Musings of a Strategist

Musings of

a Strategist

Prof. R.Venkataraman

Notion Press

5 Muthu Kalathy Street, Triplicane,

Chennai - 600 005, India

First Published by Notion Press 2014

Copyright © R.Venkataraman 2014

All Rights Reserved.

ISBN: 978-93-83808-74-8

This book has been published in good faith that the work of the author is original. All efforts have been taken to make the material error-free. However, the author and the publisher disclaim the responsibility.

No part of this book may be used, reproduced in any manner whatsoever without written permission from the author, except in the case of brief quotations embodied in critical articles and reviews.

Dedicated to

Aanya the princess

whose sweet smile

reminds us every day

what is truly important in life

Preface

All men can see these tactics whereby I conquer, but what

none can see is the strategy out of which victory is evolved.

- Sun Tzu

In business there is no one magic formula which fits all business situations. The business of two companies can be identical but success will depend on the internal resource strength as well as external conditions in which the company skillfully operates. A corporate strategy, therefore, must recognize the relationship between the results it wants to achieve and its vision, mission, strengths and weaknesses. It should also be in line with what the company does, why it exists and where it wants to go in future. In business the critical area is to understand competition. Today, organizations constantly strive to understand the competition and position themselves in such a way that they create success with sustainability. A classic example is Yahoo and Google who are in very similar business but Google is successful because they developed an ability to recognize market opportunities and competitive threats, and evolved strategies which are appropriate, viable and sustainable.

When one analyses the anatomy of different organizations it will be seen that their inner strengths and weakness define their competence. Several companies fail to recognize that competencies can be developed by bundling the isolated strengths lying in their war chests to create new competencies. Today, boardroom challenge is to understand these structural differences between them and that of the competition and try creating distinctive competencies. This can be organic, meaning from within or, in situations where the industry is fast and dynamic, acquiring these competencies to match or beat competition.

My musings as a strategist portray my perspectives on strategy. I have tried to analyze and identify some of the key areas within the corporate anatomy and attempted a meaningful analysis for the readers to understand the various ways companies combat competition and create sustainability. I have also tried to highlight that competencies quite often do not reside in the core business but can also be in its value chain. Highly successful organizations the world over like South West airlines, Starbucks, Dell have created distinctive competencies that, ultimately have propelled them ahead of competition. I have also made an attempt to delve into the literature that is available to understand the various theories and constructs put forth by various authors and researchers by way of literature reviews. Wherever possible I have incorporated cases involving companies that have succeeded in applying these concepts.

The first seven articles presented in this book deal with seven distinctive strategies that can be looked at while the eighth one looks at strategy execution and performance measurement. These articles span nearly a decade from 2005 to 2013 and I fervently hope that this book will give some useful insights to students of corporate strategy.

Prof.R.Venkataraman

Acknowledgements

I would like to thank Prof J.Philip, President and Prof C.P.Ravindranathan Senior faculty member of Xavier Institute of Management and Entrepreneurship, Bangalore who constantly inspired me and encouraged me to write these articles.

I would also like to thank my wife, and the rest of my family, who supported and encouraged me in spite of all the time it took me away from them.

Last but not the least I like to express my gratitude to the many people who saw me through this book; to all those who provided support, talked things over, read, offered comments and assisted me in all possible ways to make this happen.

Prof. R.Venkataraman

Contents

Title

Copyright

Dedication

Preface

Acknowledgements

1. Corporate innovation and mapping of resources for creating distinctive competencies

2. Disruptive innovation and disintermediation strategies in value chain

3. Innovation in Public Sector and Government Organizations

4. Global sourcing as a strategy for building competitive advantage

5. Cross Border Business Partnering in global markets and Paradigm shifts in Relationship Marketing Strategies

6. Loyalty programmes as CRM Strategy – A reality check

7. Strategic options for private sector organizations in the Global logistics industry

8. Performance measurement and optimization in Supply Chain Management

About the author

Corporate innovation and mapping of resources for creating distinctive competencies

Trying to do what your competitors are doing but basically a little bit

better is probably not going to be the winning strategy.

The problem is finding what your competitors wouldn’t

even consider doing

- Jamais Cascio

A. Introduction

Organizations do not simply react to their environments but dynamically interact with them via the strategic actions of top managers. A successful strategy and a fit thus requires alignment of organizational resources capabilities and competencies with environmental opportunities and threats (Bourgeois 1980, Schendel and Hofer 1979). Scholars have recognized that corporate innovation is a key driver for this strategic fit and innovation and strategy are intertwined in efforts to create sustainable competitive advantage (Cahill 1998, Ettie et al 1984, Knot 2003). The term competency from the organizational context refers to the outputs or results of competent performance and has been used to describe both individual and organizational competencies. Specific resources identified by the management for creating competencies may have been developed over a period of time or acquired by the firm to produce specialized marketing advantages. This enables the company to gain critical performance advantage over its rivals. The recognition of these resources and tweaking them innovatively, ultimately leads to competitive advantage. The study of competencies in a large undertaking within the context of drafting emergent and credible strategies are based on analyzing distinctive competencies that are unique to a company, difficult to copy, and could be a value creation in the context of the competition it faces (Bogner and Thomas, 1994; Eden and Ackermann, 1998).

The innovative process of producing these distinctive competencies for any service or product management is critical for value creation leading to different options and ideas, products and services for competitive advantage. These specific distinctive competences are singular or multiple competencies, which, the competition cannot imitate and the organization must position the product or service in the right segment that matches their distinctive competencies. Such competencies involve adaptability and creativity in decision making and awareness of changes in the marketplace, such as competitors’ activity and consumers’ perception of the package the product or services offers.

