Category: Competitive Advantage

Effect of Strategic Innovation on Competitive Advantage on Oil Marketing Companies Operating in Kenya Pipeline Nakuru Depot

Chapter one. Introduction

1.1 Background of the Study

Competitive advantage positions a firm product or a service in a way that it outperforms its competitor’s product or service. According to Beadreau (2016), competitive advantage involves communicating and enjoying a greater perceived value to target market than a firm competitor can provide. Competition is at the core of the success or failure of any firm, competition determines the appropriateness of a firm’s activities that can contribute to its performance (porter 1985), Portal engineered the “Five Forces Model” to illustrate the theory of competitive advantage. Porter argues that the Five Forces define the rules of competition in any industry.

According to Brasina (2013) in current times of globalization, competitive business environment, market saturation, and increased consumer power the client becomes increasingly more definitive in terms of his needs. Possession of competitive advantage should deliver to a company a higher level of profit than obtained by its rivals (Black et al, 2012). Globally the oil multinationals continue to suffer stiff competition from new entrants in foreign as well as domestic markets. Competitive advantage ensures a firm not only can compete favorably, but also survives globally and local onslaughts on its market share (Yabs, 2010).

Strategic innovation is an important factor for organization, Competitive sustainable advantage, and financial performance (Nybakk & Janssen, 2012) strategic innovation is a plan to grow market share or profit through product and service innovation. According to Luecke and Katz (2003), innovation is the embodiment, combination or synthesis of knowledge in an original, relevant, valued new product or service. For innovation to take place creative ideas must be generated, seeded, and be realized into inventions and then the inventions must be transformed to something of marketable and of commercial value. Why is it so hard to build and maintain the capacity to strategically innovate? The reasons go much deeper than the commonly cited cause: a failure to execute. The problem with innovation improvement efforts is rooted in the lack of strategic innovation.

According to Agnolucci (2009), the oil industry worldwide has experienced constant volatility in pricing, operations, and a competitive business environment. Significantly. Regionally and locally organizations have challenges in achieving and sustaining competitive advantage over their competitors and have to employ new ways of maintaining their relevance this can only be attained by conjoining their strategy and innovation. According to Juma (2016) the top three oil marketers in Kenya Total, Vivo Energy, and Kenol Kobil lost a combined 20.6% market share in the first three months of 2016 to smaller oil markers and independent dealers. Competitive advantage grows market share or profits through product and service innovation, the area of strategic innovations and its impact on competitive advantage has been done in many sectors and regions in Kenya, there is no study done specifically for Oil marketing companies in Nakuru county it’s this motivation behind this study.

1.1.1 Strategic Innovation

Strategic innovation refers to the process undertaken by firms that totally changes the nature of competition within an industry as well as the gaining of competitive advantage by employing strategies different from their competitors(Afuah,2009). According to Gebauer et al (2012) strategic innovation is about the creation of new markets and leaps in customer value and reshaping the existing markets to achieve value improvements for customers. It can be said that strategic innovation is a fundamentally different way of competing in an existing business (Charitou & Markides, 2003). According to Govindarajan & Gupta, 2001). Strategic innovation makes value chains more efficient more transformative and expands market size (Govindarajan & Gupta, 2001). Strategic innovation can take the approach of process, product, market or technological innovation (Kiptoo & Koech,2019) The measures of innovation at the organizational level include financial efficiency, process efficiency, employees’ contribution and motivation, as well benefits for customers. In this study we shall focus on the following strategic innovation types and see how they relate with a competitive advantage: Process innovation, Product innovation, Market innovation, and technology innovations

Technological innovation is the process where an organization (or a group of people working outside a structured organization) embarks in a journey where the importance of technology as a source of innovation has been identified as a critical success factor for increased market competitiveness,

According to Baum (2001), Technological innovation influences organizational populations profoundly by disrupting markets, changing the relative importance of resources, challenging organizational learning capabilities, and altering the basis of competition. Its affected by research and development, benchmarking, and novial technology adoption.

Market innovation focuses on developing the mix of a target market, while determining how companies can serve the target markets best It is also described as progress in marketing mix Nevertheless, innovation and marketing must go hand in hand (Aksoy,2017). marketing innovation comprises of pricing strategies, promotion, and market orientations. A firm can develop new process either by itself or with the help of another firm (Polder et al.,2012). According to Kiptoo and Koech (2019). Process innovation is about improving the production and logistic methods significantly or bringing significant improvements in supporting activities such as purchasing, accounting, maintenance, and computing. Organization structure, production, and delivery forms metrics for process innovation. Product innovation involves the development and introduction of New products, Increasing Product portfolio, and Product enhancement.

1.1.2 Competitive Advantage

According to Porter (1985), Competitive Advantage describes the way a firm can choose and implement a generic strategy to achieve and sustain a competitive advantage. It addresses the interplay between the types of competitive advantage cost and differentiation and the scope of a firm’s activities and that value chain is the basic tool for competitive advantage diagnosis. Competitive advantage is obtained when an organization develops or acquires a set of attributes (or executes actions) that allow it to outperform its competitors(Wang,2014). Competitive advantage is a key theme in current strategic management because it forms the path for the survival of an organization.

Twin (2019) states that Competitive advantages are conditions that allow a company or country to produce a good or service of equal value at a lower price or in a more desirable fashion. These conditions allow the productive entity to generate more sales or superior margins compared to its market rivals. Comparative advantage and differentiation advantage are the two-broad metrics for competitive advantage. Comparative Advantage a firm’s ability to produce a good or service more efficiently than its competitors, which leads to greater profit margins, creates a comparative advantage. Rational consumers will choose the cheaper of any two perfect substitutes offered. Differential Advantage a differential advantage is when a firm’s products or services differ from its competitors’ offerings and are superior.

Advanced technology, patent-protected products or processes, superior personnel, and strong brand identity are all drivers of differential advantage. These factors support wide margins and large market shares. Reed et al (2000) suggest two models of competitive advantage: The market-based model which focuses on cost and differentiation and contends that the environment excludes out firms that are inefficient or that do not offer products for which consumers are prepared to pay a premium price, the second model is the firm resources model driven by internal firm’s factors.

Koufteros et al (1997) describe a research framework for competitive capabilities and define the following five dimensions: competitive pricing, premium pricing, value-to-customer quality, dependable delivery, and product innovation. The empirical literature has been quiet, and consistent in identifying price/cost, quality, delivery, and flexibility as important competitive capabilities (Tracey et al,1999). This paper will use cost structure, branding, the quality of product offerings, the distribution network, intellectual property, and customer service, and superior personnel as metrics to measure competitive advantage.

1.1.3 Oil Marketing Companies Operating in Nakuru Kenya Pipeline Company Depot.

There are more than fifty oil marketers operating in Nakuru Kenya Pipeline Depot a key government strategic infrastructure in terms of petroleum storage and delivery which averages three million liters of petroleum sales daily. The Oil marketing companies store and draw products from the facility for the local market consumption as well as the export market where the product goes to Uganda, South Sudan, Congo and Rwanda. The Top 6 companies at the depot in terms of the last 6-month average market share for 2019 were; Total Kenya (9.1%), Royal Energy (7.4%), Vivo Energy (6.72%) Kenol Kobil,6.4% Stabex internal (6.2%) and Hass Petroleum at 4.1% the lest of the 60% is shared by the lest of the Oil marketers. This study will data from a sample of 10 oil marketing companies from the 52-number population of oil marketers to study the effect of strategic innovation on the influence of completive advantage.

1.2 Statement of the Problem

The market share for oil marketers has never been stable due to the dynamic nature of stiff competition within the industry, Data from PIEA Kenya and the ministry of Petroleum shows fluctuations in market share shifts unpredictably among the Oil marketers. Only very few marketers who position themselves through strategic innovation can sustain competitive advantage, and maintain and grow their market share. Many studies have been done in other sectors to get the relationship between strategic innovation and its influence on competitive advantage eg Kariuki (2017) studied the Effects of Innovation Strategy in Enhancing Competitive Advantage among Commercial Banks in Kenya where he found out that there is a significant impact of innovation on the competitive advantage of commercial banks in Kenya.

Nyambura (2014) studied the effect of Strategic Innovation on the performance of mobile Telecommunication Firms in Kenya where she recommended the study of the same in other industries. This paper, therefore, wants to explore the gaps that are there between the effect of strategic innovation and competitive advantage among Oil marketers operating in the Nakuru Kenya Pipeline facility.

1.3 Objective of the Study

The General objective of the study is to establish the effect of strategic innovation on the competitive advantage of oil marketing companies in the Nakuru Kenya pipeline depot.

1.3.1 Specific Objective of the Study

1. To establish the effect of strategic process innovation on the competitive advantage of oil marketing company in the Nakuru Kenya Pipeline Company depot
2. To determine the effect of Market innovation on the competitive advantage of oil marketing companies in operating in the Nakuru KPC depot
3. To investigate the effect of strategic product innovation on the competitive advantage of Oil marketing companies operating in the Nakuru KPC depot
4. To analyze the effect of Technological innovation on the competitive advantage of oil marketing companies operating in Nakuru KPC depot.

1.4 Research Hypothesis

1. Ho1: Strategic process innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
2. Ho2: Strategic market innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
3. Ho3: Strategic technological innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.
4. Ho4: Strategic Product innovation does not have a significant effect on the competitive advantage on oil marketing companies operating in the Nakuru KPC depot.

1.5 Significance of the Study

This study will be significant to several stakeholders, to start with Oil marketing companies will benefit from the study, Other organizations will benefit from the finding and future scholars will also benefit.

1.6 Limitation of the Study

This study is likely to have several limitations to start with their might be a challenge of non-response since OMCs are very secretive, to deal with this limitation the researcher will obtain an introductory letter showing that the research is purely for academic purposes.

The second challenge would be financial constraints and the researcher will work under a strict budget

1.7 Scope of the Study

This study will be done in Oil marketing companies in operating in Nakuru KPC depot and the objective is to study the Effects of Strategic innovation on the competitive advantage of OMCs operating in Nakuru KPC depot the time scope of the study will be from February 2020 to June 2020. the methodology of the research will be descriptive and explanatory research design type

1.8 Organization of the Study

This study is organized into three sections. Chapter one focuses on the background of the study, then the statement of the problem then after that the General and Specific objective of the study limitation of the study, and the scope of the study. Chapter two consists of a literature review, an empirical literature review, a summary of the Empirical literature review, and a conceptual literature review. Chapter three contains the research design, the population of the study, samples and sampling techniques, data collection, validity and reliability, data analysis data presentation, and ethical considerations.

Competitive Advantage of Nike: Applying ole Models to Attract Consumers

Research Proposal

Purpose of the Study

The purpose of this research is to know the reasons of why Nike Inc. is successful, and why it’s chosen ahead of all others organization. In addition, what are the variables that give Nike a “competitive advantage” or a lead over other sport companies. Moreover, to figure out those factors that makes Nike Inc. the leader in its industry, and how do they execute their plans.

Research Question

Why do customers prefer Nike Inc. over other sports organizations?

Scope of the Study

This research presents and analyzes the variables or the aspects that gives Nike Inc. a competitive advantage over their competitors in the same industry.

Relevance of the Study

Nike Inc. is one of the most successful organizations in the world. As an innovative company Nike Inc. produces great products that satisfies customers needs. In the sports industry there is fierce competition, as there are many corporations and organization such as Nike, Adidas, and Puma. However, Nike finds a way to be the most significant one, as they have a step ahead of all these competitors. Why? How? Those are the answers that the researcher (me) wants to find out. Nike execute their plan in a really efficient way, as their goal is to sustain competitive advantage. In this research the researcher (me) will find what variables that gives Nike such advantage.

Research Design

Data collection method used in this research is interviews with customers who bought something from Nike Inc. In addition, asking them why did they choose Nike Inc. over other shops. I am doing this study to know why customers in general prefer Nike over Adidas or Puma, and what do Nike have that others do not. Moreover, this study helps people to recognize and know the reasons of why Nike Inc. Is a special at what they do.

Executive Summary

The research focuses on the excellence of execution of a company like Nike Inc. They set the tone in the industry, as they are the leading organization. Nike Inc. has a competitive advantage over other organizations. They produce quality products that include technological touch. In addition, innovation plays a huge role within the organization, as they depend on it to develop their products. Nike’s reputation in the society is respected among people. Nike Inc. is a 1st class corporation, and that allows Nike Inc. to have a valuable brand name that customers would respect and it in perspective. Nike Inc. sponsor the best athletes in the world such LeBron James, Cristiano Ronaldo, Roger Federer, and Tiger Woods. That helps in the marketing segment because customers would buy products that these athletes wear because they inspire them in different type of ways. In this research there is a question and hypothesis to try to figure out why Nike Inc. is Special Corporation and why it is preferred among people.

