Value Creation in Changing
Economic Landscape
Nik Mohd Hasyudeen Yusoff
MIA Regional Conference – Kuching, Sarawak, 10 and 11
August, 2009
Competitiveness Through Innovation and Strategy
Competitiveness Through Innovation and Strategy
Agenda
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What Is a Business?
Competitive Business Environment
The Changing Economic Landscape
Value Creation and Business Sustainability
Network-Centric Value Creation
Moving Forward Thoughts
Competitiveness Through Innovation and Strategy
What Is a Business?
• Fulfilling the needs of customers
• Need to be ahead of competitors in
the market that it serves
• Creating value to customers by
integrating intellectual capital,
physical capital, structural capital
and human capital
• Should be relevant to the market by
behaving in the way that serves the
best interest of the society
What Is a Business?
Value Creation Facets of BHP Billiton
• Value creation is
multi-facet and could
be viewed from
internal dimension
as well as external
dimension
• Balancing the value
proposition to
shareholders and
stakeholders would
be key to business
sustainability
Competitiveness Through Innovation and Strategy
What Is a Business?
• A business model is
nothing else than a
representation of how
an organisation makes
money - Alex Osterwalder
• Need to outsmart
competition
• Need to craft out space
in the crowded market
place
Competitiveness Through Innovation and Strategy
What Is a Business?
• Under whatever
circumstances a
business need to create
or raise value while at
the same time has to
figure out how to
reduce or eliminate cost
to more further ahead
from competitors
Competitiveness Through Innovation and Strategy
What Is a Business?
• Managing supply chain
is key in value creation
and ensuring customers’
satisfaction
• A business could not
survive on its own and is
required to form
relationships with many
parties in fulfilling the
needs of customers
Competitiveness Through Innovation and Strategy
What Is a Business?
• In ensuring business
sustainability, the
appreciation of risks and
mitigation of risks at the
strategic level is very
important
• Key strategic risks are:
▫ Demand risk
▫ Competitive risk
▫ Capability risk
Competitiveness Through Innovation and Strategy
What Is a Business?
Inovastra’s view of value creation
Leadership
Strategy
Values
Internal resources
Value creation
Value proposition
People
Processes
Functionality
Intellectual assets
Platform
Feelings
Physical resources
Protocol
Financials
External network
Business partners
Institutional partners
Customers
Competitiveness Through Innovation and Strategy
Competitive Business Environment
• The Porter 5 Forces
diagram is a popular
way of describing the
competitive elements in
any industry and
businesses need to
differentiate itself from
competitors or offer
low cost
Competitiveness Through Innovation and Strategy
Competitive Business Environment
• Blue Ocean Strategy is
about making your
competitors irrelevant
through pursuing
differentiation and low
cost at the same time
Competitiveness Through Innovation and Strategy
Competitive Business Environment
BLUE OCEAN VS RED OCEAN STRATEGY
Compete in existing market
place
Beat the competition
Compete in uncontested
market place
Make competitors irrelevant
Differentiate or low cost
Differentiate and low cost
Competitive advantage
Value innovation
Segment existing customers
Attract non-customers
Exploit existing demand
Create and capture new
demand
Competitiveness Through Innovation and Strategy
Competitive Business Environment
• In developing your
strategy, it is
important to
understand which
elements of business
that you would
enhance and which
area where you
would not compete
Competitiveness Through Innovation and Strategy
Competitive Business Environment
• Demand risk – could you really
deliver core customer outcome for
selected competitive objectives?
• Competition risk – could you
identify core competitive objective
that could not be imitated? Sweet
spot? White spot?
• Capability risk – could you map and
deliver the capabilities that support
your core customer outcome?
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• The economic
landscape should not
only be view from a
single dimension such
as between a business
and its customers only
• The drivers that change
the landscape and the
effect on all players
should also be
understood
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
Politics
Your
Competitors
Your
Competitors
Economy
Society
Your
Customers
Your
Customers
Your
Suppliers
Your
Business
Your
Customers
Technology
Environment
Your
Network
Partners
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• Politics drive
government policies
which would affect the
economy and business
climate
• Global and regional
political developments
add to the
complications of local
politics
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• The inter-linkages between economies
could not be denied anymore and any
changes in other places would affect
the local economic conditions
• The globalisation and regionalisation of
business require businesses be involved
in more than one economic region
• Do you think the AEC 2015 will affect
you industry and your business?
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
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Rights
Health
Education
Security
Distribution of wealth
New lifestyles
Demography
• Which one of these elements
would affect you business most?
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• Technology has been one of
the factors that levels
economies and markets
• Enables new business
• Destroy existing business
• Allows different ways of
running businesses
• Which one is the main
stream media to you?
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• The Green Economy would be
more visible in the years to come
• Rules and regulation,
domestically and in the market
you serve, would require
businesses to assess the business
models
• Is your business already affected
by environmental issues?
Competitiveness Through Innovation and Strategy
The Changing Economic Landscape
• Don’t be caught like a
frog in the boiling pot!
