om - chapter 1
TRANSCRIPT
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Business Strategy
and
Customer orientation
Chapter 11
Chapter1
The McGraw-Hill Companies, 2011
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directing
improving
designing managing
Designing
Supplier
Relationships
Product &
Service Design
Process Design
Capacity
Planning &
Management
Supply
Chain & Supply
Relationship
Management
InventoryPlanning &
Management
Lean Operations
& Just in Time
(JIT)
ProjectManagement
Business
Strategy &
Customer
Orientation
Performance
Management
Innovation
Operations
Strategy
Quality
Management
Future Directions
in Operations
Management
Book Structure
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Learning Outcomes
Define what is meant by strategy and strategic management
Define an organizations business by identifying who their customers are, what theywant, and how the organization satisfies those wants
Effectively use key strategic terms
Explain how strategy exists at different levels in the organization
Describe the difference between market-based and resource-based approaches tostrategy
Discuss the nature of organizational competencies and capabilities
Explain the nature of competitive advantage
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Chapter Purpose
The purpose of this first chapter is to create a
foundation of understanding in strategic management
against which the operational activity of the
organization can be placed, to enable an
understanding of how operational activity can be
aligned with strategic direction.
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Products vs services
The customer is often looking for a package from a
single company that meets a need, is all inclusive and
problem free, and is procured with the least effort from
a single supplier.
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What is Strategy?
Strategy has been defined by Johnson et al. (2005) as:
the direction and scope of an organization over the long term which achievesadvantage in a changing environment through its configuration of resources
and competencies with the aim of fulfilling stakeholder expectations.
Therefore decisions are made with the aim of:
providing a product or service that the customer wants in preference to allcompetitor products who the customer is, and what they want;
guiding the organization throughout its lifetime by defining its scope of
activity what it does; configuring its resources to carry out this scope of activity how it does it;
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The Business Definition
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Strategic Decision Making
Time horizon
Scale of consequence
Scope of activity Level of complexity
Level of certainty
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Competitive Advantage
Competitive advantage is what sets a firm apart from
its rivals, making it the supplier of choice for
customers within a particular market. Only by
achieving competitive advantage can a firm hope togain the required market share that will allow it to
succeed, and meet its strategic purpose.
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Analysing the competitive
environment 5 Forces
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Packaging a strategy
Mission Statement
Corporate Vision
Values Strategic Objectives
Strategic Plans
Strategic Priorities
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Strategic Organisational Levels
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How is strategy approached?
There are two overall approaches to strategy:
The external market-based view (Porter, 1980),which encourages understanding of all aspects of
the external or market environment in an attempt toguide the firm safely through the terrain
The internal resource-based view sometimes called
resource-based theory which concentrates on thefirms capability and how it can be configured andused to achieve success
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PESTEL Analysis
Political
Economic
Social Technological
Environmental
Legal
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Customer Value Proposition
1. Goals and purposes that they want to meet that
the product or service may help with
2. Desired consequences in use situations that will
have an impact on goal achievement
3. Desired product and service attributes that will
contribute to the desired consequence.
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Customer Value Elements
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Organisational Resource Types
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Resources & Competitive Advantage
For a resource to have the potential to result in some
sort of competitive advantage it needs to have four
attributes. These attributes were originally expressed
by Barney (1991) as:
Valuable
Rare
Imperfectly imitable
Non-substitutable
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VRIN
We can think of these VRIN distinctions as a filter:
First, does your resource neutralize a threat orexploit an opportunity?
If so, is it rare enough that it is available either onlyto you or to a small enough number of competitorsthat the advantage it provides is not marginalised?
If so, how long can this advantage be protected?Or, put another way, how long before it is imitated orsubstituted?
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Sustainable Competitive Advantage
A firm is said to have a competitive advantage when it isimplementing a value-creating strategy that is notsimultaneously being implemented by any current or
potential competitors. For this advantage to be sustainedtwo things must apply:
The resources within a market, and available to thefirms competing within it, are not equally spread.
These resources are not mobile: that is, they arecompany specific in some way, and are likely to remainthat way.
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Competencies bundling of resources
Some resources may create a competitive advantage
on their own, such as a unique supply of a raw
material (water in the whisky industry) or a piece of
intellectual property (a formula for a drug), it is moreuseful to think of resources in combination. Resources
working together create a more powerful force, which
leads to a better competitive advantage.
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Types of Competence
Threshold Competence
Core Competence
Distinctive Competence
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Threshold Competence
At the basic level these are competencies that allow
the firm to exist and operate, but provide no
competitive advantage:
Without these competencies no level of operation is
possible
In the VRIN framework, at the threshold level
competencies will provide little value, because allcompanies in the market should be able to do these
basic things
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Core Competence
At the next level exist what are termed core competencies. Hameland Prahalad (1990) propose that for a competence to be core to thebusiness, it must:
Provide open access to a variety of markets Contribute significantly to performance
Be difficult to imitate.
This adds some clarity, but Eden and Ackerman (2005) furtherpropose that, unlike a threshold competence, a core competencecontributes directly to the businesss strategic goals.
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Distinctive Competence
The term distinctive competence has been coined to
describe a competence that is so valuable, rare,
inimitable and non-substitutable, and so aligned with
business goals, that it creates a clear competitiveadvantage. Quite simply, a competence is distinctive if
others are unable to emulate it.
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Competencies in Service Provision
There are several factors that make the operation of
delivering a service different from that of producing a
product:
Simultaneity of production and consumption
Presence of the customer in the conversion process
Intangibility of services
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Customer Orientation
Van Looy et al (2003) have suggested that
competence in services is all about developing a
customer orientation. This concept is comprised of:
The capacity to understand the customers priorities
The ability to speak the customers language
The ability to empathise with the customer
The ability to show consideration for the customer
The ability to de-risk the customers business
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Dynamic Capabilities
Describe a firms ability to integrate, build andreconfigure competences to address rapidlychanging environments
Are not reactive, problem-solving events inspontaneous response to a stimulus but intentional,planned, and deliberate
Impact upon resources or bundles of resources(competencies) to change them to meet a perceivedfuture state
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Dynamic Processes
Ambrosini and Bowman (2009) state that dynamic capabilitiescomprise four main processes:
Reconfiguration the transformation and recombination of assets
and resources. This may occur after a merger or acquisition,where the new shape will realize new synergies that previouslydidnt exist
Leveraging the replication of processes or systems acrossoperational units
Learning the increase in effectiveness and efficiency that is theoutcome of reflection on failure and success
Integration the pulling together of resources to create newcompetencies
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Summary
The strategy process is therefore as follows:1. Understand what your business is business definition model
2. From the MBV:(a) Investigate your overall market environment PESTEL
(b) Define your immediate competitive positionPorters Five Forces
(c) Understand what your customer wants value theory
3. From the RBV:(a) Define what you need to be good at to exist in the market core
competencies
(b) Leverage your competencies to create a competitive advantage distinctive
competencies4. Analyse the nature of your competitive advantage to understand how
sustainable it is, and therefore how your competence must change tomaintain advantage dynamic capabilities