The purpose of this work is to integrate all the knowledge acquired in the field of competitive strategies into a case, in which the company in question will be analyzed according to all the strategic variables requested to understand globally how companies behave in a Industrial and competitive sector proposed.
competitive-strategiesone)
| Weighted Summary of Commercial Research | |||||||||
| W | T | M | L | C | |||||
| Price | one | one | 1.2 | 1.3 | 1.2 | Price | |||
| Quality | one | two | 2.5 | 1.5 | two | ||||
| Location | 2.6 | two | 2.5 | 2.2 | two | ||||
| Attention | 1.1 | one | 3 | 1.3 | 1.5 | Value | |||
| Brand | 1.3 | 1.5 | 1.2 | 1.3 | one | ||||
| Prestige | 1.1 | one | 1.2 | 1.3 | one | ||||
| W | T | M | L | C | |||||
| Value | 1.42 | 1.5 | 2.08 | 1.52 | 1.5 | ||||
| Price | one | one | 1.2 | 1.3 | 1.2 |
B) The sector tends to high prices since most companies in the sector are located within the range of very high prices (1. 1 on average)
c) The direct rival is T because it is at the same price level and a similar quality.
d) The leadership is given in quality this is reflected in the perceptual quality / price map.
2) A)
| Without W | W | |
| Price | 1.12 | 1.00 |
| Quality | 2.00 | 1.00 |
| Location | 2.18 | 2.60 |
| Attention | 1.70 | 1.10 |
| Brand | 1.25 | 1.30 |
| Prestige | 1.13 | 1.10 |
2 B) W has to slightly increase the price, increase the quality sacrificing a portion of profitability. It must improve in brand quality, prestige and attention to differentiate itself from other companies in the sector.
3 A) Within the primary activities we would work specifically on outbound logistics, marketing and sales and service. On support activities we would work specifically on human resources management, technological improvement. All these improvements imply an extra allocation of economic resources that will be reflected in the drop in profitability that arises in points 5 b.
3 B) SCORECARD BALANCE: INTERNAL STRATEGIC MAP
- FINANCIAL: CLIENTS: INTERNAL PROCESSES: LEARNING AND GROWTH:
4 A) The sector is in a stable situation since, although demand declined after 2003, it stabilized after 2005.
4 B) As W's advisers, we recommend a 25% price increase in order to face the inflationary process (which generates an increase in costs) and the quality improvements proposed in the previous points.
5 A) The sector from the theoretical continues to be attractive. Compared to the market in 2006, we are 1% less profitable, which we believe is not entirely significant or worrisome enough to withdraw from activity. Our financial objective for the following cycles will be to increase profitability above market and, of course, competitive sector returns.
5 B) The decrease in profitability is due to internal causes, since the same behavior is not seen in the market as in companies in the sector. The low perception of the offered value generated in our company a decrease in sales, directly reflecting profitability.
5 C)
The strategy to follow is (varies according to the year we evaluate)
2005: aes: 4/5: 0.8
Dce: 5/4: 1.25
Strategy to follow: harvest
2006: aes: 4/5: 0.8
Pce: 4/4: 1
Strategy to follow: limit between harvesting and liquidating, we recommend developing the highest quality product according to what was stated in previous points.
6) W agrees to enter.
I = INCOME; NI = NOT ENTER
6 A) wi: 1,5 - Ti: 1
Wni: 0-Ti: 1,2
Ti: 1,2 - Wi: 1
Tni: 0 - Wi: 1,5
Wi: 1.5
Ti: 1,2
6 B) it is verified that there is a prisoner's dilemma, since it is convenient for the two companies to enter, obtaining in the case of T: 1.2 of market share and W: 1.5 of market share.
7) BLUE OZEAN strategy:
The basis of this strategy is that companies would have to stop competing with each other. The only way to beat the competition is to stop trying to beat it. There are two kinds of oceans, the red ones that represent all the industries of today, while the blue ones represent all the industries that do not currently exist. It is the unknown space of the market in the blue oceans. Competition loses validity because it is a new sector. In short, finding the blue ocean is the ability to create new spaces without competition, innovation in value and without turning on victory over competition, which is the axis of the red ocean. There is innovation in value only when the company manages to align the profit system, price and cost activities,that is, all the functional and operational activities of the company.
In this sense, innovation in value is more than traditionally known innovation.
