1. Discuss how a firm could use product leadership, operational excellence and customer intimacy as a basis for competitive advantage. Use examples to illustrate?
2. Select an industry (e.g. airlines, fast food etc) and use Porter’s Five Forces model to analyse the industry structure and determine the level of competitive rivalry. Explain how a company wanting to enter the industry could use this information?
There are many competent organizations in the modern world of business. There are a number of internal as well as external factors that are faced by the organizations. The external factors have the capability of impacting the strategic power of the organizations. In order to achieve the operational efficiency of the organization, it is important to formulate effective competitive strategies. There is several numbers of strategies that can be used by the organizations for achieving competitive strategy. However, this report covers three important aspects related to competitive advantage.
The operational excellence strategy is closely connected with cost leadership. The cost leadership is concerned with the reduction of costs in order to maximize the control on the resources. This is to be done in an automated manner. The primary focus of this strategy is focused on the automation of the different manufacturing processes in such a manner so that there is sufficient control on the automation of the financial resources. The operational excellence is connected with enhancing the productivity levels. For this purpose, there can be increase of the output by the process of sustaining or there can be reduction of the input. The increased level of productivity would increases the operational excellence. This would be a powerful tool in the competition.
The strategy focuses on the reduction of the work procedures by reducing the operational cost and streamlining the operations for long time period. The strategy has impacts on the standardized production, transaction oriented as well as high volume which leads to differentiation. The operational excellence is achieved by making sure that the high production volumes would be kept for longer duration and it would lead to high sustainability. The implementation of the standardized production delivers good brand image of the company which would attract more number of customers. It would also lead to greater level of customer satisfaction.
The above strategy makes sure that the operational strategy is closely related to the cost leadership strategy so that the strategy is best for the market where the customer gives more importance to the cost and less importance over choice. The operational excellence is used by the company to commoditize the market and the mature market in which the cost leadership is being considered as one of the main economic growth sources. The cost leadership model gives strength to the organizations for giving products and services on affordable prices than the competitors. This would become of the sources of competition. The operational excellence leaders would ensure centrally “rule based” operations which are standardized as well as follow organizational discipline.
The framework of operational excellence is being increasingly used by the companies. There are several companies such as Wal-Mart, McDonald’s, FedEx, IKEA, Southwest Airlines and others who use operational excellence framework. There are different disciplines such as Supply Chain Management, Total Quality Management and Six Sigma which are being incorporated into the “operational excellence” policy of the firm. The primary aim of this integration is the maintenance of the good quality services or products along with lower prices. The aim of this strategy is attract maximum number of customers in the organization. This strategy of the operational excellence is effective for the new firms when there is a need to gain a loyal set of customers.
The organizations need to follow the strategy for attaining maximum excellence level through the model of cost leadership. The cost leadership would emerge as a mode to gain sustainability in the organization through implementing quality products in affordable prices. The organizations should also use this strategy for a longer time period so that the customer attraction can be gathered in the least possible manner.
The strategy of customer intimacy focuses on the offering of unique range of services as well as products to the customers so that is delighted with them. The company should give enough scope for personalization as well as provide customized products to the customers. This would be done according to the needs of the customers. The competitive strategy would be based on the personalization concept which would give importance to the personal preferences of the employees. This kind of services would satisfy their needs so that there is increased revenue generation of the company. If the customers feel that they are being valued by the organizations then they would opt for more number of products as well as services of the company. A customized product would definitely attract the customers and this kind of strategy can be used by the small as well as large organizations. The businesses should adopt flexible policies which would help them to gain the trust of the organizations.
This strategy should be used by the company to couple the products as well as solutions and deliver them as a package to the customers. The overall package must be made by taking into account the values, needs and beliefs of the customers. This would make the customers come back to the organizations time and again (Baumgartner and Ebner 2010). The goal of this kind of strategy is the gaining of maximum level of satisfied customers in an effective manner so that there would be an increase in the loyal customer base.
This strategy is based on the outcomes of the research or the effective formulation of policies in which a high level of importance is given to customer needs. The vendors should get the information about customer requirements and then convey them to the company authorities so that they can design their products or services accordingly. The need segmentation would provide a platform for the organization so that special customers can be targeted and their unique needs can be fulfilled. It is also vital to mention that this strategy is devoid of any innovation. It is effective as a variety of customer needs can be fulfilled by this kind of approach. This is because there is high level of customer satisfaction in this approach.
The strategy is being used by top companies such as IBM, Amazon.com, Lexus and Virgin Atlantic. The strategy is being used by the companies who focus more on the customer centric aspect. These kinds of organizations have the recognition modes as the nature of the decentralized organizations helps them to modify their operations as needed. This type of companies aims to fulfill the customer needs by focusing on their requirements. These type of companies aim to upgrade the services as well as products in a effective manner (Teeratansirikool et al. 2013).
