Enhance the prosperityWhat is the strategy mean?
The Strategy can be defined as set of directions or methodologies that adopted by organization management/government to sustain and enhance the prosperity of their business/economic, under the constraint of number of changeable forces. Although this definition is not very comprehensive but it does imply number of questions about the strategy such as, what are the possible approaches/methodologies that can be adopted or how to build suitable processes/methodologies that fit the company business line best? Why a company/country selects one approach or number of approaches instead of the others? What are the forces that shape industry structure and affect the strategy creation?What are the possible strategy approaches?
The possible Strategic approaches can be illustrated in the view of the concepts indicated by Kathleen M. Eisenhardt and Donald N. Sull in their article "Strategy as Simple Rules", the authors define three types of strategic approaches using their own words "In traditional strategy, advantage comes from exploiting resources or stable market positions, in strategy as simple rules, by contrast, advantage comes from successfully seizing fleeting opportunities". Effective strategy that followed traditional approach or simple rule, it is different and unique for each company/organization. The three approaches may be categorized and illustrated as following:
Market Position approach: the logic behind the approach is to build a fortress, fortify and defend. The methodology depended on selecting an attractive market and establishes the business and tries to achieve high profitability; this type of strategy may best suit well-structured markets with slow changing.
Resources exploiting approach: the logic is simple impose leverage resources in the market and then exploit it; the methodology is to establish resource leverage across the market and seek the long-run dominance for the market. This strategy may best fit moderate-changing market.
Simple rules approach: the logic is that in high changing market, the organization should seize an opportunity and achieve high growth is short period.
The "Strategy as Simple Rules" article indicates that organization should focus in strategic process and define strategy frame. More details about what the forces that shapes the industry have been discussed by Porter as we illustrate next.What are the forces that shape the strategy?
Each market/ industry sector has its own forces that shape the type of strategy to be implemented, Michael Porter in his article, "The five competitive forces that shape strategy", define fives forces that play an essential role in shaping the business strategy. Those competitive forces reform the industry's structure in term of the nature of competitive interactions and profitability in the medium and long run. In the following will illustrated the competitive forces as described by Porter:
THREAT OF ENTRY when a new company enters the market, the existing players will be forced to change their strategies such marketing (pricing etc) to continue in the market and sustain profit. Some barriers will limit the entry of new comers to the market.
THE POWER OF SUPPLIERS, based on their unique product or resources, powerful suppliers will try to gain more profit by demanding higher prices, reducing their cost by limiting quality or services.
THE POWER OF BUYERS, when the buyer has the advantage of barging because his purchase power (volume) or the numerous alternatives for the product (standardization) will try to gain more value by forcing down prices and demanding better quality or more service.
THE THREAT OF SUBSTITUTES the risk of substitution not necessary come from the same competitive products; the technological innovation may add/introduce improvement to some products that enable them performs the same or a similar function as an industry's product by a different means.
RIVALRY AMONG EXISTING COMPETITORS competition among parties within the same market or industry may take to forms; one form aims to gain more share in the market (lead to price reduction) in other hand competition may aims to target new sector of customers and provide them with type of service they need.
By understanding the industry structure in term of the competitive forces, managers will possibly be able take the suitable strategic actions; the best strategies exploit more than one possible action such as:
- Positioning the company in the market: the company will fight to build a position in the market and sustain it. Keeping in mind the advantage provides to strategies by the framework of the competitive forces which can be used to assess the cost of remaining in the industry vs. the cost of exit.
- Exploiting industry change: The company strategists should have deep understanding of the competitive forces and how the industry change in order to forecast and seize the strategic opportunity comes with these changes.
- Shaping industry structure: the company may try to change the competitive forces and try to reshape the industry structure to fit its own goals. The industry's structure can be reshaped in two ways: by re-dividing profitability in favor of company by increasing its market share or by expanding the overall profit pool of the industry sector.