‘Strategy is the outcome of a formal strategic planning process from top management. Therefore, it has limited value in providing the organisation with a competitive advantage.’ Essay

Strategy can be described as a set of related actions that mangers take to increase their company’s performance (Hill & Jones, 2007). A company’s strategy in undertaken by top management to improve the company’s efficiency and effectiveness to gain a competitive advantage over other companies in the same competitive field. Therefore a company’s strategic planning process can assist them in gaining a competitive advantage.

Thompson, Strickland & Gamble (n.a) explained ‘a company’s strategy is managements game plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations and achieving targeted objectives”. The following will describe how a company’s business strategy can provide their organisation with a competitive advantage over their competitors. The five steps of the strategy making process will be outlined, External analysis, Internal analysis and Functional level strategy will be covered in more specific detail below to argue that a company’s strategic planning process can effect and in turn provided the business with a high competitive advantage.

Mintzberg (n.a), described company’s strategy’s as a consciously intended course of action, a guideline or set of guidelines to deal with a situation but he also informs the reader just like a plan, a strategy can be also a ploy too, really just a specific “maneuver” intended to outwit an opponent or competitor. To have competitive advantage it means to overcome the competitive forces in its industry (Dess, Lumpkin & Eisner,2010). Many writers have identified that strategy is the outcome of a formal planning process and that top management plays the most important role in this process.

The formal strategic planning process has been known to have five main steps; the first step in a company’s strategy making process should be to select a corporate vision, mission and values that they desire for the organisation. Top managers and executives should work out what the company ambitions are and how far they would like their organisation to develop and what they as a whole want to achieve, this step should include determining their major corporate goals and objectives. The second step for executives is to analyse the external competitive environments and to identify any opportunities and threats they may have.

Thirdly executives would analyse the organisations internal environment to identify its strengths it has against any of its competitors and any weaknesses the company needs to deal with. The fourth phase includes selecting strategies that are consistent with the mission, vision, goals and objectives that were decided in step one, management should build strategies based on its strengths in order to take on specific opportunities that it has in competing with its external threats. Step five is to implement these strategies throughout the company to improve the company’s efficiency and effectiveness and to gain a competitive advantage over other companies. Strategic planning of a company has been known to improve a company’s competitive advantage but strategy hand in hand with operational effectiveness is vital to superior performance of an organisation. Operational effectiveness (OE) means performing similar activities better than rivals perform them (Porter, 1996).

Operational effectiveness is known to be the way in which a company performs similar activities better than its competitive rivals, but sustainable competitive advantage cannot just be achieved through operational effectiveness alone. Strategic planning and operational effectiveness together can help achieve long term effectiveness (Dess, Lumpkin & Eisner, 2010). Companies adopt strategies for achieving competitive advantage. They choose strategies that exploit existing competencies as well as those that build new competencies. This is done through all levels of strategies; functional, business, and corporate. Functional-Level strategies are strategies aimed at improving the effectiveness of a company’s operations, functional level strategies increases the company’s ability to attain advanced efficiency, quality, innovation and customer responsiveness this can lead to a competitive advantage.

Customer responsiveness refers to how a company meets the needs of its customers different and in such a way superior than its competitors, Innovation can be defined as ‘anything new or novel about a company’s operations or its products and services’, (Hill et al., 2007, p.104), Quality is reassuring the customer to pay a higher price for a high quality product known to be reliable and unique. Efficiency in this instance is the quantity of inputs the company has, the more efficient that product fewer input there would be. These above factors lead to increases in utility that customers receive, which in turn leads to a higher profitability and profit growth and also to competitive advantage. Company’s when developing their strategic plan need to look carefully at their internal analysis to successfully achieve the above factors.

The purpose of an internal analysis is to pinpoint the strengths and weaknesses of the organisation, as strengths lead to superior performance and weaknesses lead to inferior performance. Hanson et al 2008 explains that those company’s analysing their firms internal environment should be using a global mindset, those with a global mindset recognise that there firms must process resources and capabilities that allow understanding of and appropriate responses to competitive situations that are influenced by country specific factors and are unique societal cultures. A global mindset is the ability to study an internal environment in ways that are not dependent on the assumptions of a single country, culture or context (Begley & Boyd, 2003).

McEvily & Chakravarty, 2002 outline that companies need to exploit their core competencies or competitive advantages to at least meet the demanding standards of their global competitors and create value for their customers. A competitive advantage is based on the unique bundling of several resources these can be tangible or intangible. Resources that can be seen and quantified are known as tangible resources, whereas intangible resources are assets that are typically deep in the firm’s history that they have accumulated over a long period of time (Hanson et. al. 2008). Capabilities are also critical to the building of competitive advantages; capabilities are often based on developing, and exchanging important information and knowledge through the firm’s human capital. All knowledge influenced by human capital is known to be the most significant of organisations capabilities, and could be the basis to competitive advantages (Jackson, Hitt & DeNisi 2003).

Another internal factor is core competencies of a company; these should be included and used in the organisations strategy. Core competencies can be defined as activities that an organisation performs better than its other internal activities and that are the most crucial to competitiveness and profitability (Grant et al 2011). Companies must be able to provide their customers with value for money that is superior to the value provided by their competitors in the same market to be able to create a competitive advantage. Firms must identify their strengths and weaknesses in resources, capabilities and core competences to able to be gain a competitive advantage. External factors can also effect company’s strategies and in turn their competitive advantage.

The purpose of external analysis is to identify the strategic opportunities and threats in the organisations operating environment that will affect how it pursues its mission. Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable. Threats arise when conditions in the external environment endanger the integrity and profitability of the company (Hill & Jones 2010). The external environment includes factors such as demographic, economic, political or legal, global, technological and socio-cultural these factors all come under the general environment. The general environment is factors that influence the broader society including the industry as a whole.

The industry environment is the set of factors that directly influence a firm and is competitive action, these include; the threat of new entrants in the market, the power of suppliers and buyers and also the threat of product substitutes (Hanson et al, 2008). Company’s need to undertake an external environment analysis to cope with the changes in the external environment, this process includes four activities; scanning, forecasting, monitoring and assessing. Scanning is known to identify early signals of environmental changes and trends. Scanning lets organisations identify early signals of potential changes in the environment and distinguish changes that have already began forming (Patton and McKenna, 2005). Monitoring is detecting meaning through ongoing observations of environmental changes and trends, by monitoring trends firms can be prepared to introduce new products or services when it is time take advantage of opportunities identified (Dahlsten,2003).

Forecasting is developing projections and anticipated outcomes based on monitored changes and trends and assessing is determining the timing and importance of environmental changes and trends for firm’s strategies and their management. To achieve strategic competiveness and thrive in their industry organisations must be aware of and understand the different dimensions of the external environment. Being aware of their competitors around them and external changes constantly happening, this will help the organisation to be fully aware of its weaknesses that need to be improved and its advantages that they need to flaw.

This knowledge will set the firm up to have one foot forward at all times to try gain a competitive advantage over their competitors. As identified in the above sections strategy is acknowledged as a set of related actions that mangers take to increase their company’s performance (Hill & Jones, 2007). Mainly a company’s strategic plan is usually developed by top management to improve certain factors such as the organisations efficiency and effectiveness to gain competitive advantage over other companies in the specific field of work.

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