Strategic Decisions for Sustainable Competitive Advanatage

Strategic Decisions for Sustainable war-ridden AdvanatageIntroduction Competitive proceeds correspond to Daft, dodging is the plan of action that each(prenominal)ocates options and activities and aims at dealing with the environment, achieving a combative prefer and attaining the placements goals. Competitive good refers to what sets the organisation apart from another(prenominal)s and provides it with a distinctive edge for meeting node call fors in the grocery store (Daft 2006, p.274). The choice that pull up s evolves coiffe the organisation contrary is the essence of formulating system ( gatekeeper 1996). In order to re principal(prenominal) free-enterprise(a), companies need to focus on affectionateness crystalize outncies, develop synergy and create repute.According to Kotler, warlike advantage is a corporations business leader to suffice in one or more(prenominal) ship counsel that competitors burn d avouch non or get out non match (Kotler 2006, p.150). A belligerent advantage is said to be sustainable when it has the means to edge out rivals when competing for the favours of customers (Porter 1980). Although sustain superpower is the perfection case for advantages, the most viridity private-enterprise(a) advantages argon leverageable, which means that a company passel use them as a catalyst to virgin ones. The competitive advantages that companies develop pull up stakes fail if the embodyumers do non valuate them as important. Therefore companies must focus on mannequining customer advantages.Porter palisades that competitive advantage results from a organisations ability to perform the required activities at a collectively smaller cost than rivals, or perform some(prenominal) activities in unique panaches that create buyer value and hence allow the organisations to command a agiotage price (Porter 1991, p.102).This cross will settle to investigate the strategicalal decisions to secure sustainable competitive advantage. Four variant theories will be examined The SCP mental image, Porters generic strategies, the resource-based approach and the core out competencys personate. These theories, along with the the compliance and choice paradox will be tested through application in place at the persistence of manoeuvre cabinets.The SCP exampleIn the expression conduct consummation (SCP) framework (Anonymous 2007), the way in which the organisation acts is readyd by external forces in the diligence ( market place or industrial body structure). This school of thought argues that the structure of an persistence will determine the strategies (conduct) and that this in turn will determine performance.Market structure the degree of market concentration, product distinction, barriers to entry and exit, vertical integration and diversification. transfer goals of the organisations, strategies, anti-competitive practices, research and innovation, advertising etc.Performance a number of performance indicators, output growth, sales r levelue growth, makeability, technical progress, employment, efficiency, added sh argonholder value, added economic value.Therefore, the structure of the effort is the key parameter in the formation of strategy. Not all strategies are appropriate for all industries, Successful strategies whitethorn fail (not reach the int delayed outcome) if applied as-is in a unalike environment.However, this linear paradigm proves itself too deterministic. When strategic managers apply this approach, they take the industrial structure as a given. In this way, their job is to respond to the external forces and plan their strategies in an automated way by analysing the competitive environment. However in some industries the environment follows turbulence change. Strategists tend to change the environment by excogitation strategies that will shape it to their needs and their advantage, instead of be spectators to the change. In these cases, the effort structure is being shaped by the strategies, and not the other way round as the SCP paradigm argues.Five Forces and Generic StrategiesMichael Porters (Porter 1980) work is organisationally grow in the SCP paradigm. According to his approach, two factors underlie the choice of competitive strategy. effort attractiveness and the factors that determine it.The determinants of relative competitive incline deep down an intentness.In order to analyse the industry attractiveness, Porter highly-developed the Five Forces model. According to that, in any industry competition is mutually influenced by louver forces The entry of sensitive competitors, the threat of alternate(a)s, the bargaining billet of buyers, the bargaining power of suppliers and the rivalry amongst the competitors.Although the Five forces model roots within the SCP approach, Porter differentiates in that he argues that an organisation is not a prisoner of its industry structure. finished their st rategies, organisations can shape industry by influencing the competitive forces. For example, industry leadership can influence buyers, suppliers and other competitors, and subsequently shape the underlying industry structure.Competitive strategy is also influenced by the specific relative position within the industry. Through positioning, organisations can possess two basic types of competitive advantage low cost and differentiation. These types of competitive advantage result from the ability to cope with the industrial forces improve than the competitors. Porter introduces three generic competitive strategies for achieving above-average performance in an industry. greet leadership, when the organisation tries to become the cheap manufacturing business or operator of the industry.Risks associated with cost leadership includeChanges in engine room allow new entrants to become themselves the cost leaders. This risk is minimised by constant research and development, except ob viously much(prenominal) investments require rise of costs.Margins guide when costs rise (by internal or external factors). In such scenarios, the differentiation advantage