Business Strategy And The Competitive Edge

Business is, undoubtedly, the biggest force in every economy. Although, it is mainly geared towards profit making, it has the potential to address the needs of, virtually, every section of society. For instance, it pays taxes to government authorities; provides social amenities to its host community; offers grants and scholarships to students; pays interests on loans to bankers; pays wages & salaries, bonuses, stock options and other emoluments to employees; offers quality products and services to customers; fuels the drive for continuous innovation amongst competitors and rewards its investors with returns on their investments.

Creating wealth for investors and meeting customers' expectations can be a real challenge for business managers who are constantly under pressure to build and sustain their lead over the competition.

Competition is healthy for the economy and ultimately enhances quality of life. Yet, it can be costly and disastrous for managements that are ill-equipped to take on other industry players. Driven by cutting edge technologies, today's marketplace is quite volatile. Thus, extreme caution must be exercised in planning and executing business strategy. The chances of coming on top are high when a competitive edge is created and maintained.

A business strategy (or long-term business planning) is the means by which a company plans to achieve its desired objectives. It is primarily concerned with the scope of the company’s business activities i.e. what, where, how and for whom to produce, and efforts made regarding resource acquisition like raising funds to finance operations. Typically, a business strategy will cover a period of about 3-5 years or more.

Having a competitive edge means possessing an advantage over the competition. It is simply the differentiation a company can achieve relative to its direct competitors.

Investors are always watching out for the possibility and length of period that a company can hold onto its lead in the industry that it operates. This knowledge affects the weight they assign to its Forecasted Future Earnings (FFE) in determining its Present Value (PV). The length of this projected interval, often referred to as the Competitive Advantage Period (CAP), is a good measure of sustainability.

CAP’s impact on a company's valuation is very important. Even a small difference in FFE can lead to drastic revaluations as this implies that investors think there’s going to be a reduction in the sustainability of a company’s competitive advantage.

A company's competitive advantage affects the increase of both the size of its FFE and the probability that it will actually manifest. Therefore, the more competitive advantage it enjoys, the greater its potential for increasing its FFE and investors’ confidence and participation.

Sustaining the competitive edge is a function of a company's position and status in its product category and the status of that category relative to others. This means that the stronger its product category is in terms of: access to customers, barriers to competitive entry, brand position, market share and switching costs, the more loyal customers are likely to become and the better the chance of sustaining its lead.

It follows therefore, that business leaders must evolve internal mechanisms that flag deteriorating competitive position in areas like: diminishing prospects for existing product category, increase in churn rate, changes in the category dynamics like a successful product launch by a competitor, changes in regulatory requirements, changes in the buying mode of customers, deployment of a new customer-friendly IT platform by a competitor etc. There should be a dedicated system of personnel, policies, programs and processes that tracks and reports changes in the marketplace for quick “well-informed” decisions to be taken by management.

Companies would best optimize their value by aligning their focus with the most pressing needs of the markets they serve. A closer look at the actions of the successful ones usually reveals that most have sized up their target markets and focused on a unique approach to meet their customers' needs, values and expectations. Through important considerations like location, product, services and product features, they have somehow found a new way to offer buying incentives that similar companies either cannot or do not offer (Tdbank.com).

In a nutshell, if any business will be able to leverage its business strategy to sustain its lead over the competition, there is an ever-increasing need for it to generate innovative ideas and strengthen internal structures to deliver them on a consistent basis. According to Sydney J. Harris, “The time to relax is when you don’t have time for it.”

Peter C. Uwadone