STRATEGIC POSITION IN AN ORGANISATION’
Strategic position is seen from the standpoint of organisation resource internal capability internal analysis or strategic standing strength (SSS) or power that the organisation has in respect of the major environmental challenges it faces. It is the assessment of the position of the company in its market, its performance relative to its
competitors, its plan about how to adjust to changes in technology or consumer behaviour tastes, styles, values, expectations etc
Kazmi (2011) maintains that strategic resource analysis can be done at two levels, the business and corporate levels
The business level resource analysis focuses on individual businesses under corporate body from the perspective of the industry to which each of those businesses
belong and on the unique competitive situations they face in their respective industries For companies that are single business entities, a business-level strategic analysis is sufficient which its central theme is competition. The arena of analysis is therefore the markets and industries where the organisations compete. The analysis here focuses
on the question of what means should the organisation adopt with regard to the business that it does. These means are the strategic alternative, of cost leadership differentiation and focus.
The corporate-level resource analysis focuses on techniques for analysing businesses under the same corporate umbrella. For example. Dangote group of companies such as Dangote Cement Plc., Dangote Sugar Plc., Dangote Salt (National Salt Company of Nigeria Pic), Dangote Flour. Dangote Wheat, Dangote Pasta, Dangote Noodles, Dangote Juice (Dansa), Dangote table water (Mowa), Dangote Haulage, Dangote
Fertilizer, Dangote Oil and Gas in Nigeria. The strategic analysis here will concentrate at evaluating the relative market share position and industry growth rate various portfolios over a period of time to determine which portfolio derives greater worth of market share and growth level such that much performance level will be attained. This analysis can also focus on determining which factors are mostly responsible for organisational growth in Dangote group of companies in terms of ranking.
Corporate-level strategic analysis treats a corporate entity as constituting of portfolio of businesses under a corporate umbrella. The analysis focuses on the questions of what.a corporate entity should do regarding the several businesses in its portfolio. The strategic alternatives here are basically the corporate strategies of stability, expansion, retrenchment and combination strategies. It is pertinent to note that corporate level strategic analysis is relevant to the case of a diversified corporation having several businesses and subsidiaries. A good example is Nigerian National Petroleum Corporation (NNPC) subsidiaries in Nigeria drilling and marketing oil products.
Analysis of entities business and corporate level strategic position would reveal areas of organisations strategic standing strength (SSS), where the organisation is strong or.weak. This further determines organisations competitive advantage and corporate success
Key critical elements of standing strength include:
PROVIDING THE RESOURCE DATABASE
resource analyse needs to build on a bank of data which would be quanta nature Resource database is an organised collection of comprehensive data about
achieving the organisation objectives in fact, there are three aspects of this data
1 The quantitative and qualitative nature of these resources
2 The utilisation of these resources and
3 The control of the resources
Resource audit is a comprehensive systematic, independent and periodic examination of a company’s resources with a view to improve its strategic position There are me tramework of checklist which could be used as basis of resource audit. The traditional
approach is to divide the analysis into functional areas like Operations Finance Marketing Production Research and Development (R&D) etc and within the functional areas are different kinds of resources as follows
Financial Resources Financial: resources play a considerable role in organisation. An appraisal of the various functional areas will determine whetherlands are being efficiently appropriated to accomplish objectives effectively An audit of productivity and profitability various operating units is carried out to determine their condition of liquidity leverage
Physical Resources: This assessment must stretch beyond a mere listing of the numbers of machines and thep production capacity of the organisation. Some other.questions like the age, the position, the capacity and the condition of the machines have to be known
Human Resources: An assessment of not only the number and types of different skills within an organisation but other elements such as the adaptability of human
resources would be important. For example, if a company is likely to fall into a period of difficulty or retrenchment, then, it is important to know how capable the people in the organisation are to understand and adapt to different conditions where some boundaries or de marcation of labour has to ensure economic survival.
System Resource: A company is far more than a random collection of machines, money and people. These resources are of two values, unless organised into a system
which ensures that the necessary outputs such as good quality products are achieved, the efficiency and effectiveness desired will not be there. For this reason, this system would include production, marketing, finance, personnel, IT/ICT and general
management planning control and information subsystems.
The Intangibles: These are non-physical values the company must have built overtime. They should not be overlooked. They include goodwill resulting from brand name goal centred company’s map, customer service, intellectual rights or many other
unseen resources. Intangibles may be in form of company’s image, goodwill or reputation. A comprehensive resource audit should provide data about the following resources as indicated in table below.
