A Competitive strategy that was proposed by the Harvard professor Michael Porter has been of great help to managers. It gives a clear direction on how an organisation can strategically position itself in the industry. The competitive strategy helps an organisation to analyse the industry and its competitiveness. Recently, Philip Evans, the chief executive officer of BCG consulting, has criticised the competitive strategy and termed it as obsolete. He states that technological advancements and availability of data are slowly rendering competitive strategy invalid for a firm success. This paper will argue the positions of both proposals. It will provide evidence of why the competitive strategy is still valid for modern business. It will also discuss what reasons make Philip Evans believe that the competitive strategy is invalid. The paper will be seeking to answer the question of whether data can transform strategy.
A. Competitive Strategy Is Essential for a Firm Success
A competitive strategy is an important tool in formulating the success of a business. The strategy provides a deep and rich background for industry performance in a real market situation as opposed to the economic theories that were previously used. The competitive strategy provides a deep understanding of an industry competition and how players can position themselves in the market. The firms whether large or small have chances to compete in a given industry. The theory of competitive strategy is fundamental to industry competition as opposed to approaches that deal with a single type of competitive behaviour.
Industries are different in various ways. The competitive strategy provides a rich framework for identifying the competencies in an industry. The five forces model offers a unique way of identifying industry richness and forces of competition. The competitive advantage that is provided by its framework can be achieved through the approaches of differentiation and cost. Managers can easily link business profitability with the two methods. Strategic planning was a challenge for managers before the introduction of competitive strategy (Magretta, 2011). Managers who adopted the strategy found it useful in planning. The competitive strategy simplifies the economic theories that existed.
Changes have occurred since the inception of the theory. There have been shifts in the government policies, management policies, and technology (Magretta, 2011). These changes were not captured in the formulation of the strategy. According to Porter, the changes have little effect on the strategy. The reason for his argument was that the competitive strategy was a framework for industry analysis. The structure transcends technology changes and change of management tools. It is an approach that can be applied across all industries. Technology affects various sections of the strategy such as the barriers to entry, customers and other areas, but industry structure does not change. Customers have greater bargaining power and the barriers to entry are low (Dälken, 2014).
The competitive strategy was first criticised as a static strategy that did not offer solutions to the changing world. However, it was not true as the strategy was formulated for firms to deal with the changing environments. It provides a basic understanding of the future trends such as industry maturity, the emergence of new industries, and globalisation. The competitive strategy is not a static strategy as its critics claim. According to magretta (2011), the strategy was formulated to address future challenges such as industry maturity or evolution.
There have been changes in the way businesses conduct their operations in the recent past due to the rapid development in the business environment. These are the deregulation and globalisation, which make the operating environment different. Deregulation and technological advancements have made some factors such as barriers to entry minimal. However, the critics of the competitive strategy always have confusion when analysing this approach. For instance, the airline business underwent an extensive deregulation in the 1980’s in many countries (Rothaermel, 2015). The barriers to entry reduced and competition grew. Thus, players in the industry still need to use the competitive strategy to plan and analyse the environment. The critics fail to understand that the competitive strategy is a framework of the industry competitiveness. The forces are affected by factors such as technology, but technology can be used to give a business competitive advantage.
Globalisation has the effect of diminishing the competitive advantage of the business, but it is important for a company to maintain its strategic position. According to Porter (2011), any business that does not have a strategic position is doomed. He proposes that changes are necessary to enhance competitiveness, but they should be consistent with a strategy. When formulating a strategy, it is necessary to put into account the degree of distortion of the market forces. Many countries have adopted Porter’s competitive strategy. As he proposes, they do not rely on the strategy alone, but incorporate other factors such as how technology has affected diffrent factors. Companies that still use the competitive strategy such as the Coca-Cola Company, Apple, just to name but a few have remained successful in the market. They have achieved global success through competitive advantage over their competitors.
Technology has been an influential player in the modern world. The effects of technology can only be understood through the five forces model. Studying technology in isolation is difficult. According to Porter, a business can use information technology to differentiate their products and gain a competitive advantage (Magretta, 2011).
Technology is a tool that helps in modern innovation. Companies that need to maintain their competitive advantage should be ahead in innovation because competitors always find ways to outdo others. Availability of information on the Internet helps to reduce cost and time. This factor should help organisations make rapid innovations that will sustain their competitiveness. Information technology offers a competitive advantage, which can translate to entry barriers. For instance, the introduction of online banking and online booking services can increase the efficiency and attract more customers. At the same time, it can increase barriers to entry for the new entrants as the investment on the system is high. The existing companies will have created their competitive advantage (Rothaermel, 2015). When technology reduces the barriers to entry, more competitors will join an industry. Many competitors will lead to an aggressive competition and the business using technology can have an advantage. Businesses should use technology to differentiate their products and lower their production costs. Technology will lead to efficiency of businesses. Technology will be used to gain a competitive advantage instead of replacing strategy. It is, however, important for a business to keep innovating to maintain its competitiveness. Moreover, information technology gives buyers more bargaining power due to the availability of information. On the other hand, the businesses still have an advantage of using information technology to study consumer behaviour. Both sides are distorted by the technological advancements.
Porter’s competitive strategy has not become irrelevant in any way. The approach is still useful in analysing the industry competitiveness (Rothaermel, 2015). The strategy provides a framework that has been of help to many businesses and managers since its inception. The strategy was formulated to help managers to deal with future planning. It is important for a business to invest in technology to take advantage of industry changes.
