Critical success factors, resources and capabilities
There are several concepts that are useful for explaining the ways in which companies can gain a competitive advantage over other enterprises. At first, one should mention critical success factors. They can be defined as the essential elements or prerequisites that are vital to the success of an organisation (Barney & Hesterly 2012, p. 353). These factors may not guarantee long-term profitability because the management should continuously work on improving the strengths of the firm. However, they can enable businesses to attain considerable growth, at least during a short period. One should bear in mind that critical success factors are those variables that can be controlled by the management (Neves 2012, p. 42). They are related primarily to the internal characteristics of the organisation, but not its external environment. It is one of the details that should be identified.
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Furthermore, it is important to focus on the role of resources that can be described as tangible or intangible assets enabling companies to implement their strategies. For instance, one can refer to financial assets, equipment, products, technologies, patents, human capital, and so forth. Certainly, an enterprise may not necessarily possess each of these resources. However, at least one of them is very likely to play a crucial role in the success of a company.
Apart from that, much attention should be paid to competencies or the skills that the organisation possesses. Among such attributes, it is possible to distinguish the capacity of the organisation to respond to changes by providing new products and services. Among such capabilities, one can single out effective quality control procedures or demand forecasting. These qualities make businesses more resilient to external threats. Overall, these notions are useful for showing how various businesses create and retain a competitive edge for a long time.
These concepts can be better exemplified by examining such a corporation as Google and its rapid financial success. Much attention should be paid to the success factor that led to the sustainable development of this corporation. In particular, this organisation was able to create a search algorithm that enabled many users to find information on the Internet relatively quickly. They could see that Internet search did not have to be very time-consuming.
Therefore, the company could achieve the advantage over other competitors such as Yahoo or Netscape that dominated this industry in the early nineties. However, there is another issue that was essential for the success of this organisation because it is not permissible to overlook the influence of the external environment on the performance of Google. In particular, this enterprise benefited from the growing economic importance of the Internet. For instance, at that time, many businesses wanted to advertise their products online. In turn, they decided to choose the services of Google that enjoyed popularity among many users. Overall, the combination of these circumstances turned the company into a leading organisation within this industry.
Much attention should be paid to the resources that this organisation possessed. In particular, one should concentrate on human capital. This company strives to employ professionals who can create innovative or even cutting-edge products that can appeal to many users. It should be kept in mind that Google is often regarded as one of the best employers among many American corporations (McDowell 2014). The senior managers often emphasise the idea that Google can offer many opportunities for employees. Additionally, the company achieved rapid growth because it had access to financial capital.
At that time, many investors believed that Google and other IT companies developing search engines could generate significant revenues by supporting the needs of other businesses that wanted to advertise their products and services. Furthermore, Google possessed a technology that could significantly improve the experiences of Internet users. These assets helped the corporation assume leading positions in the industry.
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Additionally, it is critical to focus on the primary competencies of this organisation. In this case, one should not mention only the ability to serve the needs of people who want to find information on the Internet. The main issue is that the company can extend the range of the products and services that it offers to the users. These services can be related to the search for books, videos, maps, and so forth. Moreover, this corporation creates products that enable people to communicate with one another. Furthermore, the company could enter the markets that were not initially related to search engines.
For instance, Google succeeded in developing products for users of mobile phones. Thus, this corporation could adjust to the changing and emerging needs of clients. The company could acquire these capabilities only because of its effective HR strategies and ability to find the most qualified and motivated candidates for a particular job (McDowell 2014). Therefore, the resources and capabilities of the organisation are closely intertwined with one another. Overall, in this case, it is important to discuss the role of the strategic fit or the ability of the organisation to match its resources with the opportunities that are available in the external environment.
The concepts discussed in this section can be helpful for analysing the growth of various companies. For instance, one should mention Apple, Microsoft, Dell, and many others. In turn, entrepreneurs should concentrate on these notions prior to starting a company. They should make sure that their businesses possess resources and capabilities that will be indispensable for the competitiveness of the enterprise. Apart from that, managers should identify those aspects of the company’s performance that will be vital to its sustainability. Nevertheless, one should not overlook other theoretical notions that are important for predicting the outcomes of the company.
