Question

explaini the rational behind integrating different techniques to assess firm performance and competitive advantage, and thendiscuss why balanced scorecard model differ in its application between red and blue ocean strategies.

Answer 1

The rational/ logic behind integrating different techniques to assess firm performance and competitive advantage

Assessing your business performance and competitive advantage should be an ongoing process. It helps you identify areas that need to be improved before they become major issues, as well as giving you the opportunity to consider how to respond.

The rational behind- YOU GET TO KNOW

• Benefit. What is the real benefit your product provides? It must be something that your customers truly need. it must also offer real value. You must know your product's features, its advantages, and how they benefit your customers. You must stay up to date on the new trends that affect your product.

• Target market. Who are your customers? What are their needs? You've got to know exactly who buys from you and how you can make their life better. That’s how you create demand, the driver of all economic growth. Newspapers' target market shrank to those older people who weren't comfortable getting their news online.
• Competition. Have you identified your real competitors? They aren't just similar companies or products. They also include anything else your customer could do to meet the need you can fulfill. Newspapers thought their competition was other newspapers until they realized it was the internet. They didn't know how to compete with a news provider that was instant and free.

The following methods can help you assess your business performance.

Review your business plan

The first step of assessing your business performance is to review your business plan, including financial statements, to understand what is happening within your business. Reviewing and updating your business plan will help you respond to the risks of an economic downturn.

You can use the SWOT analysis tool and a financial analysis to understand how you can best deal with critical issues that may affect your business.

SWOT analysis

A SWOT analysis is a management tool that can help you develop business strategies by:

• building on strengths (S)
• minimising weaknesses (W)
• seizing opportunities (O)
• counteracting threats (T).

A SWOT analysis will help you identify areas that need to be improved in order for you to respond to an economic downturn. It also gives you the ability to identify new opportunities the economic downturn may present.

Financial analysis

Best practice financial management involves planning and forecasting financials based on the strategic goals of your business, and regularly reviewing actual performance against your forecasts. To conduct a financial analysis of your business, you need to analyse your current financial statements, including profit and loss and cash flow. Look for trends, such as declining sales, that may put your business at risk, and think about the impact they could have on your business's financial performance.

Key factors to consider in your financial analysis include:

• trends in cash flow (positive or negative), revenue and expenses
• current sales of various products or services
• level and turnover of stock
• review of debtor and creditor days
• debt, and how your business services debt.

  Financial ratios

  Financial ratios are ratios you can extract from financial statements. You can use financial ratios to compare your business's performance during different time periods. You can also use them to compare the performance of your own business with the performance of other businesses. You do this by comparing your ratios with statistics and other benchmarks that governments and industry organisations publish.

  Benchmarking

  Benchmarking uses information collected from a number of businesses within the same industry sector to establish a range of averages for key business variables (e.g. cost of overheads, staff hours). You can then use this information to compare and measure your business performance.

WHY BALANCED SCORECARD MODEL DIFFER IN ITS APPLICATION BETWEEN RED AND BLUE OCEAN STRATEGIES -

Red Ocean Strategy	Blue Ocean Strategy
Compete in existing market space.	Create uncontested market space.
Beat the competition.	Make the competition irrelevant.
Exploit existing demand.	Create and capture new demand.
Make the value-cost trade-off.	Break the value-cost trade-off.
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost.	Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

Red oceans are all the industries in existence today – the known market space, where industry boundaries are defined and companies try to outperform their rivals to grab a greater share of the existing market. Cutthroat competition turns the ocean bloody red. Hence, the term ‘red’ oceans.

Blue oceans denote all the industries not in existence today – the unknown market space, unexplored and untainted by competition. Like the ‘blue’ ocean, it is vast, deep and powerful –in terms of opportunity and profitable growth.

The BSC tools, which use to integrate the performance management and control systems, both tools have similar aspects such as focusing on communication, reducing the cost, and emphasizing the importance of organizations to manage the system and not the people, and both tools need to be supported by the top management in the organization.

Creating a successful blue ocean strategy requires a new mindset, analysis, and a measure of creativity.

By changing their strategic thinking and using a systematic approach, the authors showed how

companies could reach beyond existing demand to find a blue ocean of new market space with the

potential for huge profits and growth . The strategy canvas is both a diagnostic and an

action framework for building a compelling blue ocean strategy . It

serves two purposes: First, it captures the current state of play in the known market space. This allows

us to understand where the competition is currently investing, the factors the industry currently

competes on in products, service, and delivery, and what customers receive from the existing

competitive offerings on the market. The strategy canvas clearly depicts the traditional factors that

influence on competition among industry players, as well as new factors that lead to creation of new

market space and that shift the strategy canvas of an industry .The

strategy canvas enables companies to see the future in the present. To achieve this, companies must

understand how to read value curves.

A Red Ocean Strategy is a strategy which aims to fight and beat the competition. Red Ocean Strategies have the following common characteristics:

• They focus on competing in a marketplace which already exists.
• They focus on beating the competition.
• They focus on the value/cost trade-off. The value/cost trade-off is the view that a company has the choice between creating more value for customers but at a higher cost, or reasonable value for customers at a lower cost.