The word “strategy” derives from the Greek word stratçgos; which derives from two words:
- “stratos” – meaning army.
- “ago” – which is the ancient Greek for leading/guiding/moving to.
It originally referred to a ‘military commander’ during the age of Athenian Democracy.
The company strategy itself while being a “secret” could be used as an offensive or as defensive.
Because if a strategy is declared, then it cannot be called a strategy in the first place; it may be called a vision or a goal but not a strategy!
Strategy operates only in a competitive and changing environment; we do not need strategy in any other circumstances.
It is only required when the situation is competitive, challenging or involve other people and organisations.
But is well known that today the world in which we live now is full chaos, non-linear and unpredictable..
“Strategy is competive position and competitive position demands determining the company’s choice of generic strategy” Michael Porter
Company can outperform rivals only if it can stablish a difference that it can preserve It must therefore deliver greater value to customers or create comparable value at lower price or do both.
But what’s about competitive position ? Competitive position is equal to choice of generic Strategy.
Porter’s Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
- Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers’ help, the more powerful your suppliers are.
- Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
- Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don’t get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.
- Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
- Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
Competitive strategy is about being different .
Source: Jesus Galindo de la Torre. Quality Operation Director & Corporate Social Responsibility