Organic development is the approach, according to which companies should concentrate on their internal capabilities. For example, they should work on improving their technological capabilities, increasing their customer base, or improving the quality of their services. A business that adopts this method does not try to achieve growth with the help of mergers and acquisitions (Mintzberg, Ahlstrand, & Lampel, 2009). These strategies can be described as inorganic development. Overall, this type of policy is usually characterised by slow or incremental changes. Admittedly, the management of such companies can establish partnerships with other businesses. Nevertheless, they will not acquire other enterprises to extend or elaborate their value chain. It is the central issue that should be taken into account. In turn, one should discuss the strengths and weaknesses of this approach to strategy.
There are several advantages to this policy. At first, it helps businesses avoid the clash of workplace cultures. In this case, managers should consider conflicts that can be explained by the differences in workplace procedures, employees’ values, leadership styles, performance assessment methods, and so forth. Each of these barriers can undermine the seamless integration of different businesses (Mendenhall, 2005). For instance, such problems were encountered by Daimler and Chrysler.
The representatives of these corporations had disputes over the right to take decisions related to marketing or product development. As a result, the employees and managers could not design an effective marketing strategy that could enable this organisation to increase its revenues. The merged corporation broke up, and this failure resulted in considerable losses, especially for Daimler. In turn, companies that prefer organic development do not need to struggle with these difficulties. They are less exposed to financial risks. It is probably the primary strength of this approach.
Additionally, organic development is beneficial because companies can acquire new capabilities that perfectly meet their needs and strategic goals. Certainly, companies may prefer mergers and acquisitions to get access to the technological expertise developed by other businesses. The main problem is that these corporations do not always receive the benefits that they expect. Such challenges were encountered by AT&T when this corporation chose to merge with Comcast that was one of the largest cable providers in the United States. To some degree, these examples are important for showing that this strategy can shield businesses from various risks.
Nevertheless, there are significant limitations that should be considered. At first, in many cases, this approach is very time-consuming. The problem is that companies may spend too much time to develop new technologies. Furthermore, there is a risk that other businesses can offer better solutions. Thus, the company’s investment may not be justified. Thus, in many cases, it is less expensive to purchase a company has already developed an expertise in a certain field. This business can be incorporated into the value chain of a larger enterprise. For instance, many leading car manufacturers prefer to acquire the producers of spare parts. This approach has been adopted by Toyota and Ford.
Apart from that, organic development may not be efficient at the time when organisations should respond to technological changes. This argument applies to the company Eastman Kodak. For a long time, it has been the leading manufacturer of photographic films. This brand was easily recognised in different regions of the world. However, it did not make use of digital photography. They did not cooperate with companies that developed break-through technologies.
They decided to focus on the improvement of their film products (Pamphilis 2013, p. 606). As a result, the market share of the company declined dramatically. Furthermore, many of the investments driven by the principles of organic development did not break even. It is possible to mention other companies that failed to adjust to the new trends because the management stressed the need for organic growth. In part, this argument is relevant to Nokia that has long been viewed as the leading manufacturer of mobile phones. However, this corporation did not make use of new technologies such as touchscreens. If this company had acquired businesses that produced these technologies, it might have retained its leading positions in the market. So, if a certain market is driven by innovation, organic development can make companies more vulnerable.
Additionally, a new service or a product offered by the company may not appeal to the clients because the market is already dominated by a well-recognised brand. For instance, such a company as Google could have independently developed its video-sharing website. However, the management chose to acquire YouTube because this service was popular among many users. Under such circumstances, the corporations do not change the names of the brands that they buy. Therefore, one can argue that the organic approach to development is not always practical.
Overall, this discussion shows that senior executives should consider a broad range of factors to evaluate the applicability of the organic approach. In particular, management should assess the external environment of the firm. They can apply Porter’s Model of Five Forces. One should consider such elements of this model as the threat of new entrants, the availability of substitute products, and the intensity of competition. If the threat of substitute products is very high, the company should not rely on the organic approach because it makes businesses less responsive to changes. Apart from that, the management should apply PESTLE analysis. This approach is also valuable for analysing the external environment of the corporation. In particular, much attention should be paid to the technological factors that can necessitate the change of strategies.
