What is a competitive strategy

Competitive strategy


1. Theoretically the approach is derived from a merging of the more economic concept of industrial economics and the business management philosophy of strategic management.

2. Supporting pillars of the concept:
(1) the Competitive forces to determine the industry structure,
(2) the generic strategies as basic alternatives for gaining competitive advantage and
(3) the Value chain as a heuristic to deepen the generic strategies.

Strategy selection

The company uses strategies to position itself (with its businesses) in relation to its environment. The industry is a particularly important subsystem of this environment for the company (e.g. alongside the markets or the social system). In doing so, he draws attention to strategies for positioning the company in relation to its competitors. Competitive strategies should aim to secure a profitable, sustainable position in the competitive arena. The questions about
(1) industry attractiveness and
(2) the competitive position.

The factors that determine the choice of strategy

1. Industry attractiveness: a) Getting to know and understand the rules of the game, those of the competition in this branch obeys, i.e. how attractive is the industry in which the company operates in the long term, and which factors influence this attractiveness. The rules of the game are determined by the structure of the industry, these being determined by five Competitive forces is defined: bargaining power of suppliers, bargaining power of buyers, threat of entry of potential new competitors, threat of substitutes as well as the rivalry among existing competitors. Each of these forces is subject to several influencing factors (e.g. degree of differentiation and substitutability of input goods in the bargaining power of the suppliers).

b) The structure is always industry-specific. A distinction is made between industry structures according to the phase in the life cycle (young, maturing, shrinking) and according to the extent of competition (fragmented, global). The respective structure determines which companies realize their potential for profitability and to what extent: Buyer and supplier power have an influence on prices, sales and costs; Competitive pressure is one of the decisive factors for capital requirements; the structure is also subject to a dynamic process and can in principle be designed (e.g. by a "good" industry leader). When selecting competitive strategies, there is also the task of examining the extent to which structural changes can be generated or used in favor of one's own company. The concept of strategic groups should also be seen in connection with the analysis of the industry structure; Combination of companies in an industry into a group that pursues similar strategies along selected strategic dimensions.

2. Determination of the company's relative competitive position in the industry, i.e. what position does the company hold in this industry, and what is this position due to? A good competitive position is achieved through competitive advantages achieved, which mean a better understanding and handling of the industry structure by the company than by the competition.

Strategy alternatives: a) After the Way of achieving the competitive advantage:
(1) Cost leadership: There is only one cost leader per business, one clear strategy. If you pursue several competitors, generally an increasingly unprofitable competition could be the result.
(2) Differentiation: These strategies have a variety of origins. For their success it is important that the competitive advantages that have been built up can also be perceived by the customer.

b) After Place of achievement of the competitive advantage:
(1) segment-specific strategies: strategies specified according to customer groups, product lines, etc.; by differentiating between needs that have so far only been insufficiently satisfied, or by satisfying needs that have already been addressed but not satisfied.
(2) industry-wide strategies.

In summary, four can generic strategy types can be derived (see figure “Generic strategy types”); the company must uncompromisingly choose one of them.

c) Building on a similar line of argument Matrices were developed by various consulting firms, e.g. the competitive advantage matrix of the Boston Consulting Group or the strategic game board of McKinsey.

Value chain

Performance chain, business system, value chain; The competitive advantages that a company can achieve in a particular business are caused by different, strategically relevant activities. Each of them represents an approach to differentiation and makes a contribution to the company's relative cost position compared to the competition. Basically there are nine of these generic activities distinguish between: five primary activities, which describe the actual value creation process, and four support activities, which complement the value creation process. They are linked to form a value chain (see figure "Value chain").

Advantages can also result from the linking of interdependent activities (multifactor matrix). It is also important to assess the influences of other value chains on your own: the chains of suppliers, sales channel carriers and customers. The totality of all value chains existing in the industry ultimately results in the above industry structure.