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Speed Advantages Supplier-management advantages, Substantial improvements in quality. All these accomplishments do come under traditional form of achieving competitive advantage, also known as incremental approach (A method of improving performance by following strategies such as Reengineering and Restructuring.)
Beyond Incrementalism - Some challengers, even if they lack resources (required for strategic actions), do not set limits on their ambitions and accomplishments.
Consider the following situations, (viz. the challenges faced by firms looking towards the future –
In an increasingly unstable environment, experience gets devalued rapidly, and familiar land-posts no longer serve as guides.
2. Disorderliness in marketplace (also called Entropy) undermines organizational efforts. Even robust strategies become victims to entropy. 2. High levels of employee anxiety and disenchantment that follow exercises of restructuring & reengineering.
Reducing cost can no longer give a firm a sustainable competitive advantage. Similarly, bringing a product early to the market will not substantially enhance the comp. position of the firm in any remarkable way.
e. the need for reinventing existing competitive space or creating entirely new competitive scope.) • These firms had the ability to find new ways to accomplish more with less. ALTERNATIVE VIEW OF CORPORATE STRATEGY In the past. small cos. How could these firms challenge corporate giants? What prevented the existing leaders from sidelining the newcomers? Research by Gary Hamel and C. successfully. Prahalad: • The differences were not due to incremental operational efficiency. cost of labor or capital.g. smaller firms) were driven by something more beyond short-term financial goals. from Japan with meager resources challenged much larger & richer US cos. . • The challengers (i. K. or institutional factors (e.Hence.
financial engg. continuously in search of new advantages? • What dynamic forces are at work in these companies? Researchers found that .the process by which they create competitive advntge.. far before the markets for these end-products emerged. • What distinguishes these firms from others is . Their Senior management viewed competition as a race. made substantial commitments to particular skill areas (such as optical media. .Managers were driven by amazingly ambitious goals that go beyond typical strategic plans. and miniaturization). These challengers continue to create new forms of competitive advantage. and not others.Such cos. Then the next question arises – • Why are only these companies. and rewrite the rules of engagement.
services.to build competencies. rather than a necessary evil to gain market share. On what rational basis. and entire industries that belong only to the future. How do these firms choose capabilities to build in the future? One can only conclude that some management teams are more "foresightful." These teams are capable of imagining products. are they committing their resources? 2. Managers in these firms spend less time thinking about how to position the firm in the “existing competitive space” and more time on how to create fundamentally new . Why they are so emotionally and intellectually committed to these goals? 3. Few more questions 1.
Laggards take the industry structure as it is bestowed to them.competitive space. and seldom challenge or change it. In contrast. but fail to capture aspects of competence building. gain exclusive foresight? How is it possible to imagine markets when the products don't exist? Current theories of strategy shy away from answering – How a firm can fundamentally reshape the industry to its advantage. (Laggards : firms that are slow in seeking new competitive space) How do the revolutionaries. and not the laggards. • Firms must be encouraged and driven by the goal of . laggards spend their entire time protecting the legacies of the past rather than creating the future. • Existing views on strategy provide the framework for tracking relative competitive advantage.
GM felt that with rising incomes. General Motors. • Similarly. Westinghouse. and Volkswagen have been victims of this perilous change. IBM too expected that its revenues would sprout . If they don't spare a thought for the future. and not just themselves. they have no chance to determine what the future will be like. • Sears expected that successive generations of rural Americans would find its catalog the best way to fulfill their needs. Is RESTRUCTURING enough? The industry leaders failed to give enough attention to winds of change in industry : Sears. IBM. young customers would continue to buy its products as their • parents did. • Firms have to be convinced that being incrementally better is not enough.transforming the industry.
