Strategic Finance and Competitive Advantage

Strategic Finance and Competitive Advantage

Globalization has led to increased competition. Artificial boundaries now not stop competitors from entering markets and even dominating them. this is often the explanation that having a definite and clear competitive advantage has become important for many organizations. However, plenty of companies don't have this competitive advantage. this is often because competitive advantages don't uprise overnight. Competitive advantage is that the cumulative results of years of decision-making.

There are various forms of competitive advantages possible. Different companies across the planet have used different strategies so as to create a competitive advantage which has allowed them to dominate the marketplace. during this article, we are going to have a more in-depth take a look at the highest four sources of competitive advantage and explain how they're linked to strategic financial decisions.

Strategy #1: Reputation: 

There are many products within the world that became commoditized. this suggests that from a seller’s point of view, there's little or no which will be done to tell apart the merchandise from the competition. In such cases, companies use the reputation strategy to make a competitive advantage. The Coca-Cola Company may be a case in point, which explains this strategy. There are many colas within the market and there's little or no to settle on from between the various sorts of colas. Coca-Cola realized too soon, that they may not compete on the idea of the merchandise alone. this can be the rationale that they decided to create a larger-than-life reputation.

Coca-Cola literally invented the sphere of brand name management. They came up with the thought that advertisements mustn't be considered an expense. Instead, it should be considered to be an investment that reinforces the brand image of the corporate. it's important to know, that Coca-Cola’s reputation wasn't built overnight. In fact, it might be impossible to create overnight, regardless of what quantity money is spent on marketing. The positive brand image which Coca-Cola enjoys is that the results of decades of investments made towards the identical goals. this suggests that the Coca-Cola Company we see living today is that the results of sustained investments made using the principles of strategic finance. Coca-Cola Company isn't the sole one to use this strategy. There are premium companies in almost every market that have tried to emulate this strategy to some extent.

Strategy #2: Innovation:

Rather like some companies target investing money in advertisements, there are other companies that concentrate on investing in research and development. These companies specialise in delighting their consumers by providing the foremost technologically advanced products within the market. Now, if these companies should be technologically prior their competitors, then it's important that they spend large sums of cash on research and development. Apple Corporation is an example of an organization that follows this strategy.

For years, Apple has been prior the market in providing products that are intuitive and easy to use but advanced at the identical time. This too has not happened overnight unintentionally. the choice to form Apple a technological leader was made by finance executives following the principles of strategic finance. Then, over the years, they allocated large sums of cash towards research and development. Finally, this money was accustomed develop the iPod, iPhone, and iPad which made Apple a world leader.

Strategy # 3: Architecture: 

There are other companies that build the architecture of their companies in such how that it provides them with a competitive advantage. The architecture is usually enabled by rapid advances in information technology. for instance, before Dell computers, companies would make and stock laptops. they'd then be distributed within the market and sold using the push method. Michael Dell revolutionized the industry when he started selling laptops that were made to order. This meant that the order was received first and so using the advances in information technology, components were assembled at warp speed and also the laptop was delivered within some days. Once again, the capabilities which provided a competitive advantage were clearly identified by Dell Corporation, and money was allocated towards enhancing these capabilities. The finances of the corporate were strategically directed so on increase its competitive capabilities of the corporate.

Strategy # 4: Intellectual Assets: 

Intellectual assets encourage be another source of competitive advantage. Companies that depend on intellectual assets often depend on highly capable employees to file for patents. They then use the superior technology that they need so as to develop better products themselves. Sometimes, they will even license the employment of those patents to other companies and collect royalty fees. In such cases, the finances of the corporate should be structured in order that they'll hire the simplest talent and continue their competitive advantage.

The bottom line is that companies can become successful in many various ways. it's important for companies to choose one among these ways and allocate their finances towards the achievement of that goal. The goal becomes a reality only after sustained strategic efforts over a protracted period of your time.

More Articles are below:

• 1. Strategic Finance and Capital Structure
• 2. What is Strategic Budgeting?
• 3. Strategic Capital Budgeting
• 4. Profit Maximization vs. Wealth Maximization
• 5. Strategic Financial Management's Drawbacks
• 6. Advantages of Strategic Financial Management
• 7. The Strategic Financial Planning Process
• 8. Principles of Strategic Financial Management
• 9. Strategic Financial Management - Meaning and Its Functions