Download COMM 401 – Strategy & Competition Study Guide 2023-2024 Concordia University and more Exams Communication in PDF only on Docsity!
COMM 401 – Strategy &
Competition Study Guide 2023 -
2024 Concordia University
Study Guide
COMM 401 – Strategy & Competition
The success of any business is determined by the effectiveness of the strategy it follows. A strategy explains how a company plans to compete in a market and how it intends to grow in terms of profit.
Chapter 2: External Environment
General Environment
- The general environment is described as everything that is external to the firm. These factors are what should be considered when developing business strategy, and in turn, they could also influence or impact chosen a firms’ chosen strategies.
- It’s a bilateral relationship.
- Dimensions in the broader society that influence an industry and the firms within it:
- Demographic – who are your target customers?
- Economic – what is happening in the economy that is affecting customers ability to purchase (for example).
- political/legal – who is the elected party? Some industries, such as the energy industry, succeed more under a liberal or democratic government; whereas republicans or conservatives support pipelines.
- Sociocultural – Sociocultural has to do with society and traditions. A good example of how this factor could influence and industry or firm is in the business of building pipelines. Often times, big companies such as Enbridge face pull back or challenges from Native American territories when wanting to build a pipeline across it.
- technological – as we know, technology is a curve that keeps going higher and we
need to keep up in many ways because if competitors adapt a technology that could create a competitive advantage, this could harm our firm. That said, technology is a huge factor that we need to be aware of that could influence or
- Focused on factors and conditions influencing a firm’s profitability within an industry
- Competitor Environment
- Focused on predicting the dynamics of competitors’ actions, responses and intentions
So far we saw what each analysis looks at, or focuses on; however, the components that we see on Table 2.2 explain the actions that need to be taken towards each factor we saw.
If we take Technology as an example. Electric vehicles and it’s technologies are penetrating into the car industry with the trailblazer being Tesla. And if I’m not mistaken, I think that leaders in the car industry we’re a little 50/50 on whether Tesla would succeed. Nonetheless, this was based on monitoring and forecasting which is detecting the meaning and actuality of these trends and developing projections. And finally, determining the timing and importance of the environment changes and trends for firms strategies and their management are assessed.
Components of the External Environmental Analysis
An important thing to remember when we talk about the environment is that external factors could be both positive and negative for the firm. When they’re positive, they are referred to as opportunities and when they are negative, they are threats.
Opportunities and Threats
- Opportunity
- A condition in the general environment that, if exploited effectively, helps a firm achieve strategic competitiveness.
- Threat
- A condition in the general environment that may hinder a firm’s efforts to achieve strategic competitiveness.
Segments of the General Environment
- The Economic Segment
- Uncertainty in:
- market growth rates
- consumer demand
- inflation and interest rates
- trade deficits or surpluses
- budget deficits or surpluses
- personal and business savings rates
- gross domestic product
- The Political/Legal Segment
- Regulations
- Consumer privacy laws
- Lobbying
- Antitrust, deregulation laws
- Taxation
- The Sociocultural Segment
- Changing attitudes and cultural values
- Attitudes and approaches to health care
- Attitudes about quality of worklife
- Diverse and aging workforce
- Women in the workplace
- Concerns about environment
- Shifts in work and career preferences
- Shifts in product and service preferences
- The Technological Segment
- Product innovations
- Rapid technological change and the risk of disruption
- Knowledge application
- Growth of the Internet
- New communication technologies
- The Physical Environment Segment
- individual buyers are not large customers of suppliers and there are many of them.
- suppliers’ goods are critical to the buyers’ marketplace success.
- suppliers’ products create high switching costs.
- suppliers pose a threat to integrate forward into buyers’ industry.
- Buyer power increases when:
- buyers are large and few in number.
- buyers purchase a large portion of an industry’s total output.
- buyers’ purchases are a significant portion of a supplier’s annual revenues.
- buyers’ switching costs are low.
- buyers can pose threat to integrate backward into the sellers’ industry.
Threat of Substitute Products
- The threat of substitute products increases when:
- buyers face few switching costs.
- the substitute product’s price is lower.
- substitute product’s quality and performance are equal to or greater than the existing product.
