BIS AND STRATEGIC ADVANTAGE
In order to survive and grow in a competitive environment, organisations must seek to gain strategic advantage (or competitive advantage) over their competitors. BIS play a crucial part in gaining and sustaining a competitive edge over other organisations operating in the same industry.
Competitive strategies
In order to gain or maintain competitive advantage, organisations can adopt three basic strategies: cost leadership, differentiation or innovation
Cost leadership
Cost leadership means simply providing goods or services at the lowest possible cost. In most cases this is achieved by reducing the organisation’s costs in producing goods or providing services, for example by automating parts of the production process. However, cost leadership can also be achieved by helping suppliers and customers to reduce costs, usually by forming alliances and linkages that benefit all of the parties involved. In some cases, cost leadership is achieved by causing a competitor’s costs to increase, for example by introducing new product features that will be expensive for a competitor to duplicate. Using Internet technologies for e-business can assist in achieving cost leadership by helping to reduce transaction costs. All business transactions have a variety of expenses associated with them, such as the cost of advertising products, processing orders and so on.
In order to survive and grow in a competitive environment, organisations must seek to gain strategic advantage (or competitive advantage) over their competitors. BIS play a crucial part in gaining and sustaining a competitive edge over other organisations operating in the same industry.
Competitive strategies
In order to gain or maintain competitive advantage, organisations can adopt three basic strategies: cost leadership, differentiation or innovation
Cost leadership
Cost leadership means simply providing goods or services at the lowest possible cost. In most cases this is achieved by reducing the organisation’s costs in producing goods or providing services, for example by automating parts of the production process. However, cost leadership can also be achieved by helping suppliers and customers to reduce costs, usually by forming alliances and linkages that benefit all of the parties involved. In some cases, cost leadership is achieved by causing a competitor’s costs to increase, for example by introducing new product features that will be expensive for a competitor to duplicate. Using Internet technologies for e-business can assist in achieving cost leadership by helping to reduce transaction costs. All business transactions have a variety of expenses associated with them, such as the cost of advertising products, processing orders and so on.
For many organisations, the largest transaction costs arise from the sale of goods or services. In recent years, companies have sought to reduce operating expenses by moving towards increased automation and by passing on transaction costs to customers. Sometimes this has been done directly, perhaps by imposing a small booking or order fee. In other cases, it has been done by encouraging customers to select, order and pay for goods themselves via the Internet. Such a move tends to result in significant savings since the company no longer needs to maintain expensive premises, such as showrooms, and can start to reduce staffing levels. easyJet is a good example of a company that has been able to reduce operating costs using this approach. By transferring over 90 per cent of its ticketing online, the company has been able to reduce staff costs dramatically.
Product differentiation
Differentiation involves creating a distinction between the organisation’s products and those of its competitors. In many cases, differentiation is used to concentrate on a specific niche in the market so that the company can focus on particular goods and services. A car manufacturer, such as Rolls-Royce, provides a good example of product differentiation. The cars produced by Rolls-Royce are perceived as luxury items that indicate status and importance in society. They are considered far superior to standard production models in terms of quality, reliability and comfort. By creating this image, Rolls-Royce has succeeded in differentiating its products from those of its competitors.
Innovation
Innovation is concerned with finding new ways to approach an organisation’s activities. Examples of innovation include improving existing products or creating new ones, forging strategic linkages, improving production processes and entering new markets. It is possible for companies operating in the same market to use entirely different competitive strategies. Large companies may also need to select different strategies for customers located in different regions.
Product differentiation
Differentiation involves creating a distinction between the organisation’s products and those of its competitors. In many cases, differentiation is used to concentrate on a specific niche in the market so that the company can focus on particular goods and services. A car manufacturer, such as Rolls-Royce, provides a good example of product differentiation. The cars produced by Rolls-Royce are perceived as luxury items that indicate status and importance in society. They are considered far superior to standard production models in terms of quality, reliability and comfort. By creating this image, Rolls-Royce has succeeded in differentiating its products from those of its competitors.
Innovation
Innovation is concerned with finding new ways to approach an organisation’s activities. Examples of innovation include improving existing products or creating new ones, forging strategic linkages, improving production processes and entering new markets. It is possible for companies operating in the same market to use entirely different competitive strategies. Large companies may also need to select different strategies for customers located in different regions.
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