Экономические науки / 6. Маркетинг и менеджмент

Онюшева И.В., PhD

Международная Академия Бизнеса, Алматы, Республика Казахстан

The Concept of Strategic Competitiveness and Strategic Management Process

Key Words: strategy, strategic competitiveness, competitive advantage, average returns, above-average returns, strategic management process.

The concept of ‘strategic competitiveness’ is increasingly recognized as one of the most important factors forming competitiveness rating both at national and international (global) levels through the strategic management process. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to develop and exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding how they will pursue strategic competitiveness [1]. In this sense, the chosen strategy indicates what the firm will do as well as what the firm will not do.

A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate [2,3]. An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors' efforts to duplicate its strategy have ceased or failed. In addition, firms must understand that no competitive advantage is permanent. The speed with which competitors are able to acquire the skills needed to duplicate the benefits of a firm's value-creating strategy determines how long the competitive advantage will last [4].

Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Risk is an investor's uncertainty about the economic gains or losses that will result from a particular investment [5]. The most successful companies learn how to effectively manage risk. Effectively managing risks reduces investors' uncertainty about the results of their investment in individual companies. Returns are often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales. Alternatively, returns can be measured on the basis of stock market returns, such as monthly returns (the end-of-the-period stock price minus the beginning stock price, divided by the beginning stock price, yielding a percentage return). In smaller, new venture firms, returns are sometimes measured in terms of the amount and speed of growth (e.g., in annual sales) rather than more traditional profitability measures. The reason for this is that new ventures require time to earn acceptable returns (in the form of return on assets and so forth) on investors’ investments [6,7].

Understanding how to exploit a competitive advantage is important for firms seeking to earn above-average returns. Firms without a competitive advantage or that are not competing in an attractive industry earn, at best, average returns. Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk. In the long run, an inability to earn at least average returns results first in decline and then eventually, failure. Failure occurs because investors withdraw their investments from those firms earning less- than-average returns. When this happens, firms file for bankruptcy or sometimes liquidate their operations [8].

The rise and falls of Apple Company represent great example how first the failure to fight commoditization, but then the revival of the company in 2001 has changed the music player industry, the electronics industry, the personal computer industry as well as the way people around the world shop for music. Many companies that used to be market leaders in these industries had to give up large pieces of their market share, revenues as well as profit margins, as they did not anticipate this change and could not keep up with the new competitor. Having suffered from the limitations of focusing on a small segment in the computer market, Apple evaluated its deteriorating performance and options. In need of cash flow to finance important strategic moves, Apple first launched and successfully sold the iMac, a colourful innovation in a commoditized market at that time. Then, in 2001, Apple linked electronics, intuitive operations and music in an innovative way that substantiated the turnaround [9].

Interestingly, during the time of Apple's recent rise, another company that had written history in electronics, the Japanese electronics manufacturer Sony, had to face many difficulties. Sony had invented the Walkman, which in the 1980s married mobility and audio technology. Even better positioned after a long string of acquisitions, in the late 1990s Sony owned large units focusing on the music and movies as well as electronics and computing. Yet, the units did not innovate together but optimized within given product areas. Run as separate business units for years, it has been challenging for Howard Stringer, the British chief executive officer (CEO) of Sony, to increase cooperation between these units and facilitate joint innovation.

It means that all competitive firms use strategic management as the foundation for commitments, decisions and actions they will take when pursuing strategic competitiveness and above-average returns. The process of strategic management is represented at the Figure 1.

Figure 1 – The strategic management process

Note: made up on the basis of [10]

As we can see, the strategic management process is the full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above-average returns. Analyzing its external environment and internal organization to determine its resources, capabilities, and core competencies - the sources of its ‘strategic inputs’ - is the first step the firm takes in this process. With the results of these analyses at hand, the firm develops its vision and mission and formulates its strategy. To implement this strategy, the firm takes actions toward achieving strategic competitiveness and above-average returns. The effectiveness of the firm's implementation and formulation actions increases when those actions are effectively integrated. The strategic management process is dynamic in nature as ever-changing markets and competitive structures are coordinated with a firm’s continuously-evolving strategic inputs [10, p.77-81].

To conclude, we’ve used the strategic management process to explain what firms do to achieve strategic competitiveness and earn above-average returns. These explanations demonstrate why some firms consistently achieve competitive success while others fail to do so. As you see, the reality of global competition is a critical part of the strategic management process and significantly influences firms’ performances. Indeed, learning how to successfully compete in the globalized world is one of the most significant challenges for firms competing in the current century.

References:

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10. J. T. Mahoney and A. M. McGahan. The field of strategic management within the evolving science of strategic organization // Strategic Organization, 2012. – p. 79-99: