While the five causes model can be used to judge the external research, Porter's Universal Strategies are used to discuss the way the lenders should position themselves in the banking industry to sustain or improve their competitive advantages.
Porter's frameworks are picked because he is one of the most important strategists. His frameworks received more research attention than other frameworks and are also extensively employed by many popular scholars (Kim & Lim, 1988) in the original brick-and-mortal business environment.
The e-business environment is completely different from the traditional brick-and-mortal business environment. Many frameworks that work in the original business environment might not be applied to the internet era. The universal strategies were tested and proved to be suitable to e-business even though some modifications were recommended to make them more desirable to the internet era (Stimpert 2004). One good thing about the common strategies is that these strategies aren't company or industry dependent.
If the appeal of a business is a main factor that establishes a company's success where it operates, the next important factor is probable the company's placement within that industry. Porter's common strategies are generally used for businesses to position their companies in the marketplace to keep their competitive benefit.
The generic strategies have three schemes. They are really about the selection of cost minimisation strategies, product differentiation strategies, or concentrate strategies on the market. The selected design will provide as a path for the management team to follow such as recruitment insurance policy, remuneration, training, management style etc.
Companies concentrate on the extensive market through lower costs. The cost authority strategy can appeal to customers who are price delicate.
Companies differentiate themselves from others by offering specialised products and/or services to a wide marketplace. The differentiation strategy can be built on things like product design and features, brand electric power, superior service etc, assumed that they are difficult for competition to imitate. Research studies suggest that brand is a far more important consideration compare with price when the products or services are related to banking or security opportunities. (Stimpert 2004)
Companies target a specific market by pursuing lowest cost or delivering differentiated products or services.
Cost Control Strategy
Cost Concentrate Strategy
Differentiation Emphasis Strategy
Source: Porter (1985)
In order to keep the cost down, products or services need to be standardised with reduced distinctive features. On the other hand, differentiation will depend on offering specialised features so as to achieve high grade price. Clearly the cost authority strategy contradicts the differentiation strategy. Therefore, Porter feels that companies must choose only 1 scheme they want to position themselves in the industry or they'll wrap up 'stuck in the midsection'. However, Kim (2004) argued that "integrated strategies that combine elements of cost control and differentiation will outperform cost control or differentiation strategies". Kim asserted that the built in strategy was particular well suited for e-business businesses. Stimpert, J. L. (2004) also supports the approach of integrated strategies and he represents it as "Hybrid Strategies".
The five pushes and the common strategies can be firmly related to one another as illustrated in the amount below. If the five pushes change, an organization must review its position to keep up its competitive benefit.
Ability to cut price in retaliation deters potential entrants.
Customer loyalty can discourage potential entrants.
Focusing develops key competencies that can act as an entry barrier.
Ability to provide lower price to powerful buyers.
Large purchasers have less capacity to work out because of few close alternatives.
Large buyers have less power to negotiate because of few alternatives.
Better covered from powerful suppliers.
Better in a position to pass on company price increases to customers.
Suppliers have vitality because of low amounts, but a differentiation-focused organization is better capable of pass on supplier price increases.
Can use good deal to guard against substitutes.
Customer's become attached to differentiating attributes, reducing risk of substitutes.
Specialized products & key competency protect against substitutes.
Better in a position to be competitive on price.
Brand loyalty to keep customers from rivals.
Rivals cannot meet differentiation-focused customer needs.
(http://www. quickmba. com/strategy/generic. shtml, 1 August 2010 )
As technology such as internet continue to cause disruptive innovation changes, some scholars like Davenport (2006) believe that traditional approaches to strategy and tactical management is inadequate to appeal to those quick changes in the innovation economy. Consequently a more dynamic, impressive and holistic approach is necessary. Davenport proposed a new strategic management methodology (SL: site 168) and defined it as "Poised Technique to manage multiple business models for sustaining and disruptive value innovation in collaborative business systems". His approach needs another step beyond the integrated strategies or the hybrid strategies.
Davenport's explanation has four elements: Poised Strategy, Multiple Business Models, Sustaining and disruptive value advancement, and Collaborative business systems.
As the original strategies only concentrate on either planning, managing, positioning, or reference leveraging are insufficient because such way is insufficient dynamic, the use of multi-option strategy is necessary. Therefore, it implies the necessity to the creation of the "poised organisation". Davenport mentioned that "Poised strategy consists of the capability of your enterprise to continuously rejuvenate itself with value technology from multiple business models. "
As a company's resources are limited, network with others enhances the ability of enterprises to continue to keep their competitive advantage and survive. (SL: p. 179) Davenport (2006) expresses that "The poised strategy approach proposes that a company be viewed not as an associate of an individual industry, but as part of a business ecosystem that crosses a number of industries, that is certainly open to multidimensional knowledge impacts and affects. " This is where the collaborative business network comes in.
A collaborative business network is actually a small business ecosystem. The idea of business ecosystem was comes from James Moore in 1993. His meaning of business ecosystem is:
"An monetary community recognized by a groundwork of interacting organizations and people - the organisms of the business world. This monetary community produces goods and services of value to customer, who themselves are customers of the ecosystem. The member organisms likewise incorporate suppliers, lead suppliers, competitors and other stakeholders. As time passes, they coevolve their features and assignments, and tend to align themselves with the directions set by a number of central companies. Those companies possessing leadership roles may change as time passes, however the function of ecosystem leader is respected by the community because it allows members to go toward distributed visions to align their assets also to find mutually supportive functions. "
(SL: Source from http://www. worldlingo. com/ma/enwiki/en/Business_ecosystem, but like getting it from Moore's booklet)
The business ecosystem can create better products or services because the collective work from associates in the network can explore more ideas and become more creative than any sole company can do. The business ecosystem theory has a resemblance to Porter's Value String model in the networking companies such as suppliers and clients principle. However, the flow from the suppliers to the consumers in the worthiness String model is linear and is also well suited for static or steady environment. The business enterprise ecosystem is a newer concept designed for fast changing environment. Members in the network may require multiple business working together to deliver value to the customers. All stakeholders including consumers work collaborative to co-evolve so the inputs can come from any people in the network concurrently. In fact, consumers have a very important role in the business ecosystem because only consumers really know what they want (eg. Fragidis et al. 2010, Davenport 2006). Therefore customer contribution is critical in creating the products or services (Fragidis 2010) and therefore a good business strategy should be consumer-oriented.
(Source: http://www. marketingteacher. com/lesson-store/lesson-value-chain. html)
The physique above illustrates Moore's Business Ecosystem
(http://www. provenmodels. com/574/business-ecosystem/james-f. -moore/)
As for the financial service including the bank industry, to have the ability to provide increased and specialised customer needs is particular important. The role of technology cannot be ignored. Internet may be able to improve efficiency and reduce costs. The implementation of Blogging platforms 2. 0 can be used to support customer involvement and co-creation. The later release of Web 3. 0 and Semantic Web also added the capacity to empower consumers to take part in value-adding activities as well as composing personal solutions through the facilitation of sensible realtors (Fragidis et al. 2010). Therefore internet is an excellent enabler to support customer-oriented strategy successfully and at an extremely low cost. In other words, there is no reason an enterprise cannot implement multiple strategies such as low cost strategy and differentiation strategy together by having a customer-centric business ecosystem.