IMPACT OF CULTURE AND COMPETITION IN BUSINESS STRATEGY

IMPACT OF CULTURE AND COMPETITION IN BUSINESS STRATEGY

Having a clear and robust business strategy is one of the pillars of becoming a successful business. Business strategy gets defined as the method through which a company uses to accomplish its set out objectives and goals and is usually between three and five years. The plan guides every decision-making process in the organization, how resources get allocated, and how the business operations get conducted to meet the company’s desired targets. Business strategy gets influenced by various factors, including organizational habits and competition. The culture at any organization involves the standards, beliefs, values, principles, and actions that are responsible for the unique psychological and social environment in a firm (Flamholtz and Randle, 2011, 6). Competition, on the other hand, represents the rivalry that exists between two firms in the same sector, producing and selling the same commodities or service with the shared aim of increasing revenues and their customer base (Ireland, Hoskisson and Hitt, 2009, 51). This paper aims to: 1) Define competition and analyze its influence on the strategy-making decision in the organization: 2) define organizational culture and evaluate its impact on strategies adopted by the firm.

COMPETITION

Competition is a rivalry between two parties with similar objectives and aims. In marketing, it gets defined as the rivalry that exists between two or more companies in the same industry, selling related commodities or offering the same services with the shared aim of increasing profits and customer base. Firms compete in the market by exploiting the four Ps (Product, price, place, and promotion) of the marketing mix (Ireland, Hoskisson and Hitt, 2009, 57). The company that can better utilize these four components gains a competitive advantage over its rivals. According to Michael E Porter in ‘Competitive Advantage: Creating and Sustaining Superior Performance,’ competitive advantage is the capacity of a business to perform better and more efficiently than its rivals (Potter, 1998, 45). Competition is associated with the development of newer products, innovations, and services, all of which benefit the customers, giving them more to choose from and quality products. This increase in the number of similar products in the market forces the prices to decrease in contrast to monopoly or oligopolistic markets. Economists have distinguished between two types of competition: i.e., perfect competition and imperfect competition. Clulow, in 2003, said that a company gains a competitive advantage by developing and putting into operation a value creation strategy and plan that is not getting utilized by its competitors (Clulow, Gerstman, and Barry, 2003, p. 221). Therefore, competition is a crucial factor impacting the strategy-making process in any organization.

Porter’s five forces analysis

One of the best techniques in analyzing competition and coming up with a business strategy that gives the company a competitive advantage is Potter’s five forces analysis. The model was put forward by Michael E. Porter at Harvard Business School. When coming up with a competitive edge, a business should use the five forces model to assess its macro-economic environment, including the competition and their strategies. It considers five aspects that affect the company to determine whether the firm will become profitable compared with its rivals in the same sector. According to Porter, a good comprehension of the forces of competition and their fundamental causes reveals the foundation of the industry’s present profitability while also presenting a system for expecting and controlling or impacting the competitors. He hypothesized that knowing and recognizing the forces driving competition and the structure of the industry is the significant inefficient making of decisions and development of a comprehensive strategy. The five forces described by porter included: (Porter, 2008, pp 86-110) in ‘The Five Competitive Forces that Shape Strategy.’

1. The threat of new entrants- This aspect of Porter’s five forces deals with the level of ease or difficulty with which new competitor enters the market. If it is easy for a competitor to join the market, the risk of the company’s market share getting reduced increases leading to lower profits. It is, therefore, pivotal for management to analyze the market and how easy it is for new entrants to gain entry into the market in their strategy-making process.
2. The threat of substitutes- Substitutes are products or services that consumers could use instead of a particular product. This element analyzes the size of the rival(s), how the organization’s prices and quality of products stack up against the competitors, and the amount of profit generated by the competition.it is influenced by the actual switching costs from one product to another and consumer behavior regarding the change.

• The bargaining power of consumers- Consumers and their ability to influence the process of setting prices and the quality of products is a crucial factor of consideration in any strategy-making process. When consumers are less and sellers are many, their bargaining power increases as well as their likelihood to switch between products. On the other hand, their bargaining power reduces when the purchases made by consumers are for products in small amounts, and the company’s commodity gets highly differentiated from its competition.

