Strategic Management of Competitive Advantage in Small Enterprise

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Introduction

"The future never just happened, it was crated" - Will Durant. So same goes to competitive advantage, it very tangible and can be evaluated. In attaining competitive advantage, very important to provide unique benefits for customer and achieve superior operational effectiveness.

According to the Michael Porter, competitive advantage is all about the competitive strategy is about taking offensives or defensives action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior return on investment. The basis of above average performance within an industry is sustainable competitive advantage. There are two basic types of competitive advantage which is cost leadership (low cost) and differentiation. Both can be more broadly approach or narrow, which result in the third viable competitive advantage know as focus.

Small Business Definition

There is a lot of small business definition out there. Refer to the Wikipedia define small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small business is normally privately owned corporations, partnerships, or sole proprietorship.

Second definition is a company that employs fewer than 100 people and is usually a privately owned corporation. A small business is fuel local economic growth and innovation. (www.lohas.com, 2010).

The third definition can be described small business is a designation for certain statutory purposes referring to a firm, corporation or establishment having a small number of employees, low volume of scales, small amount of assets or limited impact on the market. (www.mmd.admin.state.mn.us/mn06008.htm, 2010)

Company Background

"Appreciating every child as an uncut precious jewel, it is our responsibility as parents and teachers to shape them into a beautiful form, pleasing to the eye of Allah". With that awareness, Dzul Iman Kindergarten is built to serve the ummah through excellent early childhood education. Since 2000, this kindergarten has developed its own researched propriety modules with proven ability to make a difference for the better in children's character and their enthusiasm toward learning.

It was managed by DINAMIKA Training Consultant Sdn Bhd which was founded by a group of graduates from International Islamic University Malaysia in 1993. With the spirit to serve the ummah through excellent early childhood education, Dzul Iman Kindergarten was existence.

DINAMIKA opened its own education centre with the formation of Pusat Pembelajaran Al Quran Dzul Iman in 1995. Furthermore, Dzul Iman diversified its service into Sekolah KAFA-Intergrasi in 1997, Dzul Iman Kindergarten in 2000 as well as Dzul Iman Daycare Centre in 2003.

In Tronoh, the Dzul Iman Kindergarten was located at No.1, Laluan Desa Tronoh Indah 1, Taman Seri Desa Tronoh, Tronoh Perak Darul Ridzuan. This kindergarten registered with company number IP0278083-P was placed in the strategic location which is easy for parent who working and stay in Tronoh area. Even though a lot of kindergarten was compete each other in Tronoh area such as Tadika Kemas, Tadika Pasti, and other private kindergarten, with the enrichment programmes that offered by the Dzul Iman kindergarten shown that they are the best among kindergarten in Tronoh.

Furthermore, this kindergarten also received international student which is expatriate kid from the nearest universities i.e. Universiti Teknologi Petronas and Universiti Teknologi Mara.

SWOT Analysis

In order to check the performance of this kindergarten, a scan of the internal and external environment is an important part of the strategic planning process. The SWOT analysis was the best tool to be use. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan:

Environmental ScanSWOT Analysis Framework

External Analysis

Internal Analysis

Threats

Strengths

Opportunities

Weaknesses

SWOT Matrix

Strengths

From this SWOT analysis, first, study about strength can be done. Firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:

Patents i.e Dzul Iman brand.

Strong brand names or service reputation i.e comment about the Dzul iman from the parent.

Good reputation among customers

Cost advantages from proprietary know-how. The cost between the kindergartens at Tronoh area.

Exclusive access to high grade natural resources

Favorable access to distribution networks.

Weaknesses

The absence of certain strengths may be viewed as a weakness. For examples, each of the following may be considered weaknesses:

Lack of patent protection

A weak brand name or services job.

Poor reputation among customers.

High cost structure

Lack of access to the best natural resources

Lack of access to key distribution channels.

But in some cases, a weakness may be the flip side of strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered strength that competitors do not share. It is also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities

So come to the external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

An unfulfilled customer needs especially the parent.

Arrival of new technologies and teaching tools.

Loosening of regulations from the government side.

Arrival of the new competitor in Tronoh.

Threats

Finally, changes in the external environmental also may present threats to the firm. Some examples of such threats include:

Shifts in consumer tastes away from the firm's products and services.

