Essay Sample on Strategic Management: Assessing, Analyzing & Evaluating for Competitive Advantage

Introduction

Strategic management describes the planning and implementation of the strategic goals of an organization by executive management. The study of strategic management must consider competitive advantage as central because it involves assessment, analysis, and evaluation of both internal and external environments of an organization. Through evaluation of the situation, the top management identifies its opportunities, areas of weakness, and how to avoid the mistakes. While studying strategic management, an organization should narrow down to generic strategies and forces of competition analysis. Understanding the three generic strategies, a review of Porter's five forces of competition helps the organization to assess the firm's environment. The essay will discuss competitive advantage in relation to the study of strategic management, the relationship between Porter's generic strategies, and the five forces of competition that determine the average profitability within a particular industry. An analysis of competitive advantage and the five forces of competition helps an organization identifies its strengths and weakness in determining its profitability.

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Competitive Advantage in Strategic Management

While studying strategic management, the management should consider a competitive advantage as a central point for it to understand a competitive organization environment. Strategic management is a branch of management concerned with building and sustaining competitive advantage in an organization. The management needs to analyze and understand the factors that allow a company to produce a good or service of equal value at a lower cost compared to its competitors. Several factors enable a company to provide goods or services at a cheaper cost compared to its rivals (David & David, 2016). They may include geographical location, qualified, skilled, and competent workers, access to, or availability of natural resources. Other factors could be high entry barriers of new markets to the industry, a firm's access to new technology while its competitors could be having challenges of natural. According to Porter, there are two types of competitive advantage, which management should consider studying in detail. They include the cost advantage and the differentiation advantage. In cost advantage competition, the management should analyze various ways a firm can lower the selling price of its goods and services compared to its rivals and still make a profit. The management considers the factors noted earlier, such as its geographical position and access to natural resources in the study of strategic management.

Relationship Between Generic Strategies and Five Forces of Competition

There are various ways in which generic strategies and fives forces of competition relate, that help determines the average profitability of an organization within an industry. The three strategies described by Porter include low-cost, product differentiation, as well as focus strategy. The five forces of competition comprise of the threat of new business start-up, bargaining power of consumers, bargaining power of suppliers, competition among existing firms, and the threat of substitute goods (Zhao et al., 2016). The cost strategy relates to the force of bargaining power of consumers, and the threat arising from substitute goods, in an industry. The cost strategy describes a firm's potential to produce its products at a relatively lesser cost than its rivals so that it sells them at a lower price. The cost strategy enables the company to maintain a high number of customers, due to the low selling prices compared to other companies and high-quality goods. The company is not affected by the existence of large numbers of sellers of similar products in the industry. The organization does that to acquire some of the components in the production of the goods or services. They include cheap raw material or availability of natural resources, access to new technology, or its geographical location. If, for example, an organization can acquire raw material necessary for the production of goods and services, it means the final cost of production will be low.

On the other hand, the competitors could be having challenges in obtaining the raw material, due to them being limited in its location or the cost of purchase is too high. The implications of the lack of raw material to a company are the high cost of manufacturing or processing of its products. A company has to dispose of its product and make a profit, and that would mean selling them at a high cost than the cost of production (Coccia, 2017). When comparing the selling price of goods and services of the two companies, the one with the lower cost of production will be low compared to its rival. In that case, the company selling at a lower cost than its competitors will be said to be pursuing a cost leadership strategy. The company will be in a better position compared to its competitors. The company will sell its products at lower prices than the rival firms and still make a huge profit. The management may consider using the profit margins accrued for the development of the company by making a pool of investments or production of more products for sale. If the scenario continues, the company selling at higher prices will exit the market due to the high completion and inability to make sales, hence, low to no profit.

Product Differentiation and New Entries in an Industry

The second relationship is between the generic strategy of product differentiation is the threat of new entries, and rivalry among existing competitors in an industry. Product differentiation describes a situation whereby a company aims at producing goods or services that are similar in the purpose they serve but possess some difference from its competitors, making the product superior. (Kayabao, Boyraz & Derdiyok, 2017). A good example of such products common in the United States could be soft drinks, such as the Coca-cola Company and the Pepsi Company. The strategy is similar to the threat of new entries and rivalry among existing competitors who make the competition very stiff. In such a scenario, the products of a company must possess high quality for it to maintain its position and overcome the competition posed by new entrants and existing competitors in the industry. Usually, new entrants face various challenges as they try to enter an industry. The challenges include barriers to entry in the industry such that the new entrant cannot overcome them. High capital is required in starting up a new business, making giving the existing company more time to enjoy high profits. In some instances, the new firms have to overcome strict government policies such as paying a license for them to operate the business. In case the new business overcomes the challenges, it accesses the industry and increases the supplies of goods produced and available to the customers. Usually, new entrants in an industry describe a situation where the producers of similar goods and services increase such that the demand for the goods becomes too high. To overcome the competition, a company's product must be superior in various ways for them to attract a large number of buyers. There are several methods a company can differentiate its goods and services so that it attracts more customers than its competitors, who are willing to purchase them at the stated high prices (David & David, 2016). The methods include the unique and attractive design of products, high quality and durability of the products, aggressive advertising, and unique branding. Through differentiation, a company sells its goods and services at high prices and still makes profit compared to its competitors who could be selling theirs at lower prices. For a company to achieve product differentiation, the management must engage itself in extensive market research, product development, and design. The company will, therefore, require more finance, skilled labour, and substantial investment. These finances will be secured to cater for the production of high-quality goods, unique designs, research, and compensating the skilled laborers. The company will also be required to make some investment in the project, considering it will be for a longer period. The results of the three goals will be the production of attractive and unique goods or services that stand make the entity stand out from its competitor.