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Business Strategy

and

Customer orientation

Chapter 11

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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