Corporate culture refers to the character of a company’s internal work climate and personality –as shaped by its core values, beliefs, business principles, traditions,ingrained behaviours, work practices, and style of operating. It is important because it influences the organization’s actions and approaches to conducting business. It is like company’s “operating system” or organizational DNA.
Key features of a company’s corporate culture are as follows: (1) the values, business principles, and ethical standards, (2) the company’s approach to people management and the official policies, procedures, and operating practices, (3) the spirit and character that pervades the work climate, (4) how managers and employees interact
and relate to each other, (5) the strength of peer pressures to do things in particular ways and conform to expected norms, (6) the company’s revered traditions and offrepeated stories about “heroic acts” and “how we do things around here.” (7) the manner in which the company deals with external stakeholders.
Company cultures vary widely in strength and influence. In a strong-culture company, culturally approved behaviours and ways of doing things are nurtured while culturally disapproved behaviors and work practices get squashed. In a strong culture company values and behavioral norms are like crabgrass: deeply rooted and hard to weed out. In direct contract, weak-culture companies lack values and principles that are consistently preached or widely shared. As a consequence, weak cultures provide little or no assistance in executing strategy because there are no traditions, beliefs, values, common bonds, or behavioral norms that management can use as levers to mobilize commitment to executing the chosen strategy.
However there can be unhealthy cultures that prevent the company in promoting the strategic execution:
1. A highly politicized internal environment in which many issues get resolved and decisions made on the basis of which individuals or groups have the most political clout to carry the day.
2. Hostility to change and a general wariness of people who champion new ways of doing things.
3. An insular “not-invented-here” mind-set that makes company personnel averse to looking outside the company for best practices, new managerial approaches, and innovative ideas.
4. A disregards for high ethical standards and overzealous pursuit of wealth and status on the part of key executives.
On the contrary, there are also some cultures that can highly promote the strategic execution:
1. A high performance culture where the standout culture traits are a can-do spirit, no-excuses accountability, and a pervasive result-oriented work climate where people go the extra mile to meet or beat stretch objectives.
2. Adaptive culture where there is a spirit of doing what’s necessary to ensure long-term organizational success provided the new behaviours and operating practices that management is calling for are seen as legitimate and consistent with the core values and business principles underpinning the culture. It is well suited to companies with fast-changing strategies and market environments.
Though changing a problem culture is among the toughest management tasks, but the good news is that it can be done. These are steps in changing a problem culture:
Step 1 : Identify facets of present culture that are conducive to strategy execution and operating excellence and those that are not.
Step 2 : Specify what new actions, behaviours, and work practices should be prominent in the “new” culture
Step 3 : Talk openly about problems of present culture and how new behaviors will improve performance
Step 4 : Follow with visible, forceful actions –both substantive and symbolic- to ingrain a new set of behaviors, practices, and cultural norms.
A company’s culture is grounded in and shaped by its core values and the bar it sets for ethical behavior. The benefits of cultural norms grounded in core values and ethical principles are: (a) Communicates the company’s goal intentions and validates the integrity and above board nature of the company’s conduct of its business, (b)
steers company personnel toward doing things right and doing the right things, (c)establishes a corporate conscience and provides yardsticks for gauging the appropriateness of particular actions, decisions, and policies.
A multinational company needs to build its corporate culture around values and operating practices that travel well across borders. The leadership challenge in achieving consistently good strategy execution ultimately boils down to two things:deciding when corrective adjustments are needed and deciding what adjustments to make.
Source: Thompson, Crafting and Executing Strategy, Chapter 12.
Sabtu, 01 Mei 2010
Rabu, 14 April 2010
Managing Internal Operations: Actions That Promote Good Strategy Execution
A company’s ability to marshal the resources needed to support new strategic initiatives and steer them to the appropriate organizational units has a major impact on the strategy execution process. The funding requirements of a new strategy must drive how capital allocations are made and the size of each unit’s operating budgets.
Underfunding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence. A change in strategy of a push for better strategy execution generally requires some changes in work practices and the behavior of company personnel. Well-conceived policies and procedures aid strategy execution: out-of-sync ones are barriers.
Prescribing new policies and operating procedures acts to facilitate strategy execution in three ways:
1. Instituting new policies and procedures provides top-down guidance regarding how certain things now need to be done.
2. Policies and procedures help enforce needed consistency in how particular strategy-critical activities are performed in geographically scattered operating units.
3. Well-conceived policies and procedures promote the creation of a work climate that facilitates good strategy execution.
Managerial efforts to identify and adopt best practices are a powerful tool for promoting operating excellence and better strategy execution. A best practice is any practice that at least one company has proved works particularly well. Benchmarking is the backbone of the process of identifying, studying, and implementing outstanding practices.
In striving for operating excellence, many companies have also come to rely on three other potent management tools: business process reengineering, Six Sigma quality control technique, and total quality management (TQM) programs.
The difference amont those three is that business process reengineering aims at one-time quantum improvement; continous improvement programs like TQM and Six Sigma aim at ongoing incremental improvement. Indeed, these three tools have become globally pervasive techniques for implementing strategies keyed to cost reduction, defect-free
manufacture, superior product quality, superior customer service, and total customer satisfaction.
The purpose of using benchmarking, best practices, business process reengineering,TQM, Six Sigma, or other operational improvement programs is to improve the performance of strategy-critical. Well-conceived state-of-the-art operating systems not only enable better strategy execution but also strengthen organizational capabilities – perhaps enough to provide a competitive edge over rivals. Information system need to cover five broad areas: (1) customer data, (2) operation data, (3) employee data, (4) supplier/partner/collaborative ally data, and (5) financial performance data. Realtime information systems permit company managers to stay on top of implementation initiatives and daily operations, and to intervene if things seem to be drifting off course. Having good information systems and operating data is integral to competent stategy execution and operating excellence.
Tying rewards and incentives to strategy execution should also be planned well. A properly designed reward structure is management’s most powerful tool for mobilizing organizational commitment to successful strategy execution. One of
management’s biggest strategy-executing challenges is to employ motivational techniques that build wholehearted commitment to operating excellence and winning attitudes among employees. A properly designed reward system allign the well-being of organization members with their contributions to competent strategy execution and the achievement of performance targets. The role of the reward system is to allign the well-being of organization members with realizing the company’s vision, so that organization members benefit by helping the company execute its strategy competently and fully satisfy customers.
The related case to this theory is what happen in Jones Lang LaSalle: Reorganizing around the Customer. Jones LaSalle is a real estate advice and transaction services provider company which focused on providing premier service to its targeted customer base. Due to the increasing competition among the real estate because of globalization and information penetration, the company was forced to changed their strategic to more focus on giving value for customer (more responsive to customers); what they really want and how the company can really give what the customer need. So they create an integrated services business.
By the change of the business strategy Jones LaSalle had to do business process reengineering, which in the previous application they focused on the product but now they start selling solution, changed the bonus and incentive/reward system to be more challenging. Instead of based on business unit performance, they tied the reward system to the customer satisfaction and market profitability. The company also start to put information system in place to help the business units getting the needed information to make decision.
Source: Thompson, Crafting and Executing Strategy, Chapter 11
Underfunding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence. A change in strategy of a push for better strategy execution generally requires some changes in work practices and the behavior of company personnel. Well-conceived policies and procedures aid strategy execution: out-of-sync ones are barriers.
Prescribing new policies and operating procedures acts to facilitate strategy execution in three ways:
1. Instituting new policies and procedures provides top-down guidance regarding how certain things now need to be done.
2. Policies and procedures help enforce needed consistency in how particular strategy-critical activities are performed in geographically scattered operating units.
3. Well-conceived policies and procedures promote the creation of a work climate that facilitates good strategy execution.
Managerial efforts to identify and adopt best practices are a powerful tool for promoting operating excellence and better strategy execution. A best practice is any practice that at least one company has proved works particularly well. Benchmarking is the backbone of the process of identifying, studying, and implementing outstanding practices.
In striving for operating excellence, many companies have also come to rely on three other potent management tools: business process reengineering, Six Sigma quality control technique, and total quality management (TQM) programs.
The difference amont those three is that business process reengineering aims at one-time quantum improvement; continous improvement programs like TQM and Six Sigma aim at ongoing incremental improvement. Indeed, these three tools have become globally pervasive techniques for implementing strategies keyed to cost reduction, defect-free
manufacture, superior product quality, superior customer service, and total customer satisfaction.
The purpose of using benchmarking, best practices, business process reengineering,TQM, Six Sigma, or other operational improvement programs is to improve the performance of strategy-critical. Well-conceived state-of-the-art operating systems not only enable better strategy execution but also strengthen organizational capabilities – perhaps enough to provide a competitive edge over rivals. Information system need to cover five broad areas: (1) customer data, (2) operation data, (3) employee data, (4) supplier/partner/collaborative ally data, and (5) financial performance data. Realtime information systems permit company managers to stay on top of implementation initiatives and daily operations, and to intervene if things seem to be drifting off course. Having good information systems and operating data is integral to competent stategy execution and operating excellence.
Tying rewards and incentives to strategy execution should also be planned well. A properly designed reward structure is management’s most powerful tool for mobilizing organizational commitment to successful strategy execution. One of
management’s biggest strategy-executing challenges is to employ motivational techniques that build wholehearted commitment to operating excellence and winning attitudes among employees. A properly designed reward system allign the well-being of organization members with their contributions to competent strategy execution and the achievement of performance targets. The role of the reward system is to allign the well-being of organization members with realizing the company’s vision, so that organization members benefit by helping the company execute its strategy competently and fully satisfy customers.
The related case to this theory is what happen in Jones Lang LaSalle: Reorganizing around the Customer. Jones LaSalle is a real estate advice and transaction services provider company which focused on providing premier service to its targeted customer base. Due to the increasing competition among the real estate because of globalization and information penetration, the company was forced to changed their strategic to more focus on giving value for customer (more responsive to customers); what they really want and how the company can really give what the customer need. So they create an integrated services business.
By the change of the business strategy Jones LaSalle had to do business process reengineering, which in the previous application they focused on the product but now they start selling solution, changed the bonus and incentive/reward system to be more challenging. Instead of based on business unit performance, they tied the reward system to the customer satisfaction and market profitability. The company also start to put information system in place to help the business units getting the needed information to make decision.
Source: Thompson, Crafting and Executing Strategy, Chapter 11
Selasa, 13 April 2010
Building an Organization Capable of Good Strategy Execution
Once managers have decided on a strategy, the emphasis turns to converting it into actions and good results. Executing strategy is an action-oriented, make-thing happen task that tests a manager’s ability to direct organization change, achieve continous improvement in operations and business processes, create and nurture a strategy-supportive culture, and consistently meet or beat performance target.
