Evaluating and Selecting Competitive or Business level Strategies
Notes developed by Dr. Michael Fortunato and Dr. Rosalyn Rufer
In this module, you will be analyzing the industry environment with an eye to eventually defining a strategic business problem which is amenable to solution. That solution will take the form of a business unit or corporate strategy. While performing that initial environmental thinking, it is good to look ahead to the tasks down the road.
When a manager looks to select the firm's strategy, it must consider the long and short term goals of the firm. These can include types of business, competitive position, profitability, market share/sales, and the image that it wants to portray to its customers, stock holders, employees, and the world. Thus, the manager must evaluate the firm's current resources: its technology/core competencies, financial resources, and human resources (employees, their skills, and processes), and evaluate how these resources can best be leveraged to accomplish the firm's objectives. Constraints come from environmental factors (think back to the Scanning the Environment Course and the first module in this course) that may provide for increased opportunities or may prevent the firm from accomplishing its goals. Therefore, the firm must be flexible in its strategic choices so that it can capitalize on the resources that it has and those that it can acquire.
Porter recommends that firms evaluate their resources and select a competitive strategy that is either a cost based strategy; a differentiation strategy; or a focus strategy. The objective to the cost-based and differentiation strategies are to increase selective demand by expanding the served market or by acquiring the competitors customers. Cost-based strategies are frequently recommend, when a customer sees little differentiation in the competitors products. If a firm can gain a technical advantage, they will often choose to follow a differentiation strategy, based on perceived attributes of selected customer segments. The focus strategy is primarily selected to retain demand within a firm's current customer base by focusing on a single customer rather than a customer segment. An example of a firm following a focus strategy is Amazon Books. Through information technology, they keep detailed customer records to ensure complete customer satisfaction and repeat sales.
Miles and Snow, on the other hand, describe competitive strategies as following one of four strategic orientations: the prospector, the defender, the analyzer, and the reactor. Like Porter these strategies are based on the resources of the firm, and the competitive market environment. A prospector attempts to create both primary and selective demand by expanding the customer base by attracting nonusers; and increasing the rate of purchase among current users. Reactors will try to increase selective demand by reacting to the competition and trying to acquire their customers. While the analyzer will increase selective demand by maintaining satisfaction; and offering complementary products, before reacting to changes in specific market segments. Further more Miles and Snow recognize the importance of defending current market share, in addition to expanding demand for the firm's products. If you have a competitor they will likely be trying to increase their selective demand (demand for your brand or company) by trying to acquire your customers.
In selecting a competitive strategy you may want to identify your strategy as one that follows Porter's model, however you may also choose to give it a strategic orientation as defined by Miles and Snow. When developing your strategic plan, you need to assess the environmental factors (macro/micro) first by commonly used tools such as SBU analysis, SWOT analysis, Porter's Five forces and Porter's Diamond Model, and then decided on a strategy that first with the firm's mission. You cannot develop a strategic plan without knowing the strategic direction of the firm.
Last modified: Monday, July 17, 2017, 4:20 PM