In a company, leader have to ensure all participants are heading in the right decision and completing their goals and objectives. To do so, leaders should communicate effectively and execute business strategies.
A business strategy is a leadership plan that
achieves a specific set of goals or objectives. Business strategies that
match core company competencies to opportunities result in competitive
advantages, a key to success! A competitive
advantage is a feature of a product or service on which customers place a
greater value than they do on similar offerings from competitors. When a
company is the first to market with a competitive advantage, it gains a
particular benefit, such as Apple did with its I Pod. This first-mover advantage occurs when an organization can significantly
impact its market share by being first to market with a competitive advantage.
Organizations watch their competition through environmental
scanning. Environmental scanning is the
acquisition and analysis of events and trends in the environment external to an
organization. Three common tools
used in industry to analyze and develop competitive advantages include:
- Porter’s Five Forces Model
- Porter’s three generic strategies
- Value chains
The Five Forces Model – Evaluating Industry Attractiveness
Three common tools used in
industry to analyze and develop competitive advantages.
Buyer Power
Buyer power is the ability of buyers to affect the price they must pay
for an item. It is high when buyers have many choices of whom to buy from
and low when their choices are few. One way to reduce buyer power is through
loyalty programs. Loyalty program which rewards
customers based on the amount of business they do with a particular organization.
Supplier Power
Supplier power is the suppliers’ ability to influence the prices they
charge for supplies. Supplier power is high when buyers have few choices of
whom to buy from and low when their choices are many. Supply chain consists of
all parties involved in the procurement of a product or raw material or a
product.
Organizations that are buying
goods and services in the supply chain can create a competitive advantage by
locating alternative supply sources (decreasing supplier power) through B2B
marketplaces. Business-to-Business (B2B)
marketplace is an Internet-based service that brings together many buyers and
seller. Two types of business-to-business (B2B) marketplaces are private
exchange and reverse auction. Private
exchange is a single buyer posts its needs and then opens the bidding to any
supplier who would care to bid. While, reverse
auction is an auction format in which increasingly lower bids are solicited
from organizations willing to supply the desired product or service at an increasingly
lower price.
Threat of Substitute Products or Services
Threat of substitute
products or services is high when there are many alternatives to a product or
service and low when there are few alternatives from which to choose. Switching
cost is costs that can make customers reluctant to switch to another product or
service.
Threat of New Entrants
Threat of new entrants is high when it is easy for new competitors to
enter a market and low when there are significant entry barriers to entering a
market. Entry barrier is a product
or service feature that customers have come to expect from organizations in a
particular industry and must be offered by an entering organization to compete
and survive.
Rivalry among Existing Competitors
Rivalry among existing competitors is high when competition is fierce
in a market and low when competition is more complacent. Although
competition is always more intense in some industries than in others, the
overall trend is toward increased competition in just about every industry. Organizations
typically follow one of Porter’s three generic strategies when entering a new
market.
Porter's 3 generic strategies
1. Cost Leadership
- Becoming a low-cost producer in the industry allows the company to lower their prices to customers.
- Competitors with higher costs cannot afford to compete with the low-cost leader on price.
- Create competitive advantage by distinguishing their products on one or more features important to their customers.
- Unique features or benefits may justify price differences or stimulate demand.
- Target to a niche market.
- Concentrates on either cost leadership or differentiation.
Value Creation
Once an organization chooses its strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy. Business process is a standardized set of activities that accomplish a specific task, such as processing a customer’s order. Value chain is views an organization as a series of processes, each of which adds value to the product or service for each customer. Combining Porter’s Five Forces and three generic strategies create business strategies for each segment.
Value Chain
Customers determine the extent to
which each activity adds value to the product or service. The competitive
advantage is to:
- Target high value-adding activities to further enhance their value.
- Target low value-adding activities to increase their value.
- Perform some combination of the two.
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