- 62 -
Chapter 2
The approaches to competitive strategy and beer industry:
an overall view
2.1. The nature of corporate strategy
2.1.1. Integrated definition of strategy
Strategy, starting from its military roots, is defined by Webster's New World Dictionary as
"the science of planning and directing military operations". Thereby, the concept of strategy is
not quite a new one in the last centuries. However, applying and developing the concept of
corporate strategy into the arena of doing business is a breakthrough idea since the later half of
this century. Then the decades of the sixties and seventies saw a tremendous growth in the
development and application of the tools and techniques of strategic planning. At that time, most
management definitions of strategy by many authors were emphasized on the planning theme as
an important component. This traditional approach is elaborated by Charles W.L. Hill and Gareth
R. Jones as the following:
"Harvard's Alfred Chandler defined strategy as "the determination of the basic long-term
goals and objectives of a enterprise, and the adoption of course of action and the allocation of
resources necessary for carrying out these goals". Implicit in Chandler's definition is the idea that
strategy involves a rational planning process. The organization is depicted as choosing its goals,
identifying those courses of action (or strategy) that best enable it to fulfill its goals, and allocating
resources accordingly. Similarly, Jame B. Quinn of Dartmouth College has defined strategy as
"the pattern or plan that integrates an organization's major goals, policies and action sequences
into a cohesive whole. And finally, along the same line, William F. Glueck defined strategy as "a
unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the
enterprise are achieved" [7].
However, planning based definitions of strategy had evoked criticism. Then Hill and Jones
showed a new approach based on Henry Mintzberg's definition of strategy as "a pattern in a
stream of decisions or actions", the pattern being a product of whatever intended (planned)
strategies are actually realized and of any emergent (unplanned) strategies. Both of them argued
that Mintzberg's revision of the concept of strategy suggests that strategy involves more than just
planning a course of action. It also involves the recognition that successful strategies can emerge
from deep within an organization .
In the sequence decades of 1980s and 1990s, "strategy" becomes essence in business
domain than ever before, the term "corporate strategy" and "strategic management" are a
responsibility of all managers - a responsibility that is becoming more and more crucial. So far,
the concept of strategy has received a great deal of attention by various authors until now. Many
of them realized that it should not be emphasized a different perspective, providing merely a
single dimension of this fairly complex concept. Further more, they have attempted to develop a
widely accepted concept of strategy.
- 63 -
By 1991, Arnoldo C. Hax and Nicolas S. Majluf pointed out that strategy can be seen as a
multidimensional concept that embraces all of the critical activities of the firm, providing it with a
sense of unity, direction, and purpose, as well as facilitating the necessary change induced by its
environment.
Reviewing some of the most important work in the field of strategy, Hax and Majluf have
identified the following critical dimensions that contribute to a unified definition of the concept of
strategy:
• Strategy as a coherent, unifying, and integrative pattern of decision
• Strategy as a mean of establishing the organizational purpose in terms of its long-term
objective, action program, and resource allocation priorities
• Strategy as a definition of the competitive domain of the firm
• Strategy as a response to external opportunities and threats and internal strengths and
weaknesses in order to achieve competitive advantage
• Strategy as a channel to differentiate managerial tasks at the corporate, business and
functional levels.
• Strategy as a definition of the economics and non economic contribution the firm intends
to make to its stakeholders [4].
Gerry Johnson and Keval Schole (1993), in the similar way, have stated the nature of
corporate strategy by the characteristics usually associated with the word "strategy" or "strategic
decision". In sum, according to the mentioned authors, strategy is the direction and scope of an
organization over the long-term; ideally, which matches its resources to its changing
environment, and in particular its markets, customers or clients so as to meet stakeholder
expectations [12].
From this unifying approach, strategy becomes a fundamental framework through which
an organization can assert its vital continuity, while, at the same time, it forcefully facilitates its
adaptation to a changing environment. The essence of strategy thus becomes the purposeful
management of change toward the achievement of competitive advantage in every business.