The challenge of sucessfully implementing new strategic initiatives goes well beyond managerial adeptness in overcoming resistance to change. Executing strategy is a job for the whole management team. Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are participants in the strategy execution process.
A Framework for Executing Strategy
Executing strategy entails figuring out all of the hows – the specific techniques, actions and behaviours that are needed for a smooth strategy-supportive operation – and then following through to get things done and deliver result. The eight principal managerial components of the strategy execution process are:
1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling sufficient money and people behind the drive for strategy execution.
3. Instituting policies and procedures that facilitate rather than impede strategy execution.
4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution.
7. Instilling a corporate culture that promotes good strategy execution.
8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating exellence as rapidly as feasible.
There are three types of organization-building capable of good strategy execution:
1. Staffing the organization :
Putting together a strong management team
Recruiting and retaining capable employees
2. Building core competencies and competitive capabilities :
Developing a set of competencies and capabilities suited to the current strategy
Updating and revising this set as external conditions and strategy change
Training and retraining company personnel as needed to maintain skills-based competencies
3. Structuring the organization and work effort :
Instituting organizational arrangements that facilitate good strategy execution.
Deciding how much decision-making authority to push down to lower level managers and frontline employees.
The application of the theory above can be viewed further in the “Whole Food Market.” Today it operates 194 stores and generates nearly $6 billion a year in sales, whish is also Americs’ most profitable food retailer when measured b profit per square foot. The key success of Whole Food Market is the result of the concept
creating community of purpose where the cofounder, chairman, and CEO John Mackery intend to create an organization based on love instead of fear : create value for others.
Its unique management system is based on a nexus of distinctive management principles: Love, Community, Autonomy, Egalitarianism, Transparency, Mission. The organization type is small empowered work groups who are granted a degree of autonomy decision making, such as the selection of the peer/applicant, also for all key operating decisions including pricing, ordering, staffing, and in-store promotion.
The transparancy exists due to the trust (“no-secrets” management philosophy) inside the organization, enable every staff can have access to the detail financial data which helps them to make decisions on issues liek ordering and pricing, also to encourage them to perform better by comparing their salary/incentive among the
other teams.
To futher reinvorce the notions of community and interdependence, every Whole Foods meeting ends with a round of “appreciation,” as a chance to exercise higher order capabilities – initiative, imagination, and passion. Communities is built around the shared sense of purpose (mission), as they have mantra: “Whole Foods, Whole
People, Whole Planet.”
The unconventional management model is effective to bring Whole Food Market has been ranked as one of Fortune magazine’s “100 Best Companies to Work For” every year since 1998. In 2007, it was voted as the 5th most rewarding place to work in America. Turns out that management innovation really can help a company overcome the disengagement and malaise that is endemic in traditionally managed workplaces. It is harder for competitors to imitate.
Source: Thompson, Crafting and Executing Strategy, Chapter 9
The challenge of sucessfully implementing new strategic initiatives goes well beyond managerial adeptness in overcoming resistance to change. Executing strategy is a job for the whole management team. Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are participants in the strategy execution process.
A Framework for Executing Strategy
Executing strategy entails figuring out all of the hows – the specific techniques, actions and behaviours that are needed for a smooth strategy-supportive operation – and then following through to get things done and deliver result. The eight principal managerial components of the strategy execution process are:
1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling sufficient money and people behind the drive for strategy execution.
3. Instituting policies and procedures that facilitate rather than impede strategy execution.
4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution.
7. Instilling a corporate culture that promotes good strategy execution.
8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating exellence as rapidly as feasible.
There are three types of organization-building capable of good strategy execution:
1. Staffing the organization :
Putting together a strong management team
Recruiting and retaining capable employees
2. Building core competencies and competitive capabilities :
Developing a set of competencies and capabilities suited to the current strategy
Updating and revising this set as external conditions and strategy change
Training and retraining company personnel as needed to maintain skills-based competencies
3. Structuring the organization and work effort :
Instituting organizational arrangements that facilitate good strategy execution.
Deciding how much decision-making authority to push down to lower level managers and frontline employees.
The application of the theory above can be viewed further in the “Whole Food Market.” Today it operates 194 stores and generates nearly $6 billion a year in sales, whish is also Americs’ most profitable food retailer when measured b profit per square foot. The key success of Whole Food Market is the result of the concept
creating community of purpose where the cofounder, chairman, and CEO John Mackery intend to create an organization based on love instead of fear : create value for others.
Its unique management system is based on a nexus of distinctive management principles: Love, Community, Autonomy, Egalitarianism, Transparency, Mission. The organization type is small empowered work groups who are granted a degree of autonomy decision making, such as the selection of the peer/applicant, also for all key operating decisions including pricing, ordering, staffing, and in-store promotion.
The transparancy exists due to the trust (“no-secrets” management philosophy) inside the organization, enable every staff can have access to the detail financial data which helps them to make decisions on issues liek ordering and pricing, also to encourage them to perform better by comparing their salary/incentive among the
other teams.
To futher reinvorce the notions of community and interdependence, every Whole Foods meeting ends with a round of “appreciation,” as a chance to exercise higher order capabilities – initiative, imagination, and passion. Communities is built around the shared sense of purpose (mission), as they have mantra: “Whole Foods, Whole
People, Whole Planet.”
The unconventional management model is effective to bring Whole Food Market has been ranked as one of Fortune magazine’s “100 Best Companies to Work For” every year since 1998. In 2007, it was voted as the 5th most rewarding place to work in America. Turns out that management innovation really can help a company overcome the disengagement and malaise that is endemic in traditionally managed workplaces. It is harder for competitors to imitate.
Source: Thompson, Crafting and Executing Strategy, Chapter 9
Senin, 12 April 2010
Diversification : Strategies for Managing a Group of Businesses
In a diversified company, the strategy-making challenge involves assessing multiple industry environment and developing a set of business strategies, one for each industry arena in which the diversified company operates.
The task of crafting a diversified company’s overall of corporate strategy falls squarely in the lap of top-level executives and involves four distinct facets:
1. Picking new industries to enter and deciding on the means of entry.
2. Initiating actions to boost the combined performance of the businesses the firm has entered.
3. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage.
4. Establishing investment priorities and steering corporate resources into the most attractive business units.
So long as a company has its hands full trying to capitalize on profitable growth opportunities in its present industry, there is no urgency to pursue diversification.
There are four other instances in which a company becomes a prime candidate for diversifying:
1. When it spots opportunities for expanding into industries whose technologies and products complement its present business.
2. When it can leverage existing competencies and capabilities by expanding into business where these same resources strengths are key success factors and valuable competitive assets.
3. When diversifying into closely related business opens new avenues for reducing costs.
4. When it has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such business.
A move to diversify into a new business must pass there tests: (1) the industry attractiveness test, (2) the cost-of-entry test, (3) the better-off test. Diversification moves that satisfy all three tests have the greatest potential to grow shareholder value over the long term.
The means of entering new businesses can take any of three forms: acquisition, internal start-up, or joint ventures with other companies. The biggest drawbacks to entering an industry by forming an internal start-up are the costs of over-coming entry barriers and the extra time it takes to build a strong and profitable competitive position.
There are three diversification strategy options:
1. Diversified into related businesses
Enhance shareholder value by capturing cross-business strategic fits:
- Transfer skills and capabilities from one business to another.
- Share facilities or resources to reduce costs.
- Leverage use of a common brand name.
- Combine resources to create new strengths and capabilities.
2. Diversified into unrelated businesses
- Spread risks across completely different business
- Build shareholder value by doing superior job of choosing businesses to diversify into and of managing the whole collection of businesses in the company’s portfolio.
3. Diversified into both related and unrelated business.
Strategic fit exists when the value chains of different businesses present opportunities for cross-business resource transfer, lower costs through combining the performance of related value chain activities, cross-business use of a potent brand name, and cross-business collaboration to build new or stronger competitive capabilities. Cross-business strategic fits can exist anywhere along the value chain: in R&D and technology activities, in supply chain activities and relationships with suppliers, in manufacturing, in sales and marketing, in distribution activities, or in administrative support activities.
The procedure for evaluating the pluses and minuses of a diversified company’s strategy and deciding what actions to take to improve the company’s performance involves six steps:
1. Assessing the attractiveness of the industries the company has diversified into, both individually and as a group.
2. Assessing the competitive strength of the company’s business units and determining how many are strong contenders in their respective industries.
3. Checking the competitive advantage potential of cross-business strategic fits among the company’s various business units.
4. Checking whether the firm’s resources fit the requirements of its present business lineup.
5. Ranking the performance prospects of the businesses from best to worst and determine what the corporate parent’s priority should be in allocating resources to its various businesses.
6. Crafting new strategic moves to improve overall corporate performance.
A company’s five main strategic alternatives after it diversifies:
1. Stick closely with the existing business lineup.
2. Broaden the diversification base.
3. Divest some businesses and retrench to a narrower diversification base.
4. Restructure the company’s business lineup through a mix of divestitures and new acquisitions.
5. Pursue multinational diversification.
Source: Crafting and Executing Strategy, Chapter 8.
The task of crafting a diversified company’s overall of corporate strategy falls squarely in the lap of top-level executives and involves four distinct facets:
1. Picking new industries to enter and deciding on the means of entry.
2. Initiating actions to boost the combined performance of the businesses the firm has entered.
3. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage.
4. Establishing investment priorities and steering corporate resources into the most attractive business units.
So long as a company has its hands full trying to capitalize on profitable growth opportunities in its present industry, there is no urgency to pursue diversification.
There are four other instances in which a company becomes a prime candidate for diversifying:
1. When it spots opportunities for expanding into industries whose technologies and products complement its present business.
2. When it can leverage existing competencies and capabilities by expanding into business where these same resources strengths are key success factors and valuable competitive assets.
3. When diversifying into closely related business opens new avenues for reducing costs.
4. When it has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such business.
A move to diversify into a new business must pass there tests: (1) the industry attractiveness test, (2) the cost-of-entry test, (3) the better-off test. Diversification moves that satisfy all three tests have the greatest potential to grow shareholder value over the long term.
The means of entering new businesses can take any of three forms: acquisition, internal start-up, or joint ventures with other companies. The biggest drawbacks to entering an industry by forming an internal start-up are the costs of over-coming entry barriers and the extra time it takes to build a strong and profitable competitive position.