In the red oceans, companies compete with each other for a bigger market share, as this market saturates, the available profit margins decrease
The strategy of the red ocean versus the blue ocean
| Red ocean strategy | Blue ocean strategy |
| Compete in existing market | Create a market without competition |
| Beat the competition | Competition doesn't matter |
| Exploit existing demand | Create and capture new demand |
| Choose between value or cost | Break that choice |
| Align your activities according to the strategic decision to generate value or reduce costs | Align your entire system to achieve differentiation and low cost |
The 6 principles of the blue ocean strategy:
Principles of formulation:
- Reconstruct the boundaries of the market Focus on the global perspective, not on the figures Go beyond the existing demand Develop the correct strategic sequence
Principles of implementation:
- Overcome key organizational hurdles. Incorporate execution within strategy.
8) All the games are characterized by having similar structures made up of the players, the available strategies and the returns that the players obtain when playing. Nash's concept of equilibrium offers an attractive solution to a game in which the choice of strategy by each player is optimal given the choices of other players. However, not all games have a unique Nash equilibrium.
9) Competitive strategy is the search for a favorable competitive position in the sector through the creation and maintenance of a competitive advantage. Establishing the attractiveness of the industrial sector and our relative competitive position is what makes choosing a challenging and exciting competitive strategy.
While the attractiveness of the sector is partially a reflection of factors over which the company has little influence, the competitive strategy has considerable power to make the sector more or less attractive. Therefore, it not only responds to the environment but also tries to shape the environment in favor of the company.
The 5 competitive forces (the entry of new competitors, the threat of substitute products / services, the bargaining power of buyers, the bargaining power of suppliers and the rivalry between existing competitors) are what determine the attractiveness of the sector. and their root causes and identify three broad generic strategies for achieving competitive advantage.
Although a company can have millions of strengths and weaknesses compared to its competitors, there are two basic types of competitive advantages that a company can possess: low cost or differentiation.
The two basic types of competitive advantage combined with the landscape of activities for which a company seeks to achieve them lead them to three generic strategies for achieving above-average performance in a sector: cost leadership, differentiation, and focus.
Each of these generic strategies implies a different route to competitive advantage which in turn depends on the strategic target landscape. Cost leadership and differentiation strategies seek competitive advantage in a wide range of industry sectors, while focus strategies seek to achieve this in a narrow segment.
The idea behind the concept of generic strategies is that competitive advantage is at the core of any strategy, and achieving competitive advantage requires a company to make a choice about the type of advantage it seeks to achieve and the landscape within which you'll make it.
Faced with the five competitive forces, there are three generic strategies of potential success to perform better than other companies in a given sector:
- Overall cost leadership Differentiation Approach or high segmentation Total cost leadership
It consists of achieving total cost leadership in an industrial sector through a set of policies aimed at this basic objective. Cost leadership requires aggressive construction of facilities capable of producing large volumes efficiently, vigorous efforts to reduce costs based on experience, rigid cost controls and indirect costs, avoiding marginal accounts, and minimizing costs such as R&D, service, sales force, advertising, etc. This requires strong administrative attention to cost control to achieve these ends. The low cost with quality, service and other areas cannot be ignored.
Having a low cost position, the company achieves higher than average returns in its industrial sector, despite the presence of intense competition.
- Differentiation.
It consists of creating something that is perceived in the market as unique. Differentiation methods can take many forms: brand or image design; in technology, very particular characteristics, in customer service, distribution chain or in other dimensions.
It must be stressed that the differentiation strategy does not allow the company to ignore costs, but rather these are not the primary strategic objective.
Differentiation is a viable strategy to earn higher than average returns, since it creates a defensible position to face the five competitive forces, although in a different way from cost leadership. Differentiation provides an insulation against competitive rivalry. It also increases profits, which avoids the need for a low cost position.
Differentiation produces higher margins to deal with supplier power and clearly mitigates buyer power, as buyers lack comparable alternatives and are therefore less price sensitive.
- Focus or high segmentation:
It consists of focusing on a particular group of buyers, on a segment of the product line or on a geographic market; Like differentiation, the approach can take several forms.
It is built to serve a particular goal very well and each functional policy is formulated with this in mind.
Even though the approach strategy does not achieve low cost or differentiation, from the perspective of the market as a whole, it achieves one or both of these positions against the objective of its limited market.
The approach strategy always implies certain limitations regarding the total market share to be achieved. The approach necessarily involves a trade-off between profitability and sales volume.
CAUGHT IN HALF
A company that is "caught in the middle" is one that fails to succeed in any of the generic strategies it seeks to achieve, and therefore has no competitive advantage. A company in this situation will compete at a disadvantage against a cost leader, a differentiator or a focuser who will have a better position to compete in any segment. If a half-trapped company discovers a lucrative product or a buyer, competitors with a sustained competitive advantage will quickly eliminate it.
The only two ways for a company caught in the middle to survive making profits is in the face of a highly favorable industrial sector or if it coincides in a sector where all the competitors are caught in the middle. However, normally a company like this will be much less lucrative than those rivals who manage to achieve one of the generic strategies.
