A company achieves strategic competitiveness when it is successful in formulating and implementing a value creation strategy. The objective of the firm has to be based on creating value in an efficient way because it is the starting point for all businesses and it will generate profit after cost.
The main challenge for business strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market.
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Porter suggested four “generic” business strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business’ activities are narrow versus broad and the extent to which a business seeks to differentiate its products.
Companies might have a great vision and mission. They also have a good value proposition to customers and design a strategic plan in detail. However, all of that does not guarantee the success of value creation, for example, for reasons of weak strategy execution.
Meanwhile, other companies outperformed their competitors. They sell more and control the largest market share. Again, that is no guarantee of creating value. Business performance is excellent, but their financial performance does not reflect that. The superiority of business performance does not result in high returns on capital due to thin profit margins.
- A strategy is a plan of action or policy to achieve company goals. Companies usually design it in three horizons, short term, medium-term, and long term. The documented strategy is what we call a strategic plan.
- Value creation is an effort to make a company valuable to its stakeholders. That was achieved when the company delivers a return on capital invested higher than the average player in the industry. To do this, companies must create satisfying products and services. Furthermore, in conducting business, they also care about the natural environment and society and comply with regulations.
- Competitive advantage is a condition when a company has a superior and profitable business position. They achieve this by creating value and delivering above-average returns.