Applying corporate strategy concept to Vietnamese business conditions now is extremely
important in order to enhance the building up of a strategic vision for the managers who are
operating all the domestic companies there, especially for managers of state-owned companies.
Business environment in Vietnam today is likely different from that of the previous planned-
economy where all of the resources and the output were subsidized by central government and
where the existence of a predetermined long-term plan was merely a formal procedure by
subjective figures without any environmental consideration. Actually, the managers today are
challenged by the uncertainty and the faster change of the new business environment as well as
by the competitive forces surrounding their firms. The task of keeping up the firm's growth
requires setting up a well-defined strategy at all levels of management within their firm.
2.1.2. Hierarchical levels of strategy
Within the company, strategic managers are found not just at the apex of the
organization, but also at different levels within its hierarchy. There are three basic conceptual
hierarchical levels which have always been identified as essential layers of the formulation and
execution of the firm's strategy: the corporate level, the business level, and the functional level.
- 64 -
Corporate level
At the corporate level, the main strategic issue seems to be concerned with the overall
scope of the organization. Typically, this involves defining its mission and goals, determining
what business it should be in , allocating resources between the different business areas, and
formulating and implementing strategies that span individual businesses. The corporate level of
management consists of the Chief Executive Officer (CEO), other senior executives, the board of
directors, and corporate staff. These individuals occupy the apex of decision making within the
organization. The CEO is the main strategic manager at this level. His or her strategic role is to
oversee the development of strategies for the total organization. Of course, it should be noticed
that the decision maker at the corporate level is not necessarily the isolated CEO. Depending,
among other things, on the management style of the CEO, corporate strategy might be shaped
and implemented by the core team of top executives.
Business level
The second level can be thought of in terms of competitive or business strategy with the
main efforts aimed at securing the long-term competitive advantage in all the current businesses
of the firm. In the single-industry company, the business and corporate level are the same. In
order to decide how to compete in a market, the concerns are therefore about which products or
services should be developed and offered to which markets; and the extent to which these meet
customer needs in such a way as to achieve the objectives of the organization. So, business
strategy is more likely to be related to a unit within a whole. The main strategic managers at this
level are the heads of the divisions. Their strategic role is to translate general statements of
direction and intends at the corporate level into concrete strategies for individual businesses,
constrained by the overall resources assigned to the particular business unit. Thus business-level
strategic managers are concerned with strategies that are specific to a particular business.
Functional level
Functional (or operational) strategies are concerned with how the different functions of the
enterprise - marketing, finance, production, personnel and so on - contribute to the other levels of
strategy. Such contributions will certainly be important in terms of providing the ultimate
competitive weapons to develop the unique competencies of the firm. By definition, there are no
strategic manager bear responsibility for specific business functional. They are not in a position
to look at the big picture. Nevertheless, they have important strategic role, for it is their
responsibility to develop functional strategies that help fulfill the strategic objectives set by
business.
2.2. Strategic management process
Strategic management is not simply the management of the process of strategic decision
making. According to Balaji S. Chakrvarthy (1986), strategic management is the process through
which managers ensure the long-term adaptation of their firm to its environment. It should be also
emphasized that strategic management process is continuous - it never really stops within the
organization. Samuel C. Certo and J. Paul Peter (1990) defined strategic management as "a
continuous, integrative process aimed at keeping an organization as a whole appropriately
matched to its environment".
