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Analysis of Strategic Difference and Importance
By
Kevin Fan
Faculty of Economic and Commerce
University of Melbourne
May, 2002
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Introduction
The concept of Business Strategy exists throughout every part of a company. Each
company has its own Business Strategy to identify company’s goal and to guide the
company to achieve the goal. Due to the different condition each company has,
different business strategies are used in companies, and usually they act significant
roles on determining the future of companies. To recognize how different business
strategies across companies and why they are important, first of all, it is necessary to
make clear of what the concept of Business strategy is.
Concept of Business Strategy
Business Strategy is a broad term for companies. It does not only deal with the goal of
a company, but also the management, marketing and supply of the company.
According to Kenneth (1971), Business Strategy in a company should be “the pattern
of major objectives, purposes, or goals and essential policies and plans for achieving
those goals” From this, it can be understood that Business Strategy is mainly about
what a company wants and how should the company do to satisfy this want. Here
there are two main points need to be clarified. One is about the main goal a company
wants to achieve. It is commonly known as the Grand Strategy (Kotha & Daniel,
1989). The second point is about the plans for achieving the goals. This domain
includes Business Strategy that deals with management, marketing and supply. It is
known as Business-Level Strategy (Daft, 2000). Business-Level Strategy includes
numerous strategies, but generally they can be classified into two branches:
Competitive Strategy and Cooperative Strategy (Porter, 1980 &1987).
Grand Strategy
The overall goal a company goes toward refers to the Grand Strategy of a company.
According to Daft’s (2000) idea, Grand Strategies fall into three general categories:
growth, stability and retrenchment. This is, according to specific condition, a
company’s overall goal would be in one of these three. For example, a company that
has efficient management but lacks of profit might choose to use Growth Strategy.
Another point to make is, as the condition changes, the companies could change their
Grand Strategy accordingly. Following the previous example, if the company grew
successfully, the executives probably re-decide and change their Grand Strategy to
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Stability or Pause Strategy (Daft, 2000), which lets the company takes time to adjust,
to make it runs more efficiently. Briefly Grand Strategy is like a framework of the
whole Business Strategy. How to achieve the goal exactly? Companies have to move
its attention on Business-Level Strategy.
Competitive and Cooperative Strategies
Business-Level Strategy includes Competitive and Cooperative Strategies. The
objectives of both strategies are basically the same, to help a company to achieve
competitive advantage against its rival. This can be explained by Porter’s (1980) idea,
“developing a Competitive Strategy is developing a broad formula for how a business
is going to compete.” Cooperative Strategy would achieve the same outcome, if used
appropriately (Porter, 1987). From this idea, it can be inferred that the difference
between these two strategies is merely the form of the action taken.
According to the basic structure of a company, competitive advantage can be achieve
through 3 main different manners, which are management, marketing and supply.
Cost Leadership Strategy (Porter 1980) is one of the competitive Strategies that apply
on a company based on management. It seeks to reduce the cost of a company by
managing more efficiently. For instance, in a learning organization (Peter 1990),
everyone is engaged in identifying and solving problems. Workers are trained and
have the experience and capability to handle problems, such as understand customer
needs. The company does not have to expend resource to solve every single problem,
so that it achieves competitive advantage. According to Slaster and Olson (2001),
marketing strategy would also achieve competitive advantage over the market by
differentiating decisions relating to market segmentation, targeting, and the
development of a positioning strategy based on product, price, place and promotion.
For example, to target a very different market from rivals would achieve certain
competitive advantage on the specific market. The third manner of achieving
competitive strategy is to through Supply Chain Strategy. Chopra (2001) pointed out
that in a company Supply Chain Strategy determines the procurement and
transportation of raw materials, production and distribution of the product. Dell
Computer (Daft, 2000) is a company that uses this strategy very well. It sets up
factory and warehouse in Malaysia, provides online order service and deliveries
computers to customer directly, not through any retailer. By doing this, Dell
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Computer cut its cost and increase efficiency of supply. The same outcome, it
achieved competitive advantage against it rivals. Similarly Cooperative Strategy has
the same effect as Competitive Strategy. It also would achieve competitive advantages
on management, marketing and supply. What a company needs to do is to cooperate
with one another, which had already had the desirable competitive advantages (Daft,
2000). Strategies like Acquisitions, Mergers, Joint Ventures, Strategic Business
Partnering and Preferred Supplier Arrangement are basic forms to do this.
By discussing the concept of Business Strategy, it is clear that Business Strategy is a
term that integrates Grand Strategy and Business-Level Strategy. It shows a
company’s goal and the way to achieve the goal. However, as a matter of fact, it often
can be seen that companies are not always have the same Business Strategies, so why
and how do they different?
Strategically different across companies
The different strategies across companies are caused by two main factors:
Environmental and Artificial factor. They usually decide how different the Business
Strategies would be across companies.
