There is no way we talk about competitive advantage without considering element in the market environment which brings opportunities or portrays threats to the firm - The traditional strategy theory of firms gaining competitive advantage. The theory looks at the firm from OUTSIDE – IN, focusing on the firm’s external competitive environment.
Another way of looking at the sources of competitive advantage is to consider the organisation resources which represent the strength of the organisation or brings threat to the organisation quest of gaining competitive positioning. – The resources based theory. This theory focus on the advantages and capabilities the company have. The theory looks at the organisation from INSIDE – OUT
ANALYSING THE FIRM’S GENERAL ENVIROMENT
As with other environment, the firm’s general environment is anything which surrounds the firm and affects the performance of the firm.
the firm’s general environment therefore consists of broad trends in the context within which a firm operates that can have an impact on its quest to gain competitive advantage. The success of any firm is rooted in environmental analysis to identify market opportunities. A firm must therefore ensure that it is adapted to the need of the market place than that of its competitors in other to gain strategic competitive positioning.
Competitive positioning is the relative level of dominance (or lack therefore) a firm has in its market compared to its competitors
As argued by N. Boltten & J. McManus (1999), environmental scanning otherwise known as analysis is the first step in finding and analysing external threats and opportunities.
The market/general environment in which a firm operates can be grouped under an acronym known as PEST
- P - Political
- E - Economic
- S - Social
- T - Technological
POLITICAL:
A firm’s political environment refers to the impact of the laws and legal system of the environment in which the firm operates together with the general nature of the relationship between government and business. The activity of every firm is moulded by government regulations.
ECONOMICAL:
The economical environment refers to the state (that is, the health) of the economy in which a firm operates. This varies over a period of time and form a pattern known as the business cycle.
An economy may face a period of prosperity- a situation where demand for good and services is high and unemployment is low. This is followed by a period of relatively low prosperity- a situation where demand for good and services is low and unemployment high. A recession comes when the economic activity is relatively low. For instance the BBC website reported that the Governor of the Bank of England warned that the UK economy may the heading for a recession.
The downturn in the world economy followed by the global financial crisis has not spared the UK economy either.
Since the financial service industries account for the UK largest consumer of the software and computer service industry, the challenges pose by the current financial crisis includes lower patronage because most finance houses especially banks will want to cut down on the spending on IT and consolidate on what they have already. Also the government taking majority interest in most bank trough the bail out measures means decision making process on capital investment might be slower.
A recession not well tackled and allowed to lingered for a longer period of years result in depression.
There is no doubt that the current global financial downturn poses a lot of challenges for business organisation, a good analysis and understanding of the environment can reveal some opportunities in the midst of the global challenges. The current take over bid proposition by Lloyds TSB of HBOS is a good example because this has resulted in share price appreciation and improved image for the organisation.
This explains the fact that every business leans on the growth of the economy.
SOCIAL:
This relates to the beliefs, values and norms that guide actions and behaviour in the environment in which a firm operates. Failure to pay attention to what the society in which a firm operates belief in and value, will seriously hinder the ability of the firm to gain completive advantage in the market.
This explains why most banks are introducing some products to suit some belief. Example is the introduction of Islamic banking by most banks.
TECHNOLOGICAL:
This has been the most dynamic aspect of today’s changing world. A firm that is not up to date with technological innovations, changes and development will be faced out of the market environment (threats) while opportunities will be created for firms that is up to date with technological changes.
EVALUATING THE FIRMS INTERNAL CAPABILITIES
The resource based theory perspective looked at the company from inside-out. It emphasises that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.
This perspective highlights the need for a fit between the external marketing context in which a company operates and its internal capabilities.
RESOURCES:
Resources are the firm specific assets such as capital useful for creating a cost or differentiation advantage and that few competitors can easily acquire.
Competitive advantage is formed by the synergistic combination and integration of sets of resource. Examples of such resources are:
- Patents and trademarks
- Propriety know-how
- Installed customer based
- Reputation of the firm
- Brand equity
CAPABILITIES:
Capabilities refer to the firm’s ability to utilise its resources effectively. An example is the ability to bring a product to market faster than its competitors. Such capabilities are not easily documented as procedures but through continuous use to perform a stretch task or an activity, become stronger and thus becomes difficult to understand and replicate.
A firm’s resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, and quality and customer responsiveness. According to the competitive model of Michael Porter, all of these are leveraged to create a cost advantage otherwise known as cost leadership or differentiation advantage.
COMPETITIVE ADVANTAGE BETWEEN THE TWO INDUSTRIES
According to Porter’s five (1985), Industry structure is determined by five competitive forces which are – the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitutes and rivalry among suppliers.