- 65 -
Johnson G. and Scholes K. point out that the nature of strategic management is different
from other aspects of management. Some of these differences are summarized in the table 2.1
below:
Table 2.1: Differences between strategic and operational management
Strategic Vs Operational
management management
• Ambiguity
• Complexity
• Non-routine
• Organization-wide
• Fundamental
• Significant change
• Environment or
expectation driven
• Routinised
• Operationally specific
• Small- scale change
• Resource driven
(Source: Johnson G. and Scholes K., Exploring Corporate Strategy, Prentice Hall, 1993)
Organizational effectiveness depends on the ability of the organization to adapt to its
environment, which is in turn influenced primarily by the strategic management of the
organization. Strategic management includes making such major choices as which environments
in which to compete (corporate level strategies) and how to compete within those environments
(business-level strategy). These choices may either diminish or enhance the probability of
specific types of management actions and plans, thereby influencing business performance
outcomes (Child, 1972; Hambrick and Mason, 1984; Pfeffer and Salancik, 1978 ).
Different components of the strategic management process are visualized in figure 2.1.
The components include the selection of the corporate mission and major corporate
goals, analysis of the organization's external competitive environment and internal operating
environment, the selection of appropriate business and/or corporate level strategies, and the
designing of organizational structures and control systems to implement the organization's
chosen strategy. The task of analyzing the organization's external and internal environment and
then selecting an appropriate strategy is normally referred to as strategy formulation. The task of
designing appropriate organizational structures and control systems, given the organization's
choice of strategy, is called strategy implementation.
Business performance, however is not only a function of how well strategy is formulated.
Business performance also depends on whether the strategy which was chosen is actually
implemented, and how well the implementation is done. In other words, performance is likely to
depend on the extent to which "intended" strategy and "realized" strategy are the same
(Mintzberg, 1978). Insight into the nature and content of business-level strategic choices, the
patterns of managerial actions by which their implementation is accomplished, and reasons for
their relative effectiveness [7].
- 66 -
2.3. Competitor analysis and competitive strategy for a company
As mentioned in the previous part, the second level of strategy is concerned with the
competitive strategy which is considered as the core of managerial actions. In order to answer
the question of how to compete in a market, strategic managers must examine the choice of a
business competitive strategy which targets to develop a superior position for the business unit. It
is also the ultimate objective of the business strategy.
There are two key sets of factors in deciding how to position the business within its
competitive environment: (1) factors that determine the attractiveness of the industry pertaining
to the business, as measured primarily by its long-term profitability prospects; and (2) factors that
determine the relative advantage of the business with respect to competitors in the industry [4].
- 67 -
External Analysis
Strategic choice
Internal Analysis
Business level
Strategy
Corporate level
strategy
Portfolio analysis and
Entry and Exit
strategy
Choosing
Organization
structure
Conflict, Politics and
Change
Choosing
organization control
Matching strategy,
Structure and control
Corporate Mission
and goals
Feedback
Figure 2.1: Components of strategic management process
(Source: Hill C. W., Strategic management)
- 68 -
The first set of factors is normally external to and uncontrollable by the firm. Its analysis
leads us to recognize the industry attractiveness and competitors' behavior. The second set of
factors , which corresponds to the actions controllable by the firm, allows us to comprehend how
the business can develop unique and sustainable competitive advantages. Its analysis is
basically supported by a thorough understanding of the activities represented in the business
units' value chain.
2.3.1. Structural analysis of the competitive environment
In order to select the desired competitive position of a business, it is necessary to begin
with the assessment of the industry to which it belongs. The dominant aspects of an
organization's environment assumed to exist in and around the industry, or industries, in which a
firm competes. Thus, for strategic decision making there is no such thing as "the" environment - if
the work "environment" is taken to mean a single holistic entity. Instead, organizations may
confront multiple environments, each with its own characteristics and pivotal competitive issues
[28].
An industry environment consists of a particular set of competitive forces that establish
both opportunities and threats that confront the company. Michael E. Porter (1980) postulates
that there are five forces which typically shape the industry structure: intensity of rivalry among
competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, and
bargaining power of suppliers.
The pattern of forces changes due to the action of competitors. Strategic moves by any of
these competitors can alter prevailing relationships and thereby change the pattern of forces in a
firm's environment. Figure 2.2 summarizes the "five forces" approach to structural analysis and
their interrelationship.