This paper studies how resources, competencies and environ-mental aspects can be leveraged by organizations in an innovative manner to create certain distinctive competencies and thus gain market advantage in the identified segment. The literature review will be supported by a case study of an organization which created a distinctive competency leading to a unique competitive advantage over its well entrenched and established competitors.

Over the years the evolution of the scope of marketing has from a narrow sales function become an integrative part of overall business strategy. The first basic concepts of management viewed strategy as a conception of the individual firm (Andrews, 1971). With the evolution of many firms and the resultant competition, efforts by corporates to achieve a strategy match with market dynamics has led to various strategy concepts propounded by the prescriptive and descriptive schools of thought. Also, the focus of strategy development changed from only internal analysis to include the external environment. Analysis of the industry structure became the thesis for strategy formulation (Porter, 1980) and were extended to marketing. By organizing and integrating all of the company’s outside oriented activities strategic marketing supports the strategic management process (Thomas and Gardner, 1985).

B. Literature review

The purpose of analyzing the strategic development of a company is to help form a precise understanding of its current situation and to predict its probable evolution over the short term (Porter, 1985; Barney, 1991). This forms the basis for the development of strategies that enable the firm to avoid potential pitfalls. Key problems, including current or potential dysfunctions, need to be detected and resolved (Hamel, 1994). Typically an analysis of the organization and the external environment and the competitive forces that exert influence on the performance of the organization should throw up the opportunities and threats to be matched by the strength and weakness of the organization. The required strategy to be put in place will require an understanding of the internal resource gaps and action plan for building the required competencies.

The strategy specialists claim that the increasing focus on external environment for strategy formulation needs review and perspectives should look more towards the company’s internal strengths, namely the competence-based perspective of the company (Barney, 1991; Dierickx and Cool, 1989; Hamel and Prahalad, 1993). The seemingly striking link between the internal perspective and marketing’s external orientation does not contribute to this school of thought. However, the protagonists claim that some of these distinctive competencies, which can be created by way of a transformation process, reside within the organization and their uniqueness enables the business to achieve distinct competitive advantage. In the event, such competencies cannot be derived from this process then the next choice obviously is to acquire them.

Thus firms need to take conscious decisions for competitive advantages by focusing on the inside elements of the company. A variety of terminologies have been coined by the experts in strategy formulation, and the most common ones include terms such as resources (Wernerfelt, 1984), and core competencies (Prahalad and Hamel, 1990 ). A similarity can be observed in these semantics and almost all of the authors explain the origin of competitive advantages from the inside elements in the firm and these can be differentiated into unspecific isolated components or resources of skills and assets and some of them can be innovatively bonded to form specific components such as strategic assets, capabilities, competencies and core competencies. Specific components form a higher level and build directly on the unspecific components. Invariably these unspecific components can be transferred and imitated to a limited extent. But the company-specific components resulting from the organization’s learning curve effects that leverage on the unspecific components are unique to the organization. These unspecific components are the resources and the specific ones are the competencies. Resources are the basic units of analysis (Grant, 1991). They include all inputs into the business processes, i.e. financial, technological, human and organizational resources. Although resources are the foundation for competence building, when individually viewed they do appear productive. They need a transformation into a specific assortment and the bundle thus created, holds high potential for crafting competences leading to distinctive competitive advantages. The value of an individual resource can only be determined by its contribution to the basket of resources and competencies offering scope for creating distinctive competencies. The specificity of a resource and its value will again depend on the firm’s strategic intent (e.g. a human resource integrated in an organizational culture). The firm’s strategic Intent: (Hamel and Prahalad 1990) meaning a long-term goal that is ambitious, builds upon, and stretches these competencies, and also draws from all levels of the organization’s capabilities, resulting in a strategic stretch and fit required to reach the desired future state or position. Thus a strategic fit addresses the resource gaps and gives certain value chain advantages for the organization by way of efficient resource utilization.

(Strategic Management C.W.L.Hill and Gareth Jones)

Hence competencies result from the combination of a number of resources. Their formation and quality depends on the specific capabilities of the firm in integrating resources and it is the human capabilities that take the part in engineering this integration. As discussed, the quality of a competence is a bundle of selected unspecified resource and this assortment needs to be exploited to the maximum extent. A strategic fit might be derived from the contribution of a single resource or might require highly complex combinations involving many different resources.

As such in the competence-based perspective of the company, the long-term developments of a company’s Strategic intent form the starting point for strategy development. At the same time, competences are the key assets for competitive advantage. The competitive advantage resulting from competencies is mainly dependent on four conditions which its resources and competencies will have to meet:

1. They have to be heterogeneous from the competencies of competitors

2. There have to be forces that ex post limit the competition and protect from imitation and substitution

3. The competences and resources must be imperfectly transferable and hence controlled by the company

4. There must be ex ante limits to competition expressed in different expectations about the future value of resources and competencies. (Peteraf, 1993).

To summarize, the competence-based, internal perspective of strategic management explains competitive advantages through an individualistic perspective from the costly to copy attributes (Conner, 1991) of the company. Strategy formulation process thus is a combination of two perspectives depicting competence as inside-out, long term and proactive and marketing as outside-in, short-term and reactive. The short-term and proactive nature of the concept is a consequence of accelerated and continuous changes in the external environment, markets, the customer needs and shortening product life cycles. This dynamic state changes and reduces the time horizon of marketing