The competitive advantage, a concept introduced by Michael Porter in 1985 has become one of the key concepts in management science today. A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. Over the past 25 years, a large body of literature engaged in analyzing how organisations can achieve and, more importantly, sustain a competitive advantage. During this process, two different perspectives or ‘schools of thought’ emerged. The first school of thought is that an organization’s competitive ability depends more on the external environment and industry attractiveness. This perspective is referred to as the market based view and was largely triggered by Porter. The second school of thought is based on the internal environment i.e. the fundamental attributes of an organisation, in terms of strengths and weaknesses determine a firm’s ability to compete. Continue reading
Strategic Management Concepts
Five Reasons Why Organizations Change Constantly
As an organization becomes larger the need for strategy and structure change becomes apparent. Strategic change involves altering employees’ construction of meanings by using a discourse that sets a new direction for a firm. All organizations need to make changes in their strategies, structures, management processes and administrative procedures. Many organizations go about this change using a dual core approach, which is a balance between the technical side and the management side of an organization. The technical side refers to the employees who actually produce the product or service that the company offers while the management side ensures that the day to day operations of the company are being fulfilled and the performance objectives are being met. While the two sides may have very different ideas of what changes need to take place, it is imperative that both sides be on the same page and working toward the same goal. Continue reading
ADL Matrix – The Arthur D Little Strategic Condition Matrix
The ADL Matrix or Arthur D Little Strategic Condition Matrix is a Portfolio Management technique that is based on the Product Life Cycle (PLC). It is developed in the 1980’s by Arthur D. Little, Inc. (ADL), one of the best-known consulting firms, intended to help a company manage its collection of product businesses as a portfolio. Like other portfolio planning matrices, the ADL matrix represents a company’s various businesses in a 2-dimensional matrix. It is a structured methodology for consideration of strategies which are dependent on the life cycle of the industry. The ADL approach uses the dimensions of environment assessment and business – strength assessment ie. Competitive Position and Industry Maturity. The environment assessment is an identification of the industry’s life cycle and the business strength assessment is a categorization of the company’s SBU’s into one of five competitive positions, these five competitive positions by four life cycle stages. Continue reading
Michael Porter’s Four Corners Model
Profiling a specific competitor is often important to management. However, many competitive profiles will fail to give management insights into how competitors will respond to your own strategy. Understanding this inter-relationship is important for knowing how to position your company in relation to the competition. One of the most popular models for this type of competitor analysis is the so-called Four Corners Analysis. The Four Corners Analysis developed by Harvard Business School professor and strategy guru Michael Porter is a model well designed to help company strategists assess a competitor’s intent and objectives, and the strengths it is using to achieve them. By examining a competitor’s current strategy, future goals, assumptions about the market, and core capabilities, the Four Corners Model helps analysts address four core questions: What drives the competitor? Look for drivers at various levels and dimensions so you can gain insights into future goals. What is Continue reading
Capacity Expansion Strategy
Growing an existing business often involves expansion of capacity, in terms of plant, human resources, technological infrastructure, R&D facilities, etc. Any major capacity expansion is a strategic decision that involves significant resource commitments and is often difficult to reverse. So such a decision has to be made carefully. Capacity expansion strategy is often narrowly applied to manufacturing. But in many businesses, there is no or little manufacturing. So, capacity needs to be understood in terms of the investments made in the most critical area of the value chain. Thus, in the pharmaceutical industry, capacity has to be defined in terms of scientific manpower and sales force. In a software development company, capacity has to be understood in terms of the number of programmers employed. In a Business School, capacity may be defined as the number of professors available to teach students. According to Michael Porter, the decision to expand capacity Continue reading
SWOT Analysis – A Strategic Planning Tool
SWOT is an acronym for internal Strength (S) and Weakness (W) of an organization, and external Opportunities (O) and Threats (T) facing that organization. A merging of the organization’s resources with the opportunities in the environment results in an assessment of the organization’s opportunities. This merging is frequently called SWOT analysis because it brings together the organization’s Strengths, Weakness, Opportunities, and Threats in order to identify a strategic niche that the organization can exploit. SWOT analysis provides information that is helpful in matching the firms’ resources and capabilities to the competitive environment in which it operates and is therefore an important contribution to the strategic planning process. Having completed the SWOT analysis, the organization reassesses its mission and objectives. In the light of the SWOT analysis and identification of the organization’s opportunities, management reevaluates its mission and objectives. Are they realistic? Do they need modification? If changes are Continue reading