2.3.1.1. The threat of entry
The threat of new entrants is due to potential competitors which are companies that
currently are not competing in the industry but have the capability to do so if they choose.
Established companies try to discourage potential competitors from entering, since the more
companies enter an industry, the more difficult it becomes for established companies to hold their
share of the market and to generate profits [12].
Therefore, the threat of new entry depends on the extent to which there are barriers to
entry. Most typically these are as follows:
• Economies of scale
• The capital requirement of entry
• Access to distribution channel
• Brand loyalty
• Absolute cost advantages
• Expected retaliation
• Legislation or government action
• Differentiation
- 69 -
Indeed, empirical evidence also suggests that the height of barriers to entry is the most
important determinant of profit rate in an industry.
2.3.1.2. Rivalry among the industry competitors
The rivalry among competitors is at the center of the forces contributing to industry
attractiveness. The extent of rivalry among established companies within an industry is largely a
function of three factors:
Industry competitive structure: which refers to the number and size distribution of
companies in an industry. Structures vary from fragmented industry to consolidated industry.
Different competitive structures have different implication for rivalry.
Demand condition: Growing demand tends to moderate competition by providing greater
room for expansion. Conversely, declining demand results in more competition as companies
fight to maintain revenues and market share.
Exit barriers: Exit barriers are economic, strategic, and emotional factors that keep
companies competing in an industry even when returns are low. If exit barriers are high,
companies can become locked into an unfavorable industry.
A reflection on the combined impact of exit and entry barriers on the profitability of an
industry is presented in figure 2.3.
2.3.1.3. Threat of substitutes
Substitutes could affect the attractiveness of an industry in different ways. Their mere
presence establishes a ceiling for industry profitability whenever there is a price threshold after
which a massive transfer of demand takes place. Also the impact that the threat of substitution
has on an industry profitability depends on a number of factors such as availability of close
substitutes, user's switching cost, aggressiveness of substitutes' producers, and price-value
trade-off between the original products and its substitutes.
- 70 -
COMPETITIVE
RIVALRY
POTENTIAL
ENTRANTS
SUPPLIERS
BUYERS
SUBSTITUTES
THREAT
OF ENTRANTS
THREAT OF
SUBSTITUTES
BARGAINING
POWER
BARGAINING
POWER
Figure 2. 2 : A model for structural analysis
(Source: Adapted from M.E. Porter, Competitive Strategy, Free Press, 1980, p.4)
EXIT BARRIERS
Low High
- 71 -
High
ENTRY
BARRIERS
High and stable profit
High but possibly
Unstable profit
Low
Low and stable profit Low and
unstable profit
Figure 2.3: The impact of entry and exit barriers over industry profitability
(Source: Hax A. C., Majluf N. S., The Strategy Concept and Process, Prentice Hall, 1991)
2.3.1.4. Bargaining power of suppliers and buyers
Power of suppliers Power of buyers
• Number of important suppliers
• Availability of substitutes for suppliers'
products
• Differentiation or switching costs of
suppliers products
• Suppliers' threat of forward integration
• Industry threat of backward integration
• Suppliers' contribution to quality or
services of the industry products
• Total industry cost contributed by
suppliers
• Importance of the industry to suppliers'
profit
• Number of important buyers
• Availability of substitutes for the
industry products
• Buyers' switching cost
• Buyers threat of backward integration
• Industry threat of forward integration
• Contribution to quality or service of
buyers' products
• Total buyers' costs contributed by the
industry
• Buyers' profitability
The industry structure model contains only passing references to the environment beyond
the industry level. What might be termed as general environment is simply discussed as a source
of "external forces". There is no explanation of how these forces are configured or linked to
competitors and patterns of competitive forces within industry environments. The strategic
implications of events originating in the general environment can only be determined after
assessing their impact on industry conditions and the relative strategic positions and capabilities
of competing organizations (Porter, 1977, 1980; Lenz, 1980)
Không có nhận xét nào:
Đăng nhận xét