1. The bargaining power suppliers- this aspect is concerned with the power that suppliers have over the organization. If the number of suppliers is less, their bargaining power increases. A business should plan to have many suppliers to reduce their influence in their strategy.
2. Competitive rivalry- this is the most significant element in Porter’s five forces model. It evaluates the intensity of the competitors in the industry and their amount in the market. This factor is crucial in competitive strategy making as high-intensity competition could drive a company out of business, forcing it to close.

Strategies to gain competitive advantage

Porter further suggested generic strategies that could get utilized to increase the competitive advantage of the business after completion of the five forces analysis. He proposed three strategies that a firm could use, including product differentiation, cost leadership, and focus (Tanwar, 2013, p2).

Differentiation

To gain a competitive advantage in the market, companies need to differentiate their products and services from those of their competitors (Tanwar, 2013, p4). A differentiation strategy is the best approach to achieving this advantage. This type of policy is not concerned with the prices charged by their competitors as they can command a higher market price for their commodities or services due to their uniqueness. This strategy involves the cutting of costs in production areas that do not contribute to the differentiation of the product to enhance cost competitiveness.

Cost leadership

Cost leadership in competitive strategy involves the production of commodities and services at a lower cost enabling it to sell it cheaper than its competitors (Tanwar, 2013, p3). The ability of a firm to produce similar products and sell it at a lower price than the existing market standard gives it a competitive advantage over its rivals. This lower price creates brand loyalty among consumers by providing them with a price value, thereby increasing the company’s market share. Porter suggests that businesses not making sufficient profits should find lower-cost bases like raw materials, facilities, or labor. He recommends managers to a highly competitive market to adopt the cost leadership strategy to stay ahead of the competition.

Focus strategy

A focus strategy involves the decision by a company to concentrate on a specific niche market, putting all its efforts into satisfying the needs of that niche (Tanwar, 2013, p5). This approach requires a comprehensive comprehension of the market, sellers, consumers, and competition to come up with a robust and effective plan that will sustain your business. Businesses that use this technique adopt a customer-oriented approach focusing on their needs and how the company can produce goods or services that improve their livelihoods. However, the focus strategy goes hand in hand with either the differentiation or cost leadership strategies.

Two other underlying factors that impact on competitive advantage strategy in business include corporate identity and core competencies. The right brand image, character, and communication are essential to firms seeking to create a competitive advantage in their markets. Core competencies get enjoined in corporate identity, and they form the basis for competitive advantage (Alexander and Martin, 2013, p 39). These factors impact on the strategy-making decision and should be given special attention for success.

ORGANIZATIONAL CULTURE

Organizational culture is a collection of shared assumptions in a business that controls and guides the behavior within that organization according to Ravasi and Schultz (2006) in “Responding to organizational identity threats: Exploring the role of organizational culture” (433-458). According to Richard Perrin, “Organizational culture represents the combination of values and rituals that act as a glue to assimilate the employees of the company” (Watkins, paragraph 6). Culture is a bearer of significance. It gives a shared answer to the questions of “what if?” as well as “why.” Culture is about “the story” where individuals in the business get implanted, and the qualities and principles that fortify that account. It additionally concentrates its consideration on the significance of symbols associated with the company and the importance of comprehending them (including the eccentric dialects utilized in firms) to understand the culture. According to Edgar Schein (1992) in ‘Organizational Culture and Leadership: A Dynamic View,’ there are different types of cultures and sets of sub-cultures within organizations (Schein, 9). Schein suggests that even though each business can possess its own distinct culture, complementing or conflicting sub-cultures may exist in big organizations due to the different management styles used in different department (Selart, Marcus; Schei, Vidar (2011) p 193). Corporate culture is affected by a myriad of factors such as relative strength of the business, political factors and national issues which contribute to formation of different types of culture. One of the primary ways to analyze corporate culture is by evaluating whether it’s a strong or weak culture. An influential organizational culture gets defined as a culture that the employees can comprehend and articulate clearly. A weak one, on the other hand, is one that people in the company will have problems to understand, explain, or define (Flamholtz and Randle, 2011, p. 9). Culture plays a huge role in determining the type of strategy adopted by the company and whether it will become a success.