The product leadership can be considered as one of the strategy which aims to provide unique products as well as services, which is different from that of the competitors. The aim of the strategy is to offer superior products to the market and increase the operational efficiency of the firm. This would be done by the effective utilization of development and innovation. The leaders of the different products have the aim of achieving premium market prices by developing creative development plan. The concept of “First mover advantage” is closely related with this concept as the act of increasing the operational efficiency would incorporate some value added services to the customers. This would make the customers feel better about the utilization of the products or services of the company. The companies should incorporate a competitive strategy by focusing on product leadership. The firm should be strong in branding as well as innovation so that it can sustain in the market for longer duration. It is required for the organization to build an excellent operating model in which the organization would be able to provide value added services to the customers.
The product leadership is directly related with the corporate culture and it includes various aspects such as product management, talent management, marketing management, research portfolio management and teamwork (Cusumano Kahl and Suarez 2015). The integration of the various disciplines in the operations of the organization helps the organization on enhancing the operational excellence. This would also give the company the required competitive advantage. The time during which the company does not offer any products or services to the customers is considered as the “golden time period”. This is one of the methods of being able to charge “premium prices” for the products which would increase the financial revenue of the company.
The product leaders are able to recognize the excellence displayed in the team work, creativity and problem solving in the organization, which would impact the success of the organization. It is important to maintain collaboration, creativity and enforcement of talented manpower in the organization, which would make the companies to enjoy competitive advantage.
There are organizations such as Apple, Pfizer, Fidelity Investment and BMW which strives for research and development so that there is maximum degree of the operational excellence and it is being done through the process of product leadership. The organizations develop new products as well as services by the process of product leadership. This is being done with the help of knowledge management and creativity. The organization need to do sufficient research as well as development in the product improvement sector so that the company can give competitive services.
The five forces are being analyzed by determining the various factors that affect the performance of the industry. The banking industry has witnessed sustainable growth in terms of economic factors since the last 20 years and it is also considered as the “third” largest industry in the Asia-Pacific region. It is also considered as “11th largest” industry in the world. The important strengths of it include the implementation of effective financial plans as well as implementation of effective government policy that can contribute to the finance circulation in a perfect manner (McMillan 2010). The five forces is usually based on the factors which affect the performance of the Banking industry in Australia.
The threat of new entrants is low in Australia’s banking industry since there are a large number of barriers imposed by the “Government of Australia”. There are different forms of barriers such as economies of scale, reputation, capital requirements, government regulations, learning scope and switching costs. The government regulations specify that banks should possess approximately 8% of the capital in the total weighted assets. The government has implemented “Base III capital reforms” in order to define the minimum capital requirements. This has been done after the global financial crisis. It has been realized that the Basal III criteria ensures effective as well as higher quality capital for the global banks.
The restriction in the capital requirements as well as the regulatory requirements results in the mere fulfillment of these requirements by the potential entrants. The threat of new entrants in the banking sector is reducing every year which is having a negative impact on the new entrants. It is true that the overall increase in the number of banks impacts the banking industry performance, however, it is being counterbalanced by the mergers as well as acquisitions of the weak banks. The new entrant performance is required to follow the different strategies which need to be implemented by the management. The biggest “barrier” in the banking industry concerning the new entrants is the trust factors. The customers do not usually trust the banks existing in the banking sector as there is an increased default risk.
The present banks concern with the dealing of the financial information and hence the banks need time to gain the trust of the people. The industry people are willing to transact with the bank and provide them with their financial information who they assume to be trust worthy (Rothaermel 2015). The barriers which are being faced by the new entrants in the banking industry are usually based on the psychological parameters of the customers. Thus it takes long time to modify the behavioral aspects of the customers so that they would be availing the banking services of the institution. The small banks which are being opened in Australia, are trying hard to get customer trust at the regional level which can be used for the purpose of maximizing success of the business operations.
The primary suppliers of the bank in Australia comprises of the legal services, financial market, accounting service providers and customers. The legal entities do provide legal services regarding contracts with the clients in the banking sector. The accounting firms do provide different services such as recording the bank’s financial information, auditing, preparing tax statements and formulation financial documents (Joshi Cahill and Sidhu 2010). The financial market is regarded as the supplier so that there is greater execution of the business operations. The customers can be compared to that of the depositors so that there are enforcement operations relating to lending which is closely related to the banking operations.
The capital is being treated as one of the primary resources of the organization which is used as an option of receiving input so that there is greater level of outputs. The following four major suppliers deliver capital to the banks-
The utilization of the capital which is being offered by the suppliers are considered as an assured means of the banks being able to meet the withdrawal as well as borrowing expectations of the customers. The supplier power is based on the Australian market and the power is associated with major fluctuation between the high trend and medium trend.