B. Has Data Trends Rendered Competitive Strategy Invalid
Over the last two decades, businesses have adopted information technology in their models of performance. It has had an impact on how the business is conducted. It has also significantly affected how an industry analysis is carried out. Moreover, the industry structure has become entirely different as a result of the use of information technology. Thus, it has become hard to perform a comprehensive market analysis using Porter’s model due to the transformations underwent since technological innovations have restructured the industries. The current trends allow businesses to share information across the industries hence distorting the forces that Porter proposed. The rules of competition have been affected by information technology. Porter’s model is affected by technology in that basic models have been distorted. The industry characteristics in which Porter developed the systems are different due to technology change. Information technology helps business devise new strategies for their businesses. Availability of technology has led to the reinvention of new business models that did not exist when the strategy was derived. Availability of big data has enabled business to create patterns that can be used in decision making. This makes the theory of competitive strategy invalid.
Data has changed everything in the world. The trends that started emerging in the year 2000 showed that the world had a mass of data. The data has multiplied until 2007 when it had grown exponentially and people started substituting the analogue with digital means (Evans, 2014). The rich wealth of data can take the basics of the concepts of competitive strategy. In most cases, the data has an IP address. Data with an IP address can be easily connected with another that has an IP address thereby connecting information from different areas is possible. Data can be merged to perform complex tasks at little cost and time. Moreover, it has the potential to put together almost a half of the world’s knowledge. This possibility provides a scenario where patterns emerge. It is easier to work with these patterns to even predict the future.
The availability of data has changed the boundaries that existed in the industries and companies. Strategies are devised within the given institutional boundaries. Businesses can share data among themselves. The interweaving of data has opened more opportunities to even creating a new business model. Available data can be interconnected among different industries. There is an evolution of the original vertical industryy structure to a horizontal structure. The transactional costs that used to hold the value chain together are not very visible because data is used to create that value. The large corporations do not enjoy economies of scale and instead, they are replaced by smaller companies (Warf & Stutz, 2007). What was being done by corporates can be substituted by few individuals or smaller groups. For instance, in the energy sector, the focus has shifted from big corporations to households and ways how they can produce cheap and green energy (Evans, 2014).
Data can be brought together and analysed to create patterns that can be used in decision making. The decisions can be more informed than ordinary ones because it captures many areas. It can capture information that could not be seen without the help of data. Decision making is accurate using the data patterns as opposed to five forces model. This data trend will in future become the basis of competition and growth for businesses. Data will provide industry players, both existing and new entrants, with data-driven strategies for innovation, competition and capturing value. It will enable growth and emergence of completely new industries. Businesses that will be handling information will be in the complete new industry. They will have a single function of aggregating and analysing data (Dälken, 2014).
Companies can leverage data to gain an advantage. Data can be used to create transparency in information. This transparency will allow various players such as buyers and sellers informed. New entrants can get information about an industry among many others. When businesses are collecting and storing data from their transactions, they are in a position to collect more informed information. This information can be used in future decision making. With data, businesses can segment their customers to get narrower groups which can be served easily and satisfactory. Data will be important in creating satisfaction for consumers. Customers will have more insight about the products businesses are offering. Using this information, customers will choose the products that suit them (Dälken, 2014).
In the past businesses gained a competitive advantage by acquiring efficiency over their competitors. In the data era, firms that will gather data and use it efficiently will have a competitive advantage. Businesses that had the advantage of just holding data will lose that advantage as a result of readily accessible information across sectors. For instance, agents in the real estate industry had the benefit of having information about the market. Today the owners (sellers) and customers can connect directly due to the availability of information. In this case, the agent is left out (Dälken, 2014). Data can create new business models. The businesses that play an intermediary role in holding and disseminating data will be in a new form of business. The businesses with intermediary roles play an important role in generating data. The firms operate on pure data-driven business. For instance, a transport company dealing with client’s data realised the information it was holding was enough to start a new business of selling data. The digital products such as the data service are increasingly becoming popular as a result of technology and creating a new business model (Dälken, 2014).
Data has the possibility of replacing management. Data will be used to make decisions and forecast. Algorithms from domains of applications are used by manufacturers to analyse sensor data from the production lines. The processes can help in reduction of costs and wastes. Use of sensors has helped businesses to track their operations hence reducing their production costs and increase profit margins. Data will collect information from clients and be used to improve the products in future (Evans, 2014). With these trends, businesses can make decisions based on data patterns. Businesses have introduced systems to gather information about their operations. Products such as printers can keep track of their use and the information is used by managers to track costs or their efficiency. The data is the used to make a decision on how services can be improved and serve customers right.
The availability of data from different sets of industries will change the way managers make decisions. Data will allow decision makers to test their decisions in a controlled environment. The testing will allow decision makers to make informed investment and production decisions. The five forces model is used to analyse the attractiveness of an industry previously. With data, information about industry attractiveness can be captured quickly and accurately (Evans, 2014). This way the competitive strategy will not be useful as industry trends are captured in the available data.
The traditional approaches are not helpful in the horizontal structure of the markets. In the modern days, business should think of strategy as a factor that designs the industry and not as the approach presupposes (Evans, 2014). The companies should work on bringing collaboration and competition together. The new forms of strategy need to accommodate various factors. The big and large players need to collaborate for a successful strategy.