Key Words:

• Product Quality
• Competitive Advantage
• Brand Name
• Role Models
• Innovation

I. Introduction

i. Brief about the organization

Nike Inc. is an American corporation that manufactures, develops, and designs sportswear, clothing, and footwear. Phil Knight and Bill Bowerman founded Nike Inc. On January 25, 1964. The word Nike comes from the Greek language, which means “goddess of victory.” Nike Inc. sponsors the best athletes and soccer teams in the worlds, and takes pride of being the ultimate force in the sports industry. Nike Inc. mission is “To bring inspiration and innovation to every athlete in the world.” Nike has more than 700 stores in 45 different countries. Nike’s headquarter is located in Beaverton, Oregon. Nke has more than 48,000 employees.

ii. Broad problem area

Customer’s satisfaction is an important factor of making organizations successful. Companies seek to deliver the best possible goods and services to satisfy customers needs and wants. To do that, an organization needs to deliver quality products that meet with the customers’ expectations. In every industry there is competition between companies as both have similar goods and service and goals and objectives. Their strong market position depends on their strong portfolio. According to the sports industry, Nike Inc. is the leading corporation in the sports manufacturing and designing industry.

iii. Research Question

Why do customers prefer Nike Inc. over other sports organizations?

II. Theoretical Framework

My dependent value is purchasing from Nike Inc. and it is influenced by three independent variables, which are product quality, brand name, and imitating role models.

According to Businessdictionary.com, it defines product quality as “The group of features and characteristics of a saleable good which determine its desirability and which can be controlled by a manufacturer to meet certain basic requirements.” Product quality can be differentiated among people because every person might have his or her own definition of quality. In addition, it defines brand name as “Word(s) that identify not only a product but also its manufacturer or producer.” Nike, Apple, Pepsi etc. are all examples of brand name. Imitating a role model means that a person tries to copy another persons actions and appearance because they look up to them as motivators.

There are three independent variables, and those variables play a huge factor because they are influceing the dependent variables, which is purchasing from Nike Inc. Every variable affects the decision making of the customer who wants to buy a product from the sport industry. Usually, it depends what is the customers mindset because every customer has his own views.

Based on the literature review, this schematic diagram that has the research theories will analyze and summarize the hypothesis that will either be accepted or rejected.

i. Hypotheses:

1. Product Quality is an important factor of why customers prefer Nike Inc. over other organizations.
2. Brand Name plays a huge role on customer preference when it comes to selecting Nike Inc. rather than other competitors.
3. Customers are buying products from Nike to imitate sponsored role models.

III. Research Approach and Methodology

i. Approach

The research is qualitative, where I am gathering information that shows customers beliefs and understandings. The purpose of the study is to know why Nike Inc. is a successful organization, and what are the variables that they have that gives them a competitive advantage over other sports companies and organizations. In addition, how will those variables will affect the decision making of the customers. The type of investigation in this research is correlation, as purchasing from Nike (dependent variable) is influenced by the independent variables. Because its correlational, the study setting is non-contrived where the study is done in a natural environment.

ii. Methodology

• Time horizon

The time horizon is Cross- sectional, because the data is gathered only once.

• Participants:

The participants are random customers (individuals), as the data is gathered from those individuals seen in a Nike Store.

• Data collection methods

The Data collection method used in this research is interviews and questioners with random customers. Interviews enables the researcher (me) more flexibility to ask any type of question. The interview was face-to-face interview where I interviewed customers directly. Structured interviews were used, where I asked 4 customers the same questions, and letting them to elaborate and take as much time they want. By elaborating and giving their reasons that gives me plenty of data because they’ll be able to express themselves more. In addition, 10 questioners where handed to customers to answer. In questionnaires it helps me to gather efficient data and information I need to gather. Closed-ended questions were asked to customers, to get reliable answers rather than false answers given from those customers

• Procedure

The researcher “which is me” went to a Nike Branch in Mall Of Emirates and Interviewed 4 random customers who purchased something from that store. Customers were interviewed face-to-face, and had to answer the research question, which is why do they prefer Nike over other sports stores, because they bought something from Nike Store before asking them. I didn’t ask customers who were wondering around the store because they won’t give me the answers I need, as they did not purchase anything from Nike Inc. Customers that were interviewed were the ones who purchased something, and those are the ones who could answer the research question. The questioners were handed to the customers who did not buy something from the store because I wanted to get different kinds of opinion from the ones who did not buy products from Nike. Those people answered some questions about the preferences and why do they think Nike Inc. is special.

IV. The quality of the products give Nike Inc. a competitive advantage

Nike Inc. has been in the sports industry for a really longtime. Nike Inc. always tries to fulfill the customers’ expectations and wants, which developed a relationship between Nike and customers. Nike produces different types of products such as sports wear and sports shoes. Nike takes pride of their products that they produce, which they use different type of technologies to make it better. Through the years, technology developed massively and Nike used it to develop their products and make them special and unique. In addition, Nike is innovative in a lot of ways, as they try to evolve their products to the better. Their quality of their products is astonishing because they deliver the goods the best way possible. Customers have different definitions of the quality of a product. Some may say how long it could last. A year. A two. And so on. Others look at the material used in the product and how valuable it is. Some might view a product by its appearance and whether it looks good or not. Customers really focus on the quality of the products available, because they want to get satisfied from that good or service. Nike has it all, Life span, materials, appearance when it comes to their products. For instance, the new Nike Running Shoes is super light, and made from leather. The shoes look really attractive, the material is used is very good, and it lasts for long, if the person takes care of it. Such things make customers go ahead and buy those products because of their quality. Nike Inc. has a large fan base from all over the world. Why? Because they produce products that are well developed by using technologies. By producing a high product quality, that give Nike a competitive advantage over competitive such as Adidas and Puma. When a corporation has a competitive advantage over others that means they are the leaders in the industry. Those corporations are steps ahead, and customers would prefer them to others. Customers from Nike Store expressed their opinions on the product quality of Nike products. All of them had greats past experience with the products that are produced by Nike. Most said that the lifespan of the product is astonishing as it stays for a long time. In addition others said that the products appearance is out of the world. Moreover others hinted that the products are comfortable to use especially those who bought football products. The new Hypervenom shoes are so comfortable as if someone is playing with no shoes.

V. Brand Name plays a huge role on why Nike Inc. has a competitive advantage

Whenever someone says Apple, the first thing that comes to his or her mind is IPhone, which is the best selling phone in the world. Brand name plays a huge role in general of why customers buy goods and services from a particular place. Customers take in perspective the Brand name, as it defines their image in the society. In 2013, Nike achieved the Climate Counts award for the 6th time in a row because Nike Inc. is the number one company that produces apparels and accessories. In addition they won the C.K.Prahalad Award for being the best company in the industry when it comes to its sustainability and innovation. Last but not least, Fast Company names Nike Inc. as the number 1 company as the most innovators in their products. Nike has the best brand name in their industry because they produce the best quality of products. That gives Nike Inc. a competitive advantage over other organizations. How? A customer who is need for a new sport shoes, he’ll surely take in perspective the brand name of the store before buying from that particular store. Customers will eventually know that the most unique place to buy from is Nike Inc., and that gives Nike a step ahead of all companies. Some may say how does Nike Inc. have a good Brand name? The answer is simple, Brand name depends on two things the product quality and its reputation in the society. Without those two aspects a company cannot build a brand name that will affect the decision of the customer. Customers that I interviewed in Nike Store really cared about the Brand Name about Nike, as they care about their personal appearance. In addition, they all agree that Nike’s reputation is well respected because they work hard to try to satisfy the need of people, which is very important. Also, they acknowledge that Nike are the best in the business because they know that Nike won several awards and it has a lot of fan base because they are the best in what they do. In the interviews and questioners all bought up brand name because they care about their image in the society. In addition, there is trust that links both parties as, customers trusts Nike to produce the best products possible, and Nike trust customers to buy those products and use them. Nike’s brand name is always taken under recognition and Nike knows that so they work hard to improve and produce products that will help to develop their brand. Reputation is immense for Nike, and they do a good job to sustain it.

VI. Customers purchase products to imitate role models

Every person has a role model, that he or she looks up too because those figures motivate them. Nike sponsors the best athletes and sports teams in the world. Nike sponsor football teams such as Barcelona, Man.Utd, and Juventus etc. Those big clubs have a huge fan base, so they buy their products from Nike because they manufacture and design them. When a teenager is a fan of a particular athlete or team he or she would buy what they’re wearing to imitate them. In football Nike sponsor Cristiano Ronaldo who is currently one of the best players in the world. There are a lot of Cristiano Ronaldo fans all around the world, so they would buy his products that he wears from Nike. Same in basketball, Nike sponsor LeBron James who is the best player in the world, all LeBron fans including me would go and buy his products. That started from the 1990’s for Nike because of Michael Jordon. Nike sponsored Michael Jordon, and Jordon was the best player at that time because he transformed the game of basketball. In addition, he was a figure and an icon in the black community and the American society as a whole. People would tune in and watch basketball just to watch Jordon play. Teenagers, kids, and also men wanted to imitate Michael Jordon because he was a hero. Nike opened a line called Air Jordon where they produce all products that Jordon wears with his famous logo. To imitate Jordon and to be like him, customers purchase those products. Nike sponsors a lot of athletes who themselves inspire millions of people. I interviewed a women u bought products to her son, she said to me that her son is a huge LeBron James fan, as he loves basketball. She bought the new LeBron 11 shoes, and she also said her sons role model and inspiration in sports is James, so it was a gift for him because he passed this year in high school. Role models influence teenagers and they try to imitate them in many ways, how they look, dress, and even the way the play the game. Nike sponsor those athletes, and the supply them the best shoes and clothes etc. to preform at a top level. Kids also buy those products because they think that if they actually buy those shoes they will eventually preform like they player they like. Sponsoring is tough job because Nike has to choose the right athlete to represent Nike Inc. and themselves in the best way possible. As a result, Nike Inc. does a spectacular job because they sponsor the best athletes in all sports.

VII. Conclusion:

This research was done too identify why customers prefer Nike Inc. over other sports organizations. In addition, to classify the variables that gives Nike a competitive advantage over competitors. The hypothesis was product quality, brand name, and imitating sponsored role models are important factors of why customers prefer Nike Inc. over other organizations. According to the interviews and the questioners given to the customers, the hypothesis is accepted. Customers gave the same answers that the hypothesis theories assumed. In the interviews, three customers who did buy products from Nike gave the exact answers as the hypothesis, which are the product quality, and the brand name. The last customer was a teenager, and he answered me by saying “I bought this new Nike Hypervenom because I am a huge Neymar fan.” That shows that there are customers that are affected by their role models. For further researcher, it is recommended to study more about the customer’s mindset on buying products, and to focus more on the psychological aspect of the decision-making. I faced several limitations as I wanted to know from the company itself how are they are able to sustain such advantage; however, employees couldn’t help me with that because they are limited with information. In addition, I wanted to get interview with the one of the managers of the store but I could not because he was not there when I came. For future search, I think other organizations should be studied to check why they are producing products like Nike. In addition, comparing the differences between those corporations. For instance check why are Puma are not as the same level as Nike Inc., and what are the things to do to reach that level. I leaned a lot from this research paper, as I discovered a lot of new things about Nike Inc. and how great and special they are as an organization.

Impact of Knowledge Management Processes on Competitive Advantage: Analytical Essay

1. Introduction

1.1 Background of the study

In the recent years, the global economy has evolved to an economy of knowledge. All OECD (The Organisation for Economic Co-operation and Development) countries have moved from models based on labour, raw materials, and physical capital to economies of knowledge and intangible capital. In an ever-changing global marketplace, companies are looking for every opportunity to gain competitive advantage. Advances in technology, increasingly informed customers, information overload, new regulatory requirements, and liberalization of the world economy have created a common playing ground for all organizations making it more difficult for any organization to gain sustainable competitive advantage (DeGroote, 2012). Reacting to the changes in the organization, some studies (Ganguly, Nilchiani, & Farr, 2009; Overby, Haradwaj, & Sambammurthy, 2006) have suggested that an advanced competitive strategy that organizations should possess is their capability to sense any unanticipated change in the marketplace or customers’ preferences and then readily respond to them. This capability is termed Organizational agility, which is considered to be an important survival strategy for modern organizations in the current turbulent business environments. In 1992, Concept of Organizational agility was introduced by Robert Nagel and Rick Dove in IACCOCA institute. Organizational agility is the capacity of a company to adapt itself to the changes, often unforeseen, in its environment, and to exploit changes as opportunities of development and growth through fast and innovative answers.it helps the company to deal witch rapidly changing environment (Marhraoui & Manouar, 2017). It is fundamentally necessary for organizations facing changing conditions to use production factors to achieve the objectives of the organization, employees, and shareholders (Shahrabi, 2012). To address these issues, organizational agility requires firms to quickly manage their knowledge when responding to a changing environment, and the market environment in particular (Kodish, Gibson, & Amos, 1995). The knowledge management (KM) phenomenon has a strategic importance in developing unique capacities of organizations and in providing them with sustainable competitive advantage (Shannak, 2010). KM processes (KMPs) is getting more importance as a subject researching due to the potential role of KMPs in contributing to the success of organizations in general and educational institutes in particular. KM also assists in achieving organizational goals by allowing know-how and expertise to be easily shared and accessed (Mishra and Bhaskar, 2011) as well as it also helps the companies in identifying, creating, and developing in order to gain competitive advantage.