There are three diversification strategy options:
1. Diversified into related businesses
Enhance shareholder value by capturing cross-business strategic fits:
- Transfer skills and capabilities from one business to another.
- Share facilities or resources to reduce costs.
- Leverage use of a common brand name.
- Combine resources to create new strengths and capabilities.
2. Diversified into unrelated businesses
- Spread risks across completely different business
- Build shareholder value by doing superior job of choosing businesses to diversify into and of managing the whole collection of businesses in the company’s portfolio.
3. Diversified into both related and unrelated business.
Strategic fit exists when the value chains of different businesses present opportunities for cross-business resource transfer, lower costs through combining the performance of related value chain activities, cross-business use of a potent brand name, and cross-business collaboration to build new or stronger competitive capabilities. Cross-business strategic fits can exist anywhere along the value chain: in R&D and technology activities, in supply chain activities and relationships with suppliers, in manufacturing, in sales and marketing, in distribution activities, or in administrative support activities.
The procedure for evaluating the pluses and minuses of a diversified company’s strategy and deciding what actions to take to improve the company’s performance involves six steps:
1. Assessing the attractiveness of the industries the company has diversified into, both individually and as a group.
2. Assessing the competitive strength of the company’s business units and determining how many are strong contenders in their respective industries.
3. Checking the competitive advantage potential of cross-business strategic fits among the company’s various business units.
4. Checking whether the firm’s resources fit the requirements of its present business lineup.
5. Ranking the performance prospects of the businesses from best to worst and determine what the corporate parent’s priority should be in allocating resources to its various businesses.
6. Crafting new strategic moves to improve overall corporate performance.
A company’s five main strategic alternatives after it diversifies:
1. Stick closely with the existing business lineup.
2. Broaden the diversification base.
3. Divest some businesses and retrench to a narrower diversification base.
4. Restructure the company’s business lineup through a mix of divestitures and new acquisitions.
5. Pursue multinational diversification.
Source: Crafting and Executing Strategy, Chapter 8.
Minggu, 11 April 2010
Strategies for Competiting in Foreign Markets
WHY COMPANIES EXPAND INTO FOREIGN MARKETS
Four major reason why company may opt to expand outside its domestic market:
1. To gain access to new customers
2. To achieve lower costs and enhance the firm’s competitiveness
3. To capitalize on its core competencies
4. To spread its business risk across a wider market base
FACTORS THAT SHAPE STRATEGY CHOICES IN FOREIGN MARKETS
1. Four important factors that shape a company’s strategic approach to competing in foreign
markets: The degree to which there are important cross-country differences in cultural, demographic, and market conditions;
2. Whether opportunities exist to gain competitive advantage based on whether a company’s activities are located in some countries rather than in others;
3. The risk of adverse shifts in currency exchange rates;
4. The extend to which the policies of foreign government lead to more favorable business environment in some countries than in other countries.
THE CONCEPTS OF MULTICOUNTRY COMPETITON AND GLOBAL COMPETITION
Multicountry competition exists when competition in one national market is localized and not closely connected to competition in another national market. When competition in each country differs in important respects, there is no gloval maret but rather a collection of self-contained country markets. Global competition exists when competition conditions across national markets are linked strong enough to form a true international market and when leading competitors compete head to head in many different countries. An industry can be in transition from multicountry competition to global competition.
STRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETS
There are host of generic strategic options for a company that decides to expand outside its domestic market and compete internationally or globally:
1. Maintain a national (one-country) production base ande export goods to foreign markets,
2. License foreign firms to use the company’s technology or to produce and distribute the company’s products,
3. Employ a franchising strategy,
4. Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering markets,
5. Follow a multicountry strategy,
6. Follow a global strategy.
THE QUEST FOR COMPETITIVE ADVANTAGE IN FOREIGN MARKETS
Three important ways in which a firm can gain competitive advantage by expanding outside its domestic market:
1. Use location to lower costs or achieve greater product differentiation,
2. Transfer competitively valuable competencies and capabilities from its domestic markets to foreign markets,
3. Use cross-border coordination in ways that a domestic-only competitor cannot.
STRATEGIES TO COMPETE IN THE MARKETS OF EMERGING COUNTRIES
Strategy options for emerging-country markets:
1. Prepare to compete on the basis of low price.
2. Be prepared to modify aspects of the company’s business model or strategy to accomodate local circumstances.
3. Try to change the local market to better match the way the company does business elsewhere.
4. Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accomodate local circumstances.
Strategies for local companies in emerging markets (defending against global giants):
1. Develop business models that exploit shortcomings in local distribution networks or infrastructure.
2. Utilize keen understanding of local customer needs and preferences to create customized products or services.
3. Take advantage of low-cost labor and other competitively important local workforce qualities.
4. Use acquisition and rapid growth strategies to better defend against expansion-minded multinationals.
5. Transfer company expertise to cross-border markets and initiate actions to contend on a global level.
Source: Crafting and Executing Strategy, Chapter 7
Four major reason why company may opt to expand outside its domestic market:
1. To gain access to new customers
2. To achieve lower costs and enhance the firm’s competitiveness
3. To capitalize on its core competencies
4. To spread its business risk across a wider market base
FACTORS THAT SHAPE STRATEGY CHOICES IN FOREIGN MARKETS
1. Four important factors that shape a company’s strategic approach to competing in foreign
markets: The degree to which there are important cross-country differences in cultural, demographic, and market conditions;
2. Whether opportunities exist to gain competitive advantage based on whether a company’s activities are located in some countries rather than in others;
3. The risk of adverse shifts in currency exchange rates;
4. The extend to which the policies of foreign government lead to more favorable business environment in some countries than in other countries.
THE CONCEPTS OF MULTICOUNTRY COMPETITON AND GLOBAL COMPETITION
Multicountry competition exists when competition in one national market is localized and not closely connected to competition in another national market. When competition in each country differs in important respects, there is no gloval maret but rather a collection of self-contained country markets. Global competition exists when competition conditions across national markets are linked strong enough to form a true international market and when leading competitors compete head to head in many different countries. An industry can be in transition from multicountry competition to global competition.
STRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETS
There are host of generic strategic options for a company that decides to expand outside its domestic market and compete internationally or globally:
1. Maintain a national (one-country) production base ande export goods to foreign markets,
2. License foreign firms to use the company’s technology or to produce and distribute the company’s products,
3. Employ a franchising strategy,
4. Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering markets,
5. Follow a multicountry strategy,
6. Follow a global strategy.
THE QUEST FOR COMPETITIVE ADVANTAGE IN FOREIGN MARKETS
Three important ways in which a firm can gain competitive advantage by expanding outside its domestic market:
1. Use location to lower costs or achieve greater product differentiation,
2. Transfer competitively valuable competencies and capabilities from its domestic markets to foreign markets,
3. Use cross-border coordination in ways that a domestic-only competitor cannot.
STRATEGIES TO COMPETE IN THE MARKETS OF EMERGING COUNTRIES
Strategy options for emerging-country markets:
1. Prepare to compete on the basis of low price.
2. Be prepared to modify aspects of the company’s business model or strategy to accomodate local circumstances.
3. Try to change the local market to better match the way the company does business elsewhere.
4. Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accomodate local circumstances.
Strategies for local companies in emerging markets (defending against global giants):
1. Develop business models that exploit shortcomings in local distribution networks or infrastructure.
2. Utilize keen understanding of local customer needs and preferences to create customized products or services.
3. Take advantage of low-cost labor and other competitively important local workforce qualities.
4. Use acquisition and rapid growth strategies to better defend against expansion-minded multinationals.
5. Transfer company expertise to cross-border markets and initiate actions to contend on a global level.
Source: Crafting and Executing Strategy, Chapter 7
Minggu, 04 April 2010
Supplementing the Chosen Competitive Strategy
STRATEGIC ALLIANCES AND PARTNERSHIPS
Strategic Alliances are collaborative arrangements where two or more companies join forces to
achieve mutual beneficial strategic outcomes. The competitive attraction of alliances is in allowing
companies to bundle competencies an resources that are more valuable in a joint effort than when
kept separate.
By joining forces in components production and/or final assembly, companies may be able to realize
cost savings not achievable with their own small volumes. The best alliances are highly selective,
focusing on particular value chain activites and on obtaining a particular competitive benefit. They
tend to enable a firm to build on its strengths and to learn.
Six factors of the extent to which companies benefit from entering alliances and partnerships:
1. Picking a good partner
2. Being sensitive to cultural differences
3. Recognizing that the alliance must benefit both sides
4. Ensuring that both parties live up to their commitments
5. Structuring the decision-making process so that actions can be taken swiftly when needed
6. Managing the learning process and then adjusting the alliance agreement overtime to fit
new circumstances.
MERGER AND ACQUISITION STRATEGIES
Combining the operations of two companies, via merger or acquisition, is an attractive strategic
option for achieving operating economies, strengthening the resulting company’s competencies and
competitiveness, and opening up avenues of new market opportunity. The five strategic objectives:
1. To create a more cost-efficient operation out of the combined companies
2. To expand a company’s geographic coverage
3. To extend the company’s business into new product category
4. To gain quick access to new technologies or other resources and competitive capabilities
5. To try to invent a new industry and lead the convergence of industries whose boundaries are
being blurred by changing technologies and new market opportunities.
VERTICAL INTEGRATION STRATEGIES: OPERATING ACROSS MORE STAGES OF THE INDUSTRY VALUE
CHAIN
Vertical integration extends a firm’s competitive and operating scope within the same industry. Its
strategies can aim at full integration (participating in all stages of the industry value chain) or partial
integration (building positions in selected stages of the industry’s total value chain). It has appeal
only if it significantly strengthens a firm’s competitive position.
OUTSOURCING STRATEGIES: NARROWING THE BOUNDARIES OF THE BUSINESS
Outsourcing involves farming out certain value chain activities to outside vendors. Two major
reasons for outsourcing: (1) outsiders can often perform certain activities better or cheaper and (2)
outsourcing allows a firm to focus its entire energies on those activities at the center of its expertise
(its core competencies) and that are the most critical to its competitive and financial success.
