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An organization operating in a competitive market structure may choose to avoid
competition through differentiation or cost leadership.21 A company choosing a differentiation
strategy distinguishes its product or service from that of competitors
by adding enough value (including quality and/or features) that customers are willing
to pay a higher price. Differentiation is often related to the product or service,
distribution system, or advertising. The accompanying News Note illustrates a
slightly different version of differentiation strategy: including substantially fewer
features and charging higher prices!


Competition may also be avoided by establishing a position of cost leadership,
that is, by becoming the low-cost producer/provider and, thus, being able
to charge low prices that emphasize cost efficiencies. In this strategy, competitors
cannot compete on price and must differentiate their products/services from the
cost leader.
In today’s business environment, maintaining a competitive advantage by avoiding

competition can be difficult. Within a short time, competitors are generally able
to duplicate the factors that originally provided the competitive advantage. For
many companies, the future key to success may be to confront competition by
identifying and exploiting temporary opportunities for advantage. In a confrontation
strategy, an organization tries to differentiate its products/services
by introducing new features or tries to develop a price leadership position by
dropping prices even though competitors will rapidly bring out equivalent products
and match price changes.22 Although potentially necessary, a confrontation
strategy is, by its very nature, less profitable for companies than differentiation or
cost leadership.
To assess all of the varying internal and external factors that affect strategic
planning, an organization needs to have a well-designed business intelligence
(BI) system. This system represents the “formal process for gathering and analyzing
information and producing intelligence to meet decision-making needs.”23 A
BI system requires knowledge of markets, technologies, and competitors, as shown
in Exhibit 1–9.
In addition to the need for information about external influences, the BI system
should provide management comprehensive information about internal functions
and processes, including organizational strengths and constraints.24 Information
provided by this system will be of great importance in helping managers
perform their organizational functions, especially strategic and tactical planning.