Lecture-4
Elements of strategic management
Thepul Ginige
Elements of Strategic Management
• Role of IT
• Innovation
• Competitive intelligence
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Competitive Intelligence
• Internet
• Competitive strategy and sustainable
advantage
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Porter’s Competitive Forces Model
• One of the most well-known frameworks for
analyzing competitiveness is Porter’s
competitive forces model.
• The company must confront five competitive
forces.
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Porter’s Competitive Forces Model
•
1.
2.
3.
4.
5.
The five major forces can be generalized as
follows:
The bargaining power of customers
The bargaining power of suppliers
The threat of substitute products and services
The challenge from competitors within the
industry
The threat of new entrants to firm’s market
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Eg: PORTER’S MODEL FOR KODAK
Bargaining power of customers:
Potential new entrants:
Foreign and US film
and camera
manufacturers
Consumers in small town, USA
Consumers in metropolitan areas in
USA
Canadian and Mexican consumers
Other foreign consumers
Kodak
Film and film
processing
Competitors:
Canon, Fuji Photo Film
and Nikon
Substitute products:
-Digital imaging
-Digital photos
-Photo-quality
- Digital printers
Bargaining power of suppliers:
U.S. film/camera component/imaging materials
manufacturers
Foreign film/camera component manufacturers
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Porter’s Competitive Forces Model
(cont’d)
• Competitive strategies:
1. Cost leadership strategy: Producing
products/services at the lowest cost in the
industry. Ex: Wal-Mart.
2. Differentiation strategy: Distinguish the
products and services from those of its
competitors. Ex: Apple.
3. Innovation strategy: Finding new ways of
doing business. Ex: Amazon.com.
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Competitive strategies (cont’d):
4. Growth strategies: Managing regional and
global business expansion. Ex: Wal-Mart.
5. Alliances: Working with business partners. Ex:
Drugstore.com (online pharmacy) and General
Nutrition Centers (GNC) (distributor of
vitamins and health foods) formed a
partnership that gave Drugstore.com the
exclusive rights to sell GNC-branded products.
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Examples of businesses defending themselves
against the five competitive forces:
• Via the Internet and other telecommunication networks, Fedex
offers self-tracking of packages, thereby reducing the chance of
new companies entering the overnight delivery business.
• Automobile manufacturers use computerized quality-control
systems to make steel producers (the suppliers) more aware of
quality and reduce their bargaining power.
• J.C. Penny uses an information system which allows its male
customers to select fabric, cut and size at J.C. Penny store and
obtain a custom-made suit in a week, thus reducing the
customer’s bargaining power.
• Many computer companies provide their customers with free
software and other computer services, thus reducing the
customer’s bargaining power.
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Domino’s Pizza’s Competitive Strategy
1. Customer dials
a special number
2. The calls are received at the
AT&T Store Locator Service Node.
3. Using an automotive number
identification system, the Store Locator finds
the address of the caller. The computer
then matches the caller’s address with the
nearest open Domino’s Pizza restaurant.
6. Delivery
5. An employee at the restaurant picks up
the phone, talks with the customer, and arranges the delivery.
4. Dials the restaurant.
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Use of Porter’s Model
•
•
•
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List players
Analyze business drivers
develop a strategy
Investigate supportive information
technologies
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Value Chain Model
• According to Porter’s Value chain model, the
activities conducted in any manufacturing
organizations can be divided into two parts:
– Primary activities
– Support activities.
• This model highlights the primary or support activities
that add a margin of value to a firm’s products and
services where IT can best be applied to achieve a
competitive advantage.
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Value Chain Model
• Primary activities are most directly related to
the production and distribution of the firm’s
products and services that create value for the
customer. There are five primary activities.
• Support activities support the primary above
five activities. There are four supportive
activities.
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Porter’s Value Chain Analysis Model Primary Activities
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•
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Inbound logistics
Operations
Outbound logistics
Marketing / sales
Service
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• Inbound logistics – These are all the processes
related to receiving, storing, and distributing
inputs internally. Your supplier relationships
are a key factor in creating value here.
• Operations – These are the transformation
activities that change inputs into outputs that
are sold to customers. Here, your operational
systems create value.
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• Outbound logistics – These activities deliver your
product or service to your customer. These are
things like collection, storage, and distribution
systems, and they may be internal or external to
your organization.
• Marketing and sales – These are the processes you
use to persuade clients to purchase from you
instead of your competitors. The benefits you offer,
and how well you communicate them, are sources
of value here.
• Service – These are the activities related to
maintaining the value of your product or service to
your customers, once it's been purchased.
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Porter’s Value Chain Analysis Model Support Activities
•
•
•
•
Procurement
Human resource management
Technology department
Administrative Coordination and Support
Services (Firm infrastructure)
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• Procurement (purchasing) – This is what the
organization does to get the resources it needs
to operate. This includes finding vendors and
negotiating best prices.
