The objective of a competitive strategy is to

A firm's competitive strategy concerns how to compete in the business areas the firm operates. In other words, competitive strategy means to define how the firm intends to create and maintain a competitive advantage with respect to competitors. Holding a competitive advantage over competitors means to be more profitable than competitors over the long term. A firm's competitive strategy within a given business area is examined looking at two factors: the creation of the competitive advantage and the protection of the competitive advantage. The creation of the competitive advantage is described as the result of either proactive or reactive competitive strategy. Proactive strategies can in turn be of two different types: (a) improvement of performance (same game competitive strategy); and (b) a change of the rules of the game (new game competitive strategy). Finally other forms of competitive strategies are examined: (a) creation of a completely new (nonexisting) business area; (b) enlarging the geographical scope of the business area (cross-market competitive strategy); and (c) enlarging the business scope (cross-business competitive strategy).

See also:

Bureaucracy and Bureaucratization; Competitive Strategies: Organizational; Conflict: Organizational; Corporate Culture; Information and Knowledge: Organizational; Innovation: Organizational; Intelligence: Organizational; Intelligence, Prior Knowledge, and Learning; Leadership in Organizations, Psychology of; Leadership in Organizations, Sociology of; Learning: Organizational; Organization: Overview; Organizational Behavior, Psychology of; Organizational Decision Making; Organizations, Metaphors and Paradigms in; Organizations, Sociology of; Organizations: Unintended Consequences; Rational Choice and Organization Theory; Strategic Intelligence; Strategy: Organizational; Technology and Organization

12.5.4 Generic Competitive Strategy

The students identified the best competitive strategy for the product and company is to focus on a single market segment (Fig. 12.5-2) and avoid direct competition with established companies that could easily afford better price and provide a larger range of products. Both product and technology being new require a different marketing approach since different people have different adoption rates with some liking new things, while others only purchase tried and tested products.

The innovators prefer buying things that are new and will be targeted through magazine advertisements and home shopping network. Product test by this group will be conducted prior to mass production in order to fine-tune the design. The students also proposed to market the product to new residential and commercial buildings with environmental design concepts through partnerships with real state developers and apartment renovators to create a group of early adopters. To reach the peoples belonging to early and late majorities, product tests and certifications by established laboratories and consumer organizations would be sought. Testimonial and print advertisement will be launched. Discounted price, rebates and refunds will be considered to attract more costumers. Partnership with retail industries will be important to reach larger costumer base.

4.2. The resource-based view

The more popular paradigm for approaching competitive strategy has been based on the notion of strategic fit (Hayes & Pisano, 1996). Porter's (1980) book, “Competitive Strategy” became possibly the most celebrated book in the field. Recognising the existence of tradeoffs, Porter argued that the goal of business strategy is to seek sustainable competitive advantage by positioning oneself within industries and businesses that are either structurally attractive or can be made so through deliberate actions. According to Porter, competitive advantage is strongly linked with the idea of good positioning. In the '90s, Prahalad and Hamel (1990) added to this debate challenging Porter's ideas by advocating that companies should focus on building “core competencies” that could create competitive advantages in a variety of markets. They argue that only competencies which are difficult to copy actually make a company sustainable competitive and therefore a company who positions itself and then develops the needed competencies will have their recently acquired competencies easily copied and therefore the advantage will not be sustainable. Teece and Pisano (1994) called the attention to the dynamic aspects of the resource-based view, arguing that not only are the capabilities to be developed important but that the mechanisms by which new skills and capabilities are built have an important role to play because they influence the learning processes and knowledge base of the company and these will influence the ability of the company to compete in the future.

The resource-based approach is markedly different from the traditional manufacturing strategy paradigm.