1.2 Research Gap and Rationale

Previous research studies that have been conducted by research scholars in different countries have research gaps, which are mentioned. First research gap of this study is clearly reflected by a study which has been conducted by Al-Qatawneh et al., (2019), the relationships among organizational agility, knowledge management, and competitive advantage were not pointed out and discussed in the previous research works fundamentally but in this research relationship among KM processes, organizational agility and competitive advantage will be stated clearly. Second gap of this study is contextual, there is not a single study has found more specifically on the educational/health care sector of X country regarding the relationship between KM, Organizational agility, and competitive advantage. Our research is further different from the old research works. Only few research works directly showed the relationship of Knowledge Management (KM) and Competitive advantage; the present research will connect the competitive advantage and knowledge management with the help of organizational agility as mediation.

1.3 Problem Statement

To address the prevalent gap, this research seeks to address number of the weaknesses of existing studies in number of methods, and thereby amplify, as well as make a range of new contributions to the extant literature. First, we are searching to make a contribution to the extant literature by examining the effect of KM on Competitive advantage in the context of the Educational/health care sector of X country. In addition, this study also checks the indirect effect of KM on competitive advantage through Organizational agility. This departs from most past studies that have investigated how KM systems effect on Organizational performance. Second, this first study offer new empirical evidence on the effect of KM and Competitive advantage via organizational agility. Finally, this study is conducted to provide recommendations to the organizations that lack of understanding regarding the strategies that can be used to improve the performance of the firm in today’s rapid and ever-changing globalized world.

1.4 Research Questions:

Based on the problem statement and gap, the current research designed to answer following questions.

1. Does Knowledge Management Processes impact on Competitive Advantage?
2. Does Knowledge Management Processes impact on Organizational Agility?
3. Does Organizational Agility impact on Competitive Advantage?
4. Does Organizational Agility mediate the relationship between Knowledge Management Processes and Competitive Advantage?

1.5 Research Goals:

The general objectives of the current study include:

• To fulfill the requirement of degree
• To know how to conduct the research
• To gain practical experience of the research
• To know about the technicalities of the research

The current study also has some specific objectives which are following:

• To determine the impact of Knowledge Management Processes on Competitive Advantage.
• To determine the impact of Knowledge Management Processes on Organizational Agility.
• To determine the impact of Organizational Agility on Competitive Advantage
• To check the mediating role of Organizational Agility between Knowledge Management Processes and Competitive Advantage.

1.6 Research Hypotheses

1. H1: Knowledge management has a direct impact on Competitive Advantage
2. H2: Knowledge management has a direct impact on Organizational agility
3. H3: Organizational agility has a direct impact on Competitive Advantage
4. H4: Organizational agility mediates the relationship between Knowledge management and Competitive Advantage

1.7 Importance of the Study

First, this research will be helpful to know how the KM processes affects the Competitive advantage of a business and how the Organizational agility plays mediating role between KM processes and Competitive advantage. Thus this research helps in the part of literature of KM, Competitive advantage as well as in the position of Organizational agility as a mediating variable. Second, understanding and knowing the KM processes as well as Organizational agility will be helpful for the employees to meet the organizational objectives. Third, Managers will also get benefits from this research by encouraging the knowledge sharing and agility into the organization they can enhance the overall organizational performance. Finally, Future researchers will get benefit by exploring more on other organizational variables as well as they can extend the study size in order to make generalizability and contribution into the existing literature. Finally, this research will also be helpful for the policy makers to consider the KM and Organizational agility while making organizational policies.

2. Literature Review

2.1 Knowledge Management process (KMP)

KMPs was represented by its 3 constituting components, namely, knowledge Transfer, knowledge Acquisition, and knowledge use. Many researchers mentioned this 3 main processes of KM (e.g. Pérez-López, & Alegre, 2012; Lin et al., 2012; Liao et al., 2011; Singh & Soltani 2010; Alavi & Leidner, 2001)

KM is a tool used by the management along with the set of practices, principles, and techniques for the purpose to utilize, create, transfer, and disseminate knowledge (Obeidat et al., 2016).

2.2 Organizational Agility

Organizational agility is the ability to sense, perceive and predict the changes in the environment of the organization. So, the organizations should be able to identify the changes and tackle with those changes for the prosperity and growth of the organization (Sharif & Zhang, 1999).

According to Holsapple and Li (2008), Organizational agility is considered as the result of integrated attentiveness to changes (opportunities and threats) in an environment (both internal and external) along with a capacity to utilize the resources proactively to that changes in a most suitable way.

2.3 Competitive Advantage

Competitive Advantage is providing a superior value than competitors in a market in any terms like product, price, product, after-sale services, etc.

According to Thatte (2007), Competitive advantage consists of unique capacities that set an organization apart from its competitors, therefore, such organizations have a competitive edge in the market (Thatte, 2007).

2.4 Knowledge management and Competitive Advantage

The debate among academicians and practitioners on sustainable competitive advantage and perceived organizational performance appears to have reached a crucial point. In contrast to the traditional organizational systems, modern workplaces are advocating the importance of organizational capabilities and knowledge-based systems. In current times, where there is active consideration of competitive advantage among organizations, generally at the same time, the traditional models of organizational dynamics are criticized by those who uphold theories that regard the resources and competencies of a firm as its principal source of competitive advantage. Knowledge is the core competence required to face business challenges of firms. Therefore, companies should not only acquire critical knowledge from both the external market and from their own internal organizations (Lee & Sukoco, 2007), but should also effectively and efficiently manage the knowledge stored within both the organization and individuals in order to enable the firm to generate, communicate, and leverage its intellectual properties (Gao et al., 2008). Knowledge management is the process of identifying, creating and developing knowledge in the company in order to gain competitive advantage (Alavi & Leidner, 2001). KM systems enhance the ability of an organization to sustain competitive advantage (Egbu, Hari & Renukappa, 2005).In the presence of hypercompetitive, complex, uncertain, and rapidly changing environment, KM becomes one of the most interesting and important concepts in management. Previous research studies (Al-Qatawneh, Al-Tarawneh, Al-Qatawneh, & Al-Adaileh, 2019; Cegarra-Navarro, Soto-Acosta, & Wensley, 2016; Obeidat et al., 2014; Andreeva & Kianto, 2011; Shannak et al., 2010) showed that knowledge’s importance as part of the organizational assets is increasing, as it has a positive effect on gaining competitive advantage and improving innovation that lead the organization to a superior performance.

Therefore, Following Hypothesis is formed

H1: Knowledge management processes has a direct impact on Competitive Advantage

2.5 Knowledge management and Organizational Agility

The changing conditions in which business enterprises operate today have created new challenges for contemporary organizations. One of the competitive strategies that firms possess is their capability to detect external unanticipated changes and opportunities or threats, and then reconfigure, assemble, and exploit its own resources, processes, knowledge, and relationships in order to respond quickly to external changes. To address the changing issues Kodish, Gibson, and Amos (1995) states organizational agility requires firms to quickly manage their knowledge when responding to a changing environment, and the market environment in particular. Van Oosterhout et al., (2006) indicate that the process involving the application of knowledge is essential for organizational agility because this knowledge process is essential to cope with market or demand changes that are unpredictable and uncertain. It is expected from knowledge sharing methods in the organizational departments that promote the organization’s ability for active and creative responding to the variable environment. Knowledge-sharing methods help to decrease costs, respond the customers’ needs, deliver the products and services, and improve business processes and market share (Law and Angi, 2008). Several researchers have found a positive relationship between KM and Organizational agility (Al-Qatawneh et al., 2019; Marhraoui & Manouar, 2017; Saha, Gregar & Saha, 2017; Salajeghe & Nasrollahpoor, 2016). Consequently, firms need to find ways not only to adequately manage the knowledge but also to ensure the development and subsequent sustaining of the organization’s agility in order to perform better in a competitive business world.

Therefore, the Following Hypothesis is formed.

H2: Knowledge management processes has a direct impact on Organizational agility

2.6 Organization Agility and Competitive Advantage

The changing conditions in which business enterprises operate today have created new challenges for contemporary organizations. One of the competitive strategies that firms possess is their capability to detect external unanticipated changes and opportunities or threats, and then reconfigure, assemble, and exploit its own resources, processes, knowledge, and relationships in order to respond quickly to external changes. This capability is known as an Agility of the organization that is described as an organization’s ability to discover new opportunities for competitive advantage, harness the existing knowledge, assets, and relationships to seize these opportunities, and to adapt to sudden changes in business conditions (Setia, Sambamurthy & Closs, 2008). Organizational agility is considered to be an important factor for organizational competitiveness in the current turbulent business environments (Overby, Bharadwaj & Sambamurthy, 2006). Competitive advantage can be established through the attributes of agility, which enable an organization to skillfully, rapidly, and efficiently respond and exploit environmental changes. For many organizations, their competitive advantage may depend on their ability to react to frequent unexpected changes. Success in this respect can be achieved through adopting agile practices and competencies. In turbulent times, the power of an organization depends on its proactive attitude, adaptability flexibility, quick responses, competence, and the capability to ensure strategic and effective actions (Meredith, & Francis, 2000). An agile organization, therefore, can gain competitive advantage by providing lower operating costs, satisfy customer requirements, rapid introduction of new products, and eliminating non-value-added activities. Only few studies have been conducted to check the effect of Organizational agility on Competitive advantage.

According to study conducted by Swafford, Ghosh, and Murthy (2006) state that business agility provides capability for an organization to contain changes in the marketplace, and exploit market opportunities with speed and dexterity in order to gain competitive advantage. Another study suggests that business agility is that unique capability that assures competitive advantage in a continuously changing and unpredictable environment (Nzewi & Moneme 2016). Other researchers also found a positive relationship of organizational agility on firm performance (Alegre & Sard, 2015; Shahrabi, 2012; Tallon & Pinsonneault, 2011). In addition, organizations can gain competitive advantage by leveraging on agility capabilities to sense and swiftly react to unpredictable changes, synergize all detected information to understand rivals’ competitive strategies and changing customers’ preferences and requirements.

Therefore, the following hypothesis is formed.

H3: Organizational agility has a direct impact on Competitive Advantage

2.7 Mediating role of Organizational Agility

Organizational Agility has been used as a mediating variable in many studies. In a study conducted by Mashkani and khodadadi (2016) suggested that Organizational agility is significant mediator between Organizational learning and Organizational performance. Cegarra-Navarro et al., (2016) indicated that organizational agility significantly mediates the relationship between KM and firm performance. Another study suggested that firm’s IT agility significantly and partially mediates the relationship between KM and Operational performance (Al-Qatawneh et al., 2019). In addition, researchers propose that organizations lacking in agility will be less able to adapt existing process and routines to reflect changes in the environment that new knowledge signals. Given that such adaptation influences directly firm performance, the study proposes the following hypothesis:

H4: Organizational agility mediates the relationship between Knowledge management processes and Competitive Advantage

2.8 Research Framework

Knowledge Management Processes

• Acquisition
• Transfer
• Use
• Organizational Agility
• Competitive Advantage

3. Research Methodology

This section includes detail on how the research will be carried out. This Section includes the approach, target population, sample size, sampling techniques, and data collection tools.

3.1 Sample and data collection

Data will be collected from 300 employees through self-administered questionnaires and using convenience sampling technique. According to; Rule- of -10 participants per item in the instrument being used makes a sufficient sample size. Number of items that will be utilized in the instrument will be 24. Consistent with the rule of -10 sample size of the research will be 240 (24 X 10) minimum, but to test above-mentioned mediating-regression model author kept the sample size up to 300 Whereby unit of analysis would be employee. Population will be comprises of education/healthcare sector employees. The target sample will be X-country companies or institutions.

4. Data analysis and Measure

SPSS version 20 will be used for the data analysis. Correlation will be used to explain the correlation among all the variables of the research. Cronbach Alpha technique will be used to measure the reliabilities of all the variables. Regression analysis will be conducted to examine the impact of knowledge management processes on competitive advantage, the impact of knowledge management processes on organizational agility and the impact of organizational agility on competitive advantage. The mediation regression analysis will be conducted to examine the mediation impact of organizational agility in the relationship between knowledge management processes and business competitive advantage.