Culture is one of the major topics in business since 2016. Culture in business accurately describes how the thing works. It includes artifacts, values, behaviors, reward systems, and beliefs that influence individuals’ behavior on a day-to-day basis in the industry and is vital in making the strategy. People’s values, practices, and ideas make up a company culture.  Human resource (HR) leaders and the chief executive officers (CEOs) have recognized that culture drives people innovation and customer services. A survey shows that’s culture is potentially a competitive advantage when a business knows that reward systems and leadership behaviors directly impact employee engagement, organizational performance, retention, and customer services. Leading firms and companies are now using behavioral information and data to influence and manage their culture. Culture is more not just an HR issue but as a business issue. The executive team and the CEOs must take responsibility for an organization’s culture. Also, human resource leaders should support that responsibility through the infrastructure and measuring process.

Most businesses view culture as an essential aspect. However, most businesses don’t fully understand the culture. Many organizations find it hard to measure and even manage culture. According to a survey conducted by The Research Network, only 28% of survey respondents believe they know about the culture. While 28% believe in having the right culture (Cristian 2013: 1695). Culture can determine both the failure and success of a business when the business is changing in growth, mergers, and acquisition. Also, the product cycle can fail or succeed; it all depends on the orientation of culture based on the direction of the business. This year the Global Human Capital Trends, unlike other past reports, their reports revealed that almost 90% of respondents say that culture is essential in business, while 54% said it is necessary.

Culture combines the explicit and implicit reward system that defines how a business works in practice, no matter the business strategy, organizational chart, or what mission statement states. Several companies this year are changing their culture due to the increased competition and shifting markets. Companies need to change the culture, so they adapt to shifting talents market and counter stiff competition from other competing firms. In an organization, culture is transparent and is tied directly to its employment brand. Businesses consciously manage and cultivate their culture revolving it into a competitive benefit in the open market. Do you ever wonder why certain companies employ great engineers, who deliver endless innovations, generate continuous growth while other businesses get seen to be reinventing themselves? Then a large part of the answer is because of culture. Culture also helps when things go wrong. For instance, last year, two companies merged, and one of the companies its culture was based on low cost while the other company its culture was of quality service. Workers received different signals until a new team of management gets hired to carefully redefine and diagnose the business processes in the company (Zheng Yang and Mclean, 2010: 770).

Coming up with a strategic plan is crucial to the success of an organization. The organization must effectively implement that strategy to fulfill its performance goals. For the execution to be successful, the organization’s culture is the determiner. Culture is essential in determining the development of a strategic plan. The implementing strategy usually depends on several crucial elements. The first elements are sustaining and building a business culture that accelerates, and facilities change. Secondly, encouraging a sense of responsibility for the strategy execution at every agency-level, starting from the administrative assistant to the junior leadership. To explain further, it means constructing a culture that generates flexibility, accepts, and understands the responsibility for a change is essential. Creating an open business culture should start from the top team and should communicate strategic priorities effectively and often. Every person in the agency should contribute to the success of the strategy. Also, everybody should be personally accountable.  Consider a case study involving a telecommunications expert AT&T showed that active alliance among team members and a commitment to one’s action was high. They talked between senior management, which steered an environment in which every worker at every level felt that their ideas get counted in implementing the strategy. During the case study, the participants came up with measurable plans and goals to communicate and gave their feedback to their senior leadership. The level of commitment of the participants led to higher performance and improved strategy execution (Hickman and Silva 2018: np). However, the senior leader must make the strategic plan to be fulfilled and achieve results by making the decisive goal and vision inspirational and clear. Secondly, exploit the existing advantageous behaviors and eliminate undesired behaviors. Also, the senior leaders should make the strategic plan last by changing the business processes to reinforce preferred behaviors and enable them to be alignment with the business culture. However, implementing a strategic plan is not a guarantee for success; progress only happens through reinforcing and creating strategy ownership, accountability, implementation, and culture change.

In conclusion, the process of strategy making is highly complex. Strategy making is influenced by several factors, mainly including competition and culture — the competitive position of business impacts on the process of strategy making. Managers strive to come up with policies and plans that enhance their competitive advantage in the market. Michael E. Porter put forward the five forces model to analyze the position of a company in the market and strategies that management could use to increase sales, profits, and the market share of the business. Culture is also a component that must get considered when making these strategies to ensure success. Therefore, competition and culture are the main factors that impact on the strategy-making process in any organization. However, with proper planning and strategic management, the companies can turn these elements into an advantage that helps them achieve their set targets and goals.

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