BUSINESS STRATEGY CHOICES FOR SPECIFIC MARKET SITUATION
Different strategies should be applied to these six commonly encountered types of market
conditions:
1. Freshly emerging markets
2. Rapidly growing markets
3. Mature, slow-growth markets
4. Stagnant or declining markets
5. Turbulent market characterized by rapid-free change
6. Fragmented market comprised of a large number of relatively small sellers
TIMING STRATEGIC MOVES – TO BE AN EARLY MOVER OR A LATE MOVER
Being first to initiate a strategic move can have a high payoff when (1) pioneering helps build a firm’s
image and reputation with buyers; (2) early commitments to new technologies, new-style
components, new or emerging distribution channels, and so on can produce an absolute cost
advantage over rivals; (3) first-time customers remain strongly loyal to pioneering firms in making
repeat purchases; and (4) moving first constitutes a preemptive strike, making imitation extra hard
or unlikely. Because of first-mover advantages and disadvantages, competitive advantage can spring
from when a move is made as well as from what move is made.
A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning
efforts to beat out competitors in existing markets and, instead, inventing a new industry or
distinctive market segment that renders existing competitors largely irrelevant and allows a
company to create and capture altogether new demand.
There are advantages to being an adept follower rather than a first-mover:
1. When pioneering leadership is more costly than imitating followership and only negligible
learning/experience curve benefits accrue to the leader,
2. When the products of an innovator are somewhat primitive and do not live up to buyer
expectations,
3. When demand side of the marketplace is skeptical about the benefits of a new technology or
product being pioneered by a first-mover,
4. When rapid market evolution gives fast-followers and maybe even cautious late movers the
opening to leapfrog a first-mover’s products with more attractive next version products.
Source: Thompson, Crafting and Executing Strategy, Chapter 6.
Strategic Alliances are collaborative arrangements where two or more companies join forces to
achieve mutual beneficial strategic outcomes. The competitive attraction of alliances is in allowing
companies to bundle competencies an resources that are more valuable in a joint effort than when
kept separate.
By joining forces in components production and/or final assembly, companies may be able to realize
cost savings not achievable with their own small volumes. The best alliances are highly selective,
focusing on particular value chain activites and on obtaining a particular competitive benefit. They
tend to enable a firm to build on its strengths and to learn.
Six factors of the extent to which companies benefit from entering alliances and partnerships:
1. Picking a good partner
2. Being sensitive to cultural differences
3. Recognizing that the alliance must benefit both sides
4. Ensuring that both parties live up to their commitments
5. Structuring the decision-making process so that actions can be taken swiftly when needed
6. Managing the learning process and then adjusting the alliance agreement overtime to fit
new circumstances.
MERGER AND ACQUISITION STRATEGIES
Combining the operations of two companies, via merger or acquisition, is an attractive strategic
option for achieving operating economies, strengthening the resulting company’s competencies and
competitiveness, and opening up avenues of new market opportunity. The five strategic objectives:
1. To create a more cost-efficient operation out of the combined companies
2. To expand a company’s geographic coverage
3. To extend the company’s business into new product category
4. To gain quick access to new technologies or other resources and competitive capabilities
5. To try to invent a new industry and lead the convergence of industries whose boundaries are
being blurred by changing technologies and new market opportunities.
VERTICAL INTEGRATION STRATEGIES: OPERATING ACROSS MORE STAGES OF THE INDUSTRY VALUE
CHAIN
Vertical integration extends a firm’s competitive and operating scope within the same industry. Its
strategies can aim at full integration (participating in all stages of the industry value chain) or partial
integration (building positions in selected stages of the industry’s total value chain). It has appeal
only if it significantly strengthens a firm’s competitive position.
OUTSOURCING STRATEGIES: NARROWING THE BOUNDARIES OF THE BUSINESS
Outsourcing involves farming out certain value chain activities to outside vendors. Two major
reasons for outsourcing: (1) outsiders can often perform certain activities better or cheaper and (2)
outsourcing allows a firm to focus its entire energies on those activities at the center of its expertise
(its core competencies) and that are the most critical to its competitive and financial success.
BUSINESS STRATEGY CHOICES FOR SPECIFIC MARKET SITUATION
Different strategies should be applied to these six commonly encountered types of market
conditions:
1. Freshly emerging markets
2. Rapidly growing markets
3. Mature, slow-growth markets
4. Stagnant or declining markets
5. Turbulent market characterized by rapid-free change
6. Fragmented market comprised of a large number of relatively small sellers
TIMING STRATEGIC MOVES – TO BE AN EARLY MOVER OR A LATE MOVER
Being first to initiate a strategic move can have a high payoff when (1) pioneering helps build a firm’s
image and reputation with buyers; (2) early commitments to new technologies, new-style
components, new or emerging distribution channels, and so on can produce an absolute cost
advantage over rivals; (3) first-time customers remain strongly loyal to pioneering firms in making
repeat purchases; and (4) moving first constitutes a preemptive strike, making imitation extra hard
or unlikely. Because of first-mover advantages and disadvantages, competitive advantage can spring
from when a move is made as well as from what move is made.
A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning
efforts to beat out competitors in existing markets and, instead, inventing a new industry or
distinctive market segment that renders existing competitors largely irrelevant and allows a
company to create and capture altogether new demand.
There are advantages to being an adept follower rather than a first-mover:
1. When pioneering leadership is more costly than imitating followership and only negligible
learning/experience curve benefits accrue to the leader,
2. When the products of an innovator are somewhat primitive and do not live up to buyer
expectations,
3. When demand side of the marketplace is skeptical about the benefits of a new technology or
product being pioneered by a first-mover,
4. When rapid market evolution gives fast-followers and maybe even cautious late movers the
opening to leapfrog a first-mover’s products with more attractive next version products.
Source: Thompson, Crafting and Executing Strategy, Chapter 6.
Selasa, 30 Maret 2010
The Five Generic Competitive Strategy
The five distinct competitive strategy are:
1. A low-cost provider strategy – striving to achieve lower overall cost than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A broad differentiation strategy – seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers.
3. A best cost provider strategy – giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.
4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and outcompeting rivals by having lower cost than rivals and thus being able to serve niche members at a lower price.
5. A focused (or market niche) strategy based on differentiation – concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products.
Company should choose which one to apply from those five strategies above.
Key to Success in Low-Cost Provider Strategies : Make achievement of meaningful lower costs than rivals the theme of firm’s strategy, Include features and services in product offering that buyers consider essential, Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match.
Low cost strategy works best when price competition is vigorous, product is standardized or readily available from many suppliers, there are few ways to achieve differentiation that have value to buyers, Most buyers use product in same ways, buyers incur low switching costs, buyers are large and have significant bargaining power, industry newcomers use introductory low prices to attract buyers and build customer base. Differentiation Strategy works best when there are many ways to differentiate a product that have value and please customers, buyer needs and uses are diverse, few rivals are following a similar differentiation approach, technological change and product innovation are fast-paced.
Best-Cost Provider Strategy works best when where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.
Approaches to define market niche : Geographic uniqueness, Specialized requirements in using product/service, special product attributes appealing only to niche buyers. Market niche is nice to focus when it fulfills these conditions : big enough to be profitable and offers good growth potential, not crucial to success of industry leaders, costly or difficult for multi-segment competitors to meet specialized needs of niche members, focuser has resources and capabilities to effectively serve an attractive niche, few other rivals are specializing in same niche, focuser can defend against challengers via superior ability to serve niche members.
Things to notice when deciding which generic Competitive Strategy to Use are each positions a company differently in its market and competitive environment, each establishes a central theme for how a company will endeavor to outcompete rivals, each creates some boundaries for maneuvering as market circumstances unfold, each points to different ways of experimenting with the basics of the strategy, each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy.
Source: Thompson, Crafting and Executing Strategy, Chapter 5.
1. A low-cost provider strategy – striving to achieve lower overall cost than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A broad differentiation strategy – seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers.
3. A best cost provider strategy – giving customers more value for the money by incorporating good-to-excellent product attributes at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes.
4. A focused (or market niche) strategy based on low costs – concentrating on a narrow buyer segment and outcompeting rivals by having lower cost than rivals and thus being able to serve niche members at a lower price.
5. A focused (or market niche) strategy based on differentiation – concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals’ products.
Company should choose which one to apply from those five strategies above.
Key to Success in Low-Cost Provider Strategies : Make achievement of meaningful lower costs than rivals the theme of firm’s strategy, Include features and services in product offering that buyers consider essential, Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match.
Low cost strategy works best when price competition is vigorous, product is standardized or readily available from many suppliers, there are few ways to achieve differentiation that have value to buyers, Most buyers use product in same ways, buyers incur low switching costs, buyers are large and have significant bargaining power, industry newcomers use introductory low prices to attract buyers and build customer base. Differentiation Strategy works best when there are many ways to differentiate a product that have value and please customers, buyer needs and uses are diverse, few rivals are following a similar differentiation approach, technological change and product innovation are fast-paced.
Best-Cost Provider Strategy works best when where buyer diversity makes product differentiation the norm and where many buyers are also sensitive to price and value.
Approaches to define market niche : Geographic uniqueness, Specialized requirements in using product/service, special product attributes appealing only to niche buyers. Market niche is nice to focus when it fulfills these conditions : big enough to be profitable and offers good growth potential, not crucial to success of industry leaders, costly or difficult for multi-segment competitors to meet specialized needs of niche members, focuser has resources and capabilities to effectively serve an attractive niche, few other rivals are specializing in same niche, focuser can defend against challengers via superior ability to serve niche members.
Things to notice when deciding which generic Competitive Strategy to Use are each positions a company differently in its market and competitive environment, each establishes a central theme for how a company will endeavor to outcompete rivals, each creates some boundaries for maneuvering as market circumstances unfold, each points to different ways of experimenting with the basics of the strategy, each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy.
Source: Thompson, Crafting and Executing Strategy, Chapter 5.
Senin, 29 Maret 2010
Evaluating a Company’s Resources and Competitive Position
How Well is the Company’s Present Strategy Working?
In evaluating how well a company’s present strategy is working, a manager has to start with what the strategy is. While there’s merit in evaluating the strategy from a qualitative standpoint (its completeness, internal consistency, rationale, and relevance), the best quantitative evidence of how well a company’s strategy is working comes from its result. The stronger a company’s current overall performance, the less likely the need for radical changes in strategy.The weaker a company’s financial performance and market standing, the more its current strategy must be questioned.
What Are the Company’s Resource Strength and Weaknesses and Its External Opportunities and Threats?
SWOT analysis provides a good overview of whether the company’s overall situation is
fundamentally healthy or unhealthy. A first-rate SWOT analysis provides the basis for crafting a strategy that capitalizes on the company’s resources, aims squarely at capturing the company’s best opportunities, and defends against the threats to its wll-being.