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Analytical Essay on Seven Sisters: Organizational Resources and Competitive Strategies

Introduction

Expanding market of small businesses in foreign countries seems to be a big challenge for firms to enter especially in such a highly competitive industry as wine.

Wine is a high-value segment in alcohol market under beer and spirit which accounts for around 17% or £114 Billon of total worldwide revenue share in 2017 and its sale volume is forecasted to slightly increase every year. Australia and France invested in wine the most followed by Switzerland, Portugal, Argentina, Italy, Canada, Denmark, United Kingdom, and Sweden, respectively (Statista, 2018). From those top 10 countries, Canada is an interesting market for wine exporters because Canada market is growing in the same direction as the worldwide market where sale volume has increased by 4% from 2016, and saw a slight growth every year (Passport, 2018). What’s more is consumers are highly demanding in this particular market all around the world. Products from traditional producers such as France and Italy are the most popular whereas new wines from Australia, New Zealand, and USA have also become preferable among wine drinkers (The Minister of Agriculture and Agri-Food, 2013).

One of the middle-sized businesses who is seeking to extend to an international wine market, Canada to be precise, is Seven Sister—a South African’s wine brand. Seven Sister is owned by an African business woman named Vivian Kleynhans. Seven Sister wineries are located near the Cape West Coast, Stellenbosch in the heart of winelands—a suitable location for planting grapevines. At the time, business is running efficiently as they sell products both domestically- South Africa-and-internationally-USA. Specifically, products have been sold in major national markets in South Africa, and 42 states across the USA. However, Seven Sisters winery has a dilemma growing its reputation in the wine community because it is difficult for a newcomer to win the loyalty among consumers who prefer existed brands (Mabaya et.al., 2014). Thus, establishing competitive advantage by building resource capability is the major factor to win over consumers’ heart.

The purpose of this report is to identify the organizational resources and competitive advantage for Seven Sister to develop a competitive strategy in order to settle down and set themselves as a well-known wine brand in Canada.

Organization Resource and Competitive Advantage

How resources create impact on competitive advantage

Gaining competitive advantage means performing a service, manufacturing a product, or offering a bundle of benefits that differentiates from competitors (Porter 1996). Small and medium-sized businesses are supposed to understand and analyze internal resources and external environmental as their competitive advantage(Galati, et. al., 2017). Supported by Barney (1991), the researcher suggested “firms obtained competitive advantages by implementing strategy to exploit their internal strengths, through responding to environment opportunities, while naturalizing external threats and avoiding internal weakness”. Together with the finding of Madhani (2010) who explained that to gain and sustain competitive advantage, one should be focus on resource-based view or RBV. Resource-based view is laid down as the theory which examines and clarifies the internal resource of organization, emphasizing on the capability in formulating strategy to approach sustainable competitive advantage. RBV divides categories of resources in two types which are tangible and intangible (Kamasak, 2017).

Tangible assets are physical objects that firms own or buy from suppliers; for example, land, machinery, equipment, and capital. Meanwhile, intangible assets are untouchable elements that firms particularly owned such as brand image, brand reputation, brand story, and trademark. Not only are tangible and intangible assets crucial in labelling each brand as distinctive, but also are heterogeneous and immobile resources vital to setting apart one’s competitive advantage. The concept of heterogeneous means diverse capabilities and other resources of firm which are uniqueness distinct from competitors such as Toyota who nominated themselves as expertise in car technology. They endorse the high technology by utilizing and deploying resources and capability into product model to competing with luxury cars. In fact, Toyota is able to charge the product in the higher price, but they insist to sell products at a lower price which is considered as a price advantage (Ukessays, 2016). Comparatively, immobile refers to resources that are dispossessed by other competitors (Brown, 2007). This group of resources is hard to obtain since the cost of developing, owning, and operating resource is high such as brand image, reputation, knowledge, and intellectual property. Regarding to Toyota, consumer perceive them as high-quality car brand sold in affordable price (Ukessays, 2016).

Based on Seven Sister tangible assets, they own a vineyard in South Africa where it is the best location to grow grapevines such as Chardonnay, Sauvignon Blanc, Merlot, Cabernet Sauvignon Blanc, and Pinotage/Shiraz. According to vineyard’s location, the climate and soil of Stellenbosch suits for the condition of planting Chardonnay which is widely accepted among wine drinkers (Atkin, 2017). Moreover, their winery is capable of producing wines by themselves. In other words, company’s facilities are ready to prepare for producing lots number of products to be sold in market (Sevensister, 2018).

In spite of tangible assets, Seven Sister has a touching story about brand’s founder, this remarkable origin thus became remarkable among consumers. In a way, the story has created a sense of authenticity which positively bolsters brand’s image and builds a warming perception towards consumers as a result. Additionally, the firm have good relationship with stakeholders and retailer with support to distribute product over the sea. Heritage Link Brands, the largest company in North America, is supporting Seven Sister to distribute product.

In term of brand heterogeneous and immobility, the owner combines resources and knowledge together for making signature wine’s taste (Mabaya et.al., 2014). The result of product, taste of tropical fruity flavour is unique from competitor. Also, the country of product origin as authentic South Africa’s wine does not mention for unique selling point by any competitors in Canada’s wine market.

How to sustain competitive advantage

Only the RVB concept is too board to establish competitive advantage. As explained in the argument from Jurevicius (2013), recognizing only the heterogenous and immobile resource in achieving competitive advantage are not enough for sustenance. As seen in Figure 1, this image illustrates VRIO resources which is vita criteria to find the competitive advantage. This argument is also supported by Ismail et.al. (2012) and Madhani (2010) that Valuable(V) – valuable resource which enhance strategic value to the firm, Rare(R) – resource which is difficult to find among the existing and potential competitors, Imperfectly Imitability(I) – resource or capability which difficult to imitate by other firms and significant cost advantage to firm to obtain, and Organization(O) – firms able to exploit the resource or capability. Those elements are essential measurements determining competitive advantage and sustainable performance.

Figure one. A resources bases view model (Jurevicius, 2013)

Comparing with the situation of Seven Sister, the value is the flavour of rich fruit with balancing between blueberry and vanilla. They provide various types of wine to consumers (Johnson, 2018). The taste of product is also rare resource; according to location of vineyards, summer fruits are collected to be ingredient of producing wine process which different from other brands. This capability of producing is imperfectly imitability which others cannot copy. As organizational exploited, the firm constantly express themselves as South African brand through the wine flavour.

The VRIO framework encourages firms to exploit resource and capture the value of brands (B2U, 2016). Another theory from Collis and Montgomery (1997) also supported that uniqueness of the resource and organization are offering to customer essential for creating a sustainable competitive advantage (Figure two).

Figure two. Advantage Creating Resource (Collis and Montgomery, 1997)

Competitive Strategy

Based on RVB, VRIO, and Advantage Creating Resource concepts, internal resources are important for brand to understand themselves of how to utilize unique resources and capabilities as a tool to cement a strong brand. Besides internal resources, competitive strategy supports the brand’s direction which basically used for winning competitors. Referring to the theory from Porter (1985), he encouraged brands to combine sustainable competitive advantage with the scope of activity that firms want to achieve. It leads to generic strategy below that firm would focus on the cost of product or brand differentiation. Overall decision depends on external factors which are target and market of firm’s interest.

Figure three. Competitive advantage (Proter, 1985)

After analyzing the scope of activities for achieving, brand must set the strategy to confront with competitors. Kotler and Singh (1981) developed five confrontation strategies as illustrated in figure four which are Frontal attack – direct attack to the strength of competitor, Flanking attack – attack the competitor weakness, Encirclement attack – cut off the competitor’s resource, Bypass Strategy – avoid competing with the competitor’s strength and Guerilla Tactic – weaken the competitor with unconventional attack. Those five confrontation strategies are used within firms that want to expand their market and aim to compete with local brands in market.

Figure four. Confrontation Strategy (Kotler and Singh, 1980)

Seven Sister’s Competitive Advantage and Competitive Strategy

Selected Seven Sister’s Resources for Establishing Competitive Advantage

As mentioned earlier of Seven Sister’s internal resource, they own lots of valuable resource which are miles apart from local competitors in Canada wine market. From figure five, the graph illustrates brand shares of wine market, most of them are brands from Canada, France, Australia, and, Italy. The top ten brands in the market claim the location of vineyards and brand equity as uniqueness for competitive advantage (Passport, 2017).

Figure five. Brand shares of Wine in Canada Market (Passport, 2017)

From the finding above, Seven Sister owns valuable resources and assets which able to enhance and gain competitive advantage. Due to combination of RVB, VRIO, and Advantage Creation Resource concept which encourages firms to identify internal resource to create competitive advantage and sustainable, Seven Sister’s resources can be identified as below.

Seven Sister utilize the capability of wine making into wine ingredients to create new taste. Seven Sisters adapt local ingredients which is topical fruits marinated with grapevine. The result is consumer will taste the topical flavor and wonderful depth (Johnson, 2015). Furthermore, Chardonnay grapevine is originated in many countries, but growing Chardonnay in Stellenbosch is claimed to possess the highest quality comparing with other places. Thus, the rareness of product ingredients and capability of producing wine’s skill are the competitive advantage.

Not only internal resource but also the external factor is the element to be considered as Barney (1991) statement. Target consumer in Canada who are possibility to be consumer in the future chooses product from quality and taste (Winebusiness, n.d.). Regarding to Canadian’s consumers preference on figure Five, image seeker, engagement newcomer, and enthusiast are the potential consumer for the brand. They are highly knowledge group; hence, they make decision base on information, knowledge, and review. The functional benefit tends to be the factor for them for deciding rather than emotional (Winebusiness, n.d.).

Figure six. Consumer Segment (Winebusiness, n.d.).

To sum up, the emotional of the sisterhood should be reducing for bring up as the competitive advantage the authentic wine from Stellenbosch in South Africa with tropical fruity taste must be rise as competitive advantage. Brand’s country of origin can certainly play a major role in distinguishing themselves from other brands as well. According to the statistics of wine market in Canada, no brands from South America have been listed in the ranking. This paves a tremendous opportunity for Seven Sister to gain such a lead over competitors. In other words, the country of origin and product itself will be used for sustaining competitive advantage and developing competitive strategies.

Creating Competitive Strategy

Related to the Competitive Model for Porter, broad target is suitable the competitive scope because Seven Sister’s is appropriate with every wine drinker. The difference of competitive advantage are acceptable for Seven Sister because this is from South Africa which different from other players in market. Competing against other wine brands by engaging in a price war might be a smart choice for Seven Sister nonetheless as there is an undeniable limitation in the production cost.

As a result of all factors’ combination, Bypass Strategy is the most suitable strategy to confront with other competitors in Canada’s wine market. Avoiding competing in a strong competitive arena would be more beneficial for the brand than going against others directly mainly because Seven Sister is a newcomer in the wine. Its reputation is unheard of the respective market. Resorting to the uniqueness of the brand and position themselves in the new area is an adequate direction for this brand.

Both competitive advantage and strategy lead to new marketing strategy which is ‘Authentic fermentation from South Africa’

Conclusion

Being distinctive from competitors is the best way to stand out over the crowd. Based on the resource-based view, VRIO, and advantage-creating resource theories, internal resources compounded with external environment opportunity are important factors for the firm to identify and recognize its uniqueness which is exceptionally useful in gaining competitive advantage. Furthermore, sustaining the competitive advantage is necessary for the firm to maintain their value, uniqueness and identity. Setting a competitive scope and thriving for competitive advantage are the direction for the brand to evolve itself in the right way. Most importantly, to be in the right position, choosing the right competitive strategy is an integral part of the brand to move forward.

Antecedent Factors of Competitive Advantage and its Impact on Performance: Analytical Essay

Abstract:

Small- and Medium-sized Enterprises (SMEs) have performed an important role in national development upon their support on both the traditional even modern sector. They have experienced an increase of competitiveness, particularly since the Indonesian government deals with the ASEAN Economic Community (AEC). The agreement encouraged SMEs to escalate their innovation and creativity to be able to survive amid intense competition. This research aimed to find an explanation about factors influencing the business competitiveness of SMEs and the effect on performance. The respondent’s SMEs in Kudus City are represented by the embroidery business owners that since three years before they have experienced a decrease in profit. They expressed their response to research variables such as competitiveness, orientation, adaptability, internal resources, and performance. The use of Structural Equation Modeling (SEM) was intended for examining the variables relationship and direct/indirect influence from the exogenous variables to endogenous variables by AMOS software. The results demonstrated that the entrepreneurial orientation did not affect competitive advantage, meanwhile the adaptability to business environment and internal resources affected SMEs business position positively. Finally, the entrepreneurial orientation of business owner, SME’s competitive advantage, and internal resources (financial, physics, human, and nature) effect on business performance direclty.

