The Role of Competitiveness in Your Business Strategy

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Business strategies are formulated to determine the way in which organizations can move from their current competitive position to a new stronger one. This can only be achieved by improving an organization’s competitiveness (Feurer and Chaharbaghi, 1994).

         1.     Defining Competitiveness

A universal and exact definition for competitiveness does not exist. In determining a definition for competitiveness it is important to question the reason for being of an organization and the key players who determine its survival (Feurer and Chaharbaghi, 1992).

Many of the current definitions of competitiveness are essentially centered on the capabilities and offerings of an organization with regard to the competitors (Bowman, 1992; Stalk, 1992; Grant, 1991). In other words, the key players are the organization, its customers and competitors. No account is given to the shareholders who provide the necessary capital base and influence the business objectives.

Furthermore, the current definitions also view competitiveness as a static concept (i.e. how competitive an organization is at a particular moment in time) and little consideration is given to its sustainability.

In summarizing the definition of competitiveness, Feurer and Chaharbaghi (1992) contend that: Competitiveness is relative and not absolute. It depends on shareholder and customer values, financial strength which determines the ability to act and react within the competitive environment and the potential of people and technology in implementing the necessary strategic changes. Competitiveness can only be sustained if an appropriate balance is maintained between these factors, which can be of a conflicting nature.

         2.      Assumptions underlying Organizational Competitiveness

Feurer and Chaharbaghi (1994) proposed the following assumptions as underpinning competitiveness:

•       For an organization to exist there has to be a demand for its offerings.
•      The ultimate goal of an organization is to make a profit in order to satisfy its shareholders and achieve continuous profit growth while fulfilling the interest of other stakeholders such as employees.
•          Competition arises when several organizations strive to make a profit by satisfying the same demand.

           3.      Components of Organizational Competitiveness

                       

 Figure 1: Components of competitiveness (source: Feurer and Chaharbaghi, 1994)

Organizational competitiveness is made up of three main components: customer values, ability to act and react, and shareholder value.

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3.1 Customer Values

An organization is competitive in the eyes of its customers if it is able to deliver a better value when compared with its competitors. Superior value results through lower prices for equivalent benefits or differentiated benefits that justify a higher price (Porter, 1985).

Customer value can therefore be considered as the benefit perceived by the customer in relation to the demanded price. It can be expressed as:

Customer Value = Benefit/Price

3.2 Shareholder Values

Secondly, an organization is competitive in the eyes of its shareholder if it is able to provide a satisfactory return on investment in the short, medium and long terms. Different shareholders have different preferences concerning rate of return, characteristics of return (e.g. capital gain or dividend yield) and the risks attached.

Furthermore, the shareholders may have other interests, which are not directly related to the financial performance (e.g. access to key technologies and expertise that may be used for other business interests). Shareholder values will therefore influence the decisions concerning the dividend policy, growth strategy and capital structure which will in turn determine the long-term wellbeing and profit potential of the organization.

3.3 Ability to Act and React

This is the third component of competitiveness and can be defined as the ability to retain the competitive position of an organization by satisfying the expectations of customers and shareholders while constantly eliminating the threats and exploiting the opportunities which arise in the competitive environment. Competitiveness can only be maintained through continuous improvement of the offerings and capabilities of an organization. This requires a sound financial strength to fund the necessary strategic changes such as the introduction of new technologies.

Financial strength incorporates two aspects:

(1) short-term financial strength which determines the ability of an organization to act and react swiftly (this is related to the availability of short term capital);

(2) long-term financial strength which determines the ability to raise capital for major investments such as the introduction of a new product range and production facility.The ability to act and react does not only depend on the financial strength but also on people and access to the key technologies.

In conclusion, competitiveness is the cornerstone of an effective business strategy.

Is your organization being competitive enough? 

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