- Differentiated industry products that are valued by customers reduce this threat
Intensity of Rivalry Among Competitors
- Industry rivalry increases when:
- there are numerous or equally balanced competitors.
- industry growth slows or declines.
- there are high fixed costs or high storage costs.
- there is a lack of differentiation opportunities or low switching costs.
- when the strategic stakes are high.
- when high exit barriers prevent competitors from leaving the industry.
Ethical Considerations
- Practices considered both legal and ethical:
- Obtaining publicly available information
- Attending trade fairs and shows to obtain competitors’ brochures, viewing their exhibits, and listening to discussions about their products
- Practices considered both unethical and illegal:
- Blackmail
- Trespassing
- Eavesdropping
- Stealing drawings, samples, or documents
Chapter 3: The Internal Organization: Resources, Capabilities, Core
Competencies, and Competitive Advantages
To recap from last week / chapter 3: Analyzing the External Environment
But, by analyzing the internal environment, you will be able to determine what is possible or what your firm is actually capable of doing. Analyzing the Internal Organization
- By studying the internal environment, firms identify what they can do.
- The internal environment consists of unique resources, capabilities, and competencies ( required for sustainable competitive advantage ) – and recall that we have seen the theory of sustained competitive advantage in COMM 210 (a sustained competitive advantage is a resource that is valuable, rare, difficult to imitate (costly) and nonsubstitutable with another product.
Components of an Internal Analysis
- talented managers
- It’s also important to note that resources could be tangible and intangible
- Types of Resources
- Tangible resources:
- financial
- physical
- technological
- organizational
- Intangible resources:
- human
- innovation
- reputation Table 3.1 demonstrates tangible resources and how they could work as an advantage:
Whereas Table 3.2 demonstrates intangible resources and how they could work as an advantage. These tables could be useful for assignments.
Creating Value
- By exploiting their core competencies or competitive advantages, firms create value.
- So how do we determine value in strategy? Value is measured by:
- product performance characteristics.
- product attributes for which customers will pay.
- Firms create value by innovatively bundling and leveraging their resources and capabilities. So this goes back to my point earlier about the complexity and interactions between factors – it makes an outsider, when looking in, have a hard time pinpointing wat exactly drives this companies performance in a deeper way aside from determining sales.
- Superior value leads to above-average returns.
Creating Competitive Advantage
- Core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage. - This is where competencies of the people and production meet to create a competitive advantage.
- Core competencies of a firm, in addition to the analysis of its general, industry, and competitor environments, should drive its selection of strategies.
Capabilities:
- Represent the capacity to deploy resources that have been purposely integrated to achieve a desired end state.
- emerge over time through complex interactions among tangible and intangible resources. - As the company grows and diversifies, the firm increases in capabilities.
- often are based on developing, carrying and exchanging information and knowledge through the firm’s human capital.
- composed of the unique skills and knowledge of a firm’s employees.
- include functional expertise of employees.
- often developed in specific functional areas or as part of a functional area.
- value
- rarity
- costly-to-imitate
- non-substitutability
Table 3.4 elaborates on these criteria.
- A valuable capability helps…
- Rare capabilities…
- It’s important to distinguish ‘costly to imitate’ and nonsubsitutable’ because I find that it sounds the same
Parity = equal
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product (i.e., good and/or service) to the end customer.
- Value Chain Analysis:
- allows a firm to understand the parts of its operations that create value and those that do not.
- It is a template that firms use to:
- understand their cost position.
- identify multiple means that might be used to facilitate implementation of a chosen business-level strategy.
As a result of value chain analysis, a firm may outsource all or only part of one or more primary and/or support activities.
- However, there are always Cautions and Reminders to take into consideration, and these are - Never take for granted that core competencies will continue to provide a source of competitive advantage. - Things in the external environment could impact what you have going on internally - All core competencies have the potential to become core rigidities – former core competencies that now generate inertia and stifle innovation. - In other words, all the core competencies have the potential to become nothing or could remain unchanged as the external environment continues to change. - So determining what the firm can do through continuous and effective analyses of its internal environment will increase the likelihood of long-term competitive success.
That said, your strategy will be impacted depending on which market you’re targeting.
Once we’ve determined WHO, we must determine What: Which Customer Needs to Satisfy
- Customer needs are related to a product’s benefits and features.
