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Question:

Discuss about the Competitive Strategy and Tactics.
 
 

Answer:

Introduction

Many businesses today fail because of failure to formulate and implement a well-thought strategy. Some follow the success of others and thrive for a short while before falling flat. The key denominator is that they lack a clear business strategy. So what is a business strategy? The term strategy comes from a Greek word "Stratego" which in essence means the art of war (Porter 2008).

In simple logic, businesses are at war and to win they must devise a plan to outcompete their rivals. The tactics employed by the businesses to keep them thriving make up a strategy. In recent times, however, the tactics have themselves been construed to mean strategy. Tactics, like being a low-cost provider, employing a global approach, rapid response or being a first mover among others merely, represent simple moves within the bigger strategy (Pulaj 2015).

Strategy

The Key Ideas from the e-learning material on strategy

The key ideas include the ability to differentiate between tactics and a strategy. A business is expected to bring out its hidden strengths to outdo their competitors. Good business leaders are required to develop complex tactics that ensure the success of their organizations. To do this they require well-thought strategies. A good strategy identifies the target market. It also identifies the unique values that the business brings to win the market (Kryscynski 2015).

According to Pulaj (2015), a good strategy identifies the resources and capabilities required to provide the unique value to the market. Resources include talented human capital, available funds, and superior technology among others while capabilities include unique and innovative ways to bring out value to the market. Lastly, a good strategy should be sustainable in providing value to the market in a way that provides barriers to imitation or replication by competitors.

Competitive strategies featured include cost leadership. This is where company devices innovative ways to produce their goods and services to the market at a lower price than the competitors. Another strategy is mass production. This strategy allows a company to enjoy economies of scale thereby spreading the cost per unit of the product. This allows the product to be much less costly in the market. This is effective where the products are direct substitutes in the market and where the switching cost of customers is low (Kryscynski 2015).

Market segmentation is a competitive strategy that allows a company to only focus on either an unexploited customer base or lure the customers already using another product by providing a lower cost to switch.


Figure 1. Competitive Strategies. Adapted from Porter (2008)

Another competitive strategy is differentiation. In this strategy, a company provides unique products to a particular group of customers at a price premium. The company IKEA for instance only targets the young people to sell their furniture. It may also involve creating a unique brand that for a particular group with similar socioeconomic traits (Kryscynski 2015).

Focus strategy is one of the generic strategies where a company employs two tactics that is either cost focus or differentiation focus. In cost focus, the company targets a segment of people who have unique buying traits while in differentiation focus the company targets customers with unique needs. Other strategies include intended strategy, emergent strategy, and realized strategy. Finally, Integral supplier relationship is also a key to thriving in the market as is good timing to execute the strategy (Porter 2008).

An organization which would benefit from the application of these ideas and how the ideas should be applied

The choice of the company here is Xero, a firm that sells accounting package software to businesses in Australia. Despite the fact that there are currently over 2 million businesses in the Small and Medium Enterprise sector, Xero has managed to garner less than a quarter of the market share (Tadros 2016).

Xero could benefit from identifying their valuable market instead of going point blank at all the businesses. This could help it develop the unique attributes that the customers desire. Xero could also advance on the supplier relationship idea. This would help it distribute their product to more customers in the market. The idea of outsourcing the distribution of the product would also allow them to concentrate on their core function that is product design (Baroto, Abdulla and Wan 2012).

Another idea Xero could benefit from would be the differentiation idea. There are many competitors in the market selling accounting packages such as Intuit, MYOB, Sage, Oracle-NetSuite, Saasu and many others. This would be achieved by identifying the market needs in accounting and developing a superior product at a premium price (Tadros 2016).

The aspect of timing is essential to a company like Xero, at a time when many businesses are using their mobile devices to do business, Xero could develop accounting application capable of working offline to ensure the security of data. This will prevent the competitors from executing this idea and driving them out of business (Porter 2008).

The idea of cost leadership would also benefit Xero. This is because with many competitors and the switching cost being low as they are, they need to come up with a unique way to produce their software at low cost and extend the benefits to customers to enjoy more market share. Branding and unique identity would also enable them to reach a large number of customers who have not migrated to accounting packages.