A resource strengths is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace. Resource strengths can take any of these forms: a skill-an area of specialized expertise, or a competitively important capability, valuable physical assets, valuable human assets and intellectual capital, valuable organizational assets, valuable intangible assets, an achievement or attribute that puts the company in a position of market advantage, competitively
valuable alliances or cooperative ventures.
A competence is an activity that a company has learned to perform well. It is nearly always the product of experience, representing an accumulation of learning and the buildup of proficiency in performing an internal activity. A core competence is a competitively important activity that a company performs better than other internal activities. A distinctive competence is a competitively important activity that a company peroms better than its rivals – it thus represents a competitively
superior resource strength. The competitive power of a resource strength is measured by these four tests: is the resource really competitively valuable? Is the resource strength rare? Is the resource strength hard to copy? Can the resource strength be trumped by substitute resource strengths and competitive capabilities?
Competitively valuable resource strengths and competencies call for the use of a resource based strategy. Core concept of Resource-based strategy is that it uses a company’s valuable resources strengths and competitive capabilities to deliver value to customers in ways rivals find it difficult to match. The core concept of Identifying company resources weaknessess, missing capabilities, and competitive deficiencies is that a company’s resources strengths represent competitive assets; its resource weaknessess represents competitive liabilities. In identifying a company’s external market opportunities, a company is well advised to pass on a particular industry opportunity unless the company has or can acquire the resources to capture it. It is management’s job to identify the threats to the company’s prospects and to evaluate what strategic actions can be taken to neutralize
or lessen their impact.
SWOT analysis are drawing conslusions from the SWOT listings about the company’s overall situation, and translating these conslusions into strategic actions to better match the company’s strategy to its resource strengths and market opportunities, to correct the important weaknesses, and to defend against external threats. The final piece of SWOT analysis is to translate the diagnosis of the company’s situation into actions for improving the company’s strategy and business
prospects.
Are the Company’s Prices and Costs Competitive?
The higher a company’s costs are above those of close rivals, the more competitively vulnerable it becomes. Two analytical tools that are particularly useful in determining whether a company’s prices and costs are competitive are value chain analysis and benchmarking. Core concept of value chain is to identify the primary activities that create customer value and the related support activities.
Benchmarking is a potential tool for learning which companies are best at performing particular activities and then using their techniques (or best practice) to improve the cost and effectiveness of a company’s own internal activities.
Is the Company Competitively Stronger or Weaker than Key Rivals?
Step 1 in doing a competitive strength assessment is to make a list of the industry’s key success factors and most telling measures of competitive strength or weakness.
Step 2 is to rate the firm and its rivals on each factor.
Step 3 is to sum the strength ratings on each factgor to get an overall measure of competitive strength for each company being rated.
Step 4 is to use the overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage or disadvantage and to take specific note of areas of strength and weakness.
High competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. A company’s competitive strength scores pinpoint its strengths and weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit its competitive strengths and reduce its competitive vulnerabilities.
What Strategic Issues and Problems Merit Front-Burner Managerial Attention?
The final and most important analytical step is to zero in on exactly what strategic issues that company managers need to address –and resolve- for the company to be more financially and competitively successful in the years ahead. Zeroing in on the strategic issues a company faces and compiling a “worry list” of problems and readblocks creates a strategic agenda of problems that merit prompt managerial attention. Actually decising upon a strategy and what specific actions to take is what comes after developing the list of strategic issues and problems that merit front-burner management attention.
A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead.
Source: Thompson, Crafting and Executing Strategy, Chapter 4.
In evaluating how well a company’s present strategy is working, a manager has to start with what the strategy is. While there’s merit in evaluating the strategy from a qualitative standpoint (its completeness, internal consistency, rationale, and relevance), the best quantitative evidence of how well a company’s strategy is working comes from its result. The stronger a company’s current overall performance, the less likely the need for radical changes in strategy.The weaker a company’s financial performance and market standing, the more its current strategy must be questioned.
What Are the Company’s Resource Strength and Weaknesses and Its External Opportunities and Threats?
SWOT analysis provides a good overview of whether the company’s overall situation is
fundamentally healthy or unhealthy. A first-rate SWOT analysis provides the basis for crafting a strategy that capitalizes on the company’s resources, aims squarely at capturing the company’s best opportunities, and defends against the threats to its wll-being.
A resource strengths is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace. Resource strengths can take any of these forms: a skill-an area of specialized expertise, or a competitively important capability, valuable physical assets, valuable human assets and intellectual capital, valuable organizational assets, valuable intangible assets, an achievement or attribute that puts the company in a position of market advantage, competitively
valuable alliances or cooperative ventures.
A competence is an activity that a company has learned to perform well. It is nearly always the product of experience, representing an accumulation of learning and the buildup of proficiency in performing an internal activity. A core competence is a competitively important activity that a company performs better than other internal activities. A distinctive competence is a competitively important activity that a company peroms better than its rivals – it thus represents a competitively
superior resource strength. The competitive power of a resource strength is measured by these four tests: is the resource really competitively valuable? Is the resource strength rare? Is the resource strength hard to copy? Can the resource strength be trumped by substitute resource strengths and competitive capabilities?
Competitively valuable resource strengths and competencies call for the use of a resource based strategy. Core concept of Resource-based strategy is that it uses a company’s valuable resources strengths and competitive capabilities to deliver value to customers in ways rivals find it difficult to match. The core concept of Identifying company resources weaknessess, missing capabilities, and competitive deficiencies is that a company’s resources strengths represent competitive assets; its resource weaknessess represents competitive liabilities. In identifying a company’s external market opportunities, a company is well advised to pass on a particular industry opportunity unless the company has or can acquire the resources to capture it. It is management’s job to identify the threats to the company’s prospects and to evaluate what strategic actions can be taken to neutralize
or lessen their impact.
SWOT analysis are drawing conslusions from the SWOT listings about the company’s overall situation, and translating these conslusions into strategic actions to better match the company’s strategy to its resource strengths and market opportunities, to correct the important weaknesses, and to defend against external threats. The final piece of SWOT analysis is to translate the diagnosis of the company’s situation into actions for improving the company’s strategy and business
prospects.
Are the Company’s Prices and Costs Competitive?
The higher a company’s costs are above those of close rivals, the more competitively vulnerable it becomes. Two analytical tools that are particularly useful in determining whether a company’s prices and costs are competitive are value chain analysis and benchmarking. Core concept of value chain is to identify the primary activities that create customer value and the related support activities.
Benchmarking is a potential tool for learning which companies are best at performing particular activities and then using their techniques (or best practice) to improve the cost and effectiveness of a company’s own internal activities.
Is the Company Competitively Stronger or Weaker than Key Rivals?
Step 1 in doing a competitive strength assessment is to make a list of the industry’s key success factors and most telling measures of competitive strength or weakness.
Step 2 is to rate the firm and its rivals on each factor.
Step 3 is to sum the strength ratings on each factgor to get an overall measure of competitive strength for each company being rated.
Step 4 is to use the overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage or disadvantage and to take specific note of areas of strength and weakness.
High competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. A company’s competitive strength scores pinpoint its strengths and weaknesses against rivals and point directly to the kinds of offensive/defensive actions it can use to exploit its competitive strengths and reduce its competitive vulnerabilities.
What Strategic Issues and Problems Merit Front-Burner Managerial Attention?
The final and most important analytical step is to zero in on exactly what strategic issues that company managers need to address –and resolve- for the company to be more financially and competitively successful in the years ahead. Zeroing in on the strategic issues a company faces and compiling a “worry list” of problems and readblocks creates a strategic agenda of problems that merit prompt managerial attention. Actually decising upon a strategy and what specific actions to take is what comes after developing the list of strategic issues and problems that merit front-burner management attention.
A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead.
Source: Thompson, Crafting and Executing Strategy, Chapter 4.
Sabtu, 06 Maret 2010
Managerial Process of Crafting and Executing Strategy
Managerial process of crafting and executing a company’s strategy consists of five interrelated and integrated phases:
1. [Phase 1] Developing a strategic vision about the company’s direction and future product/market/customer/technology focus. A strategic vision describes the route a company intends to take in developing and strengthening its business. It points an organization in a particular direction, charts a strategic path, and molds organizational identity.
A strategic vision should not be confused with a mission statement. A strategic vision portrays a company’s future business scope (“where we are going”) whereas a company’s mission typically describes its present business and purpose (“who we are, what we do, and why we are here”).
This managerial step provides long-term direction, infuses the organization with a sense of purposeful action, and communicates mangement’s aspirations to stakeholders.
2. [Phase 2] Setting objectives regarding to organization’s performance targets –the results and outcomes management wants to achieve. Well-stated objectives are quantifiable, or measurable, and contain a deadline for achievement. It functions as yardsticks for measuring how well the organization is doing. The two types of performance yardsticks required are relating to financial performance and strategic performance, where those can be found in Balance Score Card approach.
3. [Phase 3] Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting a strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage. In most companies, crafting and exectuing strategy is a team effort in which every manager has a role for the area he or she heads. It is not merely that high level managers obligation. In diversified, multibusiness companies where the strategies of several different businesses have to be managed, the strategy-making task involves four distinct types or levels of strategy: (1) corporate strategy, (2) business strategy, (3) functional-area strategies, (4) operating strategies. Typically, the strategy-making task is more top-down than bottom-up, with higher-level strategies serving as the guide for developing lower-level strategies.
4. [Phase 4] Implementing and executing the chosen strategy efficiently and effectively. Management’s action agenda for implementing and executing the chosen strategy emerges from assessing what the company will have to do differently or better, given its particular operating practices and organizational circumstances, to execute the strategy competently and achieve the targeted financial and strategic performance.
5. [Phase 5] Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities. It is the trigger point for deciding whether to continue or change the company’s vision, objectives, strategy, or strategy execution methods.
Reference: Thompson, Strickland, Gamble. 2010. Crafting and Executing Strategy. 17th ed., Chapter 2. p. 22-53. McGraw-Hill Inc., New York
1. [Phase 1] Developing a strategic vision about the company’s direction and future product/market/customer/technology focus. A strategic vision describes the route a company intends to take in developing and strengthening its business. It points an organization in a particular direction, charts a strategic path, and molds organizational identity.
A strategic vision should not be confused with a mission statement. A strategic vision portrays a company’s future business scope (“where we are going”) whereas a company’s mission typically describes its present business and purpose (“who we are, what we do, and why we are here”).
This managerial step provides long-term direction, infuses the organization with a sense of purposeful action, and communicates mangement’s aspirations to stakeholders.
