Let's visit the observation by Michael Porter on the forces that shape industry competition, something that has been extensively used to develop competitive strategies. Porter argues that competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry¹.

Based on the model, being competitive requires more than just doing something different from existing or new competitors. Its also includes having an efficient production process through collaboration with suppliers and meeting the needs and wants of the customers, which keep changing due to change in taste, appetite, new alternative or substitute products or services and new delivery and distribution channels.

If an enterprise fails to differentiate, the pressure to reduce price would be so great that eventually margins would be very thin across the industry making it less viably for most enterprises. This is what W. Chan Kim and Renee Mauborgne term as the Red Ocean in their book Blue Ocean Strategy as enterprises as killing each other in maintaining profits and share of the market.

Kim and Mauborgne however argue that an enterprise could break away from competition and remain in its own Blue Ocean by focusing on specific competitive elements and be great about those elements. This would include offering value propositions that are not offered by others but at a price which makes entry of competitors very challenging. To break into the blue ocean, enterprises have to go beyond competing in six traditional boundaries into competing across the boundaries.

 

For enterprises to go beyond the traditional boundaries, innovation is definitely a critical element that has to be practiced to ensure opportunities are identified and captured before others make the first move. Innovation could be at various stages of the supply chain from inputs, processes, distribution leading towards clear targeted value propositions of the final products or services for the intended markets. It would require encouragement from the leadership who would determine how far innovation is practiced as this would include change in certain values and culture of the enterprises as well as making available the required innovation infrastructures.

The strategic direction which determines the value proposition and competitive elements which enterprises would be pursuing has to be decided by those who are playing the leadership roles in enterprises with the full support and input from the rest of their management team. Furthermore, the risks of not achieving the strategic objectives would be determined on how well the strategies are executed. This would require the support from the key people within and outside of the enterprises who are deemed critical in strategy execution. Business processes and enabling platform such as technology, protocols and information platform have to be made available. More importantly, values which act as guiding light for everyone that are involved should also be aligned with the requirements which would make strategy execution possible.

One interesting observation is that enterprises need to be excellent in all competitive elements that they have to meet in delivering value to customers. What is important is to decide which are the ones which will offers higher or even different value to customers relative to others. The strategy map below indicates the observation:

 

Based on the two views on competition and competitiveness, there are a number of observations that we could deduce the following learning points:

• The role of the leaders of enterprises is important in setting the strategic direction which indicates the market segment and value proposition they are offering and for developing the culture of innovation;
• Business models which suit and support the strategy need to be developed, supported by business structure which will enable the business models to be operationalised; and
• Competitiveness is attained through effective execution of business plans, planning alone is not sufficient. This required building capacity and capabilities across the board based on the business models adopted including human capital, business process, enabling platforms and values which are shared across the enterprises.

In conclusion, competitiveness is about being great to customers in areas which have been determined by enterprises and would position them ahead of competitors. Whether the strategies and value propositions would enable enterprises to find their Blue Oceans would depends on the leadership, strategies and level of innovation applied by them.

So, its not just about being the cheapest in town!

1 The Five Competitive Forces That Shape Strategy - Michael E. Porter, Harvard Business Review