Firm Performance and Competitive Advantage

"The ultimate objective the the strategic management process is to enable a firm to choose and implement a strategy that generates a competitive advantage. But what is a competitive advantage?"

Simply speaking, in order to create a competitive advantage, a company add more economic value than its competitors. Not only do companies have to create a competitive advantage(i.e. higher economic value added), but this advantage must be lasting. This second point of sustainability is vital for a company to hold a dominant position. By constantly adding economic value and maintaining higher levels of profitability, a company then has room to continue developing new products and pursuing innovation.

To actually measure the economic value of any company's products, there are accounting methods that can assist in the analysis of performance. However, there are limitations that leave these accounting findings somewhat subjective, so managerial judgment is important in determining the relative validity of the accounting methods used for a particular company.

Finally, the competitive edge a company pursues is of the most concern to the parties who provide funding and resources for the firm to operate. These parties are the stakeholders of the company, and they may be individual investors or institutional investors. They receive residual benefits the company produces by the economic value added to the company. A company should strive first and foremost to satisfy the interest of the stakeholders because they are the owners of the company.

A Competitive Approach

As I am introducing myself to the basic ideas that will be covered in this, one idea seems to jump out at me as an underlying theme for this course: competition. When I say competition, I mean a certain gamesmanship that exist among different competing companies in any given industry. The opening example in Chapter One uses blackjack as an illustration of how we use certain strategic principles to optimize our results. The idea of business as a "game" is a very valid way of presenting the reality of the marketplace. In today's global economy, it is paramount that each player in the marketplace, if they wish to sustain a competitive advantage, develop a successful strategy to survive and prosper in the industry. Like any game of cards, it is impossible to have complete information about the present and it is impossible to predict the future. It is the companies who do the best job of utilizing all available resources to the best of their ability who are prime to find the highest level of success in business.

Welcome

I want to welcome all viewers to this unique, short-term forum for various postings on strategic management. I look forward to sharing my ideas as they relate to strategic management in the the commercial marketplace. As I explore the concepts related to this topic, I will simultaneously provide ideas and insights I glean along the way. Let's have a fun and enlightening few months.