Strategic Management and Competitive Advantage

Strategic Management
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Strategic Management Part A: Strategic Management             Strategy refers to the theoretical approach based on a set of assumptions and hypotheses taken by a firm to determine the likelihood of changes in competition in the market to gain a competitive advantage over other industry players (Barney, 2019). However, gaining a competitive advantage is dependent on how the assumptions and hypotheses embraced by a firm in developing its strategies are consistent with the existing changes in competition within the industry. Developing such strategies often involves a process or a series of activities and decisions for increasing the likelihood of gaining competitive advantages. The process may involve activities such as defining the firm’s mission, determining its objectives, external and internal analysis of the organization’s business environment, strategic choices, and implementation of the strategy to gain a competitive advantage (Barney, 2019). The outlined series of activities refers to the concept of the strategic management process.             Competitive advantage, on the other hand, refers to a firm’s ability to create more economic value than its competitors or rivals in the market (Barney, 2019). The economic value is determined by the difference in the consumers’ willingness to pay for the products or services and the total economic costs of production and selling of the same between competing firms in the market. There are two key ways of estimating a firm’s competitive advantage, economic and accounting performances (David, 2015). The economic performance approach entails comparing the amount of a firm’s return with its cost of capital or the rate of return promised to investors by the firm (Barney, 2019). On the other hand, the accounting approach of estimating a firm’s competitive advantage uses different ratios calculated from its profit and loss and balance sheet statements based on the set standards and principles of accounting (Barney, 2019).             It suffices, therefore, that a firm’s strategy plays a significant role in determining competitiveness in the market. Understanding a firm’s strategy is equally crucial as it influences potential recruits in the job market in selecting preferred working destinations, and shaping and planning their career development upon joining the workforce. The concept of strategic management also equips one with the valuable inputs needed for developing strategies and strategic management processes in small and medium-sized enterprises. Part B: External Analysis             External analysis refers to the process of studying a firm’s competitive environment to identify the crucial threats and opportunities within its industry of operation while also determining the effects of changes in competition within the environment on the firm’s identified threats and opportunities  (Barney, 2019). Hence, a firm’s competitive environment consists of two levels; environmental threat and environmental opportunities.             The environmental threat consists of all the factors outside the organization that may reduce or negatively affect the firm’s performance (Barney, 2019). Such factors serve to increase the industry’s competitiveness and thus force the firm to generate the same economic value as other players in the industry (Barney, 2019). In essence, factors within the environmental threat level tend to force a firm’s performance to a competitive parity level by increasing the industry’s competitiveness (Barney, 2019). Environmental threats may include competition from existing firms in the industry, entry of new players or competitors in the market, supplier leverage, the introduction of superior or low-cost substitutes in the market, and buyers’ or customers’ influence (Barney, 2019). Environmental opportunity makes for another level of a firm’s competitive environment, which allows the firm to identify both its generic industry structures and the available strategic opportunities across diverse types of in...