Introduction

Small and Medium-sized Enterprises (SMEs) drives a prominent contribution to economic growth of many countries through their traditional and modern sectors. This small industry supports growth through poverty alleviation (job creation, serves various needs, and the ability to survive with products/services innovation, income distribution, and its contribution to national income. SMEs grow in large number, but were not bankable yet or they have no sufficient guarantees in funding despite of their good character and business performance. Moreover, in accordance with capital problems, they also face obstacles of human resources, business networks, unpredictable business environment, infrastructures, and access to the market, whereas low competitiveness takes effect on business sustainability.

Entrepreneurs ought to take advantage of these opportunities aggressively while managing any risks (Covin and Slevin, 1989). They should be able to adapt to business uncertainty that forces them to generate a long-term plan and strategic decision-making. Their success is a consequence of the ability to adapt to the environmental changes, whereas the ability then affect the basic company’s strategy. To implement a strategy that improves business efficiency and effectiveness, a company’s internal resources should be well-managed which contributes to its competitive advantage through production cost reduction (Seddon et al., 2017).

The competition raised since the government assigned the AEC (ASEAN Economic Community) and ACFTA (ASEAN-China Free Trade Agreement). Moreover, SMEs in Central Java, especially in the embroidery business in Kudus City, have a problem regarding innovation. The models didn’t experience significant changes for the last 3 years or the models are not able to meet the market trend. Accordingly, it impacts on the requests decline, which directly affects the profit. This phenomenon needs special attention to have the industry still grows with high competitiveness.

Theoretical framework

2.1 Entrepreneurial Orientation

Entrepreneurship is a pioneer in achieving sustainable economic growth and highly competitive advantage. Regarding literature of entrepreneurship, orientation as considered as the most common construct that include proactiveness, innovativeness, and risk-taking. Innovativeness is the ability to apply creativity in order to solve problems and opportunities to enhance and improve living standards. Risk-taking is an action that is oriented to the opportunities in uncertain decision-making. Subsequently, proactiveness is a condition where the leader is capable of identifying opportunities, problems, needs, and changes in the future (Uhl-Bien et al., 2007).

Entrepreneurial orientation (EO) drives an important role for a company to improve and be an acceptable meaning of business performance. It is recognized as a corporate benefits strategy to be able to compete more effectively in the same marketplace This construct is measured by four dimensions: internal locus of control, need for achievement, extroversion, and self-reliance (Affendy et al., 2015). The combination of these four dimensions is believed to improve business competitiveness and performance.

2.1.1 The Effect of Entrepreneurial Orientation on Competitive Advantage

Discussion about strategy content (the generic strategies) in strategy-making processes, entrepreneurial orientation seems to be a critical construct to explore. It is considered as the first of designing and implementing competitive strategies. Hence, studying competitive strategy and entrepreneurial orientation is challenging research (Lechner and Gudmundsson, 2014). Notice that entrepreneurial orientation has emerged as a possible solution to the problems that businesses faced in order to achieve the sustainability of competitive advantage (CA). Thus, understanding of entrepreneurial orientation, especially in SMEs context has a great impact on strengthening business competitiveness. The three dimensions of entrepreneurial orientation (innovativeness, risk-taking, and proactiveness) also have a significant influences on the competitive advantage (Jantunen et al., 2005).

2.1.2 The Effect of Entrepreneurial Orientation on Performance

Since entrepreneurial orientation has been recognized as a strong predictor of company performance in the past research, some research has also argued that entrepreneurial orientation does not affect performance at all. It is often considered as a predictor of competitive advantage and business growth. Due to competition in the present era, SMEs face increasing pressure derived from competition from across the world. They face increasing difficulty to maintain and improve business performance in time unless they can actively manage these pressures properly (Affendy et al., 2015).

2.2 Adaptability

Adaptability is the competence to adjust companies’ approach or actions in response to changes in their external environment. It is a precious skill for individuals and businesses to compete with others (Ismaeel and Blaim, 2012). The challenge with strategic adaptability is that they essentially have to plan for the unexpected. Naturally, they can’t anticipate changes or problems that their research and intuition don’t reveal. However, they can establish a standard system or method to respond to change within the business.

To increase competitiveness, entrepreneurs should increase innovation, invest in technology, and use market-based management. The business environment has a large influence on economic development. Stable political and economic conditions will improve a very significant business climate, indicated by the increasing number of small businesses and more innovative products that will be offered. The conclusion is that the better the company adapt to its environment, it will impact on the increase of competitive advantage (Covin and Slevin, 1989).

It is difficult to evaluate the key factors in business success or failure, where some researchers report increased usage of non-financial measures to evaluate performance in the last years (Hoque, 2004). However, business performance can be measured and judged from various perspectives, Ruekert and Walker Jr (1987) proposed a three-dimensional of performance consisting of effectiveness, efficiency, and adaptability. Effectiveness is recognized as the products and services’ success in comparison with those competitors (Ruekert and Walker, 1987).

Efficiency is recognized as a degree (a result of comparing product/service outputs to a set of inputs resources). Meanwhile, adaptability refers to success in responding to dynamic change (Mouzas, 2006). Explicitly, effectiveness is correlated with nonfinancial goals, efficiency is highly correlated with achieving profitability, and adaptability is correlated with adaptation to change (Miller et al., 2012).

2.3 Internal Resources

The term of resource is derived from three main constructs; capabilities, competencies, and resources, that have been widely analyzed in the strategic management literature, resulting in difficulties to generalize conclusions across studies. Internal resources refers to the internal company environment (a set of company internal factors which in turn affect the success of business operations). The company has full control over these factors as the opposite of the external environment. However, it is also important for a company to recognize threats outside (Barney, 1991). A better understanding of threats outside the company leads to create a strategy that maximizes its resources and minimizes weaknesses.

The good governance of internal resources and operations management is one of business key success factors. Therefore, leadership has an important role to a company as a significant internal factor (Momoh et al., 2010). The leadership style and other management styles also impact on organizational culture (Kuratko et al., 2014). Some areas which are typically recognized as in internal factors are (Abdullah and Hamdan, 2012): The financial resource like funding, investment, and income sources; Physical resources such as location, facilities, and equipment,; Human resources such as employees, target audiences, and volunteers; Access to natural resources, patents, copyrights, and trademarks; Current processes like employee programs, software systems, and department hierarchies.

2.3.1 The Effect of Internal Resources on Competitive Advantages

The underlying competitive emphasis on most industries appears to have shifted from being product-market based to being more resource-based (Etemad, 2009). In line with the resource-based theory, bundles of resources, rather than industry-wide structural characteristics or the product-market combinations chosen for their deployment (eg strategic conduct), lie at the core of a firm’s competitive advantage (Kuratko et al., 2014).

The primary idea is that a firm possesses and exploits its resources and capabilities in order to make it unique from others. Unique ways of combining and applying innovation resources (product development capabilities), human resources, brand label capital or functional experience (production, marketing, sales, etc.) are examples of such capabilities. This ability is in turn usually seen as a collection of routine production that is socially complex and therefore tends to oppose imitation. In particular, the non-tradable resources and capabilities (perfect immobile) which develop and accumulate within the firm are the central concern of the resource-based theory (Kozlenkova et al., 2014).

2.3.2 The Effect of Internal Resources on Performance

Certain types of resources owned and managed by companies potentially produce competitive advantages, which makes the company’s performance superior (Gupta and Kumar, 2013). The company’s internal resources such as knowledge, skilled employees, machines, and capital are the basis for achieving superior performance. The relationship between company resources and competitive advantage is strongly influenced by elements such as assets owned by the company. Companies that want to implement strategies that can improve efficiency and effectiveness must be able to manage their internal resources that cover all assets, capabilities, organizational processes, information, and knowledge.

The RBV literature (resource-based value) shows that internal resources possess a long-lasting competitive advantage. Entrepreneurs as a corporate resource catalyst have been researched over the past decade (Jackson et al., 2014). Their success is a reflection of business quality, a form of collaboration between personality attributes such as entrepreneurial enthusiasm and attitude, general human capital, industry, and specific company experience, as well as learning from previous business experience. Thus, the founder’s attributes are the most central resources in business in order to achieve its competitive advantages (Chandler and Hanks, 1994; Clancy Dollinger, 1995; Heru Priyanto, 2012).

2.4 Competitive Advantage

Competitive advantage is perhaps the most widely used term in strategic management, nevertheless, it remains poorly described and operationalized. Competitive advantage does not equal to superior performance because it is a relational term that is context‐specific. It has several meanings, including the emphasis on the superiority of resources and company expertise. Another definition emphasizes excellence in performance achievement. Companies that pay attention to performance and strive to improve their performance have the opportunity to achieve a good competitive position. The position becomes the company’s capital to continue competing with competitors (Johnson et al., 2008).

The evidence of competitive advantage is the company’s superior position both in the industry and the marketplace (Irfan et al., 2014), where superiority depends on how customers look at it. For example, a company able to make superior products, but if customers do not see it as a superior product, the company will not grow into a competitive advantage and make its products better than competitors.

2.5 Performance

The freedom of the owner or manager in making decisions, taking the initiative, and setting policy strategies that affect business performance. Prahalad (1990) state that business can be superior if company management capable to consolidate its technological and production capabilities into competence, which gives strength to every individual in the organization to always adapt to the ever-changing market opportunities (Prahalad et al., 1990). Businesses will be able to maintain long-term advantages if they have the ability to create products with low cost (low cost) and faster manufacturing time compared to competitors (Morrison et al., 2003).

Competitive advantage is seen as something that can be used in corporate strategy in order to improve company performance. Competitiveness sees the company as a whole consisting of many activities carried out by the company in designing, producing, marketing, handing over, and supporting sales (Porter and Kramer, 2006). Companies that have a higher level of competitive advantage will also have better business performance (Etemad, 2009).

Discussions

The respondents were the managers of the embroidery industry in Kudus Regency which consists of 122 companies. They were asked to express their perception through a questionnaire and subsequently analyzed by structural equation modeling (SEM) supported AMOS software. The research model investigated the effects of entrepreneurial orientation, adaptability, and internal resource on competitive advantage and the influence on business performance.

Table 1: Hypothesis Testing Results.

Hypothesis

CR and P-value

Entrepreneurial orientation (EO) has a positive influence on competitive advantage (H1)

1,499 : (0,134)

H1 rejected

The adaptability of the business environment has a positive effect on competitive advantage (H2)

2,020 : (0,043)

H2 accepted

The company’s internal resources positively influence on competitive advantage (H3)

6,379 : (0,000)

H3 accepted

Entrepreneurial orientation has a positive effect on company performance (H4)

2,302 : (0,021)

H4 accepted

The company’s internal resources positively influence the company’s performance (H5)

6,045 : (0,000)

H5 accepted

Competitive advantage positively influences company performance (H6)

2,343 : (0,019)

H6 accepted

The following discussion explained the results of hypothesis testing from table 1.

3.1 Hypothesis 1

The results did not support the hypothesis which stated that entrepreneurial orientation has a significant effect on competitive advantage. Nevertheless, the results showed an influence direction in accordance with the hypothesis. The explanation is that in an industrial cluster there is uniformity or at least similarity in terms of the resources owned by each company. They owned almost the same information, employee skills, technology, raw materials, and even capital.

The existence of the similarity factor is possibly the cause entrepreneurial orientation had no significant influence on competitive advantage. The phenomenon that occurs in this study is that there is almost no innovation process that occurs so the existing competitiveness is being low.

3.2 Hypothesis 2

The results corroborated the findings of (Andriyanto and Nurjanah, 2015). Competitive advantage could be achieved if the business actors and their teamwork (employees) had an ability to understand the customer’s wishes well, able to recognize the development of competition carefully and have a good working relationship with their suppliers. So that companies can get information, and recognize trends and relationships within an organization’s external environment, where this adaptability process could help the management in planning future actions.

3.3 Hypothesis 3

This research is in line with research conducted by (Jiang et al., 2012), which proves that the company’s internal resources significantly influence competitive advantage. Companies that were able to manage their internal resources well enable companies to implement the right strategies forming competitive advantage. Internal resources were able to provide superior company performance.

3.4 Hypothesis 4

The results of this study are in line with research conducted by Avlontis and Salavou (2009) which shows that entrepreneurial orientation has proven to have a positive and significant influence on company performance (Avlonitis and Salavou, 2007). Likewise with research conducted by Witjaksono (2009) which also shows the same results regarding the influence of entrepreneurial orientation on company performance (Witjaksono, 2009). The ability of company leaders to implement innovation, proactive and have the courage to risk-taking create more innovative products and achieve a wider marketplace. The condition helps the company to improve performance.

