Crafting Competitive Advantage: Navigating Strategic Management and Business Strategy

Abstract

Competitive Strategy/Strategic Management And the BUSINESS STRATEGY TEMPLATE MGMT 475 WB1 KEY CONCEPTS/TERMS STRATEGYTACTICSCOMPETITIVE STRATEGY CORPORATE STRATEGYFUNCTIONAL STRATEGYSTRATEGIC ALIGNMENT/FIT STRATEGIC MANAGEMENTCOMPETITIVE ADVANTAGEDISTINCTIVENESS PRODUCT FOCUSGEOGRAPHIC MARKET FOCUSTARGET CUSTOMERS VALUE PROPOSITIONBUSINESS MODEL Strategy: In the broadest sense, a strategy is a plan (i.e. set of interrelated choices) for achieving desired outcomes or goal. When strategy is planned, it is termed ‘deliberate’; if not planned but seen through choices and actions, it is referred to as emergent. For any single, specific desired goal, a person or entity has only ONE STRATEGY. But, a firm has many levels and layers of different objectives. Each division, department, team, functional area, etc. will have their own specific goal. Thus, within a firm there is a set of different strategies operating across levels and segments of the organization. HOWEVER, we are focusing on the entire firm…the entire enterprise. The desired outcome of a commercial firm is to achieve and sustain competitive advantage, that is, superior long-term economic performance. That outcome is the focus of the discipline of strategic management. That is, strategic management refers to managing the choices and variables relevant to achieving and defending a sustained (long-term) competitive advantage, which again is observed by sustained superior performance compared to peers (industry average). There are multiple levels and types of strategy that are distinct when talking about business enterprises. Competitive strategy is the set of choices made or actions taken directed at successfully compete in a specific industry (product-market). It represents a firm’s intended means of achieving competitive advantage in their specific market or industry. It should be obvious, then, that for a firm’s strategy to be considered successful (i.e. achieve superior results as compared to its rivals), a firm’s strategy must involve something distinctive. The firm must attract customers away from its rivals and do so in a way to capture value and reinvest in staying ahead of competitors. Successful firms have or do something different that is meaningful, valuable, and defensible. Corporate strategy refers to the choices and actions to manage two or more distinctive business units within the same firm, each with a different competitive strategy. For example, General Electric competes in the wind turbine industry, the locomotive engine industry, the medical equipment industry, etc. Each business unit has a competitive strategy for its specific product-market. Overall, however, GE has a corporate-level strategy on how to manage this portfolio of businesses. The aim of corporate strategy is to optimize the performance of the combined portfolio. Thus, corporate strategy involves decisions about what businesses to be in, how to allocate resources across units, how to create and exploit synergies across units, etc. Functional-level strategies are specific to the aims of an individual functional department (such as marketing or human resources). For example, to support the overall competitive strategy of Starbuck, the Human Resources department might have a strategy to attract, develop, and retain high quality baristas and store managers. The marketing strategy may focus on building brand recognition and customer loyalty. Each functional area of a firm plays a distinctive role, and each therefore has a specific purpose and aim it is trying to achieve to support the overall performance and goal achievement of the firm. Thus, each has a strategy for achieving their functional goal. In this capstone, integrate course, we will focus of competitive strategy. That is because all firms have competitive strategies, but not all have corporate strategy – because most businesses only operate in one product-market. On the other level, functional strategies are not individually relevant when we are wanting to understand the firm as an integrate, holistic system. We need to know what functional strategy as a concept means, but we will not be analyzing or developing functional strategies. Thus, for our purpose and focus, a firm’s competitive strategy is a set of choices made with the intention of delivering value to a market in a way to achieve sustainable (i.e. long-term) superior performance … i.e. how a firm intends to compete against its rivals and achieve lasting success. Tip / Reminder: OK….so we are talking about ONE entity (the firm) that has ONE prime objective (competitive advantage). When we are talking about a firm (or a division of a firm) that is competing in ONE specific industry, therefore, there is only ONE Competitive Strategy. So be careful here…. don’t say “one of the firm’s strategies to compete is….”