Digital Eqpt. Hence. (which started as leaders in the 1980s) ended the century with their positions barely intact. suffered from falling profits. BoA. Sears. blunted their competitive edge. Citicorp. were characterized by steadiness and were devoid of dynamism. Du Pont and many other cos. such cos. Their top managers were not averse to change. DB. These cos.continually as big companies added more "mips" to their central data-processing departments. IBM. Boeing. (besides the quality gains made by non-traditional competitors). Philips.. But the industrial terrain changed faster than they could remodel . Xerox. In the last decade of the 20th century. demographic and regulatory change. Why they suffered? The tides of technological. T I.
(without realizing that their structure. values and skills are becoming slowly irrelevant). and portfolio rationalization. and even employees. ended up as bystanders. They continued reacting in the traditional methodology of strategy planning such as : downsizing. they are not in themselves assurances of either industry leadership or preparedness for the future. technologies. Restructuring may take different forms. Though these changes are necessary. overhead reduction. Generally. such as : . the CEOs resort to restructuring when the competitiveness problem becomes inescapable. employee empowerment. customers.their basic beliefs and assumptions about markets. process redesign. The result: these cos.
Several companies also had ballooning overheads (IBM's problem). Global competition and 2. Job-destruction because of productivity/ technology. these companies could hardly sustain burgeoning Employment Rosters. they all aim at minimizing the count of employees. However. and timid managers lobby for protectionism instead of international competition. it is. a fall-out of under-management in companies. which make restructuring necessary – 1. Two reasons are usually cited as the main culprits. traditional R&D budgets and huge investment programs. most often. De-layering. With slow growth. De-cluttering. and had diversified into unrelated areas (Xerox's . However. and Right-sizing). Self-protective executives do not take advantage of the IT revolution.Refocusing.
It is equally important that the firm spends less in reaching its destination. it is important that a firm anticipates and creates its own future. In order to avoid the painful process of restructuring. lean and mean companies were advocated as the new ideal to work towards. shareholder value. The single-minded pursuit of restructuring did more harm than good. Return on capital employed. productivity can be increased by reducing the number of employees and maintaining the same level of revenue. it destroyed the livelihood and hopes of many people. On the other hand. A company can follow different routes to ensure productivity improvement. productivity can "be improved . Against this background of corporate mismanagement and bloated companies. and revenue per employee were chosen" as appropriate measures of company performance.entry into financial services). Though restructuring led to commendable improvements in many cases. On the one hand.
by increasing the firm's revenue with the existing capital and employment base. whereas employment in manufacturing industry went down by 37 %. among the industrialized countries. the increase in labor productivity in the UK was second only to that of Japan. total manufacturing output in the UK grew by 10 % in real terms. and inflexible work practices disbanded. but society cannot avoid them. As a result. However. Maintaining the same level of revenue in a growing market leads to loss of market share. Though the first approach often yields benefits. it is . Unproductive management layers have to be removed. Despite the productivity gains. British firms did not create new markets in the UK and in other countries. An individual firm might avoid these costs. Between 1969 and 1991. the second approach is always preferred. Restructuring has high social costs.
companies with at least three years of restructuring experience. Employees feel that they are the most expendable assets. In a study of 16 large U. whether good or bad for the firm in the long run. Restructuring rarely results in fundamental improvement in the business. . In these circumstances a firm can hardly maintain that employees are the firm's most valuable assets. After three years of restructuring. the increases were temporary. researchers found that although the restructuring exercise had improved the share price.difficult to determine whether the firm has reached the point. where restructuring can stop. only lends time for improvement. the share prices were still lagging behind their levels when the restructuring exercise began. Successful restructuring.S. This indicated that an intelligent investor looked at restructuring as a signal to sell. definitely leads to plummeting employee morale. Restructuring.