In the regard of environment, Reed (1992) indicates that there are seven external
factors that are taken into account of affecting a company’s decision: Demographic,
economic, natural environment, technological, political, legal and cultural. It can be
understood how these factors differ companies’ strategies by thinking in a way like
that; there are two companies, company A locates in Australia and company B locates
in Russia. They have all of these 7 factors different. Will the cultural factor affects the
strategies company A and B use in such different environment? The answer is yes. It
is common that many products are changed to fit into the local market. Examples of
McDonald’s different products across countries illustrate this point. Does the
demographic factor differ the strategies between A and B as well? Again the answer is
yes. Russia has much larger population than Australia. Company B might finds the
market in Russia is big enough to use Growth Strategy, in contrast, Company A is
more likely to use Pause Strategy or Global Strategy due to the relatively smaller
market in Australia. Hence, it can be seen how these external environmental factors
differ companies’ strategies. Moreover, Internal factors are also essential factors that
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differ a company’s business Strategies. In a study by Stevenson (1976), he
summarized 6 internal factors that would make a company’s strategies different from
one other. These factors are Management and Organization, Marketing, Human
Resources, Finance, Production and Research and Development(R&D). Every
company concerns these internal factors and these factors are usually not the same in
every company. Some might have these factors as strengths. However, some might
have them as weakness. Therefore, company has to uses different business strategies
to achieve competitive advantage. For instance, a company can strengthen its R&D
through Cooperative Strategies. Or maybe the company, which is already good at
R&D, might focus more on a competitive marketing strategy for achieving
competitive advantage over the market.
In addition to all the environmental factors, artificial factor should also be taken into
account. In reality, it is common that companies intentionally differ their strategies
from others in order to compete and succeed. David (1997) points out that, “there is
always a strategy that is a best response to other firm’s strategy.” It can be inferred
that the “best response” here must be a different strategies. The reason for this is clear,
competitive advantage cannot be achieve by doing the same thing. What they have to
do is to differentiate their strategies. For example, in 1993 Kodak and Fujifilm both
dominated 70% of their home markets respectively. During the same time, Yen
dropped and Fujifilm offered pricing discount in the U.S market, tried to take over
more market share from Kodak. However, Kodak successfully maintains its market
share by bidding against Fujifilm for exclusive and preferential supply arrangements
directly with large retail chains (David, 1997). This case illustrates how companies try
to differ strategies from each other in order to achieve competitive advantage.
To be brief, how Business Strategy differs across companies depends on the
environmental and artificial factors. No matter how much effort companies spend on
finding the better strategies, fortunately there are always some companies failed.
There are diverse reasons for hat, but there is one point that is clear; Business Strategy
acts a significant role here.
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Importance of Strategy
Business Strategy has substantial effect on a company’s success and failure. How
substantial it is can be seen on the importance of its function. Companies have to rely
on the functions of strategies to survive, run properly and achieve goals.
Jain (1990) uses a vivid metaphor for Business Strategy, “without a strategy, an
organization is like a ship without a rudder, going around in circles.” A function of
strategy is to guide the company with an overall direction here. Without this function,
company would get lost with its direction; everyone in the company is ambiguous
about what they should do. Should the marketing manager think of strategy to
improve sales or maintain the current condition? Should the human resource manager
focus recruiting or training employees? Should the factory director thinking about
way to increase the productivity or to cut cost? All of these questions need to be
answer with a clear Grand Strategy by the company. Otherwise, failure would be a
coming threat to a company.
In addition to just having a direction to go, companies need strategies to cope with
difficulties. According to Dobbins and Pettman’s (1997) idea, “a company needs
Business Strategy to focus on its strengths and opportunities, and either to avoid or
overcome the weaknesses and threats.” This sentence identifies the significance of
Business Strategy on the function of coping with difficulties. Sometimes some
external and internal factors would bring vital problems to a company. Competitive
and Cooperative Strategies are indispensable here to help. Supposed a company face
financial difficulty. It can either choose not to use any strategy and fail the business or
try to resolve the problem by using some strategies such as Cost-Leadership Strategy.
Hence, it can be seen how strategies function importantly to help a company to
survive.
No doubt that avoiding failure is important to a company. Moreover, Ricard (2002)
indicated that, “connecting with the right strategy at the right time supported with the
right resources will produce the best possible results. Putting in simple words,
Business Strategy is requisite to a company, because another function of strategies
brings the company to a desirable future.” General Motor’s Retail Operating System
meets its goal by using a common system to provide easy, just-in-time access to
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information, via web-based delivery, for all GM employees and all GM retailers (HR
Focus, 1999).” In this case, GM mixed several competitive strategies in the form of
Retail Operating System in order to achieve its goal. Firstly, this web-based system
cuts the communication cost between employees and retailers. And as the system is
easy and just-in-time access, so the efficiency of the company is improved. Secondly,
in the regard of marketing, it achieves the place advantage. Retailers were not
restrained by the traditional way of obtaining information from GM. Thirdly the
procedure of supply is simplified by the web-based delivery, which means GM has a
cheaper and more efficient supply chain. As a result, GM gained competitive
advantage and moved toward its goals by using strategies. Consequently business
strategy is so important to a company. It does not only tell a company which way to
go, also teach it how survive and succeed.
Conclusion
In summary, the concept of Business Strategy is broad, but not fixed. Every company
can understand it in a different way and develop its own strategies according to
different environment and marketing condition. Due to this reason the importance of
Business Strategy is illustrated differently as well, but basically a company has to
have a Business Strategy to guide which direction to go and how to perform better
toward its goal.
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Reference:
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