BUS 6320, Global Strategic Management 1
Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:
2. Analyze the processes for formulating sustainable corporate business strategies. 2.1 Examine how competitive advantage impacts corporate business strategies.
3. Synthesize the role of leadership in strategic business planning.
3.1 Analyze how organizational leaders drive competitive advantage. Required Unit Resources Chapter 5: Competitive Advantage, Firm Performance, and Business Models MiniCase 2: Starbucks CEO Kevin Johnson: “I’m not Howard Schultz,” pp. 475–479 Unit Lesson Competitive advantage in the context of a business organization suggests that one organization is better than another. It occurs when an organization develops a set of attributes that enables the organization to outperform its competitors. What differentiates one organization from another? How can leaders within an organization move towards differentiating their company with the goal of reaching this competitive advantage? Rothaermel (2019) emphatically states, “competitive advantage is the defining goal of strategic management” (p. 146). Sustainable competitive advantages reach toward organizational longevity. In order for a company to be successful, leaders need to have a solid understanding of the landscape in which they are operating. This includes an understanding of both the competitors and the customers through a market analysis.
UNIT III STUDY GUIDE Maintaining a Competitive Advantage
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The first step in a market analysis is developing an understanding of the types of markets, as detailed in the image below.
Pure competition is considered the ideal market structure because all producers and all customers are equal. What this means is that the probability of consumer exploitation is low because companies do not have pricing power to charge higher than normal prices. There is much debate on whether this is more of a theoretical benchmark or is actually obtainable. Through this understanding of the types of markets, leaders can identify how large and how competitive the market could be. Another point to examine in the market analysis is that of the competitor analysis, which represents an organized approach to evaluating the strengths and weaknesses of all organizations that represent competitors. Organizational leaders gather this information from a variety of both internal and external courses. Rothaermel (2019) suggests that organizational leaders measure competitive advantage based upon the organization’s accounting profitability, shareholder value creation, and company economic value. Accounting profitability utilizes financial data and ratios derived from financial statements. Since competitive advantage is defined as superior performance, the utilization of these tools provides a logical yardstick in determining the level of competitive advantage. Correlating these measures over time provides solid benchmark goals and measurements. The use of shareholder value as a measurement also holds significant credibility. Looking through the eyes of shareholders, this is the most important measure because their concern is centered around return on investment (ROI). Finally, the use of economic value as a measurement of competitive advantage is somewhat inherent in strategic planning toward profit. The idea behind the concept of economic value created is the difference between how much it costs to produce a product compared to how much the same product would cost.
Types of markets
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The balanced scorecard was discussed in earlier units and can be aligned here with organizational performance tracking. It can be used as a dashboard of performance metrics of the most important and/or relevant measures or targets as determined by leaders of the organization. An organization will compile a balanced scorecard by identifying these measures and attaching goals to each of them. The scorecard goals are then communicated to the appropriate stakeholders, and in some cases, aligned to their individual performance. As scorecard measures are analyzed, appropriate feedback and adjustments are made to the strategic plan. Other measurement tools include business intelligence dashboards or performance scorecards. A business intelligence dashboard (BI dashboard) is a data visualization tool whereas the performance scorecard is a graphical representation. Within the scope of benchmarking the performance of the strategic plan, organizations also use key performance indicators (KPIs). In the most basic sense, key performance indicators represent measurable values that demonstrate whether the organization is achieving identified business objectives. KPIs can also be used to determine the performance of a division, department, and even an individual. The effectiveness of KPIs begins with well-defined and quantifiable goals. Common thought divides KPIs into four categories including financial, customer, process, and people. What are some examples of KPIs that are used by businesses today? Beginning with financial KPIs, one of the most important and/or largely used by organizations is a profit KPI. Understandably, profit aligns with the mere sustainability of a company thus, a profit KPI is logical. Aligned with that is a cost KPI, which measures how well a company maintains the lowest costs and overall reductions in costs. Another popular KPI is a comparison of expenses to the overall budget. This provides leaders with an understanding of how far off budget they are as well as exactly where the fluctuation occurs within the organization. A sales KPI provides an organization with instrumental information such as comparing the actual sales versus targeted sales, which will inevitably impact the overall profit margins for the organization. Another financial KPI that is currently trending is innovation spending, which measures the amount of money spent on innovations. This aligns directly with a company’s desire to differentiate itself through innovative products/services. Within the category of customer KPIs, customer lifetime value (CLV) is an important KPI within organizations that are interested in sustainability. This KPI measures the value associated with a long-term customer