Effective Strategies for competitive advantages

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Effective Strategies for competitive advantages 1

What is strategic planning?

A strategic plan is the company’s overall plan. It the road map of the organization that communicates with its goals and objectives. Strategic plan guide the company to reach the desired destination. It is almost similar to the business model but not the same. Therefore, a strategic plan is a plan that evaluates how the company’s internal strengths and weaknesses are matched with external threats and opportunities to get competitive advantages.

What is Strategic Management?

Strategic management is an ongoing process of planning, monitoring, analysis, and assessment of all that is necessary for an organization to reach its objectives. It is such a process where the organization identifies and executes its organizational strategic plan. The strategic plan must consider the organization’s strengths and weaknesses with the demand of its competitors, customers, and suppliers to maintain competitive advantages.

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Types of strategic planning:

Managers are involved in three types of strategic planning. They are-

  1. Corporate Strategy
  2. Competitive Strategy
  3. Functional Strategy

Corporate Strategy

Identifies the portfolio of Business that in total, comprise the company and how these businesses relate to each other. Corporate strategy is the overall scope and direction of a company and the way in which its various business operations work together to achieve its goals and objectives. It indicates what strategy the company will follow in a particular business situation to get competitive advantages.

The corporate-level strategy is classified into five categories:

  1. Concentration
  2. Diversification
  3. Vertical Integration
  4. Consolidation
  5. Geographic Expansion

Concentration

Concentration is a single-business strategy that a company follows. It means the company concentrates on a specific area of business or keeps track of a single industry. It helps the company to get more competitive advantages because they are focusing only on a specific industry or product that emphasizes the quality of product or services, market development, product development and so on.

Therefore, the concentration approach of corporate-level strategy is a strategic approach where the business focuses on a single market or product.

human-resources-strategies

The negative side is that the customer now wants diversification. Customer rage also important. Sometimes companies that concentrate on a specific product their customer range become small.

 Example: McDonald’s is concentrated on only fast food items to become dominant players in that industry. So that they can focus on the quality of the product, quick client services to get competitive advantages with cheap production cost.

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Diversification

When the company expands its business by adding a new product line it called diversification strategy of the firm.  It is the strategy that is used to expand firms’ operations by adding markets, products, services, or stages of production to the existing business.

Example: PepsiCo added Fritoy lay chips and Quaker Oats to its drinks business.

A company can expand or diversify its business in two ways:

-Related diversification

-Negative Diversification

Related diversification

When a company starts a new business or expand a new product line that is related to its previous business its called related or positive diversification.

Example: when Beximco (a pharmaceutical company) starts a business in the hospital sector it is a related diversification strategy for the Beximco.

Negative Diversification

When a company starts a new business or expands a new product line that is not related to its previous business it is negative diversification.

Example: When Beximco (a pharmaceutical company) starts a business in the media sector (TV, Newspaper, etc.) it is a negative diversification strategy for the Beximco.

Vertical Integration

A vertical integration strategy means the firm expands its business by producing its own materials or selling its products and services directly to the consumers.

Example: Apple opens its won apple stores.

Vertical Integration can be in two ways that are forward vertical integration and backward vertical integration.

vertical integration

Forward vertical integration

If the firm sells its products directly to the consumer through the outlet it is known as forwarding vertical integration.

Example: RFL (plastic manufacturer) sells their finish goods to consumer through BestBuy (their own outlets)

Backward Vertical Integration

When the company collects its raw materials for production from its own sources its called backward vertical integration.

Example:Green Juice” company collects the apple for producing apple juice from its own apple garden.

Consolidation

Simply it is narrow down any part of the business of a company. When the company is reducing its size is known as the consolidation strategy. It could be through a merger or by stoping the unit or business.

Example: The Begnal group has a twenty-five concern business in different fields. They see that their garments factory become a loss project last few years and they can not sustain anymore in the market. Therefore they stop their business in this sector. It is a consolidation strategy for the Bengal group.

Geographic expansion

With the geographic expansion, the company expands its business by entering new territorial markets. It means the company grows its business abroad. The company with geographic expansion operate their business in another country with a domestic one.

Example: PRAN, a food manufacturing company that was started its business in Bangladesh in 1981. They now expand their business by entering in India as their new territory.

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Competitive strategy

Competitive strategy is a strategy that identifies how to build and strengthen the business’s long-term competitive position in the marketplace, which is also known as a business-level competitive strategy. Basically, what strategy the company follows that is important to get competitive advantages. In the competitive market, it is crucial to make a proper plan to sustain and maintain competitive advantages. Through the competitive strategy, the company differentiates its product and service from its competitors to increase market share.

Companies can follow three types of business-level strategy:

Cost Leadership

Some company follows cost leadership approach to get competitive advantages. It means becoming the low-cost leader in and industry. The firm with a cost leadership strategy focus on reducing production costs that also reduce the price of the product. As a result, they can offer products or services at a low price than others.

Example: Jiffy Lube, Amazon, etc.

cost leadership

Differentiation

A company gains competitive advantages by differentiating them from others. The firm with differentiation focusing on unique dimensions of product or service that has value to customers. Basically, the price of these types of products is high. 

Example: iPhone

Focus

Focusers are focussing on a specific market niche. Basically, the company that follows a focus strategy offers a product or service that their customer can not get from a general competitor. Using a focus strategy company may concentrate on geographic markets or a particular group of customers or on a particular product line segment.

Example: Toyota Motor (focus on Small-sized cars), Porsche (focus on Sports cars), e-bay (focus on the online shop), etc.

Functional Strategy

It includes department-level activities that help the organization to get competitive advantages. The company follows the functional strategy to get competitive advantages through the human capital of the organization. It can the part of the overall corporate strategy of the organization by developing a plan for every department of the organization to align with organizational goals.

Example: Beximco company set an object to obtain 60% market share in the Pharmaceutical Industry within the next three years. Therefore, they design the function of every department (such as marketing, production, sales, HR, etc.) to reach their goals.

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