Strategic Management for Competitive Advantage in Business
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1. Definition and Importance of Strategy
- Definition: Strategy is a firm’s theory on how to gain a competitive advantage by creating value that differentiates them from competitors.
- Importance for Small Businesses:
- Enables navigation in competitive markets.
- Encourages innovation and long-term growth.
- Helps achieve profitability and economic diversification.
- Example:
Eisner's Strategy: Focused on extraordinary entertainment to attract premium-paying customers.
2. Strategic Management Process
The strategic management process is a systematic approach to achieve organizational goals.
Key Steps:
- External and Internal Analysis:
- External: Identify opportunities and threats (e.g., social trends, technology, and demographics).
- Internal: Assess strengths and weaknesses (e.g., human resources, capabilities).
- Strategic Choice:
- Decide which strategies best align with organizational goals.
- Strategy Implementation:
- Assign roles, create structures, and execute the chosen strategy.
- Performance Evaluation:
- Monitor results and adapt strategies as needed.
- Example:
Facebook: Leveraged its resources to create a user-friendly platform, adapting to trends like mobile technology.
3. Competitive Advantage
- Definition: The ability of a firm to create more economic value than competitors by doing something different or better.
- Types:
- Preference-Based: Customers prefer the product due to quality or uniqueness.
- Example: Nordstrom's superior customer service.
- Cost-Based: Offering goods/services at a lower cost.
- Example: Walmart's efficient supply chain.
- Preference-Based: Customers prefer the product due to quality or uniqueness.
- Sustainability:
- Temporary: Competitors eventually imitate or innovate better offerings.
- Sustainable: Built on hard-to-imitate resources like unique tech or brand reputation.
- Example:
Apple: Maintains a preference-based advantage through innovation and strong brand identity.
4. Measurement of Competitive Advantage
Competitive advantage is assessed through two primary methods:
- Accounting Measures:
- Metrics: Return on Assets (ROA), Return on Equity (ROE), Return on Sales (ROS).
- Comparison: Performance versus industry averages.
- Economic Measures:
- Focus: Long-term returns exceeding the cost of capital.
- Indicates true value creation.
- Example:
Google: Consistently surpasses competitors by innovating in advertising and diversifying revenue streams.
5. Emergent vs. Intended Strategies
- Intended Strategies: Planned based on systematic analysis and decision-making.
- Emergent Strategies: Adapted strategies in response to unexpected changes or new information.
- Example:
Honda: Initially intended to sell small motorcycles for leisure but pivoted to target commuters in the U.S., creating an emergent strategy.
6. Practical Applications
- Applying strategic management concepts to small businesses includes:
- Identifying competitive advantages.
- Innovating products or services to stand out.
- Adapting strategies based on market feedback.
- Case Study:
Steelcon: Defined specific, measurable objectives aligned with its mission to ensure competitive growth.