Competitive Strategy vs Value Innovation

Only available on StudyMode
  • Download(s) : 120
  • Published : November 6, 2011
Open Document
Text Preview

From the last few decades, the emphasis of strategy has been on the 'competitive advantage' (as laid down by Michel Porter in 1980).This is evident from the cut throat competition amongst the various industrial sectors, be it at domestic or global level. Every company or firm in their respective industries strives hard to grab a bigger market share than its peers. The motive is to surpass the profits/revenues of the latter. But in the recent times, the scenario has been a strayed. Instead of following the cliché notion of competitive advantage, the present day firms have gathered a new perspective of profit making i.e. 'Value innovation’. I am going to take a look at both of them and eventually try to compare and contrast the two perspectives.

Before going into the details of two scenarios, there is a need to understand that what strategy actually implies. Different businessmen have their own way of explaining strategy. According to (Hitt, Ireland & Hoskisson, 2009 p.4) ,"A strategy is an integrated and coordinated set of commitments and actions designed to exploit the core competencies and gain a competitive advantage". Michael Porter (1996) defines strategy in terms of competitive strategy. He asserts that the notion of strategy lies in being at a competitive position and adding value through a combination of activities that are different from that of competitors. "Strategy is a pattern of the fundamental goals of the walk and planned the distribution of resources and the organization of interaction with the market, competitors and factor-environmental factors.” -John A. Byrne So the selected strategy lays down the do's and don’t’s of an organization. From quite a long time, competitiveness has been in vogue. The firms in a particular industry try to imitate each other. Any firm enjoys the competitive advantage when its rivals are not able to emulate the profits that it makes. So competition comes out to be the most essential factor here. But this happens for a transient period of time. In order to sustain themselves in the value creating strategy, the firms imitate each other. It is where the competitive advantage fails. COMPETITIVE STRATEGY

According to (Porter 1980, p.12) the basic unit of analysis and business are industry and product respectively. Thus analysis of industrial structure holds utmost significance in forming a competitive strategy. A set of five forces define an industry structure and hence shape the competitive in an industry. These forces are a means of understanding an industry's current profitability as well as effective positioning. In other words they depict whether an industry is 'attractive' or 'unattractive' in the market place. Thus these vary from industry to industry. The five forces according to ( J.H.M. de Jonge 2011) are as follows:

THREAT OF POTENTIAL ENTRANTS: The entry is guided by the some of these barriers like when the company in question enjoys economies of scale, product differentiation and the entrants need capital requirements and switching cost and strict government policies thus making it difficult for the newcomers to enter the industry. COMPETITORS: There are a number of factors that guide the rivalry between the competitors. These include numerous equally balanced competitors, insufficient industry growth, high storage costs to name a few. THREAT OF SUBSTITUTE PRODUCTS: The substitutes are the products that have quite the same function as company's own products. e.g. Plastic for aluminum. If there is high threat from the substitutes, then the industry's profitability and growth potential suffer. For e.g. With the advent of Skype, telephone services have experienced a major setback. BARGAINING POWER OF SUPPLIERS: The bargaining power of suppliers is more when they are more concentrated, not dependent upon revenues and pose a threat of forward integration. BARGAINING POWER OF BUYERS: The bargaining...
tracking img