Strategic Groups and Contribution to Industry Profitability Essay

Strategic Groups and Contribution to Industry Profitability - Essay Example Both institutions may belong to the same industry but do not compete directly with another, so the factors that affect either of them may not be critical in their success; instead, organisations within similar strategic groups ought to be considered (Amel and Froeb, 1991). In essence, a strategic group may be understood as a collection of firms that utilise common strategies and operate within common competitive environments. Membership within this entity determines the threats and opportunities that organisations are susceptible to as well as other components of their competitive environments. Knowledge of such information is critical in understanding why some strategic groups perform better than others and why firms cannot move between groups easily. The concept of mobility barriers captures the above changes; this term is analogous to entry barriers because it prevents companies from changing from less profitable strategic groups to ones that are more profitable. High mobility barriers in a strategic group assist in cementing positions of high performance for certain organisations and shield them from intense rivalry by new ones (Hill and Deeds, 1996). One way of understanding how strategic groups contribute to industry profitability is through an analysis of the motor vehicle market; a highly traditional yet technology-dependent industry. Organisations like Jaguar, Land Rover and Rolls Royce initially had vertically integrated business models. These companies operated within similar strategic groups where they took advantage of economies of scale as well as specialisation in order to maintain the competitive advantage. Even collision between them was common because they were not overly concerned about production costs; however, these dynamics altered upon arrival of Japanese firms (Noel and Eduardo, 2007). The new entrants did not place too much emphasis on vertical integration; instead, they preferred to forge close associations with their contractors. A process that made them stand out was just in time manufacturing, which focused on efficient production through low inventory as well as flexibility.