2. [Phase 2] Setting objectives regarding to organization’s performance targets –the results and outcomes management wants to achieve. Well-stated objectives are quantifiable, or measurable, and contain a deadline for achievement. It functions as yardsticks for measuring how well the organization is doing. The two types of performance yardsticks required are relating to financial performance and strategic performance, where those can be found in Balance Score Card approach.
3. [Phase 3] Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting a strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage. In most companies, crafting and exectuing strategy is a team effort in which every manager has a role for the area he or she heads. It is not merely that high level managers obligation. In diversified, multibusiness companies where the strategies of several different businesses have to be managed, the strategy-making task involves four distinct types or levels of strategy: (1) corporate strategy, (2) business strategy, (3) functional-area strategies, (4) operating strategies. Typically, the strategy-making task is more top-down than bottom-up, with higher-level strategies serving as the guide for developing lower-level strategies.
4. [Phase 4] Implementing and executing the chosen strategy efficiently and effectively. Management’s action agenda for implementing and executing the chosen strategy emerges from assessing what the company will have to do differently or better, given its particular operating practices and organizational circumstances, to execute the strategy competently and achieve the targeted financial and strategic performance.
5. [Phase 5] Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities. It is the trigger point for deciding whether to continue or change the company’s vision, objectives, strategy, or strategy execution methods.
Reference: Thompson, Strickland, Gamble. 2010. Crafting and Executing Strategy. 17th ed., Chapter 2. p. 22-53. McGraw-Hill Inc., New York
Kamis, 03 Desember 2009
Wal-Mart Stores: “Every Day Low Prices” In China
Wal-Mart is one the world’s largest retailer, owned by Sam Walton with the first store opened in 1962 in Rogers, Arkansas. On January 31st 2005, Wal-Mart stores reported net sales of US$285 billion, had a presence in nine countries with 5,289 stores and 1,6 million employees worldwide, offered multiple store formats including discount stores, supercentres, warehouse stores and neighbourhood markets, and was not only the largest company in the world but also the most admired company in the US according to Fortune Magazine.
Many attributed Wal-Mart’s success to its well-known model of selling brand-name products for less. Wal-Mart rightly focused on two major value drivers: price and service. The value of “Every Day Low Prices (ELDP)’s objective was to offer the same merchandise as other local stores, but at 20% less. “Roll-back” philosophy is aimed at lowering prices even further when there was an opportunity to do so, for example through price negotiation with supplier. The other value is “Customer is Number One,” which rules such as “exceed your customers’ expectation, ten feet rule, sundown rule.
According to Thompson, there are components of a company’s macro environment. In the outer ring those are general economic conditions, legislation and regulations, population demographics, societal values and lifestyles, and technology; while there are also immediate industry and competitive environment such as substitute products, buyers, new entrants, rival firms, and suppliers. However, the factors and forces in a company’s macro environment having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment.
Although Wal-Mart in United States is very successful with its success model: Small town location, relentless cost control, and partnership with supplier, however it did not enjoy the same success in China. By focusing more on the macroenvironment factors mentioned above, the failure of the Wal-Mart can be analyzed as bellow:
a.General economic condition in China is variable due to income disparity. It causes the needs and consumption pattern of the people become so diverse, result in inefficiency for a retailer-business in fulfilling the needs.
b.In term of legislation and regulation in China, it is very stricted and ruled by government. Regulation stated that only three stores were allowed to be launched in one city, and only a handful of cities were open to foreign retailers. Every store opening had to be approved by the central government.
c.Not only in size of land but also the population in China is vast. This actually can be one of the opportunity for business growth. However, this is not ideally happen due to some many factors that are being discussed.
d.Societal values and lifestyles in Chine can be related to the culture and behaviour. In China people consider that going to commercial center as an entertainment, as a result they do many trips but only make little purchase. According to them, the freshness of the food as the most important factor in its quality, and in many cases, fresh mean alive. It becomes additional cost and inefficiency for the retailer due to poor transportation network. Meanwhile, the condition is worsen by the rate of shoplifting (theft) which is higher (up to 5% of sales) compare to an international standard of 0.3%. This also causes the loss of Wal-Mart.
e.Technology in China was not really advance though. Under developed highway network and unconnected transportation are seriously fragmented. As ccnfirmed by Wal-Mart's chief of international operation, John Menzer, "the biggest obstacle Wal-Mart faced in mainland China was the lack of an information technology network with suppliers, making purchasing and distribution difficult." Technology indeed is critical for Wal-Mart success where the web-based system allowed suppliers hourly tracking of sales, inventory and pricing of their goods, and satellites connected the headquarter to every store and supplier for real-time communication. Lack of an information technology network and regulatory ban of satellite usage impaired the retailer's efficiency in communicating with its 15,000 local suppliers who supplied more than 95% of the goods sold in its local stores
In conclusion, competition is always there: substitute products, buyers, new entrants, rival firms, and suppliers. However, the major causes of Wal-Mart’s failure in China is more due to macro environment factors: the highly fragmented market, impaired distribution network and unique consumer behavior in China pushed Wal-Mar's operating cost higher and worked against a straight duplication of its home model.
The lesson learned from the Wal-Mart in China case is that the same business strategy cannot be implemented for all situation, therefore, it needs to be renew and readjust.
Source: Asia Case Research Center
Many attributed Wal-Mart’s success to its well-known model of selling brand-name products for less. Wal-Mart rightly focused on two major value drivers: price and service. The value of “Every Day Low Prices (ELDP)’s objective was to offer the same merchandise as other local stores, but at 20% less. “Roll-back” philosophy is aimed at lowering prices even further when there was an opportunity to do so, for example through price negotiation with supplier. The other value is “Customer is Number One,” which rules such as “exceed your customers’ expectation, ten feet rule, sundown rule.
According to Thompson, there are components of a company’s macro environment. In the outer ring those are general economic conditions, legislation and regulations, population demographics, societal values and lifestyles, and technology; while there are also immediate industry and competitive environment such as substitute products, buyers, new entrants, rival firms, and suppliers. However, the factors and forces in a company’s macro environment having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment.
Although Wal-Mart in United States is very successful with its success model: Small town location, relentless cost control, and partnership with supplier, however it did not enjoy the same success in China. By focusing more on the macroenvironment factors mentioned above, the failure of the Wal-Mart can be analyzed as bellow:
a.General economic condition in China is variable due to income disparity. It causes the needs and consumption pattern of the people become so diverse, result in inefficiency for a retailer-business in fulfilling the needs.
b.In term of legislation and regulation in China, it is very stricted and ruled by government. Regulation stated that only three stores were allowed to be launched in one city, and only a handful of cities were open to foreign retailers. Every store opening had to be approved by the central government.
c.Not only in size of land but also the population in China is vast. This actually can be one of the opportunity for business growth. However, this is not ideally happen due to some many factors that are being discussed.
d.Societal values and lifestyles in Chine can be related to the culture and behaviour. In China people consider that going to commercial center as an entertainment, as a result they do many trips but only make little purchase. According to them, the freshness of the food as the most important factor in its quality, and in many cases, fresh mean alive. It becomes additional cost and inefficiency for the retailer due to poor transportation network. Meanwhile, the condition is worsen by the rate of shoplifting (theft) which is higher (up to 5% of sales) compare to an international standard of 0.3%. This also causes the loss of Wal-Mart.
e.Technology in China was not really advance though. Under developed highway network and unconnected transportation are seriously fragmented. As ccnfirmed by Wal-Mart's chief of international operation, John Menzer, "the biggest obstacle Wal-Mart faced in mainland China was the lack of an information technology network with suppliers, making purchasing and distribution difficult." Technology indeed is critical for Wal-Mart success where the web-based system allowed suppliers hourly tracking of sales, inventory and pricing of their goods, and satellites connected the headquarter to every store and supplier for real-time communication. Lack of an information technology network and regulatory ban of satellite usage impaired the retailer's efficiency in communicating with its 15,000 local suppliers who supplied more than 95% of the goods sold in its local stores
In conclusion, competition is always there: substitute products, buyers, new entrants, rival firms, and suppliers. However, the major causes of Wal-Mart’s failure in China is more due to macro environment factors: the highly fragmented market, impaired distribution network and unique consumer behavior in China pushed Wal-Mar's operating cost higher and worked against a straight duplication of its home model.
The lesson learned from the Wal-Mart in China case is that the same business strategy cannot be implemented for all situation, therefore, it needs to be renew and readjust.
Source: Asia Case Research Center
Jumat, 18 September 2009
The Impact of the Internet
The Impact of the Internet from the Producers Point of View
One of the key factors that the internet has a hand is reducing the price of inputs for firms. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. As a firms input prices decrease; they will be willing to supply more at a lower price.
One way that this happens is B2B (business to business- when firms trade directly with one another) e-commerce. B2B e-commerce cuts companies’ costs in three ways. First, it reduces procurement costs, making it easier to find the cheapest supplier and cutting the cost of processing transactions. Second, it allows better supply-chain management. And third, it makes possible tighter inventory control, so that firms can reduce their stocks or even eliminate them. Through these three channels B2B e-commerce reduces firms’ production costs, by increasing efficiency or by squeezing suppliers’ profit margins (A Thinkers Guide).
Another way in which the internet reduces the cost of inputs for firms is the degree to which it facilitates outsourcing. For example, a Hollywood studio once employed everyone in-house from the actors to the lighting technicians. Today studios have retreated to their core competencies. For a film, they now assemble the teams of self-employed people and small businesses. The Internet is expected to push other industries in the same direction. Companies will find it easier to outsource and to use communications to develop deeper relations with suppliers, distributors and many others who might once have been vertically integrated into the firm (When Companies Connect).
Another consequence of the Internet is that it enables firms to practice price discrimination, which is when firms charge different prices to different consumers for the same product. Price discrimination is very relevant to High Tech Industries for two reasons: first, due to the cost structures mentioned previously (high fixed costs, low marginal costs) price will often exceed marginal costs, meaning that the profit benefits to practicing price discrimination are very apparent. Second, Information technology allows for fine-grained observation and analysis of consumer behavior. This permits various kinds of marketing strategies that were previously extremely difficult to carry out, at least on a large scale (Varian et al. 12). For example, a seller can offer prices and goods that are differentiated by individual behavior and/or characteristics.
The Impact of the Internet from the Consumers Point of View
One of the major factors impacting demand is the price of the product, which we saw from the previous section, the Internet has a hand in lowering. At lower prices, consumers will demand more. More importantly however, is the impact of the internet in making prices more transparent. In fact, it’s been suggested that the new economy should be called the “nude economy” because the Internet makes it more transparent and exposed, in that it's easier for buyers and sellers to compare prices (A Thinkers Guide).
