What is Competitive Advantage?
Discuss about the SWOT Analysis Of Competitive Advantage.
Competitive advantage refers to the ability that is gained through the available resources and attributes in order to perform at a better and higher level than the rest others, belonging in the same market environment. Near about every organization has to face stiff challenges and threats from their business rivals in every market in the current era. Hence, competitive strategy is very important, as it helps the companies to ensure that they are accessing returns for a much longer period of time. The main aim of this paper is to focus on the describing and explaining the three tools- SWOT, PESTLE and Porter’s five forces. It shall elaborate on how these tools helps in gaining competitive advantage for a firm and how they are used by different companies.
For every business, it is very important to know its surrounding environment from both the external and internal point of view. Hence, evaluating the environmental opportunities in context to the strengths as well as weaknesses of the resources of the organization and in context to the culture of the organization is also important. SWOT analysis is a very useful process that is used to understand and evaluate all type of situations present in the business and the organizations. It is an acronym for STRENGTHS, WEAKNESSES, OPPORTUNITIES, and THREATS. It is basically used for business planning, competitor evaluation, strategic planning, marketing, outsourcing a service or resource, evaluating investment opportunity, evaluating method of sales distribution, product development, and research reports etc (Ben-Daya et al., 2013). It is one of the most effective tools present for analyzing the environmental information and data- for internal (Strength, weakness) as well as external (opportunities and threats) factors. SWOT analysis helps to maximize the strengths of a business by minimizing the affect of the weaknesses on the business planning (Aithal 2016). It helps a company to achieve a clear insight into the pasts and thinking out for a possible solution to the potential problem that is prevailing in the business. The strengths determine the strong points of the organization. It comprises of all the tangible as well as intangible attributes that are internal to a company. It should be from both the internal as well as external perspectives and customers. Strengths are a typical competence when it provides a company a comparative advantage in the market. Analysis of the weaknesses gives the company a clear view of on which areas the business need to improve itself. It should include the opinion of the customers as well as of the other market players. With the same, the opportunity is always considered to be a major situation in the environment of a firm as it represents a reason for it to exist and grow further (Naccarella et al. 2018). Usually the useful opportunities for a business come from changes in the policies of government in relation to the field, changes in the regulatory and competitive circumstances etc. Lastly, threats are one of the two external factors of SWOT analysis on which the organization does not have any control. Threats have to be faced by each and every company. The slow growth of market, entrance of the new competitors, changes in technologies and the increase in the bargaining power of the suppliers and buyers falls under that threat factors.
The Three Key Tools for Analyzing Competitive Advantage
Secondly, PESTLE analysis is also a very useful method used in identifying particularly the external factors that may have an influence on the organization. The term PESTLE is an acronym of the domain it considers- POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, ENVIRONMENTAL and LEGAL. It especially focuses on identifying the trends that would be affecting the organization over a long period of time. It is also very important in order to make better decisions by knowing the opportunities, and risks present on the horizon for the business. PESTLE analysis involves a company considering these external environment before starting a new project. The political factors have the tendency to get altered by the influence of the government on an infrastructure of a country. It may include employment laws, tax policy, trade restrictions, reform, environmental regulations, tariffs and political stability. The economic factors on the other hand comprises of the economic growth, rate of interest, inflations, rate of exchange, wage rates, cost of living and working hours. All these factors have a great impact on the overall operation of a company and in decision making process. The social factors comprise of the consciousness of the customers or the buyers regarding their health and safety, rate of population growth and the various demographics (Kolios and Read 2013).. The technological factors include the various environmental and ecological aspects as well as the available products and services of the company. There might be a need for the company to innovate by taking into consideration the compatibility with their own technologies. The technological factors helps the company take this into consideration. Furthermore, the legal factors are the factors that include the changes in laws that may have an influence on the company’s operation. It includes criminal and terrorist legislation, NGO regulation etc (Zalengera et al. 2014). The legal factors differ from country to country as different country has different laws and government policies. Lastly, the environmental factors help the company getting aware of the change in climate or any type of seasonal variations that may affect its product and service delivery processes.
Porter’s five forces is also a very important toll used for analyzing the competition of a particular firm. The five forces comprises of the- THREATS OF NEW ENTRANTS, THREATS OF THE SUBTITUTTES, BARGAINING POWER OF THE CUSTOMERS, BARGAINING POWER OF THE SUPPLIERS, INDUSTRY RIVALRY and THREATS OF SUBSTITUTES (Yunna and Yisheng 2014). These are the key elements of the porter’s five forces. The threats of new entrants depend on the barriers in order to entry and they are capital requirements, differentiation, and economies of scale, access to distribution, laws and channels. When a new product meets the need of the customers in different ways, the profitability of the industry suffers a lot and so is in the case of these companies as well (Rajasekar and Al Raee 2013). The assessment of the threats of substitutes products helps the firm to minimize this either by reducing the cost or by differentiate. Threats of the bargaining power of the suppliers could have the potential to squeeze the profits by raising the product prices and by reducing the quality. On the other hand, the bargaining power of the buyers also has a severe impact on the overall business operation. Buyers have the tendency to buy the best things within a minimum price (Ho 2014). Furthermore, the powerful suppliers use their power of negotiating in order to extract from the company. Lastly, if the rivalry among the players in the industries is very intense, it will drive down the prices and shall decrease the overall industry profitability.
Hence, to conclude, three of these tools help every company in great terms. Condidering the SWOT analysis, it helps the companies to focus on the critical factors and to discount the less important ones. It focuses on both the internal and external environment. PESTLE on the other hand only focuses on the analysis of the external environment. With the same, by assessing the porter’s five forces the companies; gain a complete insight of their organizational profitability. Furthermore, it is also to be noted from the above discussion that the macro environmental factors can also influence the companies directly by affecting the competitive landscape and the shaped strategy.
References:
Aithal, P.S., 2016. Study on ABCD analysis technique for business models, business strategies, operating concepts & business systems. Browser Download This Paper.
Ben-Daya, M., Hassini, E., Hariga, M. and AlDurgam, M.M., 2013. Consignment and vendor managed inventory in single-vendor multiple buyers supply chains. International Journal of Production Research, 51(5), pp.1347-1365.
Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), pp.6478-6492.
Kolios, A. and Read, G., 2013. A political, economic, social, technology, legal and environmental (PESTLE) approach for risk identification of the tidal industry in the United Kingdom. Energies, 6(10), pp.5023-5045.
Naccarella, L., Newton, C., Pert, A., Seemann, K., Williams, R., Sellick, K. and Dow, B., 2018. Workplace design for the Australian residential aged care workforce. Australasian journal on ageing.
Rajasekar, J. and Al Raee, M., 2013. An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter’s competitive strategy model. Competitiveness Review: An International Business Journal, 23(3), pp.234-259.
Yunna, W. and Yisheng, Y., 2014. The competition situation analysis of shale gas industry in China: Applying Porter’s five forces and scenario model. Renewable and Sustainable Energy Reviews, 40, pp.798-805.
Zalengera, C., Blanchard, R.E., Eames, P.C., Juma, A.M., Chitawo, M.L. and Gondwe, K.T., 2014. Overview of the Malawi energy situation and A PESTLE analysis for sustainable development of renewable energy. Renewable and Sustainable Energy Reviews, 38, pp.335-347.
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