Chapter Chapter 111

Business Strategy and Customer orientation

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Book Structure
directing
Business Strategy & Customer Orientation

designing
Designing Supplier Relationships

managing
Capacity Planning & Management Supply Chain & Supply Relationship Management Inventory Planning & Management

Operations Strategy

Product & Service Design

Innovation

Process Design

Lean Operations & Just in Time (JIT)

Project Management

improving
Performance Management The McGraw-Hill Companies, 2011 Quality Management Future Directions in Operations Management

Learning Outcomes
Define what is meant by strategy and strategic management Define an organizations business by identifying who their customers are, what they want, 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 to strategy 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 achieves advantage 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 all competitor 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 to gain 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 to guide the firm safely through the terrain The internal resource-based view sometimes called resource-based theory which concentrates on the firms capability and how it can be configured and used 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 or exploit an opportunity? If so, is it rare enough that it is available either only to you or to a small enough number of competitors that 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 or substituted?
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Sustainable Competitive Advantage

A firm is said to have a competitive advantage when it is implementing a value-creating strategy that is not simultaneously being implemented by any current or potential competitors. For this advantage to be sustained two things must apply: The resources within a market, and available to the firms competing within it, are not equally spread. These resources are not mobile: that is, they are company specific in some way, and are likely to remain that 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 more useful 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 all companies 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. Hamel and Prahalad (1990) propose that for a competence to be core to the business, 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) further propose that, unlike a threshold competence, a core competence contributes 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 competitive advantage. 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 and reconfigure competences to address rapidly changing environments Are not reactive, problem-solving events in spontaneous response to a stimulus but intentional, planned, and deliberate Impact upon resources or bundles of resources (competencies) to change them to meet a perceived future state
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Dynamic Processes
Ambrosini and Bowman (2009) state that dynamic capabilities comprise 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 previously didnt exist Leveraging the replication of processes or systems across operational units Learning the increase in effectiveness and efficiency that is the outcome of reflection on failure and success Integration the pulling together of resources to create new competencies
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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) (b) (c) Investigate your overall market environment PESTEL Define your immediate competitive position Porters Five Forces Understand what your customer wants value theory Define what you need to be good at to exist in the market core competencies Leverage your competencies to create a competitive advantage distinctive competencies

3.

From the RBV:

(a) (b)

4.

Analyse the nature of your competitive advantage to understand how sustainable it is, and therefore how your competence must change to maintain advantage dynamic capabilities
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