Competing for the Future Traditional v/s Visionary Firms Good firms attained flexibility in operations from

o o o

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

1.

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.

Hence, the need for reinventing existing competitive space or creating entirely new competitive scope.

ALTERNATIVE VIEW OF CORPORATE STRATEGY In the past, small cos. from Japan with meager resources challenged much larger & richer US cos. successfully.

How could these firms challenge corporate giants? What prevented the existing leaders from sidelining the newcomers?

Research by Gary Hamel and C. K. Prahalad:

The differences were not due to incremental

operational efficiency, or institutional factors (e.g. cost of labor or capital.)

These firms had the ability to find new ways to

accomplish more with less.

The challengers (i.e. smaller firms) were driven by

something more beyond short-term financial goals.

Managers were driven by amazingly ambitious goals that go beyond typical strategic plans.

These challengers continue to create new forms of competitive advantage, and rewrite the rules of engagement.

What distinguishes these firms from others is - the

process by which they create competitive advntge. Then the next question arises Why are only these companies, and not others, continuously in search of new advantages?

What dynamic forces are at work in these companies?

Researchers found that - Such cos. made substantial

commitments to particular skill areas (such as optical media, financial engg., and miniaturization), far before the markets for these end-products emerged.

Their Senior management viewed competition as a race,

to build competencies, rather than a necessary evil to gain market share.

Few more questions 1.

On what rational basis, are they committing their resources?

2.

Why they are so emotionally and intellectually committed to these goals?

3. 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, services, and entire industries that belong only to the future. 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

competitive space. In contrast, laggards spend their entire time protecting the legacies of the past rather than creating the future. Laggards take the industry structure as it is bestowed to them, and seldom challenge or change it. (Laggards : firms that are slow in seeking new competitive space)

How do the revolutionaries, and not the laggards, 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.

Existing views on strategy provide the framework for tracking relative competitive advantage, but fail to capture aspects of competence building.

Firms must be encouraged and driven by the goal of

transforming the industry, and not just themselves.

Firms have to be convinced that being incrementally better is not enough. If they don't spare a thought for the future, they have no chance to determine what the future will be like.

Is RESTRUCTURING enough? The industry leaders failed to give enough attention to winds of change in industry : Sears, General Motors, IBM, Westinghouse, and Volkswagen have been victims of this perilous change.

Sears expected that successive generations of rural

Americans would find its catalog the best way to fulfill their needs. Similarly, GM felt that with rising incomes, young customers would continue to buy its products as their

parents did. IBM too expected that its revenues would sprout

continually as big companies added more "mips" to their central data-processing departments.

These cos. were characterized by steadiness and were devoid of dynamism. Hence, such cos. (which started as leaders in the 1980s) ended the century with their positions barely intact. In the last decade of the 20th century, IBM, Philips, T I, Xerox, Boeing, DB, Citicorp, BoA, Sears, Digital Eqpt., Du Pont and many other cos. suffered from falling profits.

Why they suffered? The tides of technological, demographic and regulatory change, (besides the quality gains made by non-traditional competitors), blunted their competitive edge.

Their top managers were not averse to change. But the industrial terrain changed faster than they could remodel

their basic beliefs and assumptions about markets, technologies, customers, and even employees.

The result: these cos. ended up as bystanders, (without realizing that their structure, values and skills are becoming slowly irrelevant). They continued reacting in the traditional methodology of strategy planning such as : downsizing, overhead reduction, employee empowerment, process redesign, and portfolio rationalization.

Though these changes are necessary, they are not in themselves assurances of either industry leadership or preparedness for the future.

Generally, the CEOs resort to restructuring when the competitiveness problem becomes inescapable.

Restructuring may take different forms, such as :

Refocusing, De-layering, De-cluttering; and Right-sizing). However, they all aim at minimizing the count of employees. Two reasons are usually cited as the main culprits, which make restructuring necessary
1.

Global competition and

2. Job-destruction because of productivity/ technology. However, it is, most often, a fall-out of under-management in companies.

Self-protective executives do not take advantage of the IT revolution, and timid managers lobby for protectionism instead of international competition. With slow growth, these companies could hardly sustain burgeoning Employment Rosters, traditional R&D budgets and huge investment programs.

Several companies also had ballooning overheads (IBM's problem), and had diversified into unrelated areas (Xerox's

entry into financial services). Against this background of corporate mismanagement and bloated companies, lean and mean companies were advocated as the new ideal to work towards. Return on capital employed, shareholder value, and revenue per employee were chosen" as appropriate measures of company performance. Though restructuring led to commendable improvements in many cases, it destroyed the livelihood and hopes of many people. The single-minded pursuit of restructuring did more harm than good. In order to avoid the painful process of restructuring, it is important that a firm anticipates and creates its own future. It is equally important that the firm spends less in reaching its destination. A company can follow different routes to ensure productivity improvement. On the one hand, productivity can be increased by reducing the number of employees and maintaining the same level of revenue. On the other hand, productivity can "be improved

by increasing the firm's revenue with the existing capital and employment base.

