The conventional approach to strategy has emphasized setting goals and developing the means to achieve them by matching the resources of the firm (strengths and weaknesses) with opportunities and threats in the external environment, which includes, especially, customers and competitors, and deciding which industries, businesses, or product-market segments to compete in. At the highest corporate level, there is the multi industry-business firm, conglomerate or the diversified firm, such as Reliance Group, Tata Group, etc. At this level, corporate strategy addresses issues like as choosing a balance among the industries or businesses chosen, and-in the case of a firm-achieving synergy among the industries or businesses chosen.
Moving down a notch, there is the single industry-business firm such as — cement, or the division of the multi industry-business firm such as Aditya Birla Group. At this level, the issue of which business or industry to be in is important and the only issue is how to enter or exit of a business or industry. This chosen the level at which competitive strategy operates. Developing a competitive strategy essentially involves building a broad framework for a firm on how it is going to compete, what its goals should be, and what policies will be needed to carry out those goals. Moving down to the next level, there are the functions of the firm-the engineering, manufacturing and production, marketing, sales, service, personnel, human resources, purchasing, accounting, finance, planning, etc. The term ‘functional strategy’ is widely used at this level. The important point to note is that functional strategies must all support, reinforce, and contribute to the competitive strategy of the firm in order for the firm to effectively compete.
In a free-market economy, the generic goal of any firm is to enhance its competitiveness, which can be defined as the ability of a firm to get customers to choose its product or service over competing alternatives on a sustainable basis. Competitiveness is measured by market share trends over time, and can be described in terms such as increasing, decreasing, or stable. There means an important stipulation contained in the definition described above, however, which is that competitiveness must be built on a sustainable basis. It is possible, in the short run, for a firm to get customers to buy its products or services over competing alternatives on an unsustainable basis by, for example, mortgaging its assets and using the proceeds to subsidize and lower prices, thus attracting customers until the earnings run out and the firm collapses.