may all overcome the cost leadership one.Differentiation, when the organisation seeks to be unique within the industry along some dimensions that are valued by buyers ( laster quality, more functions etc). If it succeeds, it is then rewarded for its uniqueness with a bounteousness price. However, when choosing to differentiate, companies should seek appropriate ways that lead to a price premium greater than the cost of differentiating.Risks of this strategy include representumers may choose some other tell product which they value more, or their needs change over time.Costumers may choose the low-cost products, especially when the price difference tends to be high.Other competitors may imitate the chosen differentiation.Focus, which rests on the choice of a narrow competitive scope within an industry and t he optimisation of the strategy for the target segment. In cost focus an organisation seeks a cost advantage in the target segment. In differentiation focus, the organisation seeks differentiation in the narrow segment.Risks associated with focus areThe focus strategy is imitated. In order for this to be avoided, entry barriers are required (e.g. assets valued by the costumers such as customer care assistants, reputation, etc).The target segment becomes unattractive.mostly targeted competitors dominate the segment. Again, entry barriers will sustain the competitive advantage experienced. geological formations that try to position on more than one generic strategy but fail to achieve any of them are stuck in the middle. Not moreover they do not possess a competitive advantage, but they are in a disadvantage situation, since the cost-leader, the differentiators or the focusers are already better positioned.Although Porters positioning framework is an industry standard for more than twenty years, Mintzberg (1998) argues that it constrains original thought. Strategists do not think outside the box and the given options (cost leadership, differentiation and focus) tend to minimise the process of strategic thinking.Resource-based viewAccording to Barney (1991), the environmental models of competitive advantage claim assumed that organisations within an industry are identical in terms of the resources they control and the strategy they pursue. Further, they assume that if resource heterogeneity develops within an industry, it will not last long since strategic resources are highly mobile (they can be bought and sold). The proposed resource-based view substitutes these assumptions. The model assumes that strategic resources can be heterogeneous and that these resources may not be perfectly mobile. Organisations resources include all assets, capabilities, processes, attributes, information, knowledge, etc, controlled by an organisation that enable it to consume st rategies that promote efficiency.In order for a resource to hold the potential difference of sustained competitive advantage, it must go through four attributes.It must be of import, exploiting opportunities and neutralising threats.It must be rare among active and potential competitors. A valuable resource cannot be considered as a source of competitive advantage if it is shared amongst a large number of organisations, because all organisations will have the capability to exploit it and will be lead to a common strategyIt must be imperfectly imitable. Valuable and rare resources can only be sources of sustained competitive advantage if competitors that do not possess them cannot obtain them.There cannot be strategically equivalent substitutes. Organisation resources are strategically equivalent when they can be exploited respectively to implement the same strategy. That is, an organisation may be able to substitute a similar resource that enables it to conceive and implement t he same strategy. Further, precise different resources may also be strategic substitutes.The proposed framework reasons that resources heterogeneity and immobility within an industry allow organisation resources to be valuable, rare, imperfectly imitable and not easily substitutable. Such resources will then lead to exploiting opportunities and neutralising threats, in order for sustained competitive advantage to be achieved.It should be noteworthy that a distinction is drawn in the literature between resources (tangible) and capabilities (less tangible) (Anonymous 2007). The framework of Barney unites both resources and capabilities under the umbrella of resources.Core competencesThere are some capabilities that are much less visible and they are more intemperate to imitate and establish competitive advantage. These are referred to as core competences (Anonymous 2007). Phahalad and Hamel (1990) take the resource-based approach one step further, through the notion of core compet encies. They argue that in the long run, competitive advantage depends on the ability to build core competencies at lower cost and more speedily. Management should consolidate corporate- panoptic technologies and doing skills into competencies that empower individual businesses to adapt promptly to environmental changes. tierce criteria are being use in order to categorise a capability as a core competence. A core competence should provide potential access to a wide variety of markets. It should make a significant contribution to the comprehend customer benefits of the end-product. Finally, it should be gruelling for competitors to imitate. Examples of core competencies include Apples ability to create from scratch and innovate and Sonys ability to miniature.According to this framework, the common mistake that companies do is to outsource and finally misplace their core competences, led to this by the strict perception of competitiveness in terms of price/performance. Although a more competitive product may result, competitiveness cannot be sustained as core competences will be surrendered. Another common mistake is that companies often miss opportunities to establish competences that are evolving in existing business. At the Strategic Business Unit level, existing core competencies are often being sabotaged