Business Strategy: Competitive Advantages and Organizational Culture
Theme 3: The Environment of the Organization
Entry Barriers
Entry barriers are those aspects that make it impossible or difficult for new competitors to participate in the business, thereby generating a field of activity. Profitability depends largely on the barriers to entry.
Major Entry Barriers:
- a) Economies of scale: These relate to reductions in unit costs of producing a product. Because increasing the volume of activity reduces total average costs, economies of scale allow firms in the sector to work with lower unit costs.
- b) Cost disadvantage independent of economies of scale: This cost is reduced because:
- Workers and managers do a better job.
- Special processes and equipment are developed that enhance production.
- Changes in product design facilitate its manufacture.
- c) Product differentiation: This implies that existing firms have a determined brand and therefore a degree of loyalty to their supposed clients. This means new companies wishing to settle have to invest substantial amounts in marketing policies to overcome customer loyalty.
- d) Capital market conditions: The need to invest large amounts of financial resources to compete creates a significant barrier to entry.
- e) Switching costs suffered by the client: These are costs that the customer has to bear when changing suppliers.
- f) Access to distribution channels: If companies already established have occupied this capacity, those wanting to introduce themselves will find that they have to offer benefits to the distributors, which is a higher cost.
- g) Government policy: This refers to the ability of the government to grant restricted access to sources of supply or markets.
Porter’s 5 Competitive Forces
1) Factor conditions: These are the basic factors, but so-called special factors, which help achieve specialized competitive benefits. These are not inherited but created by each country: specific skills arise stemming from its educational system, unique legacy of knowledge, etc., and meet the needs of a specific industry. The factors conducive to a country’s competitive advantages are unique and very hard to replicate or generate for other competitors, but competition of each country or region lies rather in the quality of specialized factors that allow assessment of the heritage assets above countries with a similar legacy.
2) Domestic demand conditions: The most competitive companies invariably have local demand that is among the more developed and demanding in the world. Demanding clients allow businesses to glimpse and meet upcoming needs and become another incentive for innovation. Having these clients allows businesses to respond more rapidly. When local customers anticipate and shape the needs of other countries, benefits for local businesses are even greater. US fast-food companies owe much of their success to having had to meet very demanding local customers, who value convenience, quality standards, and fast service because they do not have much time to eat.
3) Related and supporting sectors or industries: The existence of supporting industries and efficient specializations creates competitive advantages for a country. Related and supporting industries can bring to the company belonging to the cluster inputs, components, and services tailored at a lower cost, superior quality, and either quickly supplied or on a preferential basis. This fosters closer ties of cooperation, better communication, and continuous improvement of the cluster.
For example, Italy, a world leader in the production of high-fashion footwear, dominates two-thirds of world exports in the area. Italian leadership is made possible by the existence of a network of related and supporting industries that are very efficient.
4) Strategy, corporate structure, and rivalry: Vigorous and intense local competition is one of the most effective pressures for a company to continuously improve. This situation forces companies to seek ways to cut costs, improve quality, seek new markets or clients, etc. In Japan, most successful industries have several world-class players that compete intensely for market share. Porter says a quiet life is an enemy to competitive advantage. The greater the degree of rivalry in a sector, the greater the pressure and incentives to improve standards and introduce new products.
5) Chance and the role of government: Chance arises from sudden events affecting the competitive position of certain enterprises, which are incapable of anticipating the events. These events can be new technological inventions, changes in market trends, political decisions, etc. The government can exert influence on any of the diamonds both positively and negatively. In the same way, the government can also be influenced or affected by the elements of the diamond, as is the case when it decides to invest in education in areas deemed necessary for the improvement of a cluster.
Influence on Competitive Advantage:
- Major technological discontinuities
- Significant changes in global financial markets
- Rising oil prices
- Unexpected increases in global and regional demand
- Wars
- Natural catastrophes
Porter’s Diamond
Strategy, Structure, and Rivalry
Conditions of the nation that determine how companies are created, organized, and managed, and the nature of domestic rivalry.
Government
Factors of production
Demand Factors of Production
Factors of production necessary to compete in the nature of local demand for products or services of an industry.
A given industry
Related Companies and Support
Chance
The nature of the support network of the three levels of government, educational and research institutions, related industry, etc.
Theme 4: The Culture of the Organization
Organizational Culture
Organizational culture is the set of rules, habits, and values practiced by individuals in an organization, and that makes this form of behavior.
Organizational culture is ultimately a system of meanings and principles concerning norms, values, and ways of thinking that characterize the behavior of staff at all levels of the company.
- A standard is everything that is written and approved, which governs the organization, and must be respected by all members of it. A rule should be written in detail in documents of business management: an organization manual, etc.
- A habit is what is not written but is accepted as standard in an organization. For example, if in a health facility, we do not normally smoke, but there is no written rule that prohibits it.
- A value is a quality that a person who integrates an organization has. For example, simplicity. Values can also be negative.
