Each company must have a certain
strategic capability of survival and success in a competitive business
environment. The strategic capabilities that a company needs over a period of
time are determined by the threats and potential of the legalistic forces and
the future business environment. If there is a balance between strategy and
strategic performance, the organization's performance will be optimized for a
particular business environment (Ulrich,1991).
The business strategy has become identical
with seeking competitive advantages, while the concept of competitive
advantages is surprisingly confusing (Rothaermel,2016). The fundamental task of
strategic management is to build and maintain the competitive advantages of
businesses that will enable us to achieve a higher than average business
result. The development of competitive advantage is equal to the success
achieved by a particular organization. Despite ongoing discussions, the concept
of competitive advantage is generally accepted in the area of governance and
plays an undeniable role in the theory and practice of strategic management.
The company's profits are the
result of its competitive advantages. As a result, successful investment
managers emphasize that the company's competitive advantages give it the
opportunity to defend and increase profits. The perception of the inability to
defend and increase profits would have prevented sharp investors from
investing. Competitive interests are grouped together either as a business or
as a consumer (Lash,2007). There are, however, countless types in each group,
and it is therefore clear that the competitive advantages must be unique to
each company.
Change should be seen as an
evolution towards another environmental balance of the company, rather than on
the basis of a dramatic difference between the two business environments. The
new business environment may require a completely different scientific and
technological base, a completely different production system, and often a
different distribution and marketing system. As a result, the transition to the
business environment requires a new balance between strategy and strategic
capability.
There are strategic capabilities
such as financial stability and market share etc. of the companies which have
value stock. The stock values have been decreased because of the bad perspective
of general public or company is being done unethical manner (Gutiérrez,2014). As described above shifting to another
business environment could be great answer for increase the value of stock
through capturing more strategic capabilities.
The following is an example for
usage of strategic capability and competitive advantage for better outcome. Warren
Buffett used capital to acquire control of Berkshire Cotton Manufacturing, an
established but struggling textile company. The company merged with Hathaway
Manufacturing and bought shares in two insurance companies. The company's name
was Berkshire Hathaway. Insurance companies were returned a stable cash flow
that has been invested in stocks and bonds to make funds available for the
payment of claims. The company's equity portfolio was $7.2 million, so Buffett
took over and within two years, the portfolio has increased to 42 million
euros, and the profits of the insurance company are much higher than those of
the company's textile sector.
But transformation could be
dangerous when company gone for another owner who has unique processes and
strategies rather than existing processes and it could be a fail of strategic
capabilities because of the struggles of employees to adopt to the change. According
to the approach of Warren Buffet, think as the owner of the company not as an
investor before buy it and work with management. It is a great manner to
identify current strategic capabilities and enhance them by identifying
organizational environment accurately without putting cost or effort for change
and without gone for huge strategic plans.
In the 1970s, Berkshire bought
three other insurance companies and launched five more. Buffett closes the
company's textile and transforms Berkshire Hathaway into a portfolio company.
Berkshire has a number of other companies that produce good returns on equity
without debt. In 1993, the Berkshire-Hathaway insurance company posted sales of
2.0 billion euros and gained 176 million euros after tax, or about 37 percent
of its operating profits. In this case company well established brand name is
the competitive advantage and it has been used to enter for new industry using
strategic capabilities within the company and within the advantage of value
investment strategy. After becoming success in insurance, it has been developed
its strategic capabilities to enhance competitive advantages.
References
Bloch, A.M., Leonard, N.E. and Marsden,
J.E., 1999, December. Potential shaping and the method of controlled
Lagrangians. In Proceedings of the 38th IEEE Conference on Decision and Control
(Cat. No. 99CH36304) (Vol. 2, pp. 1652-1657). IEEE.
Lash, J. and Wellington, F., 2007.
Competitive advantage on a warming planet.
Ulrich, D. and Lake, D., 1991.
Organizational capability: Creating competitive advantage. Academy of Management
Perspectives, 5(1), pp.77-92.
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