Strategy in Non Competitive Situation

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INTRODUCTION

In this exercise it is supposed to analyze a claim that is sometimes suggested (implicitly or explicitly) in strategic management’s literature, which says that “an organization does not need any strategy if it is not in a competitive situation”. The first impression that came to me when I looked to it was that it was true, because I thought strategy demanded some kind of competition. However, to analyze more carefully the claim it is necessary to clarify the definitions of “strategy” and “not in a competitive situation”. Companies that are the only player, in a monopoly control over the market, are the closest example of companies that do not encounter any competition, so I admitted that “not in a competitive situation” could be considered as Monopoly. I will start by defining those concepts first, and then discuss whether it is necessary to have a strategy in a monopoly situation, and finally I will talk about whether that no-competition situation really exists in anyway or not.

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STRATEGY

A strategy, in the business world, is a concept related with how the company will act and perform in order to achieve its goals or objectives in the long term. It is supposed to guide the organization in the way of fulfilling its stakeholders’ expectations, taking advantage of its resources. The importance of a strategy is therefore undeniable. That’s why many companies have a welldefined one deliberated with time between the senior managers. There are other companies which are Figure 1 - Definition of strategy more reactive ones, which have to adapt their strategies according to the market evolution instead of trying to control that evolution. And there are still other companies which don’t have a precise strategy, but they have it implicit in their actions. In these cases it is called an emergent or realizes strategy.

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Five Elements

According to Hambrick, Donald C. & Fredrickson, James W. (2001), a strategy can be divided five parts, each one answering to a different question: • Arenas: where will we be active? • Vehicles: how will we get there? • Differentiators: how will we win in the marketplace? • Staging: what will be our speed and sequence of moves? • Economic logic: how will we obtain our returns? It’s not mandatory to have all these parts specified, but it helps to structure the ideas and to organize a plan for the future of the company.

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MONOPOLY

Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. It is thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods. A monopoly has an advantage comparing to the market structures in pricing, because there is no other substitute product at least in that local market. This means they can choose the most adequate price in order to maximize profit and at the same time keep customers happy. There are companies that achieve a monopoly due to their ability to act faster than the competition with great performances and strategies, but the most common ones are the Coercive and Natural Monopolies.

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Coercive Monopoly

The monopoly can be created by prohibitions to competitors from entering the market, which is called a coercive monopoly. Normally these are granted by governments, by means of patents, copyrights, trademarks, subsidies, franchises or special regulations. As there is no possibility of competition in these cases, the company doesn’t need to take much care about pricing, marketing or product innovation. And the consequence of this is that the company will tend to be inefficient, as they don’t need a well-defined strategy. The supply network of electricity, water, telecommunications and mail delivery are in many countries an Figure 2 - Electricity network (example of example of this kind of imperfect competition. Coercive Monopoly)

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Natural Monopoly

There can also be a monopoly due to the...
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