Strategic Management and Factors

Questions: 1.Define critical success factors, resources and competences. Using examples to illustrate your answer, discuss how understanding and managing these different elements can create sustainable competitive advantage.? 2. Why might organic (or internal) development be recommended as an appropriate method for strategic development? With examples highlight the risks and benefits associated with this strategic method? 3. Discuss the contrasting characteristics and objectives of a cost leadership strategy and a differentiation strategy. How do Porter (1980) and Bowman (1995) differ in their view on combining these approaches to competitive strategy? Answers: 1. Critical Success Factors, Resources and competencies The critical success factors, competencies or the resources are basically the factors or activities that are required for the success of the business. The critical success factors are normally used in business analysis and data analysis. Critical success factors are used so that the organizations could identify those factors on which the organizations shall focus for being successful. Definition of Critical success Factor: the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization(annoynomous 2016). Importance of critical success factors for the organization or business: It is important to identify the critical factors as these factors allow the firms for focusing their efforts on the building of the capabilities to meet the success factors and it allows the firms to decide if the firm posses the capability to meet those critical success factors that are important for the success of the business. Some of the examples of generic critical success factors are, Good distribution, effective advertising and new product development. Types of critical success factors There are four types of critical success factors: Strategy Critical Success Factors: Strategy critical success factors that are the result of the chosen strategy for the business. Industry Critical success Factors: These factors are the results of the specific industry characteristics. Temporal Critical Success Factors: These factors results from the internal changes and needs of the organizations. Environmental Critical Success Factors: These factors are the result of the technological and economic changes in the environment(Bryson 2011). Examples of Critical Success Factors: Following are the examples of critical success factors that are important for the organization success: Staff orientation Training Quality data and reporting Role of quality department Continuous improvement Communication for improving the quality Customer satisfaction Management commitment The sources of critical success factors There are basically four sources of Critical success factors. The sources are: The company: The Company itself is one of the sources of the critical success factors, as the geographic location and the competitive strategy of the company serves as one of the source of the critical success factors. As for example, When a firm decides to compete in the market on the basis of quality then for that company the critical success factors are identification and the delivering of the featured products for the satisfaction of the consumers. The industry: Another source for the critical success factors is the industry in which the company carries its business(Kalpan Financial Bank 2015). For example, a car industry has compliance requirements in relation to the pollution requirements as its critical success factor(Smith 2005). Temporal organizational factors: The areas that are unacceptable and that need special attention by the company come under the temporal organizational factors. For example, The Company that is having liquidity problems can place the short term cash management as its CSF. The Wider environment: The consumer trends, political factors and the economy in which the company operates come under these factors(Williamson 2013). There are many theorists that argue that the proper management of the competencies across the market rather than being focused only on one industry. As the critical success factors are considered to be very important for the organizations and they shall never be ignored so as to achieve the competitive advantage. The identification and addressing the critical success factors that are prevailing in an industry is very important for the organization for gaining competitive advantage. If the company wants to gain competitive advantage in the industry then it is required that the company focuses .on the resources. They are basically the important areas of where to compete and how to compete. If a company plans to compete through the critical success factors then no doubt the company is attempting to do what the other companies are doing but through critical success factors the company does in a better way. The methodology for the success through the critical success factors is as follows: Define where to compete Here the steps that the company could follow are: Identification of the product segments and the customers Matching the products to the market segment Identification of the revenue potential of the different segments Choosing the most appropriate segments for competing Define how to compete Identification of the value chain steps Identification of the various variables Identification of the most critical points that help in delivering value to the customers Choosing the step that helps in providing the competitive advantage Perform the benchmarking: If there are any kind of inadequacies then accounting for that and after that reformulating the strategies. Evaluating the capabilities of the company that are relative to its competitors. Making a strategic decision on critical success factors: Determine if the key success factors are feasible for attaining the competitive advantage. 2. Organic development: The organic growth refers to the strategy where by the company strengthens itself by using the energy and resources of the company itself. This strategy is sometimes also called the internal growth strategy(Partridge Hunt 2012). Though this approach of the company is very slow growth of the company as compared to the other options but it has a relatively low costs involved in it that makes this option very attractive for the business owners who are working on a small scale and who are willing to expand their business on the large scale but they do not have large amount of capital available with them. It is a strategy under which the business tries to expand its operations by increasing the output, new product development and a customer base expansion. There are various benefits and limitations involved in this strategy as well but overall this strategy is very good for the short term expansion and growth of the business(Johnson 2008). Benefits of the strategy The main benefit of following this strategy is that a company develops the companys own strengths through the organic growth than the company can become a stronger competitor in the market. For example, a company that keeps on devoting its profits on a continuous basis on the improvement of the quality control department than that company would be able to offer increasing value to their customer that helps in making it a formidable competitor. Through the help of organic growth the market share and the customer retention can also be improved. If a company reinvests its profits in the customer service departments and sales then it can attract more customers by strengthening the relationship with the existing customers. Disadvantages of the strategy The main disadvantage of the organic strategy is that there are faster results of the external growth strategies. As for example we can say that home security spends many years on the development of its marketing team or if it decides to acquire a firm that has strong marketing expertise, here it can be seen that the latter approach requires a large amount of money that is the reason as to why the organic growth strategy can be considered to be the best option for many of the small businesses. Risks involved in the organic strategy There are various risks that are presented by the organic growth strategy. As for example a person decides to grow its business organically whereas its competitor uses the external growth by merging with different businesses(Angwin 2014), so here the company following the organic growth strategy can grow very well in a very short span of time and on the other hand the competitor if plans to grow in a rapid way would shift its focus from the important elements that are very much necessary for the business for example providing the high quality products and better customer services. 