One of the traditional features of capitalism is information asymmetry, which is that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have been emaciated by the internet. The Internet is remarkably efficient at shifting information from the hands of those who have it into the hands of those who do not. Whether the case is term life insurance policies, the dealer invoice of autos, or the price of prescription medication the information existed but in a vastly scattered way. The Internet has vastly shrunk the gap between the experts and the public (Levitt and Dubner 61-62). Even in markets where there are relatively few direct online transactions such as auto sales, consumers appear to do quite a bit of information gathering before purchase.
The Impact of the Internet on the Market Itself
As mentioned previously, the economic principles of traditional markets still apply to the internet. Information is the currency of the Internet: it can be transmitted efficiently, conveniently, inexpensively, and is available to anyone. Theoretically, market friction should be reduced when information is more readily available to consumers and/or when consumer search is less costly (Elberse et al. 3). It has been found that internet markets are more efficient than conventional markets with respect to average price levels, menu costs, and price elasticity (Elberse et al. 4).
One consequence of this is a lowering of transaction costs. For instance, it’s been postulated that the potential for transactions cost savings from transition to the Internet is especially high in the health care sector, because it is so large (14 percent of GDP), so information-intensive, and so dependent on paper records (Litan and Rivlin). A lowering of transaction costs benefits both consumers and producers.
Another impact of the Internet is its ability to generate different pricing mechanisms, and in particular to allow price and product comparisons to be made and various kinds of auctions and exchanges to take place. Two things are making these possible. One is that the Internet provides a perfect medium for aggregating buyers and sellers from all around the world. The second is that the Internet offers an excellent way of comparing prices and collecting information, for example on new products, or on recent bids. Once again, to replicate this offline would be costly and time-consuming (In the Great Web Bazaar).
Thus the net effect of the internet is to lower costs for both the supplier and consumer as well as by more efficiently matching up supplies and consumers with each other. This results in a more efficient marketplace. However, despite the positive impact of the internet, internet markets are not nearly as efficient as theories would predict (Elberse et al. 5).
Source: http://www.econport.org.
One of the key factors that the internet has a hand is reducing the price of inputs for firms. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. As a firms input prices decrease; they will be willing to supply more at a lower price.
One way that this happens is B2B (business to business- when firms trade directly with one another) e-commerce. B2B e-commerce cuts companies’ costs in three ways. First, it reduces procurement costs, making it easier to find the cheapest supplier and cutting the cost of processing transactions. Second, it allows better supply-chain management. And third, it makes possible tighter inventory control, so that firms can reduce their stocks or even eliminate them. Through these three channels B2B e-commerce reduces firms’ production costs, by increasing efficiency or by squeezing suppliers’ profit margins (A Thinkers Guide).
Another way in which the internet reduces the cost of inputs for firms is the degree to which it facilitates outsourcing. For example, a Hollywood studio once employed everyone in-house from the actors to the lighting technicians. Today studios have retreated to their core competencies. For a film, they now assemble the teams of self-employed people and small businesses. The Internet is expected to push other industries in the same direction. Companies will find it easier to outsource and to use communications to develop deeper relations with suppliers, distributors and many others who might once have been vertically integrated into the firm (When Companies Connect).
Another consequence of the Internet is that it enables firms to practice price discrimination, which is when firms charge different prices to different consumers for the same product. Price discrimination is very relevant to High Tech Industries for two reasons: first, due to the cost structures mentioned previously (high fixed costs, low marginal costs) price will often exceed marginal costs, meaning that the profit benefits to practicing price discrimination are very apparent. Second, Information technology allows for fine-grained observation and analysis of consumer behavior. This permits various kinds of marketing strategies that were previously extremely difficult to carry out, at least on a large scale (Varian et al. 12). For example, a seller can offer prices and goods that are differentiated by individual behavior and/or characteristics.
The Impact of the Internet from the Consumers Point of View
One of the major factors impacting demand is the price of the product, which we saw from the previous section, the Internet has a hand in lowering. At lower prices, consumers will demand more. More importantly however, is the impact of the internet in making prices more transparent. In fact, it’s been suggested that the new economy should be called the “nude economy” because the Internet makes it more transparent and exposed, in that it's easier for buyers and sellers to compare prices (A Thinkers Guide).
One of the traditional features of capitalism is information asymmetry, which is that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have been emaciated by the internet. The Internet is remarkably efficient at shifting information from the hands of those who have it into the hands of those who do not. Whether the case is term life insurance policies, the dealer invoice of autos, or the price of prescription medication the information existed but in a vastly scattered way. The Internet has vastly shrunk the gap between the experts and the public (Levitt and Dubner 61-62). Even in markets where there are relatively few direct online transactions such as auto sales, consumers appear to do quite a bit of information gathering before purchase.
The Impact of the Internet on the Market Itself
As mentioned previously, the economic principles of traditional markets still apply to the internet. Information is the currency of the Internet: it can be transmitted efficiently, conveniently, inexpensively, and is available to anyone. Theoretically, market friction should be reduced when information is more readily available to consumers and/or when consumer search is less costly (Elberse et al. 3). It has been found that internet markets are more efficient than conventional markets with respect to average price levels, menu costs, and price elasticity (Elberse et al. 4).
One consequence of this is a lowering of transaction costs. For instance, it’s been postulated that the potential for transactions cost savings from transition to the Internet is especially high in the health care sector, because it is so large (14 percent of GDP), so information-intensive, and so dependent on paper records (Litan and Rivlin). A lowering of transaction costs benefits both consumers and producers.
Another impact of the Internet is its ability to generate different pricing mechanisms, and in particular to allow price and product comparisons to be made and various kinds of auctions and exchanges to take place. Two things are making these possible. One is that the Internet provides a perfect medium for aggregating buyers and sellers from all around the world. The second is that the Internet offers an excellent way of comparing prices and collecting information, for example on new products, or on recent bids. Once again, to replicate this offline would be costly and time-consuming (In the Great Web Bazaar).
Thus the net effect of the internet is to lower costs for both the supplier and consumer as well as by more efficiently matching up supplies and consumers with each other. This results in a more efficient marketplace. However, despite the positive impact of the internet, internet markets are not nearly as efficient as theories would predict (Elberse et al. 5).
Source: http://www.econport.org.
Kamis, 27 Agustus 2009
Impact on the Internet on the Horizontal Boundaries of a Firm
Over these years, internet has been growing so widely. The internet technology opens a new channel for business opportunity, principally because of this enabling the limitless of information exchange with an easy, fast, and low cost. See how we can easily find anything we want to know just by utilizing the internet. The implication of this is that it will promote the political, social, economic, and cultural aspects of a country, heading to globalization. Some people with the entrepreneur sense are just very quick response to the growth of the internet technology, viewing it as the opportunity and as a tool to grow the business across the boundary. Therefore, they switch from the traditional way of doing business to a new way of operating business through the virtual business or e-commerce.
There are many theories from the researcher and expert, claiming that the internet technology is proven to be beneficial in growing a business. In a book by Tawfik Jelassi and Albrecht Enders, titled Strategies for e-Business: Creating Value through Electronic and Mobile Commerce, they point out two concepts that are feasible in e-commerce. The first concept is economies of scale. This means that by increasing the production output, the company decreasing their operation cost. Their second concept is economies of scope. This means that expanding the variety of products sold using the same R&D, production and delivery assets.
We can see the success of e-commerce on eBay, a (virtual) company hosted in California, belongs to Pierre Omidyar, where the company act as a virtual market for transactions of anything, starting from household goods, computers, consumer electronics and other tradables (ticket to sporting events). Also Bertelsmann online company, BoL.de in Germany, a business in selling books through online channel.
Further that that, we can also see the trend begins to spread over in Indonesia. Namely Bhinneka.com, a company owned by Hendrik Tio, which was first operated as a shop, selling computer peripheral which also in 1997 began to operate its online business transactions. The same case also happen in Gramedia book store. It is no longer just a book store that we can find in almost every shopping center, but we also can visit its online shop and make a purchase without having to go to a shopping center.
From the point of view of the writer, she sees that the growth of internet users in Indonesia might not as high as in American or European countries. Just like the case of Bhinneka.com, the profit of the company could not cover the investment cost on the technology (based on the data year 1999-2002, a case study by Pierre Wirawan, http://wirawans.wordpress.com). Therefore, the concept of virtual business in Indonesia still needs to be supported by ‘traditional’ concept of business. However, the writers believes that in the long term the concept of e-commerce will does give higher revenue for the company, considering that the technology has the forcing power over the human and environment. They who do not have the ability to adapt with the new technology will surely be blown away, as the out-dated technology dies.
There are many theories from the researcher and expert, claiming that the internet technology is proven to be beneficial in growing a business. In a book by Tawfik Jelassi and Albrecht Enders, titled Strategies for e-Business: Creating Value through Electronic and Mobile Commerce, they point out two concepts that are feasible in e-commerce. The first concept is economies of scale. This means that by increasing the production output, the company decreasing their operation cost. Their second concept is economies of scope. This means that expanding the variety of products sold using the same R&D, production and delivery assets.
We can see the success of e-commerce on eBay, a (virtual) company hosted in California, belongs to Pierre Omidyar, where the company act as a virtual market for transactions of anything, starting from household goods, computers, consumer electronics and other tradables (ticket to sporting events). Also Bertelsmann online company, BoL.de in Germany, a business in selling books through online channel.
Further that that, we can also see the trend begins to spread over in Indonesia. Namely Bhinneka.com, a company owned by Hendrik Tio, which was first operated as a shop, selling computer peripheral which also in 1997 began to operate its online business transactions. The same case also happen in Gramedia book store. It is no longer just a book store that we can find in almost every shopping center, but we also can visit its online shop and make a purchase without having to go to a shopping center.
From the point of view of the writer, she sees that the growth of internet users in Indonesia might not as high as in American or European countries. Just like the case of Bhinneka.com, the profit of the company could not cover the investment cost on the technology (based on the data year 1999-2002, a case study by Pierre Wirawan, http://wirawans.wordpress.com). Therefore, the concept of virtual business in Indonesia still needs to be supported by ‘traditional’ concept of business. However, the writers believes that in the long term the concept of e-commerce will does give higher revenue for the company, considering that the technology has the forcing power over the human and environment. They who do not have the ability to adapt with the new technology will surely be blown away, as the out-dated technology dies.