After identifying the key resources, management can then evaluate them and decide how to use them to create value. This is what informs resource utilisation A simple framework for evaluating resources is the VIRO framework as analysed below
V. Value which translate to the competence of the resources Do such competences provide competitive advantage? Imitability is saying the resources would be difficult for competitors to imitate Wil be costly for competitors to imitate the resources or acquire them?
R. Rarity of the resources which translate to resource uniqueness. Do such uniqueness give you distinctive advantage over your rivals?
0. Organisation is asking if the entity activities are systematically arranged to take advantage of its resources Are they organised enough to exploit the resources to
their best ability and capability?
Companies can use the product quality level and the level of wastage to access their competence. They need to evaluate whether they are truly maximising the capacity and capabilities of their resources. The focus here is to reduce redundancy, waste improve on quality and standards. Two key elements critical to resource utilization are
Efficiency: This has to do with how well resources have been deployed and utilised irrespective of the purpose for which it is deployed.
Effectiveness: This has to do with whether resources have been employed in the best possible way. It is possible to have effectiveness without efficiency
Resource utilisation of financial resources place three values for money viz
Economy of money – Do not waste money (Spend less)
Efficiency of money – Get the most out of money (Spend well)
Effectiveness of money – Use money to achieve objectives (Spend wisely).
Different Measures of Efficiency
Profit: The higher the profit, the more efficient the company is assumed to be
Labour Productivity: Ceteris paribus, the quality of labour employed by the organisation will determine its output outlook.
Yield: How well input is deployed will determine the level of output.
Capacity Fill: This could be followed as a prime measure of efficiency for organisations whose major costs is overhead. There is no extra cost that can be attached to satisfying additional customer(s) eg football club or dancing troupe.
Working Capital: Assessing how the company has managed to achieve an appropriate balance between risk it runs from operating at low level of working capital and the inefficiency of having too much working capital
Production System: There is a need to understand the company’s production system/subsystems such as job layout and materials flow.
How to assess effective utilization of human resource by checking if there is a good or bad assignment process in the organisation ie assign a skilled personnel to perform a skilled task. Assigning a sluggish sales man to the toughest territory is bad and a strategic error
Assessing effectiveness in the use of capital and this can be done through an analysis of the company’s capital structure eg detecting the company’s persistence in foregoing long term financing and therefore experiencing difficulties in the financial aspect
Assessing organisation structure – an efficient organisation structure can cause inefficiency due to its communication structure or inability to respond to external stimuli or failure to coordinate activities or improper handling of the problem that may arise in the organisation
Use of research knowledge – The assessment of how effective the research method is used is a little problematic as there is no straightforward way except it is intangible. Methods like number of products, number of new processes intentionally developed are cause for concern.
Use of marketing and distribution of resources eg the assessment of the use of sales force and this can be done by distribution of the sales volume of the various sales forces/sales men in different territories
Exploration of Intangible assets. For instance, reputation, brand image, product appeal, design etc a company can effectively utilise this to gain market share over its competitors.
The purpose of resource control is to deal with many surprises that occur during implemetation of strategy. In order to ensure that companies achieve the essence of
having resources, they must monitor them. Each unit manager should be committed to attaining a periodic review of the organisation resources. This control model applies to all levels of the organisation. The extent of resource control of a company is very important and need to be assessed for performance cntrol. In spite of these needs. many companies in Nigeria have inadequate control procedures of their resources. Below is a table showing resources areas and typical controls to investigate
After the organisation has produced a sound database. a resource analysis can proceed to use this data to move towards a better understanding of the organisatie strategic capabilities. A good step is to compare a company’s resource positions
some useful yardsticks mainly
a. Identify the trend over time through Historical Analysis
b. Industry norms analysis comparism
c. Examine the critical success factors (CSFs) and key performance indicator (KPIs)
d. Competitor benchmarking
e. Industry competition analysis comparism
Historical Analysis Comparism
The historical analysis comparism looks at the deployment of the organisation resources in comparison with previous years which enables one to be able to observe significant changes if any of such have taken place in the past. In their analysis of strategic position, management needs to recognise which customers and markets they are selling to. Comparism should also be drawn between the asset structures liabilities, resource deployment and nature of resources
Industry Norms Analysis Comparism
The company is part of an industry. The company performances are compared with the average performances in the industry. This means the management recognise
which industries and segments they operate in. It may be possible to have high performance in the company but to be below average performance in the industry. But
this is if the industry is not sinking.
