A relational database (RDB) is a method of storing data in logically related tables. Relationships between data objects in an RDB can help collate and cross-reference large amounts of data (Baltzan, 2019). Using an RDB allows a firm to gather, store, and analyze more data than any previously available approach, thus using it in their competitive decision-making more effectively. Furthermore, an RDB can display requested information in a quick and flexible manner, further facilitating its analysis (Baltzan, 2019). A well-designed RDB is also more reliable and accurate than other means of storing and accessing data by reducing information redundancy and enforcing constraints that prevent invalid information from being entered. Thus, RDBs provide the ability to store more information, as well as more tools to research and analyze it.
Firms can leverage the benefits of databases, particularly RDBs, to make better competitive decisions. For instance, an RDB can be used to record customer order and purchase data, which can then be used to decide on regional, seasonal, or personal offers for customers (Baltzan, 2019). Furthermore, a firm can analyze data on customers to determine their preferences, guiding its decisions on altering its product and service lineups, and opening in new locations. Finally, a firm can use databases, data gathering, and data analysis techniques to monitor the activities of its competitors (Baltzan, 2019). This data can facilitate the discovery of the competition’s strengths and weaknesses and further guide decisions toward discovering and exploiting new competitive opportunities (Baltzan, 2019). Thus, collecting, storing, and analyzing data on their performance, products, customers, and competition help firms compete for customers and adjust their strategy to gain an advantage over other firms.
Cost Leadership vs. Differentiation Strategies
Cost leadership and differentiation are two business strategies in Porter’s three generic strategies. The former aims to minimize the firm’s operating costs, while the latter aims to create a unique advantage by differentiating the firm’s products from those of its competitors (Baltzan, 2019). These strategies align with different business decisions and external representations of the firm’s activity, such as product lineup and prices (Um, et al., 2018). As such, analyzing information relating to the firm’s operation and competitive environment is the crucial first step in choosing the appropriate strategic approach (Baltzan, 2019). Such an analysis can first provide information to guide the decision towards pursuing one strategy or the other and then inform the decisions that determine the specific implementation of the strategy or the necessity to change it.
Effectiveness and efficiency are two metrics that are particularly important in deciding between the two strategies. Efficiency, a characteristic of the cost leadership strategy, refers to a firm’s ability to make the best use of limited resources (Baltzan, 2018). Thus, a firm that chooses this strategy might seek to choose suppliers that offer lower-quality materials or faster logistics routes or implement decisions that increase customer throughput (Baltzan, 2018). Effectiveness, conversely, relates to broader business decisions and is characteristic of differentiation strategies (Baltzan, 2018). A firm aiming to become more effective may seek to target more affluent customers or design its products with premium features that those of its competitors lack. As a result of these choices, customers may be willing to pay more for the unique product or service this firm offers. However, effectiveness and efficiency are not exclusive to one strategy or another or mutually exclusive (Baltzan, 2018). Therefore, rather than maximizing one while ignoring the other, companies should make strategic decisions with an emphasis on one but still seek to improve both where possible.
Baltzan, P (2019). Business driven information systems (6th ed.). McGraw Hill Education.
Um, J., Han, N., Grubic, T., & Ghalib, A. (2018). Aligning product variety with supply chain and business strategy. International Journal of Productivity and Performance Management, 00–00. Web.