Strategy is derived from the vision and mission of an organisation. Having a strategy allows the organisation to gain competitive advantage against its competitor and assist them to adapt themselves in the changing market. Therefore, the determinants of strategy are an important aspect to consider as they influence the type of strategy a firm adopts in different levels; corporate, business and functional of the organisation. There are many determinants that can affect the type of strategy an organisation adopts, but there are three important ones which firms emphasize heavily on in the strategic management process. The three determinants are the competition they face in the micro environment, the resource of an organisation as well as the …show more content…
For instance, a customer wanted to buy a bouquet of roses for his wife but change his mind and bought a ring instead. The ring, therefore, indirectly became a substitute for the roses. These substitutes increase the risk of customers to switch to alternatives, which will result in the decline in sales. "When the threat of substitutes is high, industry profitability suffers" (Porter, 2008, p84). Unless organisations distance itself from substitutes with product performance, cost, marketing, or other means, it will suffer in terms of profitability and often growth potential. A good example is providers of long-distance telephone service. They had suffered a decline of users when inexpensive internet-based phone service such as Skype was introduced. Therefore, the organisation has to adopt a business strategy to counter this threat. An organisation might choose to adopt a differentiation strategy to seek competitive advantage through uniqueness (Schermerhorn, 2011). This strategy emphasizes in developing their product and services that are clearly different and unique compare to the potential substitute.
Rivalry among existing competitors takes on many forms, including price discounting, new product introductions, advertising campaigns, and service improvements (Porter, 2008). The intensity of rivalry among competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other’s profit potential. If rivalry
The Intensity of Rivalry among Competitors in an Industry (High): Equally balanced competitors exist within the industry such as BCF and KMD; these firms also face competition from retailers and wholesalers. The growth of the industry is relatively agile in both financial and technological aspects. The intensity or rivalry is further accentuated by relatively high storage and fixed rental costs, extensive product differentiation and minimal switching costs.
Strategy is a set of complicated tactics formulated by the executives of a company directed towards the achievement of company’s goal (Salmela, 2002). It is about all the path ways that a company would follow to reach its ultimate goal. It is a company’s strategy which helps to identify what it does better than the other companies in the industries, which may be different from what it does best. For successful strategy formulation and implementation, a company should know the needs of customers and should have knowledge of its competitors. Through a good strategy a company would identify that opportunity which makes it different from the others (Thompson, 2005).
The competition among rivals is very high due to price and non-price factors. Companies try to attract customers to their products by introducing
The monopolistic rivalry business structure incorporates numerous organizations offering somewhat separated items. There is a simple passage into the business sector by new firms over the long haul, and the organizations are sufficiently extensive to impact the aggregate supply. There are likewise various measurements of rivalry, including dissemination outlets, promoting, and item characteristics. The peripheral expense will be not exactly the cost at its benefit amplifying yield level. As indicated by the content, a monopolistic contender can't make long-run benefit (Colander, 2013).
Rivalry among existing competitors takes many familiar forms, including price discounting, new product introductions, advertising campaigns and service improvements. High rivalry limits the profitability of an industry. The degree to which rivalry drives down an industry’s profit potential depends upon the intensity with which companies compete and on the basis on which they compete (Porter, 2008). Comparing company websites and business news articles on companies within the same industry provides the necessary insights to the level of competitive intensity. Reviewing trade associations can also provide key information into competition. Lastly, consolidating information from each of the prior Porter Forces provide insight into the overall intensity of competition.
Competition within the industry is a competitive pressure that arises from the existing rivals
Strategy formulation has been acknowledged as one of the most crucial factors of ensuring the long-term growth of the business. However, the manner in which strategy is formulated, and most importantly, the nature of the strategy chosen for the company determines its future position in the marketplace (Grant, 2005).
Competitive Rivalry: According to the amount of products available, rivalry intensity is high. What makes for a high intensity of rivalry includes competitors aggressively targeting each other’s markets and aggressively pricing products. Also, competitors are of equal size and market share and industry growth is slow. Lastly, industries fixed costs are high which creates intense competitive rivalry.
Existing Competitors. Rivalry among competitors within an industry use price discounting, new products, marketing, and other techniques to be competitive. Profitability of an industry suffers from high rivalry. The intensity with which companies compete and the basis on which they compete determine to which degree rivalry brings down an industry’s profitability (Porter, 2008). Pure competition is considered by economists as a competition with a high
Competitive rivalry exists between companies with the same or similar products/services and similar markets. Factors to be considered include:
An organisation’s strategy plays an important role of providing direction of where company wants to be and how best to allocate the company’s resources to meet its objectives. The formulation of business strategies has evolved over the years and has been made more difficult in recent by the uncertain operating environments and global financial crises.
Porter’s Five Forces model is used to evaluate the degree of rivalry between competitors in a given industry through assessing the four forces that lead to this outcome. These forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and the threat of substitute products.
Unlike Threat of new entrants, this factor mainly refers to competitions from existing enterprises in specific market. Porter mentioned, “Rivalry among existing competitors takes the familiar form of jockeying for position—using tactics like price competition, product introduction, and advertising slugfests.” It is also very important to notice that number of competitors and their capabilities directly influence on the intensity of rivalry (1979, PP. 137-145).
The term ‘strategy’ is widely used in the business environment. A strategy is used to decide and achieve business objectives. The rapport between a firm’s strategy and its overall performance is the key focus in strategic management. Kay (2000) believes that nowadays it is impossible to plan and predict the future, he argues that strategy has become the influencing of a firms market positioning. A myriad of models to analyse strategic choices have been described by scholars (Hambrick & Fredrickson, 1996).In the early 1980s, Michael Porter’s presented his model of generic strategies. Since then, it has been one of the most used methods due to its high efficiency (Obasi, et al., 2006) and thus it is seen as the dominant paradigm of strategic implementation (Hendry, 1990).