Question 1: What is strategy? Why is it necessary for organizations to have a strategy?
The term “strategy” has military roots; it comes from tactical terminology.
“Strategy develops policies designed to achieve them through concrete steps that harness the resources of the organization” (Kuian, 2013). From this perspective, strategy could be considered as a plan for the whole organization which sets out how the organization examines and assesses its operational (internal and external) environment, allocates its resources (these resources could be cognised as financial resource, human resources, physical resources and intellectual resource) and then designs concrete steps to reach the organization’s long-term goal.
Assessing the organization’s internal environment could help the organization to analyze its strengths and weaknesses, corporate the organization’s culture, and conceptualize the organization’s objective (long-term goal). This objective ensures that the organization will focus on its mission.
Scanning the external environment would help the organization to be aware of opportunity and threat. Some external elements can be manipulated by enterprise marketing, while others might require the company to make adjustments (N. Root III, 2015). The external environment would affect the organization’s ability to function.
Through analysis, the enterprise can establish appropriate mechanisms and structures, and continue to monitor its performance and adjust its next action according to its own specific situation.
Strategy should not be easily changed because it is based on the organization’s long-term objective. However, strategy should allow constant reevaluation and reassessment to adapt to new opportunities and challenges as they emerge either internally and externally. Just as Vu (2007) states: “Strategy cannot be stable or constant for we live in a world where change is frequent and unpredictable. An organization strategy cannot be static or stable but it has to be dynamic and flexible, i.e. changing as needed to respond to environmental opportunities and threats and organization strengths and weakness” (Vu, 2007)
Question 2: Describe Michael Porter’s five forces framework of competitive analysis as well as J.B Barney’s resource-based framework of competitive analysis. Compare and contrast the two frameworks.
The five forces framework is developed by Michael Porter in 1979 for analyzing competition of a business, it helps determine an organization’s weaknesses and strengths. This model is widely used to make a qualitative evaluation of an organization’s strategic position in an industry.
These five forces are:
1) Threat of new entrants to the industry
An organization’s power is affected by the force of the new entrants into its market. New entrants will capture market share from pre-existing organization thus decrease the profitability of these firms in the industry, which means established firms would like to hold their position and discourage other company from entering the industry.
2) Threat of substitutes:
This force measure how easy it is for the consumer to switch from an enterprise’s product or service to that of a competitor. A substitution that is easy and low cost, it can weaken organization’s position and threaten its profitability.
3) Rivalry amongst business in the industry
This force measures industry environment by the number of competitors and their ability to threaten a company. The more competitors that provide the number of equivalent products and services, the lesser power that the company holds. According to what we learn from Adam’s lecture, the following aspect should put into consideration: the relative size of competitors, the nature of cost in industry sectors; the maturity of the markets served; and the degree of brand loyalty of customers,
4) The power of buyers or customers:
It is also known as bargaining power of customers, that is the ability of customers to put the firm under pressure or drive prices down (the greater volume of customer purchase, their bargaining power greater). Buyers’ power goes high if there are more alternatives in the market, it goes low if they have few choices. Meanwhile, the organization could reduce the buyer power by implementing loyalty program or reward schemes.
5) The power of suppliers.
It is known as bargaining power of suppliers, it is affected by the number of suppliers of key aspects of a good or service, how unique these aspects are, and the opportunity cost of a switch from one supplier to another. The fewer suppliers in the market, the more power suppliers hold.
J.B. Barney’s Resource-Based framework
In this RBV model, resources are considered as the majority part of organization’s competitive advantage, and they could help the organization to achieve higher organizational performance. “The RBV model emphasizes strategic choice, charging the firm’s management with the important tasks of identifying, developing and deploying key resources to maximize return.” (Fahy & Smithee, 1999)
One fundamental difference between Porter’s five forces model and the Resource-based is that they do not have the same unit of analysis. Porter’s five forces model considers the industry as a unit whereas Resource-based view choose a firm or an individual resource as a unit of analysis (Asad, 2012). In the five forces, porter encourages organizations to look beyond the actions of their competitors and examine what other factors could impact the business environment. And it also determines profitability within the industry due to these forces influence price, cost, and require investment. This model emphasizes the external impact on strategy development. However, J.B. Barney’s RB framework suggests that organization should position its strategy by looking inside of the organization and find the sources of competitive advantage.
Asad, M. (2012, Jan 18). Porter’s Five Forces vs. Resource Based View- A Comparison. Retrieved from SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1986725
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.
Fahy, J., & Smithee, A. (1999). Strategic Marketing and the Resource Based View of the Firm. Academy of Marketing Science Review, 10, 1-20.
Kuian, G. T. (2013). The AMA Dictionary of Business and Management. AMACOM.
N. Root III, G. (2015). Five Components of an Organization’s External Environment. Retrieved from Chron: http://smallbusiness.chron.com/five-components-organizations-external-environment-17634.html
Vu, C. W. (2007). Business Strategy . Futurics, 31(1/2), 39-41.