Benchmarking is the process of comparing your own performance against the performance of your rival, preferably the best competitor in the market. In strategic position analysis, benchmarking provides an assessment of how well or badly an entity is performing in comparism with competitors. Where differences are significant strategy must devise ways of closing the gap by raising performance. One way to improve performance is to copy the practices of the benchmark
Methods of Benchmarking
Strategy uses four basic methods of benchmarking including:
Operational bench marking
This is about trying to compare various units’ activities within the organisation with the best performing unit. The best performing unit is mostly mirrored to others as yardstick for standard. For example, an organisation that has many branches may single out the best performing branch as a reference point for measuring performance in the company. That best performing branch serves as benchmark for other branches in the company
Operational benchmarking is a situation whereby the performance of a particular operation of an entity is compared with a similar operation in a different industry The
sales performance of a GSM phone company order handling and dispatch system can be compared to the performance of a beverage company in those two operational
areas. Note that such benchmarking arrangements could be negotiated with another business entity
This is about an entity comparing its own performance in respect of its products and services to that of its most successful competitor. Unlike internal and operational
benchmarking, competitive benchmarking must be carried out without the knowledge of the selected benchmark. Example was Japan’s benchmark of American standard products until they became quality products expert.
Customer Bench marking
This benchmark compares a company’s own performance with the desired expectations of its customers. It is a concept that connects performance with customers’ needs. Example is Coca-Cola that rolled out its portable 5-alive Pulpy orange” juice to meet the expectation of their customers in transit.
It is worthy of note that competitor benchmarking methods are not cast in steel, other methods may include: assessment of public financial statements, performance trend analysis, sales prices, product branding etc. Two popular processes for benchmarking are as depicted.
Benefits of Benchmarking
Benchmarking offers the following benefits to companies and organisations
1 Establishes company’s position against the other companies
2. It identifies areas of strengths and weaknesses to other respondents
3. Helps measure current company performance
4. It prevents reinventing the wheel of what it would cost to do what somebody has already done before
5. It highlights areas of performance requiring attention and improvement
6. It accelerates change and restructuring by creating a sense of urgency when gaps are revealed
7 It helps organisations to think “outside the box
8 Forces organisations to examine present processes which lead to improvement in itself
9. Enables companies to identify superior performance and adopt it
10. It facilitates implementation because of the involvement of the owners
Limitations of Benchmarking
1. Insufficient planning is the bane of benchmarking. Let’s just do it as others attitude without retrospect to the environment
2. Lack of high level commitment or sincere commitment from the management
3. Failure to go behind measures and understand how it is done
4. Insufficient process analysis or partner ‘fit’
5. Lack of in-depth education and awareness for people involved in benchmarking
6. Unclear communication or blurred understanding of the original idea may affect results
INDUSTRY COMPETITION ANALYSIS
Porter suggested that there are five generic types of industry. The strategic position of a company depends to some large extent on the type of industry it is operating in. The five industry types are as follows:
1• Fragmented industries. In a fragmented industry, firms are small and they sell to a small portion of the total market. Examples are barbing salon services, hairdressing services, film production etc
2• Emerging industries. These are industries that are just starting and are likely to become bigger in future. Example is smart car production.
3. Mature industries. These are industries where products have reached the mature phase of their life cycle. Examples are soft drinks production
4• Declining industries Industries where total sales are falling and competition is also dying. Example is “molue” transport industry in Lagos, Nigeria.
5• Global industries: The world is now a global village where some industries operate on a global scale. Examples are pharmaceutical industry, automobile industry, academic programs and so on.
Sometimes a company can use its deep understanding of individual customers and their wants, needs, fears, and aspirations to snatch business and even market
leadership away from a less customer-focused competitor. Such is the case with Wonderfoods, which competes in the milk category against West African Milk
Company (WAMCO) in diary industry.
Mini Case 54 Wonderfoods, Maker of Cowbell Milk
Up through the early 1900’s WAMCO generated at least 80% of total milk category revenues in Nigeria The primary product was Peak Milk an evaporated milk which
sold in small find for about 50 naira Customers throughout Nigeria uned Peak Mikas whitener for coffee and tea and as an additive to custard, cocoa drink and pap A or advantage of the product is that if vent holes on the tin are closed with paper Peak wil store two of three days without refrigeration Cost aside, evaporated making the preferred milk for most Nigerians. The other major market segment is powdered milk traditionally packed mainly in 400g tins Due to the large package size, however powdered milk is too expensive for many consumers
As economic conditions in Nigeria deteriorated, consumers balked at spending 50 naira for a small tin milk and milk volumes fell However consumer interest in milk
products remained strong, especially during the Ramadan dawn-lo dusk fasting period. When Muslims in Nigeria (this includes most northerners and smaller percentages of the population elsewhere in the country) prefer a cereal-based breakfast (for example, Pap – “Akamu’ or Nosco Corn Flakes) served with milk In short, a market opportunity flower.cost lower quality milk) emerged which WAMCO (the market leader) was not well positioned to exploit.
