Dynamics of Competitive Strategy: Notes | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


LEARNING OBJECTIVES 
  
 DYNAMICS OF 
 COMPETITIVE 
 STRATEGY
After studying this chapter, you will be able to : 
? Understand the dynamics of competitive strategy. 
? Have knowledge of competitive landscape. 
? Know the importance of strategic analysis in the formulation of strategy. 
? Learn some of the methods of competitive analysis that are used in 
business organizations. 
? Understand the terms core competencies, competitive advantage. 
? Have an understanding of some of the methods used in portfolio
analysis. 
? Appreciate the applicability of SWOT and TOWS analysis 
? Understand globalisation adopted by firms. 
Analysis is the critical starting point of strategic thinking.  
  Kenichi Ohmae 
The idea is to concentrate our strength against our competitor’s relative 
weakness.  
Bruce Henderson
CHAPTER 
2 
Page 2


LEARNING OBJECTIVES 
  
 DYNAMICS OF 
 COMPETITIVE 
 STRATEGY
After studying this chapter, you will be able to : 
? Understand the dynamics of competitive strategy. 
? Have knowledge of competitive landscape. 
? Know the importance of strategic analysis in the formulation of strategy. 
? Learn some of the methods of competitive analysis that are used in 
business organizations. 
? Understand the terms core competencies, competitive advantage. 
? Have an understanding of some of the methods used in portfolio
analysis. 
? Appreciate the applicability of SWOT and TOWS analysis 
? Understand globalisation adopted by firms. 
Analysis is the critical starting point of strategic thinking.  
  Kenichi Ohmae 
The idea is to concentrate our strength against our competitor’s relative 
weakness.  
Bruce Henderson
CHAPTER 
2  
STRATEGIC MANAGEMENT 
2.2 
 
 2.1 INTRODUCTION 
The business environment is highly dynamic and continuously evolving. The changes 
happening in the external environment challenge organisations to find novel and 
unique strategies to remain in business and succeed. As the world is getting smaller 
and competition is increasing, organisations have increasing pressure to develop 
their business and strengthen its competitiveness. Strategic thinking and strategic 
management are highly relevant and important for all the managers in organisations 
in order to achieve competitive advantage, as well as ensure high performance for 
success with company’s survival and growth. 
Competitive Strategy
Competitive strategy of a firm evolves out of consideration of several factors that 
are external to it. It must be remembered that the external environment affects the 
internal environment of the firm. The economic and technical components of the 
CHAPTER OVERVIEW 
Competitive Strategy 
Competitive Landscape 
Strategic Analysis 
Industry and Competitive Analysis 
Core Competence 
Competitive Advantage 
Internal and External Analysis 
SWOT Analysis 
Globalisation 
Page 3


LEARNING OBJECTIVES 
  
 DYNAMICS OF 
 COMPETITIVE 
 STRATEGY
After studying this chapter, you will be able to : 
? Understand the dynamics of competitive strategy. 
? Have knowledge of competitive landscape. 
? Know the importance of strategic analysis in the formulation of strategy. 
? Learn some of the methods of competitive analysis that are used in 
business organizations. 
? Understand the terms core competencies, competitive advantage. 
? Have an understanding of some of the methods used in portfolio
analysis. 
? Appreciate the applicability of SWOT and TOWS analysis 
? Understand globalisation adopted by firms. 
Analysis is the critical starting point of strategic thinking.  
  Kenichi Ohmae 
The idea is to concentrate our strength against our competitor’s relative 
weakness.  
Bruce Henderson
CHAPTER 
2  
STRATEGIC MANAGEMENT 
2.2 
 