These details are critical for selecting the most optimal strategy. Furthermore, one should bear in mind that organic development can be possible if a business employs highly-skilled professionals who have a broad range of competencies. These individuals can enable corporations to acquire new capabilities and create innovative goals. It is the top priority that should not be disregarded by the management.
Companies have traditionally applied several approaches to strategic development. In particular, one should consider the use of cost leadership and differentiation strategies. These policies have been described by Michael Porter (2011), who continues to remain one of the most influential thinkers in such fields as management and marketing. Cost leadership is primarily aimed at meeting the needs of price-sensitive clients. As a rule, these individuals focus on the cost of a product while making their purchasing decisions. Some of these people may struggle with such difficulties as low-income level or unemployment. Thus, these characteristics of buyers should be considered by the management if they want to adopt the cost-leadership approach.
In turn, it is necessary to increase the cost-efficiency of operations because this task is vital for the reduction of prices. For instance, one can mention such a company as Hyundai that serves the interests of people who may represent different income levels. Additionally, much attention should be paid to the work of McDonald’s because this corporation has been able to occupy leading positions in the fast-food industry due to its cost-effectiveness and low prices.
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In contrast, differentiation strategies are adopted by firms offering products that are superior in terms of some criteria such as design, functionality, reliability, and so forth (Grant 2010). The corporations that have adopted this method try to target clients who are not price-sensitive (Mintzberg, Ahlstrand, & Lampel, 2009, p. 104). In fact, many of these individuals may not be willing to purchase cheap products, even if such goods can adequately serve their needs. The products that these people buy are supposed to signify their high social status. Thus, companies that want to adopt the differentiation strategy should focus on the values and attitudes of businesses.
In the automotive industry, this approach is adopted by Rolls Royce. The products of this company can be called luxury brands that appeal to very affluent customers. At the same time, one should keep in mind that this method has been adopted by other companies that offer mass consumer goods. For example, one can mention such corporations as Nike or Apple. Admittedly, they can charge higher prices for their goods because they offer innovations creating additional value for consumers. Thus, one should not suppose that the differentiation strategy is employed only by enterprises that sell luxury goods.
Michael Porter (2011) believes that it is necessary to adopt one of these strategies to achieve growth. In this case, the choice depends on the external environment of the company, its resources, strategic capabilities, and so forth. Moreover, it is critical to focus on the attitudes and priorities of buyers.
Nevertheless, this approach to strategic management has been criticised by Cliff Bowman (2008). This scholar believes that Porter’s classification of strategies creates a false dilemma for business administrators. One should keep in mind that companies can combine these strategies. For instance, it is possible to mention such a company as Toyota. Its success can be mostly explained by the efficiency of its operations. Moreover, this corporation could reduce the prices of its vehicles. However, at the same time, the company succeeded in producing luxury cars such as Lexus. Apart from that, enterprises can operate in different markets.
For instance, such a corporation as General Electric provides software, medical equipment, or aircraft engines. This enterprise cannot adopt a single generic strategy. This example is critical for showing that businesses need to develop flexible pricing and marketing policies.
In addition to that, one should remember that businesses may need to change their strategies to respond to the new trends in the external environment. For example, many producers of video cameras had to lower their prices to remain competitive. This necessity was important for them at the time when the producers of mobile phones began to equip their products with video cameras. This example is important for showing that the perceived value of products can decline dramatically within a relatively short time. Thus, business administrators should not suppose that a certain strategy can ensure the long-term sustainability of an organisation since this assumption can create a false sense of security. It is one of the threats that should not be overlooked.
The primary task is to consider context-specific factors that can affect the outcomes of their marketing strategy. In particular, management should focus on the attitudes and values of consumers. The priorities of these people can evolve considerably within a short period due to the availability of substitute products. Thus, businesses may need to adopt new policies to make use of available opportunities. Furthermore, companies will need to focus on the efficiency of their operations, even if they pursue the differentiation strategy. This attribute of the corporation can strengthen its residence to economic crises.
Overall, one can argue that Cliff Bowman provides a constructive critique of the concepts introduced by Michael Porter. The author demonstrates that senior executives should understand how their strategies can be influenced the industrial or technological trends. Moreover, they must focus on the internal capabilities of the organisation because these qualities can make companies more sustainable and competitive.
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