Though the first approach often yields benefits, the second approach is always preferred. Maintaining the same level of revenue in a growing market leads to loss of market share. Between 1969 and 1991, total manufacturing output in the UK grew by 10 % in real terms, whereas employment in manufacturing industry went down by 37 %. As a result, the increase in labor productivity in the UK was second only to that of Japan, among the industrialized countries. Despite the productivity gains, British firms did not create new markets in the UK and in other countries. Restructuring has high social costs. An individual firm might avoid these costs, but society cannot avoid them. Unproductive management layers have to be removed, and inflexible work practices disbanded. However, it is

difficult to determine whether the firm has reached the point, where restructuring can stop. Restructuring, whether good or bad for the firm in the long run, definitely leads to plummeting employee morale. In these circumstances a firm can hardly maintain that employees are the firm's most valuable assets. Employees feel that they are the most expendable assets.

Restructuring rarely results in fundamental improvement in the business. Successful restructuring, only lends time for improvement. In a study of 16 large U.S. companies with at least three years of restructuring experience, researchers found that although the restructuring exercise had improved the share price, the increases were temporary. After three years of restructuring, the share prices were still lagging behind their levels when the restructuring exercise began. This indicated that an intelligent investor looked at restructuring as a signal to sell.

RE-ENGINEERING

After going through the process of restructuring, some companies begin to reengineer their processes. Reengineering cuts down needless work, and directs every process in the company towards customer satisfaction, reduced cycle time, and total quality. Here, the focus is on doing things faster and with less waste. When companies undertake reengineering, they ask their employees to redesign processes and work flows. The stated aim of reengineering is to :focus on customer satisfaction. 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, in the majority of cases. As in the case of restructuring, reengineering too is a penalty paid for not having anticipated the future. However, there is a qualitative difference. Reengineering

offers - the hope of becoming better while getting smaller. In contrast, any company that is restructuring seriously will fmd itself getting smaller, faster than it is getting better. Restructuring may be considered a necessary evil, whereas reengineering can be possitive and beneficial even as it is being undertaken. Toyota, a leading Japanese manufacturer of cars, employed efficient manufacturing systems nearly 40 years ago. U.S carmakers made efforts to catch up with their Japanese competitors in terms of quality and cost. 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.

Reengineering, for many companies, is aimed at catching up with rivals rather than moving out in front. In the 1970s, many firms aimed to operate at a global scale. But when this was attained, they were left with tremendous

overcapacity, and vicious price-cutting came into play. In the 1980s, firms began to pursue quality, and later, the speeding up of operations, in order to address their lack of competitiveness. Firms were, thus, making efforts to catch up rather than to lead. When U.S car companies were matching Japanese companies in terms of cost and quality, Japanese manufacturers were erecting new competitive barriers: breathtaking engine performance, razor-edge handling, luxury, new design aesthetics, and product development aimed at lifestyle niches.

In one of the surveys conducted Nearly 80% of U.S managers polled said that quality was their most important priority. In contrast, only 50% of Japanese managers held this view, though 82% believed that better quality was the reason for existing competitive advantage. Japanese managers rated the ability to create fundamentally new products and businesses as their most important competitive

advantage. This does not mean that Japanese companies ignore quality; rather they believe that quality is a minimum requirement for entry into a market. The Japanese ma1iagers realize that the competitive advantages of future will be different from those of today.

TIVE STRATEGY AS STRETCH

A firm's financial strength is important in its journey into the future. But emotional and intellectual energies are at least as important as financial resources in helping it prosper in a new environment. Firms with, strong finances tend to ignore firms with meager resources in the same industry. They underestimate the ability of small firms with limited resources to compete in the marketplace. The changing fortunes of firms indicate that the financial resources of a firm are not a sustainable competitive

advantage in the long term. A firm may be cash-rich and yet lose its position in an industry. Another firm may overcome its initial financial troubles and achieve a leadership position. Companies often concentrate on resources than resourcefulness. But, meeting the future in a position of strength depends more on resourcefulness than on resources. Resourcefulness stems from a deeply felt sense of purpose, a broadly shared dream, and a truly inspiring view of the future. It rarely arises from an elegantly structured strategic architecture Strategic intent is the dream that energizes company. It is the cornerstone of strategic architecture. Strategic architecture shows the way to the future. But, it is strategic intent that provides the emotional and intellectual energy necessary for the journey. Strategic intent invo1\res significant stretch for the organization. Existing skills, capabilities, and resources are not considered sufficient for the task. In traditional

organizations, efforts are made to ensure a "fit" between existing resources and emerging opportunities. In contrast, the "misfit" between resources and aspirations. 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. SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated. The processes and positions that engender such a position (CA) is not necessarily non-duplicable or inimitable. 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.

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". 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.