Theme 5: Social Responsibility and Ethics in Organizations
Corporate Social Responsibility
Life in the USA during the late 1950s and early 1960s, the root of the war in Vietnam, and other conflicts as a result of apartheid. In the 1960s, societies began to demand changes in business and greater involvement of business in social issues.
CSR is a term that refers to all the commitments and legal and ethical, national, and international commitments arising from the impacts that organizations produce activity in social, occupational, environmental, and human rights.
CSR’s only purpose means that the company is doing what it is supposed to do, enrich society and the pockets of those who are responsible for this enrichment. Social responsibility encompasses all contractual relations, implicit or explicit, that the company has with stakeholders and society at large.
Social Action
Social action means the use of human, technical, or financial resources to assist disadvantaged groups existing in society, such as the disabled, the third world, the elderly, drug addicts, youth, and women.
Theme 6: Decision-Making in Business
Ten Castro
According to Diez de Castro, there are five dimensions to frame the problems: nature, management, information, power, and participation.
According to their nature: Where is its origin? That is, is it primarily related to the environment or is it predominantly internal to the company? From the relation of the company with its environment, two forms of behavior emerge: strategic behavior and competitive behavior.
At the competitive level, the business problem is to find that the activity is profitable.
At the strategic level, the problem arises that the product and service the company offers cannot remain unchanged over time.
If we focus on within the organization itself, we are at the organizational level. At this level, the problems are related to the way the company is structured.
The appearance of a problem can become a trigger for new problems belonging to the same level or another.
According to its management: The solution to the problem will also differ according to the topic and the capabilities of the person who must resolve it.
Problems that arise around the workday are within the level of action, such as customer claims. Logically, such problems are resolved by supervisors or first-line managers.
Techno-economic problems require that the manager possesses broad expertise.
At the level of end-values would be the problems associated with the advertising of a product, establishing selection criteria for the position of this type of work. In the face of this type of problem, decision-makers are generally guided by the goals and values pursued by the organization.
According to the level of information you have about the problem:
Structured (much information about the problem) and unstructured (the problem is unknown).
According to the degree of participation of subordinates in the solution: Depending on whether the attributes of the problem need to be greater or less participation of the subordinate.
Besides, it means that the higher the participation, the greater the degree of acceptance by subordinates.
According to the power that has the person making the decision: Having power means that one is capable of influencing any stage of decision-making. Power is maximum when the individual is able to control all phases of the decision-making process.
Only in young and very small institutions, generally chaired by the owner and founder, is it likely that most of the stages will accumulate in a single individual.
Theme 8: Enterprise Strategy
Concept of Strategy
Strategy is the pattern of major objectives, purposes, or goals and essential policies and plans for achieving them, established so as to define what sort of business the company is or wants to be and what kind of business it is or wants to be.
Elements of Business Strategy
1) Field of activity or growth vector: Encompassing all the products and markets that are of current economic activity of the company.
Ansoff defined the growth vector as the set of possible agreements between products and current or emerging markets where the company can base its development.
2) Distinctive capabilities: Resources contain all the skills and knowledge, both present and potential.
3) Competitive advantage: These are the distinguishing features of the company over competition. They arise from the holding or use of any distinctive capacity.
4) Synergistic effects: This is the ripple effect that produces an adequate combination of the elements of the strategy.
Strategic direction represents a form of planning, controlling, and monitoring the company’s strategic problems to seek their adaptation to the challenges of the changing environment.
Levels of Strategy
1) Corporate level: This strategy seeks to answer the question,”Can we participate in that business” and”What should be the most propitious combination of businesses”
2) Business-level strategy: At this level, the aim is to develop the best possible activity or activities for strategic unity, that is, in a competitive environment.
3) Functional level strategy: At the third and last level, the question is how to use and apply the resources and skills within each functional area that exists in each activity or each work unit, in order to maximize the productivity of those resources.
Competitive Strategy (Michael Porter)
Competitive strategy aims to ensure the company a sustainable competitive advantage and lasting competitive forces against a general market. The three general strategies are cost leadership, differentiation, and high segmentation approach.
1) Cost leadership strategy: This is to make one or more products incur lower costs than the competition.
- Favorable access to raw materials
- Appropriate design of products to facilitate their manufacture
- Seeking economies of scale and the effect of experience curves
- Aggressive pricing and initial losses to achieve market share
- Rigid cost controls and overhead
- High initial investment in productive capital
2) Differentiation strategy: This strategy is to offer a product that the consumer will consider entirely different from those offered by competitors. With this strategy, the company is able to isolate the competitive rivalry because of customer loyalty and less price sensitivity resulting.
Two ways can be chosen to differentiate your product:
- Enhance the intrinsic characteristics of product quality, design, technology, and innovation.
- Use the marketing variables.
3) Strategy or high segmentation approach: This will be to focus on a particular client group or a particular geographic area or segment of the product line. By limiting the scope of its jurisdiction, this strategy may be to turn a cost leadership or differentiation with the usual advantages and disadvantages to both strategies.