According to most of the early authors, the manufacturing strategy development should follow a predominantly top-down approach. Skinner (1985), Fine and Hax (1985), Gregory and Platts (1990), Slack (1991) and, to a certain extent, Hill (1995), suggest hierarchical models in which the corporate strategy drives the business strategy. This in turn drives the strategies of manufacturing and other functional areas within the business unit. In fact, the manufacturing strategy formulation process has not received as much attention as the manufacturing strategy contents - objectives and decision areas - in the literature (Leong et al., 1990). Among the pioneers in the field, Hill (1995) seems to have been one of the few who actually delved into a more detailed discussion on it, proposing a specific framework to guide the development process on a (also predominantly top-down) step-by-step basis. Rather, the authors in the field tend to focus their work primarily on the manufacturing strategy objectives and decision areas. This approach, according to Leong et al. (1990), seems to consider some sort of implicit process, which depends on breaking manufacturing down into a number of decision areas and making the goals of manufacturing explicit in terms of a number of performance criteria. The steps of identifying these criteria, prioritising them and relating the decision areas to them would form the implicit process. Hayes and Wheelwright (1994), for instance, although describing four stages along a “continuum”, which represents the evolution of manufacturing's strategic role, where the key aspect of evolution is the increasing, more proactive involvement of manufacturing in the firm's strategic needs, do not describe how a company should go about reaching the more advanced stages.

The exclusive top-down traditional planning approach does not seem to be adequate for the future - planning is only of use when a good level of stability is present. Otherwise it may easily become a futile exercise. In the future the only certainty companies will face is that changes will be larger, more sudden and quicker than ever before therefore requiring more agile manufacturing strategy development and implementation processes.

VI. Sustainability of Competitive Strategies and Systems

Strategic systems do not last forever. Competitive strategies and competitive advantages in organizations often change to become the acceptable norm. In the same manner that unstructured problems turn into structured ones as a better understanding of the problem evolves, competitive strategies often are studied by other organizations and similar activities are implemented. Examples include ATM cards in banks and frequent flyer programs in airlines, which spread to other industries such as hotels and supermarkets.

The sustainability of strategic systems is an issue that must be considered when planning to develop one. Building an SIS is a large and expensive undertaking. They are often the first in an application area and may be based on new technology. All of these factors suggest that SIS are costly and that the organization should get equivalent return on investments. As such the sustainability of an SIS is important.

Christensen has identified several sources of competitive advantages and argued that these sources evolve over time. As such, when developing an SIS system today it is insufficient to consider what worked for a company in the past. Firms must also consider why and under what conditions certain sources work while others fail. In addition, it is important to consider how the industry is changing and how these changes may cause the advantages to dissipate. According to Christensen the sources are economy of scale, economy of scope, integration, and core competencies as the main sources of competitive advantages.

There are several frameworks that measure the sustainability of SIS. Feeny and Ives developed a framework to assess the sustainability of IT competitive advantage. The approach defines three sets of questions to evaluate sustainability. The first set, generic lead time, includes time-related questions such as: How long before a competitor can duplicate the system and what are the unique resources required by the competitor to develop an SIS? The second set, competitive asymmetry, includes questions that assess the difficulties each competitor must resolve to develop a similar project such as: What are the barriers that must be overcome? The third set, preemption potential, measures the unique characteristics or resources that the organization has and that will prevent competitors from duplicating the SIS.

Nakatani studied factors that influence the sustainability of SIS and presented a framework to measure it. He listed five questions that assist in identifying the degree of sustainability and for each question he identified the main variables that must be evaluated. A potential SIS is evaluated based on these variables and a score is given. Based on the answers to the questions an index number is generated that measures the sustainability. The questions are: (1) What makes duplication of an SIS application difficult? (2) What nontechnical factors delay the duplication? (3) What makes it possible for a firm to maintain a lead? (4) What makes the duplication of an SIS useless?

Kettinger reviewed the sustainability literature and identified several factors that determine the sustainability of strategic information systems. The analysis correctly classifies the sustainability of 82.14% of the investigated SIS. The factors are grouped into three sets: environmental factors, foundation factors, and action strategies. Environmental factors include unique industry characteristics, changes in regulatory and political environment, and political factors. Foundation factors include unique organizational characteristics such as size, geographic scope, product scope, vertical scope, organizational base, learning curve, and technological and information resources. Action strategies include preempting, managing risk, developing response strategies, and creating switching costs.

