Reply to Dale: Introduction
Competition is at the core of the success or failure of firms. Competition determines the appropriateness of a firms activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation. Competitive strategy is the search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. A firm is described as having a competitive advantage when it successfully attracts more customers, earns more profit, or returns more value to its shareholders than rival firms do. A firm achieves a competitive advantage by adding value to its products and services or reducing its own costs more effectively than its rivals in the industry.
Economists seem to have two situations in mind when they speak about competition. The first is where there are many producers, each one assuming that his influence on market price is negligible and determining his output accordingly. No producer has any interest in restricting his output below the point at which marginal cost equals price and total output is in this sense optimal. Also in the second sense, competition refers to the process whereby producers develop and market new products and lower costs by improving their methods of production (Competition, 2020). It is an agreed fact among many that competition is good for a business.
Process: Deciding on a Competitive Approach
Deciding on a competitive approach for the company is critical to the process of developing a companyâs strategy. Careful consideration must also be given to the companyâs competitive scope. Decision models continue to impact strategy development and should continuously be evaluated, and others considered. Porter (1985) proposed three approaches to competitive strategy: cost leadership strategy, differentiation strategy, and focus/niche strategy. Essentially, cost leadership means an SME supplies goods and services at a cost lower than the competition (Pulaj et al. 2015). In the same breath, cost leadership does not necessarily compromise the quality of the products/goods/services that the SME provides.
Also, the literature speaks to the role of employees in deciding on a competitive approach. Employees play a crucial role in organizational performance, and no organizational capability is created without appropriate human infrastructure. Therefore, the organizations ability to manage human resources is essential for forming other capabilities and its competitive advantages. It is critical that it can make the human resources unit a strategic partner of the organizations business. However, it seems that there is a problem in the way of participation of these units in developing organizational capabilities. On the one hand, the CEOs of organizations complain that the human resources unit is not a strategic business partner.
In business, a term sustainable advantage means the competitors cannot duplicate the resources underlying the advantage. Wealth increases with increase in competitive advantage or with the increased demand of scarce resources. In short, one can get wealthier by strengthening a competitive advantage. The advantaged position can be attained by a firm in two ways. The first is by doing innovation and the second is to exploit a wave of change, which is beyond the control of an organization. This change can be due to number of factors such as shift and advancement in technology, cost, competiton, politics and perception of buyers (.
Strategic Thinking: Deciding on Competitive Scope
An organizationâs competitive scope has been defined as a function of the number of value chains (distinct but interrelated) in which the organization is engaged. The competitive scope is classified as broad scope and narrow scope. The broad scope normally involves engaging in cost leadership or differentiation strategy. The narrow scope involves getting into focused strategy where focus can be on cost leadership or on differentiation strategy. Competitive scope can have a powerful effect on competitive advantage because it shapes the configuration and economics of the value chain. There are four dimensions of scope that affect the value chain. The link between scope of strategies as an aspect of strategic change and organizational performance has not been the subject of much attention as some important areas are underexplored in the relationship between strategic change and performance.
Having a broad scope can allow a firm to exploit the benefits of performing more activities internally. It may also allow the firm to exploit interrelationships between the value chains that serve different segments, geographic areas, or related industries. But sharing and integration have costs that may outweigh the benefits. Having a narrow scope can allow the tailoring of the chain to serve a particular target segment, geographic area or industry, to achieve lower cost or to serve the target in a unique way. A narrow scope in integration may also improve the competitive advantage by enab
ling a firm to purchase or perform better or cheaper. It is important to note that a firm can pursue the benefits of a broader scope independently or enter into coalitions with independent firms to achieve some or all of the same benefits. Examples of coalitions include technology licenses, supply agreements, marketing agreements and joint ventures.
Geographic Scope
Geographic Scope is the range of communities, regions, or countries in which a firm competes with a coordinated strategy. Geographic interrelationships can enhance competitive advantage if sharing or coordinating value activities lowers costs or enhances differentiation. For example, a bookstore might differentiate itself by researching and stocking foreign titles, winning sales locally as well as across a larger geographic area.
The theory maintains that firms incrementally increase their geographic scope and level of commitment (e.g., the level of ownership) through evolutionary process (Vahlne, Ivarsson, & Alvstam, 2018). Indeed, studies show that firms prefer trade and investments in markets geographically, economically, and culturally like their home country in their early stages of internationalization. The theory was revisited and replace the liability of foreignness with the liability of outsider ship by accommodating the importance of network relationships and the knowledge generated from these relationships in current business. Kim and Aguilera (2015) extend the internationalization theory in a semi-globalized world where both country- and regional-level factors determine firm internationalization.
Production / Distribution Scope
Production scope refers to the characteristics and functions of a product or service. These characteristics include physical features such as size and materials, as well as functional specifications. Functional considerations include what the product is designed to do and its purpose or end-use. Segment Scope is the product varieties produced and buyer types served. On the other hand, distribution scope distribution refers to the offering a product in a variety of ways such as advertising, direct sales, placement advising to urge the client to accept it. Distribution is thus not limited to recommending a given product to a client to urge him or her to accept it.
The literature reveals that the two most important approaches toward the diversification strategy for suppliers are extending âproduct scopeâ (product range) and âcustomers scopeâ (customer reach) within the same industry. Studies revealed that classify new business along the dimensions of both product scope and customer scope into existing and new, resulting in a total of five categories, which were then analyzed to explore the relationship with the duration of the business. Findings revealed that relationships endure the longest and have the highest probability of continuing for the new customer/existing product category, that is, providing existing products to new customers (Konno, 2017).
Decision Model
To address the competitive scenario, the Stop Rule is being recommended as it is an universally applicable alternative to the often-tortuous process of weighing up a situation and deciding which direction or choice to make. It is a cognitive tool for deciding whether to continue or stop an action based on the present information, process, and past events. This would be an ideal tool for evaluating the external environment as it would allow for an opportunity to stop and recess. It a rule that says at this point it is time for management to stop. It breaks the reverie and makes you think of something else; it gets you outside of the space you have been in. Ambiguous data or information at the start of the companyâs direction with strategy requires some early risk decision making to determine the possible four alternative strategies in the SWOT analysis matrix; it seems the consequences and the yes and no rules models provide the best methods for quick answers (Krogerus et al., 2018).
Another decision model that could be used is the buyerâs decision model which allows for a decision to be made about how to create competitive advantage by looking through the eyes of the consumer (Krogerus et al., 2018). To succeed in predicting a competitorâs next strategy, company strategies need to have a good understanding of each rivalâs current strategy. The buyerâs decision model considers research, lower expectations, the future consequences of the decision, and the option to let someone else decide (Krogerus et al., 2018).
Conclusion
Gamble et al., (2019) suggests that implementing and executing strategy for competitive purposes should be an operational driven strategy revolving around the management of people and business processes. The process should be on converting strategic plans into actions and good results. The execution of the strategy by management will be considered successful when the company achieves the targeted strategy and financial performance and shows great progress in making the strategic vision a reality. It is when this occurs that it could be concluded that it is braced to deal with the competitive environment.