Emergence of substitute products and services.

New regulations that can improve and boost the kindergarten services.

The SWOT Matrix

A firm should not necessarily pursue the more profitable opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In this case, the company can overcome a weakness in order to prepare itself to pursue a persuasive opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix is shown below:

The SWOT Matrix

Strengths (S)

Weaknesses (W)

Opportunities (O)

S-O strategies

W-O strategies

Threats (T)

S-T strategies

W-T strategies

S-O strategies - pursue opportunities that are a good fit to the company's strengths.

W-O strategies - overcome weaknesses to pursue opportunities.

S-T strategies - identify ways that the company can use its strengths to reduce its weakness to external threats.

W-T strategies - establish a defensive plan to prevent the company weaknesses from making it highly liable to external threats.

Company Structure

Head MasterDzul Iman kindergarten basically is using the simple organizational structure. The structure is shown in the figure below.

Teacher 1

Teacher 2

Teacher 3

In this structure, there are direct relationship between leaders and the staff. This structure is common in the small business enterprises such as this kindergarten. The headmaster as a leader has direct control of all operations and activities of the relationship teachers and the owner.

Environmental Scanning

This scanning actually to define the factor that involve together such as monitoring, evaluating and disseminating information from the external environment. The basic environmental scanning as per stated below:

Opportunities

Threats

Economic

High economic growth rate

Low inflation rate

High consumer spending

High personal tax

Low productivity

Social

Changing lifestyles

High level of education

Positive social values

Negative attitude towards ethics

Intercultural variations

Political

Government policy on subsidies

Local government support.

Unfavorable fiscal and monetary policy

Technological

New technologically advanced products and services.

General widespread of internet.

High rate of innovation

High cost in R&D.

Reason Why Small Business Fail

Success in business is never automatic. It is not strictly based on luck, although a little never hurts. It depends primarily on the owner's forethought and organization. Even then, of course, there are no guarantees. Starting a small business is always risky, and the chance of success is slim. A lot of small businesses come and unfortunately, go all the time. Over 50 per cent of small businesses fail in the first five years. A US-based writer, Michael D. Ames in his book called "Small Business Management" gave 10 reasons for small business failure.

The reasons are:-

Lack of experience

Insufficient capital (money)

Poor location

Poor inventory management

Over-investment in fixed assets

Poor credit arrangements

Personal use of business funds

Unexpected growth

Gustav Berle adds two more reasons in The Do It Yourself Business Book:

Competition

Low sales

Improvement

From the literature review found that there is a lot of improvement that achieve towards effective strategic management in term of competitive advantage. There is cost leadership, differentiation and focus. So in order to improve this kindergarten performance in competitive advantage, some of the said element is already implemented by the kindergarten.

Cost Leadership:

A firm sets out to become the low cost producer in its industry.

A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its competitive advantage.

If move than one company aim for cost leadership, usually this is disastrous.

Often achieved by economies scale.

Differentiation:

A firm seeks to be unique in its industry along some dimensions that are widely valued by buyers.

Areas of differentiation can be product, distribution, scale, marketing, service, image and etc.

Focus:

A firm sets out to be best in a segment or group of segments.

Recommendation

In order to be more competitive advantage among the kindergarten in Tronoh area, the staff should be more motivation and have positive criterion. To support this statement, according to Ahmad Al Rfou and Ichalaf Trawneh, 2009 mention that the successful organization of the future organization, and achieve in reality the propositions that people are our most important assets and people are our source of competitive advantage. So company should motivated and satisfied employees who are willing to work effectively and efficiency to achieve their organization goals. The results indicated a significant relationship between job motivation and competitive advantage.

Conclusion

My conclusion is this small business about the kindergarten can be better and also can be improve if they implement a good strategic management towards it. This can be prove with Helene Hafstrand which cited that the important areas where sustainable competitive advantage can be generate are human resources management, market knowledge and product development.

It seems reasonable to believe that it is not resources or asset as such that generate competitive advantage, but the organizational capabilities and routines to handle them. Capabilities, knowledge and routines within human resources management, market research and product development are accumulates over a long time and embedded in the organization and therefore cannot be easily replicated.

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