 2.1 INTRODUCTION 
The business environment is highly dynamic and continuously evolving. The changes 
happening in the external environment challenge organisations to find novel and 
unique strategies to remain in business and succeed. As the world is getting smaller 
and competition is increasing, organisations have increasing pressure to develop 
their business and strengthen its competitiveness. Strategic thinking and strategic 
management are highly relevant and important for all the managers in organisations 
in order to achieve competitive advantage, as well as ensure high performance for 
success with company’s survival and growth. 
Competitive Strategy
Competitive strategy of a firm evolves out of consideration of several factors that 
are external to it. It must be remembered that the external environment affects the 
internal environment of the firm. The economic and technical components of the 
CHAPTER OVERVIEW 
Competitive Strategy 
Competitive Landscape 
Strategic Analysis 
Industry and Competitive Analysis 
Core Competence 
Competitive Advantage 
Internal and External Analysis 
SWOT Analysis 
Globalisation 
2.3 
DYNAMICS OF COMPETITIVE STRATEGY
external environment are considered as major factors leading to new opportunities 
for the organization as well as creating threats to its existence. Similarly, the broader 
expectation of the society in which the organization operates is again an important 
factor to determine the competitive strategy. 
A firm must identify its position relative to the competitors in the market. The 
objective of a competitive strategy is to generate competitive advantage (something 
that positions it above its competition), increase its market share and finally beat 
competition. A competitive strategy consists of moves to: 
? Attract and retain customers by delivering value 
? Withstand competitive pressures, and 
? Strengthen its market position. 
Having a competitive advantage is necessary for a firm to compete in the market. 
Competitive advantage comes from a firm’s ability to perform activities more 
effectively than its rivals. But what is more important is to cultivate the essence that, 
the competitive advantage is sustainable. Further by knowing if it is a leader, 
challenger, or a follower in the market, it can adopt appropriate competitive 
strategy. 
 2.2 COMPETITIVE LANDSCAPE 
Competitive landscape is a business analysis which identifies competitors, either 
direct or indirect. Like Patanjali and Hindustan Unilever are direct competitors but 
ITC Hotels and Honda Motors are indirect competitors that are competing to attract 
the affluent consumer to buy their product/service. Competitive landscape is about 
identifying and understanding the competitors and at the same time, it permits the 
comprehension of their vision, mission, core values, niche market, strengths and 
weaknesses. Understanding of competitive landscape requires an application of 
“competitive intelligence”.  
An in-depth investigation and analysis of a firm’s competition allows it to assess the 
competitor’s strengths and weaknesses in the marketplace and helps it to choose 
and implement effective strategies that will improve its competitive advantage. 
Thus, understanding the competitive landscape is important to build upon a 
competitive advantage. 
Page 4


LEARNING OBJECTIVES 
  
 DYNAMICS OF 
 COMPETITIVE 
 STRATEGY
After studying this chapter, you will be able to : 
? Understand the dynamics of competitive strategy. 
? Have knowledge of competitive landscape. 
? Know the importance of strategic analysis in the formulation of strategy. 
? Learn some of the methods of competitive analysis that are used in 
business organizations. 
? Understand the terms core competencies, competitive advantage. 
? Have an understanding of some of the methods used in portfolio
analysis. 
? Appreciate the applicability of SWOT and TOWS analysis 
? Understand globalisation adopted by firms. 
Analysis is the critical starting point of strategic thinking.  
  Kenichi Ohmae 
The idea is to concentrate our strength against our competitor’s relative 
weakness.  
Bruce Henderson
CHAPTER 
2  
STRATEGIC MANAGEMENT 
2.2 
 
 2.1 INTRODUCTION 
The business environment is highly dynamic and continuously evolving. The changes 
happening in the external environment challenge organisations to find novel and 
unique strategies to remain in business and succeed. As the world is getting smaller 
and competition is increasing, organisations have increasing pressure to develop 
their business and strengthen its competitiveness. Strategic thinking and strategic 
management are highly relevant and important for all the managers in organisations 
in order to achieve competitive advantage, as well as ensure high performance for 
success with company’s survival and growth. 
Competitive Strategy
Competitive strategy of a firm evolves out of consideration of several factors that 
are external to it. It must be remembered that the external environment affects the 
internal environment of the firm. The economic and technical components of the 
CHAPTER OVERVIEW 
Competitive Strategy 
Competitive Landscape 
Strategic Analysis 
Industry and Competitive Analysis 
Core Competence 
Competitive Advantage 
Internal and External Analysis 
SWOT Analysis 
Globalisation 
2.3 
DYNAMICS OF COMPETITIVE STRATEGY
external environment are considered as major factors leading to new opportunities 
for the organization as well as creating threats to its existence. Similarly, the broader 
expectation of the society in which the organization operates is again an important 
factor to determine the competitive strategy. 
A firm must identify its position relative to the competitors in the market. The 
objective of a competitive strategy is to generate competitive advantage (something 
that positions it above its competition), increase its market share and finally beat 
competition. A competitive strategy consists of moves to: 
? Attract and retain customers by delivering value 
? Withstand competitive pressures, and 
? Strengthen its market position. 
Having a competitive advantage is necessary for a firm to compete in the market. 
Competitive advantage comes from a firm’s ability to perform activities more 
effectively than its rivals. But what is more important is to cultivate the essence that, 
the competitive advantage is sustainable. Further by knowing if it is a leader, 
challenger, or a follower in the market, it can adopt appropriate competitive 
strategy. 
 2.2 COMPETITIVE LANDSCAPE 
Competitive landscape is a business analysis which identifies competitors, either 
direct or indirect. Like Patanjali and Hindustan Unilever are direct competitors but 
ITC Hotels and Honda Motors are indirect competitors that are competing to attract 
the affluent consumer to buy their product/service. Competitive landscape is about 
identifying and understanding the competitors and at the same time, it permits the 
comprehension of their vision, mission, core values, niche market, strengths and 
weaknesses. Understanding of competitive landscape requires an application of 
“competitive intelligence”.  
An in-depth investigation and analysis of a firm’s competition allows it to assess the 
competitor’s strengths and weaknesses in the marketplace and helps it to choose 
and implement effective strategies that will improve its competitive advantage. 
Thus, understanding the competitive landscape is important to build upon a 
competitive advantage. 
  