. That isn’t correct – the firm has only one strategy to compete is a specific market. Strategic Choices vs Tactical Moves Any strategy is just a set of choices, a plan, an intention on how to go about achieving the goal. To implement those choices requires identification and execution of a variety of tactics. For example, a steakhouse restaurant chooses to compete by offering only the highest quality, natural fed beef cooked by master chefs. They are positioning themselves to offer superior quality. That positioning is part of their competitive strategy. But that is just a choice; so how to they make that choice real? They must make and act on tactical factors such as: finding and contracting with wholesale suppliers of the desired quality of beef; hiring and managing superior quality chefs and cooks who are experts with steaks; they must use marketing and promotion to communicate their position against other steakhouses. Tactical actions are at a level lower than strategic choices. Tactics are the activities necessary to turn the choices of a strategy into the desired reality. Choices, the elements of strategy, point a direction for the whole firm. The time frame is long-term and the choices ripple through and affect multiple areas of the organization. Tactics, the actions to implement the chosen strategy, are short-term. Tactics are specific action plans isolated to specific departments, teams, or even to single individuals. If tactics are not working as hoped, it is generally easy to stop and make changes. Take advertising. A firm chooses the tactic of radio advertising to support its chosen brand position. They find, however, that the message isn’t reaching the right people. Thus, they stop advertising on radio and switch to using targeted web advertising and Google search listings. Once a firm gets moving toward a chosen strategy, however, it is difficult to change the main strategic choices quickly or easily. There is a whole organization of people and activities and investments already moving in one direction. Plus, implementing a given competitive strategy involves significant investments. A firm hires certain people, buys certain equipment, chooses locations, and branding all based on one set of strategic choices. So, changing competitive strategy can require time, capital, and RISK. Summary: STRATEGIC: Choices on how to compete; Long-term; Firm-wide; Costly; Risky; Difficult to change TACTICAL: Action to implement the strategic choices; Near-term; Isolated; Can stop and change more easily. ** NOTE: Operational Effectiveness is not strategy (for more info is you’d like, see: Porter, M.E. "What is Strategy." 1996. Harvard Business Review, 74.6; Pages 61-78.) Strategy is very different than managing toward effectiveness and efficiency. Those two operational goals are the everyday focus of management. Strategic management is focused with the firm-level choices and configuration of the organization intended to achieve long-term performance goals. All firms strive for operational excellence (e.g. reducing costs, getting lower prices from suppliers, improving sales, etc.). Because every firm pursues such goals, these factors can rarely provide a source of a sustained competitive advantage. A successful competitive strategy, therefore, must involve some uniqueness when compared to the firm’s rivals. For a firm to achieve a sustained competitive advantage, therefore, their competitive strategy must have unique and meaningful elements that distinguish it from competitors. Strategic Alignment/Fit STRATEGYSTRATEGYRES & CAPsRES & CAPsPERFORMANCE=+PERFORMANCE=+EXTERNALEXTERNAL STRATEGY STRATEGY RES & CAPs RES & CAPs PERFORMANCE=+ PERFORMANCE=+ EXTERNAL EXTERNAL The Basic Model of Strategic Alignment For a strategy to be successful, it needs to align with and fit (i.e. address and account for) the demands of the market in which the firm competes. This external market is made up of customers, competitors, substitute goods/services, institutional constraints (e.g. laws and regulations), and suppliers. (We will study this more soon). The nature of the external market dictates that certain elements of a firm’s competitive strategy may not work. For example, if the customers in a market demand the latest innovative features, a competitive strategy of offering lower priced goods by sticking to old, standardized product designs won’t work very well. If all the buyers in a firm’s market are shifting to online purchases, opening a store at the mall isn’t a good choice. There are always many combinations of strategic choices that can be successful, but just as there can be elements that will not work, there are also...