3.5 Hypothesis 5

The results of this study succeeded in supporting the hypothesis that the company’s internal resources directly affect the company’s performance. The results of this study indicate that the performance of embroidered SMEs in Kudus Regency has the ability to increase their potential to improve company performance. The resources consist of many factors that the manager have to recognize and use it as effectively as possible.

3.6 Hypothesis 6

The results of this study are supported by the results of research conducted by Gupta and Kumar (2013) which suggests that competitive advantage has a significant influence on business performance (Gupta and Kumar, 2013). Kumar et al. (2011) and Boulianne (2007) also states that competitive advantage has a positive effect on performance (Boulianne, 2007; Kumar et al., 2011). Similar results are obtained from research conducted by Othman et al., 2015, competitive advantage has a positive influence on performance (Othman et al., 2015).

The results of this study are also supported by the results of previous studies by Kumar and Pansari (2006) where competitive advantage has a positive and significant effect on the company’s marketing performance (Kumar and Pansari, 2016). If a business does not have a unique or different value, then the level of sales, profits and the level of visiting consumers in a business may not be able to increase superiorly (Mariadoss et al., 2011).

Some managerial implementations of the results of this study are expected to contribute to the development of embroidery businesses in Kudus Regency in terms of internal resources as follows: Technology; Employee skills; The ability of the company; Capital; Information; and Human resource knowledge.

Company performance becomes a variable that is influenced by all variables. The most influential variables are internal resources of 0.882, competitive advantage of 0.184, entrepreneurial orientation of 0.109, and business environment adaptability of 0.027. The following are indicators that affect company performance: Sales growth; Customer growth; Profit growth; and Market growth.

Competitive advantage was affected by all other variables. The following were indicators that affect competitive advantage: Uniqueness; Not easily replaced; Competitive prices; and Not easily imitated.

Entrepreneurial orientation becomes important in this study. The following indicators influence the orientation: Proactive; Innovation; and Risk-Taking.

The following indicators were in the context of Adaptability, such as the Ability to understand customers; the Ability to work with suppliers, and the Ability to understand competitors.

Conclusions

The results of this study can provide answers to the research problem. Based on the results of the study, there are six processes that can be used to improve company performance, namely:

First, company performance can be enhanced by entrepreneurial orientation, including by innovating products, having the courage to take risks, and having a proactive attitude. Entrepreneurial orientation carried out will have a direct influence on the company’s performance.

Second, company performance can be improved by adapting to the business environment, namely by understanding customers, understanding competitors, and working with suppliers. Adaptation of the business environment will have a direct influence on the company’s performance.

Third, company performance can be improved by utilizing internal company resources, including capabilities, information, knowledge of human resources, capital, technology, and employee skills. Companies that are able to utilize their internal resources well will be better at improving their company performance. The company’s internal resources will have a direct influence on the company’s performance.

Fourth, company performance can be improved by entrepreneurial-oriented ways, where the entrepreneurial orientation that is carried out will increase the company’s competitive advantage. Competitive advantages possessed will improve company performance

Fifth, the company’s performance can be improved by adapting to the business environment, where the adaptation of business environment will improve the company’s competitive advantage. Competitive advantages possessed will improve company performance.

Sixth, the company’s performance can be improved by utilizing the company’s internal resources, where the maximum utilization of the company’s internal resources will improve the company’s performance. Competitive advantages possessed will improve company performance.

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Costco’s Main Resources of Competitive Advantage

Costco is one of the leading wholesale clubs in the U.S. They have a lot of rivals in the industry, but they come out as the second in the wholesale industry following Walmart. They have opened and are still opening stores in other countries. They have expanded their brand name around the world in order to promote their products and services. They have managed to gain the loyalty of a lot of customers and sustained a good relationship with them. They have a lot of resources that are valuable, rare, costly to imitate, and organized to exploit. The Three highly important resources that Costco has are their employees, their private label Kirkland signature, and distribution plants and specialized machinery. These resources are a good source of competitive advantage for Costco and will help them stay ahead in the wholesale industry because they offer good products and services that others cannot compete with.

A great resource that Costco has is its employees. They are very valuable to the company and are a great asset. Most of them are very well trained which leads to them being able to have better and faster production for the company, thus providing more for customers. Also, their employees seem to stay with Costco since they are well compensated. This helps a lot with production since employees tend to work harder if they are benefiting from their job and they don’t need to waste time on training new staff because if they prevent any turnover, they wouldn’t need to hire more people to replace the past employees. Which makes them very rare since most employees in this industry are not well trained. Trying to hire the right employee can be hard because not everyone is qualified for the job. Then again it is not hard to imitate these employees. Employees come and go all the time in this industry so it’s all about the training that is given, and anyone can perform the job well. A company can offer a Costco employee a better pay rate and have them work for them or they can just train their employee better. So, it is a good asset to have, but it only gives them a small edge on the competition since it can easily be copied. Therefore, the employees at Costco are great and are loyal to Costco, but I do not think they are a great competitive advantage for the company. They should keep doing what they are doing with them but do not need to focus on this aspect of the company.

Costco began their own private label ‘Kirkland Signature’ in 1995 and since then they have used this brand to provide lower price items than the national brands. According to their recent Form 10-K, this brand allows them to maintain lower prices while also maintaining their margins high thus making it a high-value resource. As of 2017 about 25% of Costco’s annual sales are from Kirkland brand products, and according to company executives this percentage is growing (The Wall Street Journal). Though this is not a rare choice since most grocery stores have their own private label. What makes it somewhat rare is that Kirkland Signature Brand Products accounts for nearly 30% of all private label sales in the United States (The Motley Fool). Though many grocers have their own private label many times these brands are perceived to be “generic” as in lower quality but in the case of Kirkland, Costco has made it their mission to make this brand as good if not better than the name brand. According to The Wall Street Journal, they give a brand-name supplier a chance to make a Kirkland brand version of their product but if it doesn’t come to fruition, they will go forward with making their own products. This would be difficult to imitate by other grocery stores unless they have the power amongst suppliers as Costco does. Costco has also organized themselves to take advantage of this strategy by telling its employees to “play fair ball, but hardball” with suppliers. Thus, being able to have the upper hand in negotiations and when not appeased able to use their own brand.

A valuable asset that Costco has is its capability to use their distribution plants and specialized machinery to produce and distribute their products at a rate that other companies cannot easily imitate. These distribution plants and machineries are used to allow Costco to resupply their warehouses at a constant rate in order to meet the demand of their customers. It is very expensive to get a hold of these resources and capabilities; a company will need to spend anywhere between $100 to $200 million just to cover the cost of the distribution plants with the specialized machinery. These assets for Costco are rare since their distribution plants and machineries are customized to help them manufacture and distribute their wide range of products. The fact that their distribution plants and machinery are rare and specifically made for them makes it hard for new companies to find and imitate.

Due to the cost and how rare these assets are for Costco it would still cause trouble for competitors such as Sam’s Club. Warehouse stores such as Sam’s Club would have a hard time covering these costs to imitate Costco because they already have their own distribution plants and machinery that is already tailored to their needs. It just wouldn’t make sense for Sam’s Club to scrap what they already have and waste their time and money researching Costco’s distribution plants and machineries when what they are doing would most likely work better for their organization. With the ability to easily supply their warehouses with their quality products at an impressive rate and offer low prices, Costco is able to beat out their competitors.

It is known worldwide that Costco is the second leading in the wholesale industry. They have branched out in many different countries and their brand name is well known. Costco has a few important resources that it offers as stated above are its employees who are assets to the company and tend to stay at the company because of the benefits and they are treated well. The Kirkland signature that offers a wide variety of items. Lastly its distribution plants and specialized machinery that help Costco distribute their products at a fast rate.

According to our analysis the resource that seems to give Costco their competitive advantage is their Kirland brand Signature products. Recommendations regarding their Kirkland Signature resource would be to keep expanding the private label brand since overall the desire for this type of product is growing while maintaining high standards for these products since the customer is paying a membership to enter the store and procure them. Focus on economic developments and when it is most lucrative create products that would lower prices for the customer. Keep employees that negotiate with brands aware of the products that have been developed and are being developed to maintain bargaining power. These recommendations will allow Costco to gain a sustainable competitive advantage over other competitors in the industry.

Facebook’s Inc.’s Effective Business Strategy

The world’s largest social networking site, Facebook, was created in a college dorm room at Harvard in 2004 by 19 year old Mark Zuckerberg and three of his other pals. A site which was initially created for college students to socialize online became the world’s largest social networking site having billions of users and revenues. A website which is more popular than Google is seen to be the ‘most transformative social change’ in the recent history by Zuckerberg, which made him the world’s youngest billionaire because of it. Overcoming the first-mover advantage of Myspace, who was an early leader in social media, was the first thing Facebook did before it became the global phenomenon. Myspace’s success attracted the attention of News Corporation, which later got acquired by them in 2005. After Myspace became a publicly owned company, its revenues and profitability became more pressing issues and their business model started shifted on generating more revenues by focusing on ad-heavy markets. Later in 2008, Myspace declined in its business which laid off 45% of its staff. Facebook remained a private company until Microsoft purchased $240 million equity stake and a Russian investment group added $200 million, which gave Facebook less pressure to produce bottom-line results than Myspace that allowed them to pursue a different business strategy to make more users first and profits later. Facebook pursued a global strategy due to which it has more than 70% of its users outside the Unites States. Facebook displaced Myspace from being the most popular social networking site in 2008 but faces new challengers in social media space like Google, LinkedIn, Pinterest and Twitter.

Facebook and Myspace are the social networking sites that allows users to create public profile on the website and to connect with other users which were introduced in 2004 and 2003 respectively. The users find it interesting because they offer a lot of benefits and services like connecting them with their friends, new people and they can even share their thoughts, opinions and interests on them. Before Facebook became a worldwide sensation, it had to overcome the first-mover advantage held by Myspace. Before the Facebook was introduced, Myspace was popular in the social networking business as many people were new to having access to a site like that which had new contents and could connect with friends and find new friends through it too and even its success attracted the attention of News Corporation in which they acquired Myspace for $580 million in 2005. After being publicly owned company, Myspace focused more on a few ad-heavy markets to grow revenues and profits rather than increasing more users. They also kept on redesigning their website which made them to lose its user data base and they also started getting off because there were too many bugs and issues. On the other hand, Facebook pursued a different business strategy: more users first, profits later, which was a global strategy. As Facebook’s strategy was to gain more users first, it made its website simple, better and easy to use and they didn’t keep on changing its designs so people got used to it and started to use it.

As the main motive pursued by the Facebook was more users first and profits later, it focuses on lowering the cost and affordability of its product which leads towards increment of the users of Facebook. Facebook also focused on the differentiation strategy by providing its users with better features in its product like ‘news feed’ which is at the heart of user’s homepage and provides regular updates of friends’ posts, photos, events, etc., ‘timeline’ which allows users to paint a complete life story on his or her profile and ‘graph search’ allows users to query in that portion which is connected and filled with other users. For the focus strategy, Facebook serves its customers with the taste, size and design of the product that could best match with the customer’s need and requirements.

Facebook also follows the intensive growth strategy to sustain in the market. It uses the market penetration strategy to maximize its current market share by making alliances with telecommunication companies to increase the number of users using the company’s social media service through the Facebook mobile app. For the market development strategy, Facebook coordinates with the governments of different countries to allow their citizens to have access to online social network which emphasizes in the growth of Facebook in the global market.

The competitive challenge should be pointed out properly to formulate strategies. Facebook’s main competitive challenger was the first-mover advantage of Myspace as they were already in this online social networking business with many of its users when Facebook was just starting. But Facebook slowly increased its customer as at that time their main focus was to increase customers first and earn profits later, so, they were able to overcome that challenge. This challenge turned into its competitive advantage in the long run. Right now, Facebook’s main competitive challenge is to maintain its competitive advantage for having a huge customer base. If only Facebook had no edge over its competitors, it would have been hard for Facebook to sustain in the market as it earns money from its large number of users. So maintaining this challenge, Facebook staying in this online social networking business is its biggest competitive challenge. Therefore, this is how Facebook became the number-one social media company, and not Myspace which enjoyed a first mover advantage.