 
STRATEGIC MANAGEMENT 
2.4 
Reality Bite: Hyundai is an important player in the Indian Automobiles (car) 
market. The company has achieved success year after year since its entry into the 
Indian market where Maruti has been the industry leader. Hyundai has a deep 
understanding of its competitive landscape where Tata motors, Mahindra & 
Mahindra, Toyota, Honda, Ford etc. are competing besides Maruti. To succeed in 
the competitive environment, it brings out new cars and improved models of 
existing cars every year to cater to various segments of customers. 
2.2.1 Steps to understand the Competitive Landscape 
i. Identify the competitor: The first step to understand the competitive landscape 
is to identify the competitors in the firm’s industry and have actual data about 
their respective market share. 
 This answers the question:  
? Who are the competitors and how big are they? 
ii. Understand the competitors: Once the competitors have been identified, the 
strategist can use market research report, internet, newspapers, social media, 
industry reports, and various other sources to understand the products and 
services offered by them in different markets. 
 This answers the question:  
? What are their product and services? 
iii. Determine the strengths of the competitors: What are the strength of the 
competitors? What do they do well? Do they offer great products? Why are 
consumers liking their product/service? Do they utilize marketing in a way that 
comparatively reaches out to more consumers. Why do customers give them 
their business? 
 This answers the questions:  
? What are their financial positions? 
? What gives them cost and price advantage? 
? What are they likely to do next? 
? How strong is their distribution network? 
? What are their human resource strengths? 
iv. Determine the weaknesses of the competitors: Weaknesses (and strengths) 
can be identified by going through consumer reports and reviews appearing in 
various media. After all, consumers are often willing to give their opinions, 
Page 5


LEARNING OBJECTIVES 
  
 DYNAMICS OF 
 COMPETITIVE 
 STRATEGY
After studying this chapter, you will be able to : 
? Understand the dynamics of competitive strategy. 
? Have knowledge of competitive landscape. 
? Know the importance of strategic analysis in the formulation of strategy. 
? Learn some of the methods of competitive analysis that are used in 
business organizations. 
? Understand the terms core competencies, competitive advantage. 
? Have an understanding of some of the methods used in portfolio
analysis. 
? Appreciate the applicability of SWOT and TOWS analysis 
? Understand globalisation adopted by firms. 
Analysis is the critical starting point of strategic thinking.  
  Kenichi Ohmae 
The idea is to concentrate our strength against our competitor’s relative 
weakness.  
Bruce Henderson
CHAPTER 
2  
STRATEGIC MANAGEMENT 
2.2 
 