Being stuck in the middle is often the manifestation of a company's refusal to make choices about how to compete. It seeks competitive advantage by all means and fails to achieve it, since achieving different types of competitive advantage usually requires inconsistent action.
The temptation to tarnish a generic strategy, and thus get caught in the middle, is particularly great for a focuser once he has mastered his target segments. The approach involves deliberately limiting potential sales volume. Success can lead a focuser to lose sight of the reasons for his success and compromise his focus strategy for growth. Rather than compromising its generic strategy, a company is often in better circumstances by finding new industry sectors in which to grow and be able to reuse its generic strategy or exploit the interrelationships.
10) Segmentation of the industrial sector and competitive strategies
- Focusing on one segment or group of segments is not enough to achieve a competitive advantage. Segments should include buyers with different needs or demand a different value chain than the one that serves other segments. Identifying a new way of segmenting an industry can be a great opportunity to design a concentration strategy.
If a company is the first to identify a major segment, it can anticipate the others and gain a sustainable competitive advantage.
+ a wide scope does not necessarily provide a competitive advantage when there are many segments in the industry. Since a company with a wide scope to achieve a sustainable competitive advantage, it must have above average returns in both segments.
Broad-reaching companies serving many segments are often exposed. So concentrating on certain segments improves profitability, reduces vulnerability and eliminates unattractive or profitable segments.
The relevant segments must be constantly monitored.
Technology must be taken with special attention since it can alter the traditional form of concentration or broaden the scope of industries.
11) Strategic groups and bargaining power:
These groups will have different possibilities of power against suppliers and buyers for two groups of reasons, their strategies may expose them to different degrees of vulnerability to common suppliers or buyers or their strategies may involve dealing with different suppliers or buyers with different levels of negotiation.
Strategic groups may also be threatened by substitutes and competition.
The presence of various strategic groups will often affect the overall level of rivalry in the sector, as it implies greater diversity or asymmetry between companies in the industrial sector. The industrial sector with many strategic groups will tend to be more competitive.
When the strategic groups are oriented to very different segments, their interest and effect on each other will be less severe. Another key factor influencing rivalry is the degree of product differentiation.
When there are group numbers, which implies a great diversity, it would often provoke many attacks on competition, for example low prices.
A group will be more exposed to rivalry if it competes for the same segments with similar products, with a similar organizational size. The group that manages to survive the outbreaks of war is generally the group that manages to make quite a difference in its products as it targets different markets.
In summary, strategic groups affect the pattern of rivalry within the industrial sector.
Strategic groups and the profitability of a company:
Determinants of the profitability of a company:
- Common characteristics of the industrial sector: growth rate of demand, potential for differentiation, technology, All these elements set the context of competition for all companies in the sector. Characteristics of the strategic group: mobility barriers, bargaining power of groups with Clients and suppliers, vulnerability of groups to substitutes and to competition with other groups. Position of the company within its strategic group: degree of competition within the group, the scale of the company, cost of income, strategic ability of the company..
Not all companies that follow the same strategy will necessarily be profitable, companies that have superior implementation skills will be more profitable. The company will be more profitable if it is in a favorable sector, in a privileged strategic group and if it has a strong position in its group. The attractiveness of a group is preserved because of barriers to mobility.
Success strategies can be based on a wide variety of barriers to mobility or on methods of coping with competitive forces. Guerrilla warfare between strategic groups usually generates a reduction in profitability in companies in the industrial sector.
Are large companies more profitable than small ones? This answer will differ according to the sector, the arrangement of the mobility barriers and the specific characteristics of the industrial sector.
12) A business strategy is a coordinated set of action programs aimed at ensuring a sustainable competitive advantage.
Process to formulate the business strategy.
- Identify the positioning of the business according to the attractiveness of the industry / strength of the business. A matrix is used to determine a generic strategy, that is, a course of action consistent with the attractiveness of the industry and the strength of the business within that industry. Definition of general action programs: it is the equivalent of strategies and tactics in military contexts. They are basically lines of action in which the main objectives to be achieved in each item are determined. In point three the specific action points are a path towards achieving those proposed objectives. Defining specific action programs: These are tangible short-term tasks that can be precisely identified, controlled and evaluated.
Preparation of the budget and programming of strategic funds. Budgets represent projections of income and costs that normally cover one or more years. Strategic funds are items of expenditure required for the implementation of strategic action programs whose benefits are expected to be accumulated in the long term. The strategic funds contribute to the improvement of the future capabilities of the company. Strategic funds are defined when we assign the costs associated with each specific action program.
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