The theory suggests that in order to gain competitive advantage, managers must understand and react to those external forces within an industry that determine an organisation level of competitiveness.
The latest financial services survey by CBI and Price Waterhouse Coopers LLP shows that as the credit squeezes, continued income values fell sharply and business sentient worsened, while cost continued to rise, banks saw businesses fall quite sharply and profitability drop slightly.
The activities of Lloyds TSB were as well affected but one strategy the bank has developed in the face of the current dwindling profitability is its ability to divide its activities into various segments (segmentation) of the market. This strategy she uses to gain competitive environment in the volatile market environment.
To consolidate on commercial banking advantage, the bank created the Asset based lending (ABL) funds. The lending funds which offers a range of flexible financial services that suits individual and business needs. This unique product is targeted at developing full assets based approach by allowing business to secure funding against debtors. The fund allows businesses to receive advances of funds against outstanding sales invoices of up to 90%
According to the Guardian website, Through Cheltenham & Gloucester its mortgage division, the bank has grown to be the second biggest mortgage lender in the first half of the year taking a 24% share of new loans.
Lloyds TSB bank core banking division was repositioned to deliver a more personal and modern banking service.
Its corporate banking division (The treasury), has been able to provide a wide range of foreign exchange and money market products and services thereby maintaining a top market position for almost two decade.
As it is evident from the above analysis of the market environment that all this competitive forces will be affected by the development of the software and information technology industry, in order to gain competitive edge, Oracle Corporation on the other hand has provided with their product – the most customer success.
This is evident in their effort in creating software and providing services that allows organisation get the most up-to date and accurate information from the business system.
According to their website, it is the first software company that develops and deploys 100% interest enabled enterprise software across its entire product line: database, business applications, application development and decision support tools.
Oracle has brought upon the industry innovative ideas according to their website by the creation oracle real application cluster, oracle e-business suite, oracle grid, computing, support for enterprise Linux and oracle fusion which they believe is the most open, innovate and fast growing application software.
Also, the proposed merger of Lloyds TSB and HBOS is expected to result in cost advantage in the long run. The fusion of the two banks will bring reduction in the cost of doing business (e.g. staff strength reduction, compressed cost of advertising, etc) as the activities of both banks becomes compressed into a single entity .
In trying to be unique in the industry, Lloyds TSB has so far built on its reputation “For the journey so far…..” to reflect on all the group businesses from wholesale to retail and international banking and this has repositioned the bank to a direct and customer communication oriented firm.
The bank also sees its human resources team as one of the greatest resources it has. For this, the bank decided to invest in the remodelling of its human resources through leadership and partnership skill which requires senior HR team to think and act strategically rather than the historical functions of banks as provider of services
Oracle Corporation on the other hand have over three decades provided the software and services that enables organisation to get the most up to date and accurate information from the business systems. They have grown over the year for the over thirty years they have been in information management business to be gold standard for database technology and applications in enterprise throughout the world.
SUSTAINING COMPETITIVE ADVANTAGE
Although porter’s five model forces have been widely criticized, it remains a useful starting point for the analysis of sources of competitive advantage in the market environment. A good mix of this analysis with the firm’s internal resources can help the organisation to develop such benefit such as differentiation, cost leadership (low cost), niche marketing, high performance or technology, quality, service, vertical integration, synergy and the culture which cannot be easily imitated by competitors and can therefore be used to sustain the competitive advantage gained over time.
It is not only important for a firm to gain competitive advantage; it must ensure that is sustained. This is the focal point of competitive strategy
Sustaining competitive advantage allows the maintenance and improvement of the business competitive position in the market.
It is the ability to sustain the competitive advantage gained that will allow the firm to survive over a longer period of time in today’s world of active competition.
In order to continue to be competitively positioned, a firm should build its sustainable competitive advantage on its corporate capability which represent its strength and must constantly reinvent it to eliminate any threat which may develop thereof.
CONCLUSION
In conclusion, It can be seen that the activities of both firms to focus on customers satisfaction and exploiting opportunities in the volatile market environment has brought about new forms and sources of competitive advantage in terms of:
- Offering greater differentiation through product innovation
- Altering competitive scope through providing increased focus upon customer relations
- Lower cost in a number of areas through focused customer service (e.g. Marketing, Segmentation, etc)
It is therefore important that the firm wishing to gain competitive advantage engage in constant innovation and heavy investment in research and development because marketing activities in today’s world has shifted from product or service oriented to customer oriented. Customers are more interested in the ability of the product or service to satisfy their desire than what the product or service is.
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