In many open markets, most goods and services can be purchased from any number of companies, and customers have a tremendous amount of choice. It’s the job of companies in the market to find their competitive edge and meet customers needs better than the next company. So, how, given the high degree of competitiveness among companies in a marketplace, does one company gain competitive advantage over the others? When there are only a finite number of unique products and services out there, how do different organizations sell basically the same things at different prices and with different degrees of success? This is a classic question that has been asked for generations of business professionals. In 1980, Michael Porter published his seminal book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors”, where he reduced competition down to three classic strategies: Cost leadership, Product differentiation and Market segmentation. These three generic strategies Continue reading
Strategic Management Concepts
What are Dynamic Capabilities?
Concept of Dynamic Capabilities of a Firm A dynamic capability refers to company’s ability to integrate, build and transform internal and external competencies. They can help an organization to achieve innovative forms of competitive advantage through integration, building and transformation of internal and external competencies, as to respond to changes in the environment. This management theory was defined by David Teece, Gary Pisano, and Amy Shuen in their 1997 paper Dynamic Capabilities and Strategic Management. In the context of achieving organizational change, aligned to the external pressure: namely, these capabilities are perceived as business processes that use resources — specifically the processes of integration, restructuring, acquisition and release resources — to adapt or create market changes. Dynamic capabilities are especially helpful in explaining the sources of competitive advantage in extremely volatile markets. Dynamic capabilities are determined by organizational and managerial processes, positions and paths. The organizational and managerial processes refer Continue reading
Impact of Organizational Culture on Strategic Management
An organization is a common platform where individuals from different backgrounds come together and work as a collective unit to achieve certain targets and goals. It contains individuals with different specializations, educational qualifications and work experiences all working towards a common objective. Culture is something which one inherits from the ancestors and it helps to make a distinction between one individual and others. It is termed as culture with the attitude, identify and behavioral patterns by means of governing the way an individual interacts with others. Meanwhile, strategic management is the process in which a management team develops a mission and vision, objectives and goals, roles and responsibilities and values which ensure the success of the organization. Organizational culture significantly influences the performance of an organization. Furthermore, strategic management helps in making the organizational culture through developing the vision, mission and values. So the appropriate strategic management would improve the Continue reading
Porter’s Generic Competitive Strategies
In 1985, in his book Competitive Advantage: Creating and Sustaining Superior Performance, Michael Porter, outlined a set of generic strategies that could be applied to all products or services. In coping with the Porters model of five competitive forces, there are three potentially successful generic strategic approaches (also known as Porter’s Generic Competitive Strategies) to outperforming other firms in an industry: Overall cost leadership. Differentiation. Focus. Sometimes the firm can successfully pursue more than one approach as its primary target, though this is rarely possible as will be discussed further. Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target. The generic strategies are approaches to outperforming competitors in the industry; in some industries structure will mean that all firms can earn high returns, whereas in others, success with one of the generic Continue reading
Accounting Methods Used in Merger and Acquisition Transactions
The two principal accounting methods used in mergers and acquisitions are the pooling of interests method and the purchase method. The main difference between them is the value that the combined firm’s balance sheet places on the assets of the acquired firm, as well as the depreciation allowances and charges against income following the merger. The pooling of interests method assumes that the transaction is simply an exchange of equity securities. Therefore, the capital stock account of the target firm is eliminated, and the acquirer issues new stock to replace it. The two firms’ assets and liabilities are combined at their historical book values as of the acquisition date. The end result of a pooling of interests transaction is that the total assets of the combined firm are equal to the sum of the assets of the individual firms. No goodwill is generated, and there are no charges against earnings. Continue reading
Resource Based View (RBV) of Competitive Advantage
Jay Barney’s approach is known as resource based view of competitive advantage operates on the assumptions that firms are heterogeneous in terms of their control of important strategic resources and that resources are not perfectly mobile between firms. Firm resources are defines as strengths that firms can use to conceive of and implement their strategies. Classifications of resources are physical capital resources, human capital resources and organisational capital resources. Physical technology, plant and equipment, geographic location and access to raw materials come under physical capital resources. Human capital resources are the training, experience, judgement, intelligence, relationships and insight of the individual managers and workers of the firm. Organisational capital resources include the formal reporting structure, the informal and formal planning, coordinating and controlling systems, the informal relations among groups within a firm and other agents in the firm’s environment. Summary of resource based view is that firm can only have Continue reading