After analysing the case along with the strategies used by Facebook I think the strategy followed by Facebook seems very fine to me because of the strategy that they used they have gained a lots of users around the globe. More than 70% of Facebook’s users are outside of the Unites States and its bringing billions in revenue and gaining popularity in the world. So, I think Facebook has a good strategy. Only three recommendations that I would like to give to Mr. Zuckerberg are:

1. Be aware of the rapid increment in the growth, development and obsolescence of current technology because the Facebook platform can get outdated any time, so it needs to act accordingly and adapt to the new updates in the distribution of the services they provide, exclusively since what they offer are highly technology amplified.
2. To start focusing more on sustaining large number of users they have and less on increasing the number to grow because focusing on sustaining their large number of users will help them to gain more loyal customers who stay active on their site around the globe and those loyal users will benefit the company more by influencing other users to be in it together which will be a win-win situation for both Facebook and its users.
3. Acquire what they have invested in for so long. Their enormous customer base has yet to explore a lot of opportunities. As social networking has highly influenced many people’s loves, Facebook needs to capture as many opportunities as possible that is present in the absolute number of users they have online.

The Uniqueness of Honda Innovations

Design thinking is a crucial concept and the different modes encompassing it involve empathize, define, ideate, prototype and test. The unique concept associated with the mastery of design thinking can be well linked to Honda (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The motor company has been widely known to achieve advanced delivery design along with collaborating with suppliers in order to prove worth. The motor company Honda has become a pioneer in the vehicle market for personal and commercial use. The design to cost and the innovative techniques designed for the vehicles are significant (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). They are along with a host of strategies which Honda has adapted. There are several innovative techniques that have been associated with Honda and it is being proved to be a success. The innovation linked to the organization Honda is unique in its own way with a combination of new pattern and styles which has got Honda achieve new heights (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). With respect to the price point and customer centric approach, the company has been able to generate greater margins since the time it evolved as a mega player n market. With the concentric deployment of various innovative tools, Honda has been able to deploy and well implement design thinking approach with the lean startup model (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016).

Innovation Based Trend – Honda

Honda has been established since long and incepted business in 1948. The company stands to gain to a great extent from the position it has garnered and considering the world perspective, reaching the required limits. Honda has been well able to maintain the required quality standards along with the production and sales across the globe aid in the unique distribution. It has been the world’s largest producer of automobiles considering the completive scenario too (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The innovative techniques which are associated with Honda are associated with constant discipline and the innovative drive which has been part of the company. The organization has 215638 people serving corporate structure of Honda and the same has been divided under leadership heads pertaining to different departments (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The purchasing and the supply of materials for Honda have been formulated in a manner to well utilize the uniqueness based on innovation and well admired.

Defining of Concepts and Relationships

Organizational Environment

The environment of Honda Company is based on the crucial technologies and based on the innovation (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The consideration of lean startup and the composition of the environment. Considering the internal and external environment prevalent in case of Honda, the operations in are closely linked to innovation and growth. The goal with respect to the manufacturing market is to have the requisite bearing unique capabilities and also based on bonding existing between processes and people.

Innovation Trend

The innovative trend which has been created and demonstrated well in case of being the innovative drive, Honda has strived hard in creating a market well linked to the lean startup movement which has been proved to be a success (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The designs of Honda have been altered in a crucial manner in which it is inevitable to create an environment which offers lesser abilities and capabilities. The innovation trend for Honda is being set with a combination of methodologies and technological innovation clubbed together (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The price along with the customer centric approach are also well deployed as the design thinking takes place with the lean startup and this has become crucial part of the innovation.

Innovation Strategy

The innovation strategy for Honda is based on the adoption of a unique methodology which is reliant on lean startup along with the business idea associated with Honda (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). This is primarily to offer range of products which are being well designed and developed based on the position to afford the development based on the research. The market positioning for the company has been crucial and it plays a greater role too as that form the developed environment in case of achievement.

Innovation Capabilities

The innovation capabilities linked to Honda are closely associated with the designing of vehicles undertaken by Honda (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The collaboration with vendors and partnering with brands by Honda has been to well ensure that there is creation of functional products which is being linked to the minimization of transportation costs as well as the storage costs (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). Greater emphasis is laid on the designing and promotion of the technology being part of the vehicles marketed by the organization.

Innovation Value Creation and Capture

The innovation value being created for the organization is based on needs and the requirements as that exist in the market. In order to have the leading customer and the innovative value delivered, several considerations are kept into plan which target the market (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). While manufacturing the new products, the innovation and application of the lean methodology is crucial and well serves the market of users. The innovation capturing is brought out by the innate design which is kept into consideration while the products are marketed by Honda.

Creation of Innovation Strategy Ensuring Strategic Alignment Within Organization & Its Importance

It is crucial that the innovation strategy which is being utilized at Honda is well aligned to the strategic alignment (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The relevance of the concept is associated to the growth and development. The products of Honda are being used worldwide and the customization stands to be crucial. The management of processes linking the styling along with the design along with the application of crucial resources (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). It is essential that the strategic alignment with respect of the resources too is closely associated.

Analysis of Impact of Innovation Trend on Honda

The application of the strategic tool in case of the organization Honda is the analysis which is done and the trend impacts the processes linked to production and manufacturing of vehicles (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The production criteria are unique for the organization and the impact that the innovation trend brings to Honda is significant (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The impact is felt with respect to the increase in the customer segment and increasing the target base for Honda. The strategy to be deployed is linked with the analysis based on the impact which is felt in the quality standards along with the opportunities and the use of design for creating the dashboards and styling tuned to the likes of customers and keeping the competition too in mind.

Recommendations

The organization Honda needs to scale up the production and keep up with the quality levels. In order to beat the competition, the prices for the vehicles sold need to be consumer friendly (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The additional innovation capabilities linked to Honda includes is to enhance the research and development in bringing the technical innovations in line with the consumer needs.

The research done on the innovation and the several initiatives which are taken need to well utilize the resources along with the capabilities in building up a strategy that is unique (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The organization is required to deploy the resources in an effective manner to yield the results and have margins which can bring about the needed sources for enhanced research and innovation.

Recommending How Honda Will Ensure Strategic Alignment To Address Innovation Trend

The innovation strategy adopted by Honda has to be unique. It has to be well synchronized with the resources that adoption of a unique methodology is linked to (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). There pertains reliance on lean startup and along with the business idea linked, the organization would require to offer range of products which would be well designed and development reliant on the position to afford the development based on the research. The market positioning is significant for Honda and the developed environment is crucial to be maintained (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). While manufacturing the new products, the innovation and application of the lean methodology is crucial and well serves the market of users. The innovation capturing is brought out by the innate design which is kept into consideration while the products are marketed by Honda. The strategic alignment that Honda would require is to segregate the production process and break it into sub processes (Schilling & Johng, 2017; Kim-Soon et al., 2017; Cuaresma et al., 2017; Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016). The sub processes would be further quantified by the requisite quality standards. There would be review of various strategies that are in accordance with the alignment to the goals of the organization (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The capabilities and the resources being aligned in accordance have to be well synchronized with the flow of innovation. The innovation value which would be created for the organization needs to be well based on crucial needs along with the requirements pertaining to the market. With the market trends being innovative, the value delivered along with several other considerations need to be well taken into account. The plan has to rely on the market offering an innovative approach. While manufacturing the new products, the innovation and application of the lean methodology is crucial and well serves the market of users (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The environment pertaining to Honda Company is based on the crucial technologies and the consideration of lean startup is a crucial composition of the environment. With respect to the internal and external environment prevalent in case of Honda, the operations in are closely linked to innovation and growth (Amabile & Pratt, 2016; Gonzalez et al., 2017; Ramos et al., 2016; Wu et al., 2016). The goal with respect to the manufacturing market would require the alignment to the resources such that the unique capabilities are also based on bonding existing between processes and people.

References

1. Amabile, T. M., & Pratt, M. G. (2016). The dynamic componential model of creativity and innovation in organizations: Making progress, making meaning. Research in Organizational Behavior, 36, 157-183.
2. Cuaresma, C., Lagrimas, A. P., Perez, A., & Atento, R. G. O. (2015). Strategy Innovation For Honda High–End Car. Laguna Business and Accountancy Jounal, 1(2), 185-200.
3. Gonzalez, E., Arrondo, R., & Carcaba, A. (2017). Product innovation in the Spanish auto market: Frontier shift and catching-up effects. Transportation Research Part D: Transport and Environment, 50, 170-181.
4. Kim-Soon, N., Ahmad, A. R., Kiat, C. W., Sapry, H. R. M., Simpang, B. S. H. S. B., Ampat, P. P., & Pahat, M. B. (2017). SMES Are Embracing Innovation for Business Performance. Journal of Innovation Management in Small & Medium Enterprises, 1.
5. Ramos, J., Anderson, N., Peiró, J. M., & Zijlstra, F. (2016). Studying innovation in organizations: a dialectic perspective—introduction to the special issue.
6. Schilling, M. A., & Johng, J. (2017). Honda insight: Development and launch of a hybrid electric vehicle. In New Horizons in Research on Sustainable Organisations (pp. 125-145). Routledge.
7. Wu, S., Wee, H. M., & Lee, S. B. (2016). Technical innovation vs. sustainability–A case study from the Taiwanese automobile industry. Transportation Research Part D: Transport and Environment, 48, 20-30.

Ryanair’s Alternative Strategies to Maintain Competitiveness

The alternative strategies that Ryanair should adopt to maintain competitiveness include the following.

Firstly, Ryanair should continue to adopt the ‘red ocean strategy’ where it steals customers from other markets segments or from other major airlines. It can do this by stealing customers from the business class segments of other airlines for its’ own airline’s leisure and business travel. If the company continues with the adoption of this strategy then it can prove that a differentiated marketing strategy is still vulnerable when it comes to competition (Morris, Schindehutte and Allen, 2005).

The number of air travel passengers keep on growing at an unpreceded pace and most of these are from a middle-low and middle-middle income groups who use these low-cost carriers like Ryanair for their travelling needs. Since its inception, Michael O’Leary has said that the no-frills services provided by the airline should reflect the culture of Ryanair and so both he and the staff was downright rude to the customers stating that those who travel on low fare and low-cost carriers can take the insults. However, in the service sector, the customer is the most important person and his or her satisfaction needs to be, guaranteed. Therefore, Ryanair needs to improve its customer relationship management by designing a better service system that can deliver air travel at a low cost, provide training facilities to staff on how to deal with customers and monitoring Ryanair’s target markets and their needs, wants and values. If the airline does this than it can respond accordingly, rather than just assuming that offering the lowest fares is the only alternative to beating its competitors. Therefore, Ryanair should implement a strong CRM policy to minimize this particular weakness and give it an edge over its other competitors (Hitt, Hoskisson and Ireland, 2011).

Ryanair has also experienced the after-effects of the rising fuel prices, staff turnover costs, personnel and equipment costs, which seem to have increased by more than twenty percent since last few years. However, Ryanair can still maintain its’ competitive edge due to its ‘flying slow’ policy which is a smart inimitable strategy for the airline. Here the airline boasts of using resources efficiently. Ryanair needs to take advantage of its economies of scale that occurs due to its’ high fleet turnover, increase of in-flight cabin crew and effective staff payment structures where the salaries and bonuses of staff depend on productivity levels and on the number of hours they remain in the air.

Another thing that Ryanair’s can to do maintain its competitiveness is to extend its’ airline’s presence on the social media and the internet. It can also focus on the business travelers to pass through the low seasons of little or no air traffic and improve their airline’s sales margin while at the same time consolidate the position of the airline in the new markets and develop itself so that it is able to cater to long-haul sector as well.

Conclusion

Here in the paper, we made an analysis of the viability and ability of Ryanair to overcome the economic and other obstacles and restraining forces that the airline faces to become one of the largest European low-cost carriers and/or budget airlines in the UK. The major concern for Ryanair was its low-cost strategy over differentiation however, the airline is still able to become a true budgeted European airline which offers all the basic and no-frills services to its customers including good quality and quick flights with zero delays and even with increased fuel surcharges. In the paper, we saw that it would also be beneficial for Ryanair, if it expands its markets through related and unrelated diversification and starts catering to leisure sectors and FMCGs. In short, this paper is also about the existing strategies in lace and what must Ryanair do in terms of its strategies so as to maintain a competitive edge and make sure that they are in alignment with the goals and objectives of the airline.

LEGO: Road to Success

The strategy and performance of LEGO® has seen many changes over the years it has been operating. This initially family-run business has gone through major fundamental changes which has allowed it to become one of the largest global toy manufacturers with high quality products and strong customer loyalty. Some key changes over time include changes of focus in strategic management, changes of top leadership figures, investments in LEGO® theme parks, advancement from physical products into digital gaming and movie franchises and the creation of strategic partnerships resulting in different product lines (Jensen 2013). As LEGO® went through several phases in its history, with a crisis period from 1999 to 2005, we aim at researching and clarifying why and how they reached the position they currently hold in the toy market.