Market Structure

The idea is simple: The enterprise's success significantly depends on the competitive strategy which is mainly determined by the structure of the market in which the enterprise is active. The market structure of an industry can be attractive or not. But which forces impact this industry structure and thus the attractiveness of a market? (Figure 2.2).

Porter's Five Forces

The following five forces exist:

Rivalry among competitors,

If an enterprise is already in the market: threats of new competitors, or if the enterprise wants to enter a new market: barriers to entry,

Bargaining power of consumers/buyers,

Threats of substitute products or services, and

Bargaining power of suppliers.

It is obvious that enterprises should attempt to be active in an industry whose market structure is exposed to as few threats from these forces as possible.

Conduct of knowledge management

The conduct of KM within an organization involves an integration of knowledge (ie, conveyed by usable representations), processors that operate on that knowledge, and processes that organize the actions of processors and availability of knowledge. As we shall see later, the parameters P1, P2, … Pn are concerned with the operations that processors perform and the processes that guide and influence them. The conduct of KM can be seen as episodic, with each episode involving some collection of processors executing some configuration of operations on available knowledge resources, triggered by the intent to satisfy a knowledge need or opportunity, subject to schematic constraints and a variety of influences. The outcome of a successful episode is that learning has occurred —by virtue of the sensed need being satisfied or opportunity being examined.

What kinds of needs can arise in an organization’s quest for effectiveness? One clue to answering this comes from the analytics field, where we find the SPED taxonomy of problems (Holsapple et al., 2014): sense-making problems, prediction problems, evaluation problems, and decisional problems. Solving any of these kinds of problems is a knowledge-intensive effort, suggesting a SPED taxonomy for recognizing and solving problems in knowledge management episodes: sense-making episodes, prediction episodes, evaluation episodes, and decisional episodes.

Now, when it comes to using KM to implement an organization’s competitive strategy, what can an organization do in its conduct of knowledge management to gain an edge relative to its competitors? Based on the foregoing discussion, several possibilities emerge:

Build and maintain a superior knowledge base available to its processors—superior in the sense of relevance, importance, volume, variety, currency, organization, accuracy, and security.

Develop a superior processor base—superior in the sense of a suitable mix of human and machine processors that can squeeze high value out of available knowledge resources.

Devise superior processes—superior in the sense of excelling in deployment and coordination of knowledge processors, in making knowledge resources available, and in learning from experiences.

Integrate the utilization of a knowledge base, processors, and processes for superiority in episodes of:

Sense making

Predicting

Evaluating

Decision making

Each checkmark suggests a KM aspect that may be worthy to audit, searching for deficiencies or underperformance relative to competitors. Each also suggests a focal point for experimentation with creative ways that may result in greater success for the organization.

As for the SPED episodes, each involves a KM process that applies some mix of descriptive-procedural-reasoning knowledge and some assortment of knowledge processors to deal with the problem of making sense of a situation, making a prediction for a situation, making an evaluation of a situation, or making a decision about addressing a situation. In the interest of organization effectiveness, we should strive for episodic effectiveness—both within individual episodes and across the interplay among an organization’s knowledge-managing episodes. Episodic effectiveness can be examined from two angles: outcome and process. In the effective conduct of KM, efforts are mustered to succeed in producing superior outcomes via superior processes.

d The Industry Context Perspective

INDUSTRY: Requirements derived from the automotive industry competitive environment according to Michael Porter’s Competitive Strategy model (Porter, 1988): Suppliers, Substitute Products-Technologies, Competitors and Potential Entrants, Clients (considered in User Requirements), the Company itself represent the five perspectives which have to be considered in order to assess the competitive industry context of the automotive company (both in a static and dynamic sense).

Setting the industry context perspective during the specifications or requirements design by the automotive system engineers, may help to define strategically consistent specifications, which are aligned with the resource constraints, market target of a particular automobile model, functionality and technology available.