The new entrants need to maintain good interpersonal relationships with the suppliers so that they can sustain in the market for a long time. The new entrant should be highly effective so that the operational efficiency can be enhanced. There should be adequate supplier relationships so that the banks can have greater level of sustainability (Yap et al. 2010). It is the duty of the bank to maintain amicable relationships with the suppliers so that they can be incorporated well in the business operations. This would ensure that the businesses would have smooth operational flow for longer duration.
The banking industry enjoys adequate bargaining power so that there can be greater collaboration between the foreign, regional and national banks so that the customers are able to switch in between the banks as per as their choice. The power would enable the banks to be more competent as far as the pricing strategy is concerned. The customers for the banking services deposit the money in the banks and take loans from the bank. If the customers are not provided adequate services, then they would not be attracted to the banks.
There are several banks in Australia which shape the nature of the banking industry. These banks belong to both the national as well as international sector. These banks formulate competitive strategies for ensuring greater profitability of these firms. The present customers of the bank are closely attached to their respective banks and hence the competitive banks need to spend high “switching costs” so that they can attract the customers of the competitors (Omarini 2016). The internet has provided one of the most convenient options of the bank so that the customers are able to select their banking services as per their preferences. These reasons have led to an increase in the buyer power concerning banking industry in Australia.
A competent bank modifies their service levels according to the demands of the customers in order to get maximum return (Peppers and Rogers 2016). Thus, the new entrants need to maintain high levels of operational efficiency by fulfilling the needs of the customers.
The availability of substitutes can improve the competition level in the industry when there is availability of “substitutes” in the organization. The substitutes should be utilized in such a manner so that maximum number of customers can be attracted. This would also prevent the customers to switch to other brands (Pais and Stork 2011). The credit unions, building societies, insurance companies and others would provide substituted services which are uniquely provided by that company.
The primary threat of new entrants in the banks is from the non-financial competitors in Australia and not only from the banks in Australia (Lodhia 2015). The banks do not face threat of substitutes concerning withdrawals, deposits or others. The non-financial services in Australia provide financial securities, bonds, insurance, mutual funds and fixed income securities. The substitutes have negative impact on the new entrant performance as the substitutes are offering higher returns. There are some payments which provide less service charges and they are provided by online platforms, which have increased speed of transactions.
The competition within the industry may relate to scale or size of the industry. There are 68 operational banks in Australia which includes 40 foreign banks, 20 foreign subsidiary banks and 8 domestic banks. There are four most important bank in Australia such as New Zealand Banking Group (ANZ), Westpac Banking Corporation (WBC), National Australian Bank (NAB) and Commonwealth Bank of Australia (CBA). The four banks have 72.08% of the entire industry in Australia and the new entrant should have potential so that sustain in the market for a longer period. The rivals among the different banks should address the high risk of the new entrants from entering the industry. The Australian’s banking industry is highly competitive and is influenced by several elements of the industry (Xia 2011). The customers would select the banking services which provide the best services in the market. The bank that provides greater conveniences, high rates, lower financing and investment services would attract more number of customers. These additional features need to be incorporated in the banking services so that the new entrants are successful in luring the customers to buy their products or services.
References
Baumgartner, R. J., &Ebner, D. (2010). Corporate sustainability strategies: sustainability profiles and maturity levels. Sustainable Development, 18(2), 76-89.
Cusumano, M. A., Kahl, S. J., & Suarez, F. F. (2015) Services, industry evolution, and the competitive strategies of product firms, Strategic management journal, 36(4), 559-575
Hollensen, S. (2015). Marketing management: A relationship approach. Pearson Education.
Joshi, M., Cahill, D., &Sidhu, J. (2010). Intellectual capital performance in the banking sector: An assessment of Australian owned banks. Journal of Human Resource Costing & Accounting, 14(2), 151-170.
Lodhia, S., 2015. Exploring the transition to integrated reporting through a practice lens: an Australian customer owned bank perspective. Journal of Business Ethics, 129(3), pp.585-598.
McMillan, C. (2010). Five competitive forces of effective leadership and innovation. Journal of Business Strategy, 31(1), 11-22.
Omarini, A., 2016. Retail Banking: Business Transformation and Competitive Strategies for the Future. Springer.
Pais, A., & Stork, P. A. (2011). Contagion risk in the Australian banking and property sectors. Journal of Banking & Finance, 35(3), 681-697.
Peppers, D. and Rogers, M., 2016. Managing Customer Experience and Relationships: A Strategic Framework. John Wiley & Sons.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill.
Teeratansirikool, L., Siengthai, S., Badir, Y., &Charoenngam, C. (2013). Competitive strategies and firm performance: the mediating role of performance measurement. International Journal of Productivity and Performance Management, 62(2), 168-184.
Xia, Y. (2011). Competitive strategies and market segmentation for suppliers with substitutable products. European Journal of Operational Research,210(2), 194-203.
Yap, K. B., Wong, D. H., Loh, C., &Bak, R. (2010). Offline and online banking-where to draw the line when building trust in e-banking?.International Journal of Bank Marketing, 28(1), 27-46.
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