spot_img
28.1 C
Philippines
Friday, March 29, 2024

Defining the arena

- Advertisement -

This week is the first week of March. At the Asian Institute of Management, we are nearing the end of the first term of the Master in Entrepreneurship program and the topic of the moment is strategic management.

Foundation 

What is strategy? Most definitions will say that strategy is a plan or method for achieving a defined goal. More detailed definitions reference the marshaling of resources effectively and efficiently. Strategy derives from the Greek strategos, which translates roughly into generalship. 

The word’s roots in generalship make sense when we consider that (a) corporate strategy is essentially about pulling all of a company’s resources and people towards a common aim, (b) corporate strategy is essentially led by senior management and (c) corporate strategy is almost always developed and implemented within an environment of competition.

In AIM, we always say that strategic management is a cycle and consists of a few basic questions. The first most basic question grounds the answers to all the others. It is the question of being. Who are we? This is what we think of as the MVV question. What is our mission, our reason for being? What is our vision? In pursuit of our vision, what values will we uphold? 

- Advertisement -

The other questions define the cycle. Where are we? Where do we want to go? How can we get there? How do we do it? How are we doing? They are questions that we ask over and over again because strategy is developed and implemented in a changing world. 

In the framework most commonly known to students of strategy, it is clear that strategy development requires an understanding of both the external and internal situation of the company. In a world of rapid change, this also means developing an understanding of the trends and potential changes in both external and internal situations. 

Competition 

In his 1989 article, The Origin of Strategy in the Harvard Business Review, Bruce Henderson begins with a key observation from a 1934 paper by G.F. Gause, “the father of mathematical biology”: “No two species can coexist that make their living in the identical way.”  

Henderson follows up this history lesson with a few observations from nature: (a) competition existed in nature way before strategy and the essential factor feeding competition is variety; (b) the richer the natural environment, the larger the number of factors that can be used to claim a superior position or niche (competitive advantage!); and (c) the richer the environment, the higher the number of potential competitors. 

Henderson points out that, in nature, for the most part, dominance is a matter of chance and evolution except that strategy can be used to “accelerate the effects of competition and the rate of change.” Henderson points out that while “imagination and logic make strategy possible,” they are not enough. Strategy formulation also requires an understanding of the “complex web of natural competition.” What this means is that strategy cannot be developed nor implemented in a vacuum.

This explains why any class on strategy includes an analysis of the external environment of the business. An analysis of the external business environment typically involves three to four levels of analytics depending on the size and type of corporation. The largest level of analysis is what we call the macro analysis and typically will use the base mnemonic of PEST, covering the core analytics of political, economic, social and technological; or the extended mnemonic of PESTLE, which adds legal and environmental. The next level of analysis is typically industry analysis and local area analysis (country or region). These macro layers of analysis form the context for the most important part of the external analysis, the competitive analysis. 

Essentially, the competitive analysis allows a company to compare itself with its competition. This is important because the essence of strategy is the creation of competitive advantage, which has meaning only within the context of competition. 

Competitive Arena

One way to begin a competitive analysis is to begin with this question: Who are our competitors? Essentially, this asks the question: who do we compete with for customers? One question that we can ask to help identify competition is this: If the customer does not buy from us, what are the other alternatives? We need to ask about the alternatives as opposed to who the customer would buy from because in many cases, especially for institutional customers, one of the alternatives is to rely on internal capabilities.

Another way to approach the question of competitive analysis is to take a step further back and ask the more important question: what exactly are we offering the market? What value are we providing to the customer? What pain point are we addressing? How are we making the customer’s life better?  This is important because our competitor may not be selling the same product but still be addressing the same pain point. This means that identifying competition is not so much identifying target customer and product, it is about identifying target customer and product or service purpose.

Essentially, this means that a competitive analysis begins with defining our competitive arena. This creates a tiny conundrum because it begs a critical question: which customer do we analyze? Current customers? Current targets? Potential targets? 

The answer to this lies in an important fact: Strategy is about making choices and is as much about choosing in which arena to compete as it is about how to compete in that arena.  What this means is that the first competitive arena we draw is a wide one: Who could we possibly provide value to?  

Readers can email Maya at integrations_manila@yahoo.com.  Or visit her site at http://integrations.tumblr.com.  For academic publications, Maya uses her full name, Maria Elena Baltazar Herrera.

- Advertisement -

LATEST NEWS

Popular Articles