The Changing Economic Landscape
Some turbulence could be
detectable some are not
Turbulence
Spurts of prosperity
New
normality
Chaotic
Continuum
Chaos
Spurts of downturn
Adjustment
to business
strategy
Adapted from The Chaotics
Model – Kotler and Caslione
The Changing Economic Landscape
Strategic Inflection Point
Level
Of
Chaos
Time
• Turbulence is the
unpredictable and swift
changes in an organisational
internal or external
environment that affects its
performance
• A business arrives at a strategic
inflection point when its old
strategy no longer works and
must be replaced by new one if
it want to ascend to new
heights
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• “You never want a
serious crisis to go to
waste. And what I mean
by that is an
opportunity to do
things you think you
could not do before”
Rahm Emanuel
White House Chief of
Staff
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Giving up the illusion that
you could predict the future
is a very liberating moment.
All you can do is to give
yourself the capacity to
respond to the only
certainty of life – which is
uncertainty. The creation of
that capability is strategy.
Lord John Browne, Group
Chief Executive of BP
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Re-configure, Re-invent, Re-think
• Re-configure your value chain –
what is your unique selling
proposition?
• Re-invent your business model –
how do you structure your
business to interact with business
partners and suppliers to offer
your USP to your clients?
• Re-think your business process –
could it be done differently in a
more effective and efficient
manner which add more value to
clients?
Value Creation and Business Sustainability
• Understanding and
responding to changes is
not really rocket science,
however a lot of
organisation fail to put in
place a framework to
understand and responding
to changes
Scan change
drivers
Review
outcome
Implement
changes
Assess
impact
Develop
strategic
response
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Any of you who are
responsible to chart the
strategy of your
organisation in one way
or another?
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Who is responsible to
monitor changes? What are
the skill set required?
• How do you track the
changes? Any approach that
works with your strategy
and business model?
• Frequency?
• Any blind spots in the past?
• Can you learn from your
competitors?
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Assessment of developing
trend should not be limited to
the relationship between a
business and its customers
only
• Should assess impact on:
▫ Demand
▫ Competition
▫ Capabilities
• Should also consider the
implications on the supply
chain and other business
arrangements
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
Increase in fuel prices
Demand
Competition
Politics
Government to safe
cost
Market based pricing
policy
Economy
Lower purchasing
power due to
inflation
Key competitor in
financial difficulties
Society
Would penalise any
“opportunist”
Value for money
products may be
preferred
Technology
Environment
Capability
Higher cost, wages
and tighter cash flow
Technology to
increase productivity
Eco-friendly
positioning will
differentiate
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• What would be the changes to
be made to:
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Manufacturing and operations
Purchasing and procurement
Human resource
Finance
Information technology
Marketing
▫ What do you increase,
accelerate, decrease,
eliminate and outsource?
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Resource allocation
decision that undermine
core strategy and culture
• Across-the-board spending
cuts versus focused and
measured actions
• Quick fixes to preserve cash
flow, putting key
stakeholders at risks
• Reducing marketing, brand
and new product
development expenses
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Declining sales and price
discounting
• Decoupling from customers by
reducing sales-related
expenses
• Cutting back on training and
development expenses in
economic crises
• Undervaluing suppliers and
distributors
• Retrenching employees
arbitrarily
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• Before the strategic response could be
executed it would be important to
ensure the implementation plan to be
drawn up
• Communication is very important to
ensure the objectives of the changes are
understood by the team and the endgame is clear
• The roles, responsibilities and authority
of key team members should be clarified
• Appropriate performance measures
should be developed to track progress
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
• The change and transformation
process need to be monitored to
ensure progress or lack of progress
could be understood
• Actual results could also be different
than what was planned or the ground
could have shifted again
• The leadership should be seriously
involved in this process and timely
appropriate response could be made
with the involvement of the leaders
Competitiveness Through Innovation and Strategy
Value Creation and Business Sustainability
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Can you innovate and compete alone?
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
An
enterprise
vertically
structured
Vertical
Integration?
Market 1
Direct
present
Market 3
Market 2
Direct
present
Direct
present
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
An
Enterprise
leveraging
on network
Service
Platform
Owner
NetworkCentric?
Market 1
Direct
present
Market 3
Market 2
Network
Partner
Network
Partner
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
Business
Services
Firm 3
Business
Services
Firm 1
Subject
Matter
Expert
Knowledge
provider
Yes, we have solutions!