by underinvestment and improper allocation, which may result in atrophy and missing opportunities.Case study ordinal Generation of video gambol consolesThe seventh generation of video period of play consoles is a competition between Sonys Playstation 3, Microsofts Xbox 360 and Nintendos Wii and started on November 2005 with the release of Xbox 360. Although sport is the main characteristic and attribute of these products, the war of High-Definition (HD) video formats between Blu-Ray and HD-DVD, two mismatched formats that tried to improve and replace the DVD standard, affected the industry (ref wikipedia HD war).Microsoft and Sony approached the market with cutting-edge artistry and expensive technology as well as HD video capabilities. Both consoles target hard-core and casual gimpyrs. Microsoft, being a member of the HD-DVD alliance chose to furnish the HD-DVD option as a marginal for its device, while Sony, a founding member of the Bly-ray alliance chose to integrate the Blu-ray role player within PS3.On the other open, Nintendo chose to differentiate. Nintendo did not take any sides at the format war. Wii targets a broader demographic than that of Microsofts Xbox 360 and Sonys PlayStation 3, as Nintendo planned to attract received hard-core and casual gamers, non-gamers, and lapsed gamers by foc utilize on new gameplay experiences and new forms of interaction with games. The differentiating feature of the console is its wireless controller, the Wii Remote, which can be used as a handheld pointing device and can strike acceleration and orientation in three dimensions.Positioning of the rivalsCompetitive stage s etting As analysed before, Microsoft and Sony both targeted the hard-core and the casual gamers. Nintendo on the other hand targeted broader demographic including non-gamers and lapsed gamers. According to Porters framework, the generic strategies can be shared into two categories in terms of the competitive scope Broad take and Narrow Target. Therefore, in the console industry Nintendo can be positioned within the Broad Target while Microsoft and Sony are positioned within the Narrow Target.Cost The choices of the competitors regarding their hardware shaped their manufacturing costs to a great extent. Indeed, Sony chose to compete using a new cpu processor (Cell) with a high production cost as well as by integrating the impertinently arrived Blu-Ray technology. Thus, Sony became the high-cost producer of the industry, with each console costing around $800 to produce (refJoystiq). Microsoft utilized industry standard high-end CPUs and GPUs and although they strongly supported th e success of the HD-DVD format, they decided to offer the HD-Dvd option as a peripheral component. This resulted in Microsoft being the low-cost producer of the Narrow Market (Cost Focus). Nintendo managed to keep the manufacturing costs very low by not follo takeg the path of high-end graphics. Wii (ref Kotaku) is not only the console with the less production cost, but it is the only one that has an actual profit from every unit sold (Cost leadership).Differentiation In the Narrow Target, Sony is the company that differentiates its products with the integration of the Blu-Ray drive, which enables the consumers to enter the High Definition video era (Differentiation Focus). In the Broad Target, Nintendo differentiates the whole idea of bid experience and fun by installing the Wii Remote (Broad Differentiation). The success on the Nintendos case is that the company differentiated the attributes but the costs did not rise.What is clear from this table in combination with the actual sales numbers is that Nintendo managed well in positioning in more than one generic strategy. That of course was a risk, as Porter (1985) claims that achieving cost leadership and differentiation is usually inconsistent, and may lead to stuck in the middle situations.Also, it should be pointed out that the type of Differentiation that Sony chose (Blu-Ray integration) involved high risks. At the time of the launch the battle for the domination of a new HD format had just started. In the case of a possible win of the HD DVD format, it is obvious that Sony would lose that differentiation competitive advantage and would need to re-plan its strategy. On February 2008 Toshiba, HD DVDs creator, announced plans to cease development, manufacturing and marketing of HD DVD players and recorders, giving an end to this war and announcing Blu-Ray as the winner (refwikipedia HD war). Its obvious that Sonys differentiation policy will start to pay-off from now on, but until Toshibas announcement th e differentiation policy was not valued highly by the consumers, thus not constituting a competitive advantage.Compliance and Choice The Nintendo caseA question is raised on whether or not an organisation should attempt to shape its industry. If an organisation can lead industry developments, the results will be attractive. If the industry norms that are being questioned prove themselves immutable, the attempt might prove suicidal. When the structure of the industry cannot be influenced, compliance to the industry norms is the strategic rule and managers should adapt the organisations to the industry context. On the other hand, when they have the ability to influence the industry structure they should break industry norms by exercising their freedom of choice. In this case managers efforts should be on the direction of changing the terms of competition on their own advantage (De Wit 2004).Up to the seventh generation of video childs play consoles, the industry rules dictated that t he consoles should compete in a range of different characteristics such as graphics power, cpu power and max game titles. If a company could top these characteristics, their console would dominate the industry. Sony dominated the 6th generation taking advantage of their ability to have a wide variety of anticipated exclusive game titles.At the seventh generation, Sony and Microsoft compete by following(a) the industry pattern of cutting-edge graphics and exclusive titles. Nintendo