A Short Company History

The LEGO® Group is a privately held company created in 1932 in Billund, Denmark, by Ole Kirk Christiansen. Their first products were wooden toys which were abandoned by Ole and his son Godtfred to focus on the introduction and development of plastic “Bricks”. Today LEGO® produce and sell a range of toys based on their main product “the Brick”, as well as video and online games. The LEGO® products focus on children’s creativity and problem-solving development, as well as introducing new playing and learning techniques. In 2016, Lego was the top ranked major toy company in the world, based on revenue, ahead of companies such as Mattel and Namco Bandai (Brand Finance 2017). The company’s products are sold in more than 130 countries and in 2017 LEGO® employed around 16,500 people globally (Buglione et al. 2013). The company, together with its subsidiaries, operates in Europe, the Americas, Africa, Asia and Australia (Statista 2017a). LEGO® and Merlin Entertainments own six LEGO® theme parks worldwide. The LEGO® Group continues to expand its global presence, eventually reaching children in every country of the world.

Financial Highlights of the LEGO Group from 1995 to 2018

LEGO® started as a small family business and achieved continuous financial growth from its inception in 1932 through the late 1990’s. From 1999 to 2005, the company was accumulating losses and came close to bankruptcy. Implementation of the strategies we will look at further resulted in LEGO® to reconsolidate its operations and not only become profitable again but at the same time to generate growth figures which resulted in it becoming the market leader in the global toy market in 2016. Today, LEGO® competes for its share of a total toy market of 89 billion U.S. dollars (Statista 2017b).

Strategic Leadership and LEGO®’s Strategic Drift in the Crisis Years

LEGO® is considered to have a transformational leadership style. This leadership style causes valuable and positive changes within the organisation and encourages employee involvement and innovation (Crawford 2005). The leadership style of LEGO® can be seen to change over the years from its initial family-run business to hiring people who are better equipped to the leadership roles needed for the business to keep progressing in an ever-changing digital world.

Strategic drift can be defined as a gradual deterioration of competitive action that results in the failure of an organisation to acknowledge and respond to changes in the business environment (Harris et al. 2009). The term strategic drift is used to describe a sense of cognitive sloth in the ability to meet the original objectives of an organization.

LEGO® went through strategic drifts over the course of many years. The suffered many fluctuations due to many categorical mistakes made from leadership styles to budgeting and changes to product development. When the crisis started in 2000, Kjeld, the last family member CEO, stepped down and an external COO was appointed (Jensen 2013). However, as the results did not improve significantly, Kjeld stepped back in, disrupting the plans instigated by the COO. At the end of 2004 however Kjeld removed himself again from the office and Jorgen Vig Knudstorp became the company’s CEO. Needless to say, that this chaotic change of leadership brought confusion not only inside the company but also to the then stagnant market. There was no clear focussed leadership. Jorgen understood this and acted in order to restore a viable management structure. When appointed, Jorgen Knudstorp went on a “discovery journey” in order to understand what exactly made LEGO® unique. He did this by visiting LEGO® retailers asking them about what was missing in the product and marketing mix. He knew that the understanding the psychology of learning by playing was crucial for the company; he went to M.I.T. for a reminder about how children learn. He also attended a Lego conference and liaised with the targeted adult fans. “They really inspired me to go back to the creative expression of the core product”, he says (McGregor 2017).

The drifts LEGO® experienced were also caused due to geographical scope and market presence with LEGO® being a mature provider in a stagnant industry that had to be re-vamped to attract new customer market segments. Compliance with local laws were also a strategic challenge to LEGO® as different laws regarding environmental issues and trading had different regulations. Maintaining high quality levels became a strategic drift, as when LEGO® outsourced its bricks to cheaper suppliers, the quality and level of production could not be maintained causing financial losses to the company (Jensen 2013).

The years 2000 to 2005 were very tumultuous for LEGO® and nearly brought the company to its knees.

LEGO – Strategy to Outperform the Competition and Solidify Its Market Position

LEGO® differentiates itself from the competition by designing and selling specialised sets and licensed with movies and firms such as Star Wars, Harry Potter, Toy Story, and more. LEGO® uses age-appropriate target marketing campaigns and has product lines specifically developed for boys, girls and adults; this includes the architecture studio set with over 1200 pieces and no instructions (Schultz and Hatch 2003). You can “Let your imagination guide your design” (LEGO Shop 2018). To evaluate LEGO®’s attractiveness as a company and assess its potential profitability LEGO® could use Porter’s 5 forces analysis. These 5 forces define the competitive environment and can erode the company’s profitability. Our analysis for LEGO® in its current state is shown below. Porter’s 5 forces analysis.

Threat of New Entrants

The LEGO® company was founded in 1932 and has been in operation for 87 years. It has a strong brand loyalty built over many years and is a known and family-trusted global toy industry. In 2018, LEGO® was one of the top ten most reputable companies in the world (Valet 2018).

Threat from new entrants to LEGO® is very low as toy production is a seasonal operation and a risky investment to get involved in. The technological base needed to produce high quality “Bricks” like the LEGO® ones can only be built at high cost and will need a long time to be optimised. In order for new entrants to be a threat they would have to create new innovative toys and strategies to displace LEGO®’s consumers. Threat of new entrants may come in the form of online-multiplayer digital games as LEGO®’s project ‘LEGO® Universe’ was unsuccessful with several postponements and lack of popularity amongst younger users (Schultz and Hatch 2003). However, LEGO® was successful with video games such as LEGO Star Wars and other movie franchises. This investment by LEGO® into the digital scene has increased the barriers of entry to new potential entrants wanting to move into this area allowing LEGO® keep better control over its place in the industry.

Rivalry Among Existing Competitors

LEGO® has a limited number of competitors, these include, Mattel, Hasbro, Playmobil, K’NEX, Cobi and others. Out of these, the largest competitor is the cooperation between Mattel and Mega Brands. Mattel and Mega Brands have formed a partnership to create a new set of toys called Mega Bloks, directly rivalling LEGO®’s toy designs and market segments (MEGA Brands Inc. 2012). They announced a multi-year global licensing partnership to develop construction toys based on the most iconic children’s brands Barbie and Hot Wheels (Mega Brands and Mattel 2012). Each of these products are fully customizable through the use of extra addition pieces. Although LEGO® has these competitors, it has not swayed the consumer loyalty it already has. This is because LEGO®’s construction toys are of extremely high quality, creative and educational to children, safe to use and sturdy in design. The partnership moves into electronic sectors such as Sega and Nintendo has allowed LEGO® to expand beyond just physical toy production and into wider areas increasing the barriers to entry from its competitors who may only focus on the non-digital sector of toy production (Milne 2015). The oligopolistic nature of the toy industry reveals that only a small number of producers are in it which reduces the chances of competitors being able to compete directly with LEGO® (Consortium 2013).

Bargaining Power of Suppliers

When LEGO® outsourced production of its bricks, market feedback, flexibility and fast adjustments in the supply chain were lost as the external sourcing partners could not cope with supply demands (Jensen 2013). This made them reconsider their strategy and approach to suppliers. As there are many potential suppliers, the suppliers have a low bargaining power. The materials for the production of the LEGO® bricks are fairly common and cheap. LEGO® ensures that the prices it gives suppliers matches the quality of the product the supplier has produced; this keeps initiative high to keep standards high and promotes strong business links. In general, LEGO® uses its high power of their brand to keep the bargaining power of their suppliers in check. However, the bargaining power of suppliers increases in the digital sector. This is because LEGO® outsources its investment ideas in the technology department by creating partnerships with these suppliers. They must cooperate with these companies and find compromises to any issues that may arise and abide to the contracts made with these companies. They are sharing knowledge work and any breach of contract or leak of intellectual property or information would cause major backlash to the LEGO® corporation.

Bargaining Power of Buyers

The bargaining power of buyers is considered relatively high for LEGO®. This is because consumer habits, markets and segments were changing over the years and technological innovation and continuous flow of new products was needed to keep consumers happy. LEGO® have tailored its products to its customers wants and ideas which has led to a better relationship between the organisation and the buyers. They also try to maintain reasonable prices for its goods and have yearly offers and promotions allowing families of all backgrounds enjoy the experience LEGO® toys have to offer (Schultz and Hatch 2003). This shows that the bargaining power of consumers is high as it influences LEGO®’s decisions in terms of price, availability and new product designs. The bargaining power also directly affects the profits made by LEGO®, so by adjusting to some of the needs outlined by consumers they can continue to make high profit margin levels and expand their consumer base.

Threat of Substitute Products or Services

Accumulated knowledge about plastics and production technologies has made it difficult for imitators to replicate the LEGO® Brick. Direct imitation and compatible bricks are therefore more of a threat to the brand, rather than direct sales threats (BBC News 2018). However, there is a high threat of substitutes as LEGO®’s patents and copyrights were unsuccessful to repel competitors in court (Eaton 2016). The high-quality products they produce minimises the likelihood of consumers not buying their products – reducing the loss of profits. Some substitutes to LEGO® may be on-line gaming, sports, hobbies and school for children making this a threat to the products and services supplied by LEGO®. However, one may argue that LEGO®’s products allow creative expansion and physical, visual and analytical education in design and engineering aspects. Most parents prefer their children to develop abilities through play, and as children may learn at a young age through using Lego blocks to approach tasks from a more analytical angle whilst become better thinkers, the parents will keep a close loyalty to the LEGO® brand.

This analysis shows that LEGO® has a unique position in the toy market. It does not have to worry too much about new entrants and its direct competitors are limited. Supply of primary materials is well controlled, while partnering with their customers has solidified LEGO®’s position and justified their premium price point. Substitute products are a possible threat but LEGO® has acknowledged this and build partnerships to adapt to the substitute markets demands.

LEGO – Internal Strategy Analysis and SWOT

The SWOT Analysis allows LEGO® to develop four types of internal strategies: SO (Strengths-Opportunities) strategies; WO (Weaknesses-Opportunities) strategies; ST (Strengths-Threats) strategies, WT (Weaknesses-Threats) strategies. The following matrix is a compact representation of the results from literature (Buglione et al. 2012)(LEGO 2017a)(Milne 2017)(BBC News 2018)(Helms and Nixon 2010).

Strenghts Weaknesses

• Strong brand name and recognition;
• No longer patent protected;
• Advanced technological knowledge;
• Small target group;
• Investments in capacity expansion;
• Digital developments: strong growth drivers;
• Single product: the “Brick”;
• Negative impact of operations on the environment;
• Massive market;
• Seasonal demand for the product;
• Licensing deals in other media;
• Premium price point compared to other producers;
• Efficient marketing;
• Large corporate structure;
• Brick 69 years in the market;
• Strong financials with sustainable growth.

Opportunities Treats

• Market expansion in emerging markets;
• Target group expansion;
• Existing and new competitors;
• Counterfeits and cheap imitations;
• Creativity tool expansion;
• Restricted product range;
• Legoland parks and Lego House;
• Increase in input prices;
• Streamline production process;
• Population decrease in some areas;
• Optimise distribution;
• Effects of a weak economy;
• Image tarnished due to patent fights with Tyco.

Based on the SWOT matrix, internal strategic plans can be developed by focussing on answering below questions. I do not expand on this topic due to word count limitation, but LEGO apparently successfully defined and implemented these strategies allowing it to come out of the crisis stronger and more streamlined as it had ever been before.

LEGO® – Strategy for Future Growth

Having faced many changes, LEGO® finally becoming profitable again in 2005. The mistake made by the company was the fact that it tried to grow by introducing product lines that LEGO® had no experience with. The major change made by Jorgen Vig Knudstorp as CEO was to refocus LEGO® onto its core business the “Brick”. Jorgen made major cost cutting decisions aimed at reducing the company’s debt and consolidate its financial position. In parallel he adopted a strategy in marketing and sales of partnering with the world’s largest retailers and including these retailers in LEGO®’s product planning; Jorgen used the myriad of intellectual marketing data he obtained from his retailers to steer LEGO® through the stormy waters of the Toy Industry expand (Hunt 2017). Refocussing on some prime directives also meant to restore the image of quality and durability of the core product while being innovative in order to align itself with the changes in the playing habits of their customers (O’Connell 2009).

Increasing market share was achieved by accepting the differences in their customers between genders, geographical locations and local cultures. Using ethnographic research allowed LEGO to develop gender specific toys for girls, a market niche they had neglected before (De Castella 2014).

Having restored a strong financial position, the marketing strategy is paying off for LEGO® as it was able to increase its market share in their existing markets while expanding in emerging markets such as China, South Amerika and Asia.

LEGO achieved their goal and became one of the world’s largest toy company because it understood that rather than fighting their competitors using a diversity of different toys to be the biggest, it needed to focus on one toy, the ”Brick” and produce a variety of different flavours by partnering with major forces in the multi-media industry and “be the best”, not the biggest (McGregor 2016).