Problems
Business
Services
Firm 2
Sorry, no capability
Clients
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
Network-Centric Competition Principles
Principles of NetworkCentric Competition 1
Description
Examples
Shared goals and
objectives
Common goals bring
network members
together
Customers community
Shared “world view”
Common assumptions,
mental models
Open Source Community
“Social” knowledge
creation
Interaction among
members as basis of value
creation
Inventor networks
Architecture of
participation
Systems, mechanisms,
processes to participate
Open source community
1 – Adapted from the Principles of Network-Centric Innovation, The Global Brain, Nambisan and Sawhney
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
Network-Centric Competition Management Features
Network-Centric
Elements
Features
Network leadership
Orchestrating the behaviour of network members and
network activities in creating value to clients
Network governance
A clear articulation of the roles and responsibilities of the
members in the network
Supporting
infrastructure
Knowledge management, project management, technology
platforms, business tools etc which are core to the USP of
the network
Intellectual property
management and value
appropriation protocols
Cover how intellectual property is developed, owned and
shared as well as the value created through the use of the
IPs are shared
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
Business
Partner
New services to new clients based on partner’s
capabilities
New
Clients
New services based on partner’s capabilities
Business
Services
Firm
Existing services based on existing capabilities
Existing
Clients
New services based on newly acquired capabilities
Business
Partner
New services to new clients based on partner’s
capabilities and new distribution channels
New
Clients
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Could an enterprise build strategic
relationships with like-minded
enterprises to serve common
customers or markets?
• What would bind these enterprises
together?
• Who should lead the network? What
are the reasons for this right of
leadership?
• How would the members of the
network benefit from the network?
• How should an enterprise structure
itself internally to be effective in the
network?
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Leadership – willingness to share
strategic issues and rely on network
partners based on agreed
parameters
• Team – ability to understand the
strategic relationship and execute
plans holistically, need to do away
with “Not Invented Here” and “We
Know Everything” syndromes
• Internal processes and procedures
need to be change to accommodate
the network-centric strategy –
training and re-training needed
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• The Big-4 accounting firms are competing on
Network-to-Network basis
▫ Global leadership but innovative structure to
accommodate various domestic regulation
▫ Offers diversified range or services and some do not
identify themselves as accounting practices but just
by their brands
▫ Experts need not necessarily reside in all firms but
could be brought into the picture from various
offices and jurisdictions
▫ Share knowledge-base, intellectual assets, business
platforms but RISKS are confined to respective
jurisdictions
▫ Sharing P&L on regional basis
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Boeing 787 Dreamliner project:
▫ Boeing (network leader) assembled global partners
it trust to create the plane, from concept to
production
▫ Designs and development not only outsourced to
partners, they made financial investment as well
▫ Part of the strategy to shift Boeing from being a
manufacturer to a designer and assembler of
airplanes
▫ Facilitated by a sophisticated virtual Global
Collaboration Environment system
▫ Trust and shared understanding developed across all
members of the network
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Salesforce.Com – Leader in software as a
service
• Salesforce.Com offers CRM system and
provides the platform for external developers
to build applications on
• The network leader is Salesforce who own
the technology and make decisions on the
platform
• Partners develop applications that
compliment the core CRM and manage their
on IPs
Competitiveness Through Innovation and Strategy
Network-Centric Value Creation
• Li & Fung – world largest sourcing company
which does not own a single factory
• It assumes itself as a “network orchestrator”,
working with more than 8,300 suppliers serve
by more than 70 outsourcing offices in more
than 40 countries and territories
• Li & Fung develops and manages networks and
designs and manages specific supply chain to
meet specific customer needs
Competitiveness Through Innovation and Strategy
Case studies of the application of NetworkCentric strategy
• The principles applied by Li & Fung in
orchestrating network are:
▫ Design and manage networks – competing
through networks, the best supply chain will win
▫ Control through empowerment –
empowerment, trust, training and certification
to bind the network together, entrepreneurship
is encouraged
▫ Create value through integration – bridging
borders and leveraging on company’s value and
intellectual property across the network
Competitiveness Through Innovation and Strategy
Case studies of the application of NetworkCentric strategy
• InnoCentive – an open innovation community which
provide solutions to tough business, science and
product development
• Launched by pharmaceutical giant Eli Lilly, a match
making system links experts to unsolved R&D
problems, allowing link to global experts without the
need to hire them
• This approach recognises the fact that not all the
smart people in the world works for a particular
organisation
Competitiveness Through Innovation and Strategy
Case studies of the application of NetworkCentric strategy
• International Enterprise Singapore iPartners
programme
• Encourages Singapore companies to band together in
pursuing international projects
• This would allow the consortia to:
▫ Combine resources
▫ Provide holistic solutions to customers
▫ Achieve economic of scale
• Lead by anchor companies which act as network
leader and orchestrate the activities of the network
members
• Aims to secure more than $3 billion in the next 5 years
Competitiveness Through Innovation and Strategy
Moving Forward Thoughts
• The sustainability of a
business is dependent on
how far it could continue to
create value to the market it
serves and be relevant to the
surrounding community
• In deciding the strategy to be
competitive, risks in the
areas of demand,
competition and capabilities
need to be mitigated
Competitiveness Through Innovation and Strategy
Moving Forward Thoughts
• The environment in which
we are living in would
continue to change rapidly
driven by politics, economy,
social, technology and
environmental matters
• Building the capabilities to
take opportunity from chaos
would be key to value
creation and business
sustainability
Competitiveness Through Innovation and Strategy
Moving Forward Thoughts
• Leveraging on network of like
minded businesses and
capabilities would provide the
flexibility and speed to serve
the market
• This require new paradigm and
skill sets in managing different
relationships and value
propositions
• Doing nothing is definitely
risky!
Competitiveness Through Innovation and Strategy