• Human resource management – This is how
well a company recruits, hires, trains,
motivates, rewards, and retains its workers.
People are a significant source of value, so
businesses can create a clear advantage with
good HR practices.
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• Technological development – These activities
relate to managing and processing information,
as well as protecting a company's knowledge
base. Minimizing information technology costs,
staying current with technological advances,
and maintaining technical excellence are
sources of value creation.
• Firm Infrastructure – These are a company's
support systems, and the functions that allow it
to maintain daily operations. Accounting, legal,
administrative, and general management are
examples of
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The value chain of a firm
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Managerial Issues
• Implementing strategic information systems can
be risky
• Strategic information systems require planning
• Sustaining competitive advantage is challenging
• Ethical issues
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ERP – Why do they Fail?
1.Is it needed ? (Integration vs. Standardization)
2.Ineffective Stakeholder Management and
Change Management
3.Bad data (GIGO)
4.No clear objective/ destination
5.Lack of a proper Project Plan/ Management
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ERP – Why do they Fail? Contd..
6.Customization
7.Under-estimating the resource requirement
8.Inadequate Internal resources
9.Insufficient testing
10.Insufficient Training and Education
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Using IT for Strategic Advantage
• IT can be used
-
to build a customer focused business
to reengineer business processes
to improve quality
to become an agile company
to form a virtual company
To build a knowledge-creating company
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Customer focused business
• Develop a focus on the customer
– Customer value
•
•
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•
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Best value
Understand customer preferences
Track market trends
Supply products, services, & information anytime, anywhere
Tailored customer service
• Think how do you use IT to build a customer-focused
business in your organization?
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Reengineering the processes
• Business Process Reengineering (BPR)
– Rethinking & redesign of business processes
– Combines innovation and process improvement
– There are risks involved.
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BEFORE REENGINEERING
A mortgage applicant
Filling out a
paper
loan application
Bank
Specialists
Entering the
application
into its computer
system
Accessing
the application
individually
closing
approved
17 DAYS
AFTER REENGINEERING
Loan originators
Entering the
Mortgagee
application into
Laptop computers
Software
Checking the
Application
transaction
2 DAYS
Specialists
Accessing
the application
electronically
together, as a team
closing
approved
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Improving quality
• Total Quality Management (TQM)
– Quality from customer’s perspective
– Meeting or exceeding customer expectations
– Commitment to:
•
•
•
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Higher quality
Quicker response
Greater flexibility
Lower cost
• IT can help firms to achieve quality goals by helping them simplify
products or processes, make improvements based on customer
demands, reduce cycle time and increase the quality of design and
production.
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Agile company
• Old businesses: Low cost, low price, mass production, economy
of scale.
• New businesses: Global competition, sophisticated customers,
customized production.
• An agile companies are fast moving, flexible and robust firm
capable of offering customized production, product variety,
bring products based on rapid response to unexpected
challenges, events, and opportunities to market rapidly and cost
effectively.
Ex: Dell Computers is an agile competitor.
• It heavily depends on IT. Ex: Flexible Manufacturing Systems
(FMS) help companies become an agile competitor.
• A business can use IT to become an agile company.
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Virtual company
• IT makes the virtual corporation possible.
• A virtual company is an organization that uses IT
to link people, assets, and ideas to create and
distribute products and services without being
limited to physical locations or traditional
boundaries.
Ex: JetBlue Airways Corporation
,commonly called jetBlue, is an American
low-cost airline.
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Virtual company
• Major attributes of VC:
• Each partner brings its core competency so anall star winning team is created.
• No single company can match what the VC
can achieve.
• Resources of the business partners can be put
to use more profitably.
• It is difficult to identify the boundaries of a
VC.
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Building a Knowledge-creating company
• Knowledge management enable companies to
learn faster than their competitors giving them
a sustainable competitive advantage.
• The goal of knowledge management systems is
to help organizations create, organize and
make available important business knowledge
whenever and wherever it’s needed in an
organization.
• KMSs collect all relevant knowledge and
experience in the firm and make it available
whenever and wherever it is needed to support
management decisions and business processes.
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What is Knowledge?
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Personalized information
State of knowing and understanding
An object to be stored and manipulated
A process of applying expertise
A condition of access to information
Potential to influence action
Sources of Knowledge of an Organization
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Intranet
Data warehouses and knowledge repositories
Decision support tools
Groupware for supporting collaboration
Networks of knowledge workers
Internal expertise
Definition of KMS
• A knowledge management system comprises
a range of practices used in an organization to
identify, create, represent, distribute, and
enable adoption to insight and experience.
Such insights and experience comprise
knowledge, either embodied in individual or
embedded in organizational processes and
practices.
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Purpose of KMS
Improved performance
Competitive advantage
Innovation
Sharing of knowledge
Integration
Continuous improvement by:
– Driving strategy
– Starting new lines of business
– Solving problems faster
– Developing professional skills
– Recruit and retain talent