Will data transform competitive strategy?
(A) Argue that competitive strategy, from the point of view of Michael Porter, is vital for firm success (hence Philip Evans is not right in arguing that strategy is invalid).
- What is Strategy?
Before explaining the idea of strategy, it is essential to highlight the word "Value Proposition". A value proposition is a thirty-second "elevator talk" stating the specific benefits a product or service offering provides a buyer. It answers why the merchandise or service is superior to competing offers. So, the value proposition becomes a crucial part in shaping strategy ("Principles of Marketing", 2015).
Strategy is often misinterpreted with dreams, actions, and eyesight of the organization. It really is interesting to notice that lots of people say that it's our strategy to be #1 1 or it is our technique to develop, our strategy is to do international business, etc. but these are not strategies. Strategy identifies the company's distinctive method of competing and competitive advantages on which it'll be based.
Thinking strategically is the starting place to the organizations' success. The organizations try to be the best in the market, whether it be the best car, the best toothpaste, or anything for example, but this is the worst problem that organizations make. They make an effort to compete in the same sizes. Instead, they need to try to be unique.
- The process of strategic planning
Strategic planning is an activity that helps an organization allocate its resources to capitalize on opportunities in the marketplace. Typically, this can be a long-term process. The tactical planning process includes performing a situation examination and expanding the organization's mission statement, targets, value proposition, and strategies ("Principles of Marketing", 2015).
A situational analysis includes analysis of both inner and exterior factors. Organizations conduct SWOT analysis based on this situation examination. The advantages and weaknesses depend on the internal factors whereas the opportunities and risks rely upon the exterior factors. Once a company has analysed its inside and external surroundings, managers can commence to decide which strategies are best, given the firm's quest statement. That is a very broad model but Michael Porter came up with a better model to make this strategy clear.
- Competitive strategy: essential for success of the firm
A company's economic performance results from two different triggers, one being the industry structure and other strategic placement within the industry. Proper thinking must encompass both these factors. Michael Porter developed an approach for analysing market sectors and the model was called the "Five Forces Model" (Porter, 1980). This model helps the organizations to recognize their current opponents as well as those who is able to be competitors in the foreseeable future and firms can find the ultimate way to position themselves in the industry. The second part in strategic thinking is the proper positioning this means attaining superior performance in a industry. Only two ways can perform profitability; when you are able to demand an increased price(differentiation) or by being in a position to produce an comparative product at lower cost. So, the firm needs to identify its root to competitive advantage.
With this comes the idea of value string. Value chains is the set of activities that the business does to provide value to the customers. All competitive advantage resides in the worthiness chain. Strategy is manifested in selections about how exactly activities in the value chain are configured and connected together.
Often, operational success is presumed to be always a strategy but it isn't a strategy. Though it is essential but it not sufficient for the business to be profitable eventually. It is because over long run, the competitors will figure out the business's best practice and then it'll be hard to be distinctive. That is also called proper convergence which brings about lower prices and no one is profitable, all make an effort to stay in the overall game. Therefore, the company should consider tactical positioning since it presumes that the business is operationally effective. It is about making options to be unique, to vary to meet different must the group of customers that the business chooses to focus on.
- Some types of competitive strategy
This portion of the paper illustrates samples for both industry composition and strategic positioning within an industry, which are essential for the success of the organization.
- Airline industry vs Business Software industry
Michael Porter provides an example of the industry framework using the "Five Pushes Model" (Porter, 1980). He clarifies that for any industry to realize average level of profitability, it is vital to understand the fundamental structure of forces.
The airline industry has horrendous success since decades because of unattractive industry composition. It's very easy for customers to switch airlines; the airframe and engine manufacturers also have a lot of ability and there are high degrees of rivalry because of costs being set. Many few airlines generate profits and even they don't make it for a long time.
Business software industry, on the other palm, has a very attractive industry composition. This is because it becomes very hard for the customers to switch from one software to the other. The costs of producing a software and bringing it up is also high, so there are very little substitutes. This makes the program industry very profitable.
This is not arbitrary and it is very important for the industry to understand the underlying structure to make revenue and succeed.
- IKEA: Furniture Retailer Company
This example portrays all important capabilities a company must cover to create a successful strategy. The 1st attribute is to truly have a unique value proposition, i. e. , who are your visitors, what exactly are their needs and what comparative price you must offer. A technique is when a company competes to be unique. The worthiness proposition of IKEA includes customers who seek quality and complex design but at an extremely low price point. They may have several stylish and space effective furniture. They made many key options in the worthiness chain to be unique, and that is what a strategy is, a combination that suits your company's value proposition. IKEA offers its products in a package, there is no predetermined furnishing, everything is dismantled and crammed small in a field. Another attribute to strategy is to make clear trade-offs and choosing what not to do. Element of a successful strategy is a company cannot seek to make everyone happy, it must choose its target market and focus on their needs rather than compromising on certain factors to include everybody. Michael porter also makes it clear a company shouldn't imitate IKEA because in this manner, it might be altering the advantages it has. No one can imitate them because strategy is about making alternatives and tying them collectively to benefit the organization. Another feature to a successful strategy is the way the activities in the worthiness chain are connected. Like in IKEA, all its activities are mutually linked, their design, production, the way they do logistics, etc. This is another reason no person can copy a good strategy because to the everything must be copied which won't work because the company from whom you'll be copying, does that for a long period now. The final attribute which makes a successful strategy is the fact that change is ongoing however, not change in strategy, not change in value proposition.
All the above examples and principles clearly indicate that a strategy is often misinterpreted with a firm's aspirations, visions, and actions. A strategy is the means to get to those aspirations, it's the core knowledge of distinctive issues, it is the set of selections a firm makes to deliver those values. Pondering strategically methods to remain competitive to be unique and not the best. Strategy is about making selections, and with choices comes trade-offs.
A good strategy is a unique set of options made from the worthiness string that Michael Porter has unveiled and a competitive strategy contributes to a firm's success.
Phillip Evans mentioned his point of data overtaking strategy but even he is not sure from it. He quotes "value string can breakup however, not necessarily". His views are based on assumptions whereas Porter's view proves that competitive strategy is essential for the firm's success. Moreover, data can help a company to increase its potential for competitive benefit, but Porter's value chain is very important to a firm to choose the combination of selections to make to use its competitive benefit in the right direction to achieve success.
Therefore, it is noticeable that Competitive Strategy, from the perspective of Michael Porter is essential for company success.
- Principles of Marketing (2015). College or university of Minnesota Libraries Publishing edition.
- https://youtu. be/KvYwKM5bY0s
- http://www. ted. com/talks/philip_evans_how_data_will_transform_business
- http://www. ifm. eng. cam. ac. uk/research/dstools/porters-generic-competitive-strategies/
- http://www. investopedia. com/terms/v/valueproposition. asp
- https://www. information-management. com/opinion/big-data-and-analytics-help-business-transform-and-gain-competitive-advantage
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