This would ensure that the implementation is within the cost target set, and the service expectations of a client in that segment are fulfilled. Indeed, from this viewpoint, engineers could design automobiles which are reconfigurable to the segment market being targeted, without having to reengineer a new version or model, for each new market segment being considered.

II.B. Decision Supports for Operations Strategy

Although strategic decision support systems (SDSS) have received substantial attention in the literature, very few SDSS are specifically designed based on a particular competitive strategy. While a general SDSS may have the advantage of being flexible, a support system which is developed based on a particular competitive strategy will better facilitate the implementation of that strategy. Figure 2 is a general framework for SDSS. The framework consists of four subsystems of a general DSS: user interface subsystem (UIS), problem processing subsystem (PPS), knowledge subsystem (KS), and subsystem interface management software (SIMS). The support for strategic decision making is performed by several programs within these subsystems. For example, there is a missions/goals elicitation program in the UIS. There are strategic problem descriptions and ad hoc strategic problem processing programs in the PPS. In the model base of the KS, there are strategic planning models, environmental scanning models, scenario planning models, technological forecasting models, etc.

Decision supports for operations strategy can be built upon the above SDSS framework. For example, Cook and colleagues incorporate a TBC model called CCP—change, causation, and possibility—in the above SDSS. The CCP model is a cycle of three-stage tasks. The environmental scanning model of the SDSS is to constantly monitor the changes in both the firm's external and internal environments. Diagnostic problem-solving systems or expert systems will perform causal analysis upon the relevant and significant changes detected in the first stage. Based on the results of causal analyses, creativity facilitation systems and scenario planning systems will then search for meaningful changes and the associated possible scenarios. The scenario-driven planning (SDP) process paves the way for the implementation of (TBC-based) operations strategy.

Strategies for Competing

Earlier, we mentioned that Porter places a lot of emphasis on the ways existing companies can compete within an existing industry. In his 1980 book, Competitive Strategy, Porter described competition in most traditional industries as following one of three generic strategies: (1) cost leadership, (2) differentiation, or (3) niche specialization.

Cost leadership. The cost leader is the company that can offer the product at the cheapest price. In most industries price can be driven down by economies of scale, by the control of suppliers and channels, and by experience that allows a company to do things more efficiently. In most industries large companies dominate the manufacture of products in huge volume and sell them more cheaply than their smaller rivals.

Differentiation. If a company can’t sell its products for the cheapest price an alternative is to offer better or more desirable products. Customers are often willing to pay a premium for a better product, and this allows companies specializing in producing a better product to compete with those selling a cheaper but less desirable product. Companies usually make better products by using more expensive materials, relying on superior craftsmanship, creating a unique design, or tailoring the design of the product in various ways.

Niche specialization. Niche specialists focus on specific buyers, specific segments of the market, or buyers in particular geographical markets and often offer only a subset of the products typically sold in the industry. In effect, they represent an extreme version of differentiation, and they can charge a premium for their products, since the products have special features beneficial to the consumers in the niche.

Figure 2.3 provides an overview of one way strategists think of positioning and specialization. As a broad generalization, if the product is a commodity it will sell near its manufacturing cost, with little profit for the seller. Companies that want to sell commodities usually need to sell large volumes.

The classic example of a company that achieved cost leadership in an industry was the Ford Motor Company. The founder, Henry Ford, created a mass market for automobiles by driving the price of a car down to the point where the average person could afford one. To do this, Ford limited the product to one model in one color and set up a production line to produce large numbers of cars very efficiently. In the early years of the 20th century Ford completely dominated auto production in the United States.

As the US economy grew after World War I, however, General Motors was able to pull ahead of Ford, not by producing cars as cheaply, but by producing cars that were nearly as cheap and that offered a variety of features that differentiated them. Thus, GM offered several different models in a variety of colors with a variety of optional extras. Despite selling slightly more expensive cars, GM gradually gained market share from Ford because consumers were willing to pay more to get cars in preferred colors and styles.

Examples of niche specialists in the automobile industry are companies that manufacture only taxi cabs or limousines.