RE-ENGINEERING After going through the process of restructuring. As in the case of restructuring. in the majority of cases. reduced cycle time. the focus is on doing things faster and with less waste. The stated aim of reengineering is to :focus on customer satisfaction. they ask their employees to redesign processes and work flows. However. Here. and total quality. When companies undertake reengineering. there is a qualitative difference. Reengineering . and directs every process in the company towards customer satisfaction. reengineering too is a penalty paid for not having anticipated the future. But it is the prospect of cost reduction rather than customer satisfaction that motivates the top management in a firm to go in for reengineering. Reengineering cuts down needless work. some companies begin to reengineer their processes.
offers . U. faster than it is getting better. Toyota. any company that is restructuring seriously will fmd itself getting smaller. Restructuring may be considered a necessary evil. But when this was attained. employed efficient manufacturing systems nearly 40 years ago.S carmakers made efforts to catch up with their Japanese competitors in terms of quality and cost. for many companies. a leading Japanese manufacturer of cars. Though these car companies were expected to meet the standards of Japanese companies they were hardly expected to out-compete the Japanese in the booming Asian markets. In the 1970s. is aimed at catching up with rivals rather than moving out in front. whereas reengineering can be possitive and beneficial even as it is being undertaken. many firms aimed to operate at a global scale. they were left with tremendous . In contrast.the hope of becoming better while getting smaller. Reengineering.
In contrast. though 82% believed that better quality was the reason for existing competitive advantage. in order to address their lack of competitiveness. and product development aimed at lifestyle niches. and later. making efforts to catch up rather than to lead.S managers polled said that quality was their most important priority. razor-edge handling. only 50% of Japanese managers held this view.S car companies were matching Japanese companies in terms of cost and quality. Firms were.overcapacity. new design aesthetics. thus. and vicious price-cutting came into play. Japanese manufacturers were erecting new competitive barriers: breathtaking engine performance. When U. In one of the surveys conducted – Nearly 80% of U. luxury. firms began to pursue quality. the speeding up of operations. Japanese managers rated the ability to create fundamentally new products and businesses as their most important competitive . In the 1980s.
They underestimate the ability of small firms with limited resources to compete in the marketplace. rather they believe that quality is a minimum requirement for entry into a market. Firms with. The changing fortunes of firms indicate that the financial resources of a firm are not a sustainable competitive .advantage. TIVE STRATEGY AS STRETCH A firm's financial strength is important in its journey into the future. strong finances tend to ignore firms with meager resources in the same industry. But emotional and intellectual energies are at least as important as financial resources in helping it prosper in a new environment. This does not mean that Japanese companies ignore quality. The Japanese ma1iagers realize that the competitive advantages of future will be different from those of today.
Strategic intent invo1\res significant stretch for the organization.advantage in the long term. and resources are not considered sufficient for the task. In traditional . capabilities. it is strategic intent that provides the emotional and intellectual energy necessary for the journey. It rarely arises from an elegantly structured strategic architecture Strategic intent is the dream that energizes company. and a truly inspiring view of the future. a broadly shared dream. But. Strategic architecture shows the way to the future. Existing skills. meeting the future in a position of strength depends more on resourcefulness than on resources. Another firm may overcome its initial financial troubles and achieve a leadership position. But. It is the cornerstone of strategic architecture. A firm may be cash-rich and yet lose its position in an industry. Companies often concentrate on resources than resourcefulness. Resourcefulness stems from a deeply felt sense of purpose.
Sustainable Competitive Advantage (SCA) A firm possesses a SCA when it has value creating processes and positions that cannot be duplicated or imitated by other firms. In contrast. A key difference between CA and SCA is that the processes and positions a firm may hold are non-duplicable and inimitable when a firm possesses a SCA.organizations. . the "misfit" between resources and aspirations. The processes and positions that engender such a position (CA) is not necessarily non-duplicable or inimitable. efforts are made to ensure a "fit" between existing resources and emerging opportunities. SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated.
A CA becomes SCA when all duplication and imitation efforts have ceased and the rival firms have not been able to create the same value that the said firm is creating.Hence a sustainable competitive advantage is one that can be maintained for a significant amount of time even in the presence of competition. This brings us to the question what is a "significant amount of time". .
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