tried to shape the rules, by choosing not to compete on the graphics war, but instead pushed the industry to another direction. The Wii Remote controller makes games more fun and gamers experience new forms of interaction (ref wikipedia seventh generation).The reception of the console by the press was a great success. The console received many different awards, including an Emmy for Game Controller Innovation by The National academy of Television Arts and Sciences, a Golden Joystick for Innovation of the course 2007 at the Golden Joystick Awards and the award in breakthrough technology by Spike TVs impression Games. The reception by the market was even greater. Wii is the best selling 7th generation console worldwide. It even outsold Microsofts 360, which launched a year earlier (refwikipedia Wii).Nintendos choice of not following the industry recipe paid off. This move granted a competitive advantage because consumers valued the industry shift. If Nintendos estimations regarding the perception of the value were wrong, the company would have failed in this generation. simply since they proved correct, they can claim that they are the 7th generation industry leaders.Microsofts Resources and Core CompetencesMicrosoft decided to seek competitive advantage in the industry by utilising their capabilities and competences. One of the main capabilities of Microsoft is creating operating systems and software. Therefore, they developed the Xbox Live service (ref wikipedia Xbox Live), a unified online multiplayer gaming and digital media delivery service which merged many different features that added value to the console, includingFriends inclining and Recent player listWindows Live messenger integrationVoice and Video ChatVideo ChatMultiplayer online gameplayParental controls, limiting childrens exposure to other users (Family Settings)This capability of Microsoft is a core competence because it fits the descriptionIt provides potential access to a wide variety of markets (software market, services market, gaming industry).It makes a significant contribution to the perceived customer benefits of the end-product.Finally, it is difficult for competitors to imitate, since neither Sony nor Nintendo have software expertise. They both developed online services through outsourcing but they still have not managed to make them as unified and full of features as the Xbox Live.Competing with Sony for the hard-core and casual gamers, Microsoft used its core competences an d resources and finally managed to gain competitive advantage. The task was not so easy because the brand name of Playstation was almost a synonym for gaming console in the previous generations. However, the sales numbers indicate that Sony is farthest behind Microsoft in the 7th generation consoles war.ConclusionThe search for competitive advantage is of great importance for every organisation. This report investigated the strategic decisions to achieve sustainable competitive advantage through the examination of four different theories.The SCP framework is a deterministic approach. It is argued that the structure of an industry will determine the strategies and that these in turn will determine performance. Porter, although routed in the SCP framework, recognises that an organisation is not imprisoned by the structure. He introduces the Five Forces framework to analyse the industry attractiveness which plays an important role, but also argues that an organisations competitive suc cess depends on the competitive position within the industry through three generic strategies Cost Leadership, Differentiation and Focus. However, Mintzberg criticises in that the given options of generic strategies minimise strategic thinking. The resource-based view and the core competences models argue that sustained competitive advantage resides on the development and usage of resources, capabilities and competences.In the 7th generation of video gaming consoles the three competitors tried to gain competitive advantage through different ways. Microsoft utilised its core competences (software development) and resources and established an online environment to support its Xbox 360 console. On the other hand, Nintendo achieved competitive advantage by positioning at both Cost Leadership and Differentiation. In addition to that, Nintendo risked by choosing not to comply with the industry norms of high-end graphics but to try to shape the industry towards innovative gameplay experien ce. As the numbers indicate the competitive strategies chosen by both Nintendo and Microsoft have paid-off. Sony risked by choosing to differentiate with the integration of the Blu-Ray optical drive. If the format war had stop in favour of HD DVD, Sonys differentiation would have been vanished. In addition, the differentiation introduced by Sony was not highly valued by the consumers while the war was in progress, and the numbers indicate that Sony has already fallen behind.The application of the theories in practice revealed that differentiation strategies involve high risks. However, if successful, the rewards can be enormous. Not following the industry norms is again risky, but managing to finally shape the industry will show the way to the market leader position.ReferencesAnonymous (2007), Strategic compend and Choice Module Book Edition 12, Management Centre, University of LeicesterBarney, J. B. (1991), Firm Resources and sustain Competitive Advantage, Journal of Management, Vol. 17, No. 1, pp. 99-120.Daft, R. L. (2006), The new era of management, International Edition, South-Western, capital of the United KingdomDe Wit, B. and Meyer, R. (2004), Strategy Process, Content Context 3rd edition, Thomson Learning, LondonJoystiq, http//www.joystiq.com/2006/02/18/playstation-3-estimated-to-cost-900-per-unit/, 25 February 2008Kotaku, http//kotaku.com/gaming/wii/wii-autopsy-discovers-manufacturing-cost-221736.php, 25 February 2008Kotler, P. and Keller, K. L. (2006), Marketing Management 12e, Pearson Prentice HallMintzberg, H., Ahlstrand, B. and Lampel, J. 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