 2.1 INTRODUCTION 
The business environment is highly dynamic and continuously evolving. The changes 
happening in the external environment challenge organisations to find novel and 
unique strategies to remain in business and succeed. As the world is getting smaller 
and competition is increasing, organisations have increasing pressure to develop 
their business and strengthen its competitiveness. Strategic thinking and strategic 
management are highly relevant and important for all the managers in organisations 
in order to achieve competitive advantage, as well as ensure high performance for 
success with company’s survival and growth. 
Competitive Strategy
Competitive strategy of a firm evolves out of consideration of several factors that 
are external to it. It must be remembered that the external environment affects the 
internal environment of the firm. The economic and technical components of the 
CHAPTER OVERVIEW 
Competitive Strategy 
Competitive Landscape 
Strategic Analysis 
Industry and Competitive Analysis 
Core Competence 
Competitive Advantage 
Internal and External Analysis 
SWOT Analysis 
Globalisation 
2.3 
DYNAMICS OF COMPETITIVE STRATEGY
external environment are considered as major factors leading to new opportunities 
for the organization as well as creating threats to its existence. Similarly, the broader 
expectation of the society in which the organization operates is again an important 
factor to determine the competitive strategy. 
A firm must identify its position relative to the competitors in the market. The 
objective of a competitive strategy is to generate competitive advantage (something 
that positions it above its competition), increase its market share and finally beat 
competition. A competitive strategy consists of moves to: 
? Attract and retain customers by delivering value 
? Withstand competitive pressures, and 
? Strengthen its market position. 
Having a competitive advantage is necessary for a firm to compete in the market. 
Competitive advantage comes from a firm’s ability to perform activities more 
effectively than its rivals. But what is more important is to cultivate the essence that, 
the competitive advantage is sustainable. Further by knowing if it is a leader, 
challenger, or a follower in the market, it can adopt appropriate competitive 
strategy. 
 2.2 COMPETITIVE LANDSCAPE 
Competitive landscape is a business analysis which identifies competitors, either 
direct or indirect. Like Patanjali and Hindustan Unilever are direct competitors but 
ITC Hotels and Honda Motors are indirect competitors that are competing to attract 
the affluent consumer to buy their product/service. Competitive landscape is about 
identifying and understanding the competitors and at the same time, it permits the 
comprehension of their vision, mission, core values, niche market, strengths and 
weaknesses. Understanding of competitive landscape requires an application of 
“competitive intelligence”.  
An in-depth investigation and analysis of a firm’s competition allows it to assess the 
competitor’s strengths and weaknesses in the marketplace and helps it to choose 
and implement effective strategies that will improve its competitive advantage. 
Thus, understanding the competitive landscape is important to build upon a 
competitive advantage. 
  
 
STRATEGIC MANAGEMENT 
2.4 
Reality Bite: Hyundai is an important player in the Indian Automobiles (car) 
market. The company has achieved success year after year since its entry into the 
Indian market where Maruti has been the industry leader. Hyundai has a deep 
understanding of its competitive landscape where Tata motors, Mahindra & 
Mahindra, Toyota, Honda, Ford etc. are competing besides Maruti. To succeed in 
the competitive environment, it brings out new cars and improved models of 
existing cars every year to cater to various segments of customers. 
2.2.1 Steps to understand the Competitive Landscape 
i. Identify the competitor: The first step to understand the competitive landscape 
is to identify the competitors in the firm’s industry and have actual data about 
their respective market share. 
 This answers the question:  
? Who are the competitors and how big are they? 
ii. Understand the competitors: Once the competitors have been identified, the 
strategist can use market research report, internet, newspapers, social media, 
industry reports, and various other sources to understand the products and 
services offered by them in different markets. 
 This answers the question:  
? What are their product and services? 
iii. Determine the strengths of the competitors: What are the strength of the 
competitors? What do they do well? Do they offer great products? Why are 
consumers liking their product/service? Do they utilize marketing in a way that 
comparatively reaches out to more consumers. Why do customers give them 
their business? 
 This answers the questions:  
? What are their financial positions? 
? What gives them cost and price advantage? 
? What are they likely to do next? 
? How strong is their distribution network? 
? What are their human resource strengths? 
iv. Determine the weaknesses of the competitors: Weaknesses (and strengths) 
can be identified by going through consumer reports and reviews appearing in 
various media. After all, consumers are often willing to give their opinions, 
2.5 
DYNAMICS OF COMPETITIVE STRATEGY
especially when the products or services are either great or very poor. Like reviews 
on online websites, google, tripadvisor, amazon, blogs, youtube videos, etc. 
 This answers the question 
? Where are they lacking? 
v. Put all of the information together:  At this stage, the strategist should put 
together all information about competitors and draw inference about what they 
are not offering and what the firm can do to fill in the gaps. The strategist can 
also know the areas which need to be strengthen by the firm. 
 This answers the questions:  
? What will the business do with this information?  
? What improvements does the firm need to make? 
? How can the firm exploit the weaknesses of competitors? 
 2.3 STRATEGIC ANALYSIS 
Strategy formulation is not a task in which managers can get by with intuition, 
opinions, instincts, and creative thinking. Judgments about what strategies to 
pursue need to flow directly from analysis of a firm’s external environment and its 
internal resources and capabilities. The two most important situational 
considerations are: 
(1)  industry and competitive conditions, and  
(2) an organisation’s own competitive capabilities, resources, internal strengths, 
weaknesses, and market position. 
Figure: Strategic Analysis 
Evaluation 
Current 
Vision 
Mission 
Goals 
Strategies 
Identify 
Strength
Weakness 
Internal 
Analysis 
Identify 
Opportunity 
Threats 
External 
Analysis 
Analysis