- Customer needs are neither right nor wrong, good nor bad.
- Customer needs represent desires in terms of features and performance capabilities. In other words, what do our clients want?
Once we know what our clients want, then we must figure out how we will give it to them. How: Determining Core Competencies Necessary to Satisfy Customer Needs
- Firms must decide:
- How to use core competencies to implement value creating strategies that satisfy target customers’ needs.
- Only firms with capacity to continuously improve, innovate and upgrade their competencies can expect to meet and/or exceed customer expectations across time.
The overall Purpose of a Business-Level Strategy
- Business-Level Strategies:
- are intended to create differences between the firm’s competitive position and that of its competitors.
- To position itself, the firm must decide whether it intends to:
- perform activities differently or
- perform different activities as compared to its rivals.
It’s often repeated that business level strategy is used to create a competitive advantage. But it’s important to articulate the type of competitive advantage. Generally, there are 2 types: Types of Potential Competitive Advantage
- Achieving lower overall costs than rivals
- Performing activities differently (reducing process costs)
- Possessing the capability to differentiate the firm’s product or service and command a premium price - Performing different (more highly valued) activities.
Depending on the industry or external environment, a business strategy will be aimed at a broad or narrow scope. Competitive Scope
- Broad Scope
- The firm competes in many customer segments.
- Narrow Scope
- The firm selects a segment or group of segments in the industry and tailors its strategy to serving them at the exclusion of others.
Now depending on the scope of the market and the basis of customer value, there are 5 strategies we could choose from at the business level.
Recall we looked at Business Level Strategies
- Which are based on the basis of customer value and the target market
So when we are aiming for a lower cost product geared towards a broad market Cost Leadership Strategy is suggested
- This strategy is described as an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors. - For example, if your product is a tissue or a mask.
- The characteristic of these Products are
- Relatively standardized (commoditized)
- Their Features are broadly acceptable to many customers
- You are seeking to offer the Lowest competitive price
- So when analyzing your product using this rubric of business level strategis, cost saving actions are required. These actions include: - Building efficient scale facilities - Tightly controlling production costs and overhead
Then if your goal is to offer a distinct product to a broad market Differentiation Strategy is recommended.
- This strategy is described as an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them. - Focus is on non-standardized products - Appropriate when customers value differentiated features more than they value low cost - For example, the first iPad would be an example of a non-standardized product that is aimed towards customers that value differentiated features more than they value lower cost.
The way to obtain a Differentiation Advantage is by
- Controlling Cost Drivers if needed (recall in cost-leadership this is not an option it’s the basis of the strategy).
- And you will want to reconfigure the Value Chain to maximize the client’s experience
o You might want to lower buyers’ costs (again, this is not the main focus) o Raise performance of product or service o Create sustainability through perceptions of uniqueness and reluctance to switch (this is all done through marketing).
Like with every strategy, there are also some Competitive Risks to Differentiation
- These risks include o The price differential between the differentiator’s product and the cost leader’s product becomes too large. Then if it’s too large, you may loose a big part of your existing customers; whereas if it’s just right, it may not take a lot of convincing for them to go with the premium option. o Differentiation ceases to provide value for which customers are willing to pay. o Experience narrows customers’ perceptions of the value of differentiated features. o Counterfeit goods replicate the differentiated features of the firm’s products.
Now we will turn the page to Focus Strategies, in which the market is more narrow
- These strategies are described as an integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment. This segment could be a particular buyer group—youths or senior citizens, for instance. - It could also be Different segments of a product line—for example something that is sold to professional craftsmen versus do-it-yourselfers. - Or, different geographic markets—east coast versus west coast, they have different preferences based on lifestyles.
- There are two Types of focused strategies
- Focused cost leadership strategy
- Focused differentiation strategy
- To implement a focus strategy, to a narrow market, firms must be able to:
- complete various primary and support activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns. So what does this mean?
Factors That Drive Focused Strategies
- Large firms may overlook small niches that represent the narrow markets described here.
- Some firms may lack the resources needed to compete in the broader market; therefore the choose to focus on the narrow market. - We often see this on shark tank, sometimes entrepreneurs come on and present products aimed at pregnant women or working parents of young children. They get very specific.