relationship. Related to this is the customer acquisition cost (CAC) KPI, which measures the costs associated with acquiring new customers. Another area of concern to organizations is retaining customers and maintaining high levels of satisfaction with their customers. The customer satisfaction and retention KPI will measure the customer satisfaction scores and the number of repeat customers. Process KPIs examine efficiencies within the overall operations of the organization. A highly recognized KPI in this area is the customer support ticket KPI, which analyzes the number of new tickets and resolved tickets. Obviously, customers that are supported by efficient customer service levels will probably also be repeat customers. Most organizations have an ideal operational efficiency level, which can also be measured through a KPI. People KPIs, generally, provide measurements of employee satisfaction. Data support that the recruitment process is a costly venture thus retention of employees is financially prudent. With this in mind, the employee turnover rate KPI measures the number of people who have left the organization either voluntarily or involuntarily. Additionally, many organizations utilize an employee satisfaction KPI which measures employee happiness with their job and the overall organization. Every organization needs to determine the KPIs that are the most appropriate for their industry and align with their company goals, mission, objectives, and vision. Furthermore, having a reasonable number of KPIs will maintain focus on the important attributes within the organization. The other notable fact is that several of these KPIs overlap with each other. What this means is that organizational leaders need to critically think through the mix of KPIs to use. Whichever KPI metric or tool that the organization decides to utilize, business analytics (BA) are used as the means of analyzing the data. Business intelligence (BI) is the method of tracking these processes using technology. This term includes a broad variety of tools, applications, and methodologies that enable companies to collect data from both internal and external sources.
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Business analytics could be defined as the quantitative and methodical examination of data using statistical analysis. In order for the business analytics to be accurate and useful, the data must be accurate, complete, reliable, relevant, and current. The KPIs identified earlier are tracked through descriptive analytics, which reviews the current state of the business. Predictive analytics can also be used; these examine trends and predict future outcomes. Prescriptive analytics are also commonly used by organizations. This type of analytics uses past performance to accumulate recommendations on how to handle issues if they arise again. In today’s technology-driven world, there are a variety of software tools that will provide a more efficient method of tracking KPIs. Familiarizing yourself with these types of software will provide you with a competitive advantage when you are interviewing or looking for career advancement. Examples of these software are discussed below.
• Geckoboard provides a visual overview of KPIs. • Salesforce is a multi-faceted tool that enables organizations to easily build personal and departmental
dashboards. • Grow is a professional dashboard that connects to a variety of tools including Google Analytics,
AdWords, and Facebook. • Tableau is an excellent and very intuitive tool used for data analytics and customer/retailer
engagement KPIs. It is differentiated by the fact it allows for real-time reporting and data blending. • Olation utilizes predictive analysis that eliminate the need for additional spreadsheets. • HubSpot is primarily used in the sales and marketing KPI tracking.
In conclusion, measuring the proficiency of an organization’s strategic plan begins with the identification of the KPIs that are important to the organization. From there, measurement tools need to be deployed, which could include a balanced scoreboard dashboard. It is important to remember that in order to determine competitive advantage, these data should be compared to identified competitors. Leadership teams can then identify where deficiencies lie and how to adjust the strategic plan using a data-driven decision-making approach.
Reference Rothaermel, F. T. (2019). Strategic management: Concepts (4th ed.). McGraw-Hill Education. Suggested Unit Resources In order to access the following resources, click the links below. This article examines the importance of differentiation through the eyes of online retailers. The point of differentiation for online retailers is convenience, and in some cases, pricing that creates a competitive advantage in the mind of today’s time-poor consumer. Wang, Z., Zhu, C., Tian, S., & Li, P. (2019). Differentiation and pricing power of online retailers. Frontiers of
Business Research in China, 13(1), 1–20. https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=134611555&site=ehost-live&scope=site
This article provides an additional example of how the balanced scorecard is used effectively—in this case for a not-for-profit organization. Martello, M., Watson, J. G., & Fischer, M. J. (2016). Implementing a balanced scorecard in a not-for-profit
organization. Journal of Business & Economics Research (Online), 14(3), 61. https://search-proquest-com.libraryresources.columbiasouthern.edu/docview/1804901110?accountid=33337
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This article summarizes how maintaining a level of differentiation and competitive advantage is imperative to the compilation of an effective strategic plan. Through this article, we see how this can be applied in not only a corporation, but also a family farm. Wittman, D. (2019). From the farm boardroom, part one: Set your farm's strategic direction. Southwest Farm
Press. https://search-proquest-com.libraryresources.columbiasouthern.edu/docview/2190363319?accountid=33337
Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Identify five KPIs for your personal family household. What benchmarks would you like to use to track your financial future? Discuss these KPIs with your family members, and determine how you will track and measure them.