.Wonderfoods entered the market with its Cowbell brand milk products. The original product was a lilled powdered milk, prepared in small sachets costing five naira each Consumers with large families could purchase a strip of sachets (that is, one for each family member) Refrigeration was not an issue, since powdered milk does not require refrigeration until mixed, and sachets were small enough so the mixed milk from a sachet would typically be consumed all at once By 1993,
Wonderfood’s attention to consumers and their milk-related dilemmas resulted in a win for Cowbell of approximately 50% of the powdered milk business in Nigeria, which is approximately one-third of the total milk market (powdered and evaporated) liquid equivalent.
From the above case scenario, Cowbell was able to identify its major competitors and El the need which WAMCO fails to take advantage of despite its market leadership position.
It would seem a simple task for a company to identify its major competitors. WAMCO knows that Wonderfoods is its major competitor in the milk segment of its day products Coca-Cola knows that Pepsi-Cola is its major competitor, for Nigerian Bewerery Maltina, it is Malta Guinness, MTN knows that Globacom is its major
competitor in Nigeria, Thermocool knows that LG is a major competitor, and for Jumia it is Konga But the range of a company’s actual potential competitors is much broader. A company is more likely to be hurt by emerging competitors or new technologies than by current competitors
In recent years, many businesses have failed to look to the internet for their most formidable competitors. For instance, where most Nigerian bookstores and university libraries are deciding how to build megastores and libraries to expand stock respectively, companies like Amazon.com innovative cyberstores had the advantage of offering an almost unlimited selection of books without the expense of stocking inventory.
Similarly, the effect of digital technology on printing press is huge: the encroachment of Internet on publishing businesses territory, the threats of websites that offer jobs, real estate listings and auto-mobiles on-line on newspapers which derive some revenue from classified employment. The businesses that are most affected by internet technology are the world’s middlemen. The question to this inevitable IT challenge is what happens when e-commerce completely edges out the middleman?
We can examine competition by considering various levels including brand, industry. form. generic or looking at competition from an industry and a market point of view
Brand competition: Is a situation when a firm sees its competitors as other firms offering a similar product and services to the same customers at similar prices. Viju
Industries Nigeria Limited might see its Viju Milk drink major competitor as CWAY Nutri-Milk and will not see itself competing with WAMCO Peak Milk
Industry competition: A situation whereby a firm sees all other firms in the same industry making the same product or class of products. Golden Penny Semovita will not see itself competing with only Honeywell Semolina or other semovita brands but with all other processed food.
Form competition: Firm that sees itself competing with all companies manufacturing products that supply the same service. Innoson Motors would not see itself only competing against all other automobiles manufacturers but also competing with manufacturers of tricycles, motor bikes, bicycles and trucks.
Generic competition: Situation where a firm sees all companies as its competitors that compete for same customer naira. Innoson motors for instance sees itself competitng with all companies selling major durable goods for a share of customers naira income.
INDUSTRY CONCEPT OF COMPETITION
What exactly is an industry?
An industry is a group of firms that offer a product or class of products that are close substitutes for each other.
Industries are classified according to number of sellers, cost of structure, degree of vertical integration; and degree of globalisation
Number of Seller and Degree of Differentiation
The starting point for describing an industry is to specify the number of sellers and whether the product is homogeneous or highly differentiated. These characteristics give rise to four industry structure types:
Pure monopoly: This is a structure where only one firm provides a certain product or service in a certain country or area. Examples are PHCN and NNPC in Nigeria. An
unregulated monopolist might charge a high price, do little or no advertising, and offer minimal service ie (PHCN) A regulated monopolist is required to charge a lower price and provide more service as a matter of public interest ie (NNPC).
Oligopoly: A special situation where a number of (usually large firms produce products that ranges from highly differentiated to standardised
Pure oligopoly – Consists of a few companies producing essentially the same commodity (oil, steel, pepper, fertilizer). Such companies would find it hard to charge anything more than the going price. The only way to gain a competitive
advantage is through lower costs.