 

Business Model Innovation

In the business model innovation, the following key ideas were extracted from the e-learning exercise. To begin with, innovation in businesses is a continuous exercise that happens all the time. In addition, innovation serves two purposes. On one hand, it lowers the cost of producing goods and services thereby enabling the competitive advantage of the company. On the other hand, it increases the value of a product or service. This effectively creates brand loyalty and increases the barrier to entry for new businesses and increased switching cost to customers by existing businesses (Gassman 2013).

Another idea extracted is that successful innovators learn from others and recombine the ideas learned into their own organization. Also, a good business model takes into account four key areas. The first one is the target customer. This helps to establish how to win the customer over. The second aspect is what to offer the customer. This is where business analytics becomes handy to be able to identify gaps in the market and how to fill the gaps. Research and development also help in studying the market as well as developing unique products (Pulaj 2015).

Thirdly, a good business model innovation identifies how to create a value proposition and fourthly identifies how to generate revenue. A good innovation model changes at least two of the four aspects that are customer, product, value proposition or revenue generation. An exemplary way to innovate is to create a need by selling primary items at a low price and the secondary item at a premium price. The steps to creating a business model include innovation, ideation, integration and implementation (Gassman 2013).

To increase the chances of business model success, the model should be introduced one at a time, gather management support, one should communicate to avoid resistance to change as 70% fail due to resistance and finally to not overemphasize on short term Key performance indicators (Gassman 2013).

Organizations can benefit from learning what others do and applying that knowledge to suit them. Some business models such as the Boston Consulting Group (BCG) model can be applied to help businesses develop products at different cycle levels and also increase their current revenue without sacrificing their future (Stern and Deimler 2012).

It is also important that organizations do not lose track of their future by overemphasizing the present business. This will ensure that they survive in the long-term even when there is a disruption in the market. One way to achieve this is research in and observing market trends (Pulaj 2015).

An organisation which would benefit from the application of these ideas and how the ideas should be applied

The organization of choice here is Optus Communication Company in Australia. The company offers telecommunication, data, and home entertainment services. However, it faces stiff competition from market leader Telstra and Vodafone commanding about 25% of the market share (Buddle 2016). One way the ideas would benefit Optus would be to innovate its services by fiercely introducing mobile payment system. This would act to as a bait and switch method to enjoy customer loyalty.

Optus could also start offering its mobile phones at a low price or for free but ensure the phones can only operate through their network. The customers would have to use their network hence help them gain more market share. The company could also consider using innovative ideas such as using mobile telephone agent system as a way to outsource nonessential business like distribution (Porter 2008).

Conclusion

In conclusion, there are many ways through which businesses can thrive in the market. One is by crafting well-thought strategies, ensuring they use their internal resources to Match the external threats and through innovation to mention but a few. This paper looks at these key areas in depth and gives a way forward into implementing them.

 

References

Baroto, M., Abdullah, M. and Wan, H. (2012). Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management, 7(20), pp.40-60.

Budde, P. (2016). Australia - Telco Company Profiles - Telstra, Optus and Vodafone - BuddeComm. [online] Budde.com.au. Available at: https://www.budde.com.au/Research/Australia-Telco-Company-Profiles-Telstra-Optus-and-Vodafone [Accessed 1 May 2017].

Gassman, O. (2013). Business Model Innovation. [video] Available at: https://www.youtube.com/watch?v=B4ZSGQW0UMI [Accessed 1 May 2017].

Kryscynski, D. (2015). What is Strategy?. [video] Available at: https://www.youtube.com/watch?v=TD7WSLeQtVw [Accessed 1 May 2017].

Porter, M. (2008). Competitive advantage. 1st ed. New York: Free Press.

Pulaj, E. (2015). The Impact of Generic Competitive Strategies On Organizational Performance. The Evidence From Albanian Context. European Scientific Journal, 11(1857), pp.274-276.

Stern, C. and Deimler, M. (2012). The Boston Consulting Group on Strategy. 1st ed. Somerset: Wiley, pp.60-82.

Tadros, E. (2016). QuickBooks users jump by 60pc but Xero, MYOB remains leaders. [online] Financial Review. Available at: https://www.afr.com/business/accounting/quickbook-users-jump-by-60pc-but-xero-myob-remains-leaders-20160929-grrwm0 [Accessed 1 May 2017].

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