Tuesday 21 February 2023

Competitive position

 Determining an organisations competitive position within a market or industry.

An organisation's valuable competitive position is at the intersection of its:

  • Capabilities: what the organisation is able to do well and distinctively,  how those 
  • Market opportunities: What the market demands and is willing to pay for. 
  • Values: The core mission statement of the organisation 
Where all these three intersect, is the prime opportunity for a valuable competitive position.

There are four generic competitive positions which an organisation can take.

Focusing on the horizontal axis we see potential organisational a focus on the source of advantage. 
  • Furthest to the left: are organisations whose focus is on low-cost, there goal is to develop a product or provide a service as economically as possible, their strategy is to appeal to customers on price, by providing a product or service at a lower rate, their goal is to win more market share than their competition, increasing funding by doing more or selling more at a lower rate.
  • Furthest to the right: are organisations who aim to provide superior products or services, their strategy is to provide a niche or superior product/service at a higher rate, their approach is to do less business but for a higher rate.
Focusing on the vertical axis we look at Competitive scope a focus on how broad or narrow the organisations offerings are:
  • High on the Y-axis: represents breadth, how many markets does the organisation cater to, how many different product lines or service to the provide. How broad are the potential buyers 
  • Low on the Y-axis: represents a focused product line in which the organisation does not diversify their offerings, but focuses on their core strength(s).

Cost leadership strategy

Organisations who focus on keeping costs lower than those of their competitors to generate higher profits, by providing standardised products or service at the same or near same rates as the marginal producers. They generate profits by limiting customisation and focusing on creating generic one size fits all products or services which clients can take or leave. Having this high degree of standardisation mass appeal while minimising costs.

Organisations accomplish cost leadership by aggressively undercutting their competition, while providing their goods or services at low costs, via offshoring to cheaper markets, by economies of scale, leveraging capital costs to their maximum potential, pressuring suppliers to lower their rates. Investing in R&D with the sole focus of reducing their cost structure.

Differentiation strategy

Organisations who focus on differentiation target the market segment that is willing pay higher prices for higher quality goods or services, rather than provide generic one size fits all products or services they are looking to monazite on bespoke high quality products or services.

Organisations accomplish this through brand and quality, they position themselves as a superior providers of their product or service lines. They invest heavily in innovative capability offering highly differentiated products or services with a technological superiority which clients are willing to pay for.

Focused Low-Cost strategy

Organisations who focus on keeping costs lower than those of their competitor in a narrow segment of the market. Often leveraged as an entry strategy by foreign firms and new ventures into advanced markets. 

Organisations entering a new market or brining a new capability to market will focus narrowly onto a strategic target and gain a foothold by offering their capability at a lower rate than the competition. Once they establish their reputation as a value added provider they can begin to shifting to a boarder or higher price strategy.

Above we can inspect the difference between a cost leadership and differentiation strategy, Organisations that take a cost leadership approach, aim to provide a service or product of equal value to the industry average, but at a lower cost, meaning that their EVA will be higher than the industry average, because it costs them less to produce something that they can sell for the industry average price. Organisations that aim for a differentiation strategy, are not too concerned with costs, but with providing a superior product or service which they can charge significantly over the average industry price for in order to gain increase their EVA.

Niche strategy.

Organisation who focus on a Niche strategy tend to generate profits from higher consumer willingness to pay by targeting small, often premium segments of the market. 

Organisations offer premium high quality services to a small market, often times this market is too small to generate any significant value with a low-cost approach.

We can simplify our chart to the above four quadrants. These are general competitive positions an organisation can take. In reality things are never a clear cut as they are on a Cartesian axis.

Integrated competitive strategy

In reality organisations often aim for differentiated products or services at low costs. This in principal is attainable, providing high quality products or services supported by cost effective capabilities. Many companies have achieved this, in automotive manufacturing Toyota offers a wide range of relatively high quality automobiles at lower than market prices. They are able to accomplish this through their unique manufacturing culture.

Aiming for an integrated approach comes with the serious risk of being stuck in the middle, not differentiating the product or service enough, while simultaneously not providing a relatively low enough price point for the market,