomic progress turned out to be only
necessary, not sufficient to achieve higher prosperity. Very targeted
microeconomic efforts – often in a new partnership with
the private sector, universities, and other institutions – are required
to translate the macroeconomic achievements into real productive
improvements in companies. Clusters turn out to be a useful way to
organize these efforts and launch effective action initiatives.
Private sector leaders, too, are getting increasingly interested in the
concept of clusters. The importance of location and locational context
has increased for many of them; in an increasingly global economy, a
company’s location is one of the few sources of differentiation
competitors cannot easily copy.ii Companies are looking to understand
the opportunities that clusters can provide, and many executives see
their active participation in efforts to strengthen their home clusters
as a new and important part of their role.
“Clusters of Innovation”, the title of a project on regional clusters in
the United States,iii has become a particularly popular term among
private and public sector leaders. This reflects the increasing pressure
many U.S. and European
companies and locations face to compete on innovation rather than on
productivity alone. Clusters turn out to provide a particularly fertile
ground for innovations
because they are well aligned with modern innovation processes. In
modern competition, innovation occurs in non-sequential interactions of
different companies, universities, and research institutions – a model
quite different from the traditional model where closed corporate R&D
centers turned universities’ basic research into
applied products and processes. Clusters have already in the past worked
according to the new model, but policy makers and companies not always
understood the opportunities this offered.
The remainder of this article will discuss, first, the available
evidence on clusters in Europe and, second, the efforts to integrate the
cluster perspective into European
economic policy thinking. The article concludes with thoughts on how the
current efforts can be made more effective to increase competitiveness.
Clusters in Europe.