3. There are various strategies that are suggested by Porter for seeking the competitive advantage. The Strategies that are suggested by Michael porter are: Cost Leadership strategy Differentiation strategy Focus strategy Cost leadership strategy The cost leadership strategy is the strategy that is used by the business so a s to create the low cost of operations(Saint 2013). The main use of this strategy is for the purpose of gaining the competitive advantage by the reduction of the operations cost below the competitors in the same industry. Under this strategy the companies decide the various ways of lowering the costs of their products as compared to its competitors so that they can attract various customers(Whiting 2014). This generic strategy calls for the low cost producer that is present in an industry. The products of the firm are either sold at the average industry prices so that higher profits can be earned or the higher costs as compared to its rivals so that more market share can be gained. The various ways that are used by the firm for acquiring the cost advantages are by the gain of unique access to the large sources, by improving the efficiencies. Objectives of cost leadership strategy The objectives of the cost leadership strategy include: Lowering the cost of the products Attracting the customers Gaining competitive advantage Gaining more market share The firms that is successful in using these stragey posses the following internal strengths: They have efficient distribution channels Better skills for designing the products for efficient manufacturing of the products High expertise level Good access to the capital investment Differentiation strategy The differentiation strategy is the strategy under which the company offers the products to its customers that are unique in the characteristics and attributes. The differentiation strategy usually calls for the distintictive attributes in the products and services that sets the business apart from the business of the competitors(Griffin 2007). The company that decides to follow the differentiation strategy has an intention of creating a perceived value of the product or service in the eyes of the customers as a unique product that is far better than that of the competitors(Conklin 2009). This strategy calls for the product or a service that has various unique attributes that the customers always value. The value added characteristics of the product help he producer to charge a premium on the products. This higher price in the form of premium helps the company to overcome the extra cost that they have incurred. The objectives of differentiation strategy are: Introducing unique and distinctive products to the customers Attracting the customers Gaining competitive advantage The firms that are successful in the use of the differentiation strategy have the following strengths: The product development team of such companies is expert and highly skilled They have a corporate reputation of innovation and quality products They have access to the scientific research They have strong sales team those who possess the ability for communicating in a successful manner. Bowman has developed a strategy clock that is a model used by various companies to design the marketing strategy for analyzing the competitive position. Under this model the relationship between the prices and the customer values are represented in the diagrammatic representation. On the other hand there were generic strategies that were developed by Michael Porter and these are known as Porter marketing technique(Obitz 2009). These theories showed the three ways in which the companies can give tough competitions to their competitors and provide satisfaction to the consumers. According to Porter the companies often compete in the market for three things that is on the basis of price which is known as cost leadership, on the basis of perceived value that is known as product differentiation and on the basis of focus that is known as market segmentation. Offering more perceived values or providing the products and services at lower prices become one of the very popular ways of gaining c ompetitive advantage(Williamson 2013). There were many companies who found these strategies to be very general and hence they were interested in thinking some other strategies. Then a strategy was developed by Cliff Bowman that was known as the Bowmans Strategy clock in the year 1996 and this strategy was based on the generic strategies of Michael Porter. Under this strategy there are eight strategic options that are available with the companies that they could follow while comparing their strategic edge. There are many companies who use the strategy of Bowman as a framework to create an edge against the competition. There are eight directions for a business to travel. Following are the eight strategic positions of the strategic clock of Bowman: Low price or low added value: The companies often chose this position when their product lacks differentiation. This option can be applied by cost effectively selling volume and attracting new customers on the continuous basis. Low Price: The Company selects this option when the company is a low cost leader. Under this strategy the profit margin of the company will be very low because here the company wants high sales volume. Hybrid: Here the companies offer the customers with the products at a low price but the perceived value is higher as compared to its competitors. Differentiation: Here the company develops the products and services that offer unique characteristics that are often valued by the customers. Focused Differentiation: Here the company offers the product that has highest perceived values along with highest prices. This strategy is suitable for the company that buys the products based on the one factor that is the perceived value of the product(Ahmed 2014). Risky, High Margins: Here the company just increases the prices of the product for increasing its profit margin without taking care of the perceived margin of the product. Monopoly Pricing: Here, the strategy is used when there is only one company that offers the products and services and it is a monopolistic company. Loss of market share: The company following this strategy often tend to lose the market share as here the company has low value of the products and services offered by them. Conclusion It can be concluded here that the organic growth development or the organic growth strategy is very important strategy that is followed by the business for its expansion and growth. It provides various benefits to the company that can be fruitful in the short run as well as the long run(Mack 2014). Though this strategy is not free from the disadvantages but the benefits of this strategy overcome its disadvantages and hence this strategy is best option for the expansion of the small scale business that do not possess the necessary resources and financial resources for expanding and growing its business. Bibliography Ahmed, G 2014, Study Lecture notes, viewed 17 December 2016, https://www.studylecturenotes.com/management/bowmans-strategy-clock-model-its-eight-competitive-directions-for-edge. 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