Rabu, 12 Agustus 2009
e-Value Creation Index for automotive business
The automotive world has long recognized that intangible assets such as brand equity, innovation and human capital play a role in determining business success or failure. But measuring and managing those assets and their impact on a company’s market value has never been easy. Therefore, as published in an article, it tells that Dr. Pam Cohen Kalafut developed CGE&Y’s Automotive Value Creation IndexSM (VCI) based on the principles put forth in her book. “This 50 percent is based on intangibles like strategy execution, brand, human capital, innovation and leadership. The reason behind this, according to Kalafut, is lies within the fact that the markets are valuing your intangibles every day, whether you want them to or not. Yet, most companies aren’t able to measure, let alone manage and capitalize on these aspects of their business.”
The Value Creation Index (VCI) that had been developed by CGE&Y are for automotive OEMs and a second VCI specifically for automotive suppliers. The Automotive VCI models create a quantified performance measurement system, allowing intangibles to be linked to firm performance.
The VCI measures three broad categories of intangibles: Management—consisting of leadership, strategy execution, and communication and transparency; Relationships—brand equity, reputation, and alliances and etworks; Organization—technology and processes, human capital, workplace organization and culture, innovation, intellectual capital and adaptability.
The VCI is built using multiple measures for each of the individual intangible driver categories. Data are ollected from a variety of sources: objective and proprietary, academic, other research and publicly available information.
The index scores demonstrate the correlation between a particular company’s intangible assets and its market value. Kalafut points out that the correlation between the overall Value Creation Index score and market value is very strong for automotive manufacturers and suppliers.
CGE&Y’s Automotive VCI methodology creates a detailed performance measurement system through which critical company-specific intangible value drivers are measured and linked to performance. This approach allows businesses to quantify the expected effect of a change in the intangible’s VCI score on financial indicators such as stock price, P/E ratio, EBITDA, cash flow or market share, and to determine which strategic or capital investment decisions will have the most significant return.
The VCI value analysis can quickly identify the operational value drivers that have the biggest impact on a company’s bottom line. With this information, executives can:
• Reallocate capital expenditures to gain higher paybacks.
• Measure the impact of growth and similar initiatives.
• Implement a robust measurement system that correlates non-financial drivers to financial results.
• Create a performance measurement benchmarking system that can be used to track changes across time, and understand a company’s competitive advantages as well as those of their competitors.
In summary, the result of this Value Creation Index enable the companies to make strategic and capital investment decisions based on quantitative values rather than relying on educated guesses.
Source: Cap Gemini (Ernest & Young)
The Value Creation Index (VCI) that had been developed by CGE&Y are for automotive OEMs and a second VCI specifically for automotive suppliers. The Automotive VCI models create a quantified performance measurement system, allowing intangibles to be linked to firm performance.
The VCI measures three broad categories of intangibles: Management—consisting of leadership, strategy execution, and communication and transparency; Relationships—brand equity, reputation, and alliances and etworks; Organization—technology and processes, human capital, workplace organization and culture, innovation, intellectual capital and adaptability.
The VCI is built using multiple measures for each of the individual intangible driver categories. Data are ollected from a variety of sources: objective and proprietary, academic, other research and publicly available information.
The index scores demonstrate the correlation between a particular company’s intangible assets and its market value. Kalafut points out that the correlation between the overall Value Creation Index score and market value is very strong for automotive manufacturers and suppliers.
CGE&Y’s Automotive VCI methodology creates a detailed performance measurement system through which critical company-specific intangible value drivers are measured and linked to performance. This approach allows businesses to quantify the expected effect of a change in the intangible’s VCI score on financial indicators such as stock price, P/E ratio, EBITDA, cash flow or market share, and to determine which strategic or capital investment decisions will have the most significant return.
The VCI value analysis can quickly identify the operational value drivers that have the biggest impact on a company’s bottom line. With this information, executives can:
• Reallocate capital expenditures to gain higher paybacks.
• Measure the impact of growth and similar initiatives.
• Implement a robust measurement system that correlates non-financial drivers to financial results.
• Create a performance measurement benchmarking system that can be used to track changes across time, and understand a company’s competitive advantages as well as those of their competitors.
In summary, the result of this Value Creation Index enable the companies to make strategic and capital investment decisions based on quantitative values rather than relying on educated guesses.
Source: Cap Gemini (Ernest & Young)
Rabu, 29 Juli 2009
Market for e-Business : Case of “HP Exists e-business Software Market (July 15, 2002)”
HP in the past two years has made a big push into the e-business software market to better compete against its two principal rivals, IBM and Sun Microsystems, high-end computer makers that have more extensive software portfolios, but since then decided to discontinue the core pieces of its NetAction product line, which in included application-server software designed for Web transactions, and related software for building Web services, technology that allows companies to interact and conduct business via the Internet.
Back to the history, HP spent $470 million in October 2000 to acquire Bluestone Software, a small company that competed against IBM, Sun and Oracle, to build up its application server software arsenal. However, its turn out that the HP owns only 4 percent of the application server market, far behind market share leader of BEA and IBM.
Peter Blackmore, executive vice president of HP's enterprise systems group, said the company has suffered heavy losses with its own e-business software. He says that many of the assets HP has will be given up. As quoted, Blackmore says "We move to a partnership model and then make that part of the business, avoid the losses we have and make the overall software business profitable."
HP will refocus its software strategy on three technologies that manage software: HP OpenView, used to manage and monitor the health of businesses' computer systems; HP Utility Data Center, used to simplify management of sprawling data centers; and HP OpenCall, used by telecommunications service providers to offer telephony and Internet services to customers
As from the case of HP, we could relate the failure with the theory exposed below. The market analysis include the thorough understanding about our customer: who they are, their characteristics, and why they are likely to buy from our business. The process of writing the market analysis requires you to define your target markets and analyze how we will position our product or service to arouse and fulfill their needs in order to maximize sales.
In a full-scale business plan the market analysis is part of the marketing plan section, which includes:
- Market analysis: a definition and description of prospective customers, including target markets, size and structure of the customer base, and growth prospects.
- Pricing strategy: setting the price of the product or service based on methods such as cost-plus pricing, demand pricing, and competitive pricing; and the use of innovative pricing strategies such as penetration pricing, flexible pricing, and market skimming.
- Promotion plan: the communication channels you will use to make the customer aware of your product/service and convince them to purchase (e.g., advertising, on-line demonstration videos, packaging). Promotion also includes tracking your customers (e.g., confirming who are your customers and how did they hear about you) and encouraging them to purchase again.
- Distribution plan: the distribution channel you will use to move the product or service to the customer (e.g., direct sales, wholesale distributors, brokers) and, if necessary, back again (e.g., returns).
- Demand forecast: estimates of product or service sales, based on the market analysis and assumptions about the effectiveness of the pricing, promotion, and distribution strategies.
Selasa, 21 Juli 2009
Impact of the Internet : Economic implications of e-commerce
OVERVIEW
Business and economy are inextricably linked with the development and implementation of new technology. While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth and development.
The information revolution aided by the revolution in the telecommunications and institutional innovations had initially promised to change the nature of the market altogether. Today market is a place where there is no intermediaries between a seller of a good and its final buyer to the mutual benefit of both parties (Sengupta, 2004). The Internet and its enabled technologies (especially electronic commerce) have caused the costs of many kinds of market mterachon to plummet (Saloner, 2001). Not only cost reduction, e-commerce has the potential to stimulate growth and employment in industrialized as well as developing countries. Further, e-commerce allows economics agents (both buyers and sellers) to interact more effectively by creating new market opportunities (Mukhopadhyay, 2002). Thus, e-commerce has strong economic implications at both micro and macro level.
E-COMMERCE AND ECONOMIC GROWTH
While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth, and productive growth (2) in particular. The US, which leads the world in IT and e-commerce, has had a notable economic performance, particularly in terms of productive growth, since 1995. But, the same was not happened with the developing countries as they failed to catch up technologically with the industrialized world.
IMPACT OF E-COMMERCE ON ECONOMY
Business and the economy are inextricably linked with the development and implementation of new technology (Tassabehji, 2003). Growth and development of any modern economy has been recognized by many economic theorists, such as Kondratieff, Schumpeter, Mensch and Porter, to be based on innovation of new technology. Mensch stressed that only technological innovations can overcome depression and that government must implement an aggressive innovation policy to stimulate the search for new and basic innovation. Further, Porter (1990), emphasizes that the prosperity and competitive advantage of a nation is no longer as a result of a nation's natural resources and its labour force, but rather the ability of its industry to innovate and upgrade. This can be seen as a disruptive technology on a macro environmental level. Continuous growth of e-commerce is expected to have deep impact on structure and functioning of economies at various levels and overall impact on macro-economy.
IMPACT ON COST, PRICE AND COMPETITION
The e-commerce lowers costs because the Internet lowers selling search costs as well as, by allowing seller to communicate product information cost effectively to potential buyers, and by offering sellers new ways to reach buyers through the targeted advertisement and one-on-one advertising. Thus it is helpful in reducing the search costs on both the sides. By reducing search costs on both sides of the market, it appears likely that buyers will be able to consider more product offering and will identify and purchase products that better match their needs, with a resulting increase in economic efficiency.
But the reduction in the cost combined with new capabilities of technology can set off more complex market dynamics (Bakos, 2001).E-Commerce technologies have the potential to significantly increase competition by increasing consumers' choice of products and traders (ACCC, 2001). However, some of the distinguishing characteristics of the e-commerce set up also have the potential for creating the monopoly power in the certain lines of products.
CONCLUSION
The emergence and rapid growth of Internet and E-Commerce has strong implications on economic and social activities. It is quite possible that these new technologies might transform the future of economic and societal landscape.
At the general level, there are two types of potential economic gains from the use of E-commerce and IT enabled technologies. First, are the gains in efficiency, both in static and dynamic. Static gains are one-time, and come from more efficient use of scarce resources, allowing higher consumption in the present. Dynamics gains come from higher growth, potentially raising the entire future stream of consumption and population. Efficiency gains of e-commerce also come about through the enabling of new digitized goods and services. The second type of potential benefits comes from cost reduction.
As e-commerce transcendens the barriers of geographical boundaries, the concept like the place of transactions and place of consumption become immaterial. With the emergence and growth of digital money in the economy, the chances of frauds have also increased. Another most difficult issue is the planning regarding the adoption and implementation of e-commerce technology in the various economic activities. In nutshell, with the e-commerce based economic models, there is little to lose and more to gain.
Source:
"Economic Implication of e-Commerce"
Indian Journal of Economics and Business, Dec, 2007 by Sumanjeet: http://findarticles.com/
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