Differentiated oligopoly – Consists of a few companies producing products partially differentiated along line of quality, features, styling, or services. Examples are automobiles and GSM phones companies. Each competitor may seek leadership in one of these major attributes, attract the customer favouring that attribute and charge a price premium for that attribute
Monopolistic competition: A situation that develops where many competitors.produce or sell different (heterogeneous) products Competitors focus on market segments where they can meet customer needs in a superior way and command price premium Examples are restaurants, beauty salons, academic institutions etc
.Pure competition: Many competitors offer heterogeneous (similar) product and service (stock market commodity market). Because there is no basis for differentiation, competitors’ prices will be the same No competitor will advertise unless such advert can create psychological differentiation. Examples include cigarettes and
MARKET CONCEPT OF COMPETITION
In addition to the industry approach, we can identify competitors using the market
approach. Competitors are companies that satisfy same customer need. For example a customer who buys a bottled water or mineral water really wants a “thirst quencher – a need that can be satisfied by a beverage drink. The market concept of competition opens up a broader set of actual and potential competitors.
Once a company identifies its primary competitors, it must ascertain their characteristics, specifically their strategies, objectives, strength and weaknesses, and reaction patterns
Strategies: A group of firms following the same strategy in a given target market are called strategic group. First, the degree of barriers to entry differs for each group Second, if the company successfully enters a group, the members of that group become its key competitors. A company must continuously monitor its competitors strategies.
Objectives: Once a company has identified its main competitors and their strategies. must examine their positions by asking what is each competitor seeking in the marketplace? What drive each competitor’s behaviour? The basic underlying assumption is that competitors strive to maximise profits.
Many factors shape a competitors’ objectives, including size, history, current management, and financial situation. A company must monitor its competitors expansion plans. If the competitor is a division of a larger company, it is important to
know whether the parent company is running it for growth or milking it
Strength and weaknesses: Whether competitors can carry out their strategies and reach their goals depend on their resources and capabilities. A company needs to
gather information on each competitor’s strength and weaknesses. According to Arthur
D. Little Consulting Firm, a firm will occupy one of six competitive positions in the target market
Dominant – This firm controls the behaviour of other competitors and has a wide choice of strategic options. This is often associated with some form of monopoly
position or customer lock-in strategy. Example is Microsoft Windows being the dominant global operating system.
Strong – This firm can take independent action without endangering its long-term position and can maintain its long-term position regardless of competitors’ actions.
Such firms have a lot of freedom hero since their position in the industry is comparatively powerful Example is Apple’s iPod products
Favourable – This firm has an exploitable strength and more than average opportunity to improve its position Firms seem to exhibit competitive strengths in segments of a fragmented market No single player controls all segments Product strengths and geographical advantages constituto competitive advantage hero Example is
telecommunication industry in Nigeria
Tenable – This firm is performing at a sufficiently satisfactory level to warrant continuing in business. Il exists at the mercy of the dominant companies and has less- than-average opportunity to improve its position because it does not have a sustainable competitive advantage Example is Cascade Table Water
.Weak – This firm has undesirable performance, but an opportunity exists for improvement. The firm must change and improve or else exit Gap analysis may be
helpful here Example is Dangote Noodles Limited
Nonviable – This firm has unsatisfactory performance and no opportunity for improvement. Sell-out or liquidation may be the option here. Eg Afri-Cola.
This assessment helps companies to decide whom to attack in the programmable- control market. In general, a company should monitor three variables when analysing
each of its competitors.
Share of market. The percentage of the competitor’s share of the target market.
Dangote cement dominates the cement industry in Nigeria.
Share of mind. The percentage of customers who name the first company that comes to mind (product positioning) in the industry Nestle maggiis synonymous with food seasoning in Nigeria
Share of heart The percentage of customers who name the company from whom they would prefer to buy the product Eg LG Electronics
ADL STRATEGIC CONDITION MATRIX
To improve market share, companies need to benchmark their most successful competitors. However, companies that make steady gains in mind share and heart share will inevitably make gains in market share and profitability Managers need to
decide upon the best strategic direction for the business. According to Arthur D. Little
(2004), there are six generic categories that could be employed by individual SBUs:
Management and systems strategies
Arthur D Little Strategic Condition Matrix in figure 5.4 indicates strategies for six competitive positions a firm might establish in the target market in various stages of their industry life cycle.