Chapter

Chapter1 11

Business Strategy
and
Customer orientation

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 Book Structure
directing designing managing
Business Capacity
Strategy & Designing Planning &
Customer Supplier Management
Orientation Relationships
Supply
Operations Chain & Supply
Product & Relationship
Strategy Service Design Management

Inventory
Planning &
Innovation Process Design
Management

Lean Operations
& Just in Time
(JIT)

Project
Management

improving

Future Directions
Performance Quality
in Operations
Management Management
Management
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 Learning Outcomes
• Define what is meant by strategy and strategic management

• Define an organization’s business by identifying who their customers are, what they
want, and how the organization satisfies those wants

• Effectively use key strategic terms

• Explain how strategy exists at different levels in the organization

• Describe the difference between market-based and resource-based approaches to

strategy

• Discuss the nature of organizational competencies and capabilities

• Explain the nature of competitive advantage

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 Chapter Purpose

The purpose of this first chapter is to create a

foundation of understanding in strategic management
against which the operational activity of the
organization can be placed, to enable an
understanding of how operational activity can be
aligned with strategic direction.

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 Products vs services

The customer is often looking for a package from a

single company that meets a need, is all inclusive and
problem free, and is procured with the least effort from
a single supplier.

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 What is Strategy?
Strategy has been defined by Johnson et al. (2005)  as:

‘the direction and scope of an organization over the long term which achieves
advantage in a changing environment through its configuration of resources
and competencies with the aim of fulfilling stakeholder expectations.’

Therefore decisions are made with the aim of:

•providing a product or service that the customer wants in preference to all
competitor products – who the customer is, and what they want;
•guiding the organization throughout its lifetime by defining its scope of activity
– what it does;
•configuring its resources to carry out this scope of activity – how it does it;

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 The Business Definition

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 Strategic Decision Making

• Time horizon
• Scale of consequence
• Scope of activity
• Level of complexity
• Level of certainty

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 Competitive Advantage

Competitive advantage is what sets a firm apart from

its rivals, making it the supplier of choice for
customers within a particular market. Only by
achieving competitive advantage can a firm hope to
gain the required market share that will allow it to
succeed, and meet its strategic purpose.

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 Analysing the competitive environment –
5 Forces

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 Packaging a strategy

• Mission Statement
• Corporate Vision
• Values
• Strategic Objectives
• Strategic Plans
• Strategic Priorities

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 Strategic Organisational Levels

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 How is strategy approached?

There are two overall approaches to strategy:

•The external market-based view (Porter, 1980),
which encourages understanding of all aspects of the
external or market environment in an attempt to guide
the firm safely through the terrain
•The internal resource-based view sometimes called
resource-based theory which concentrates on the
firm’s capability and how it can be configured and
used to achieve success

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 PESTEL Analysis

• Political
• Economic
• Social
• Technological
• Environmental
• Legal

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 Customer Value Proposition

1. Goals and purposes that they want to meet that

the product or service may help with
2. Desired consequences in use situations that will
have an impact on goal achievement
3. Desired product and service attributes that will
contribute to the desired consequence.

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 Customer Value Elements

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 Organisational Resource Types

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 Resources & Competitive Advantage

For a resource to have the potential to result in some

sort of competitive advantage it needs to have four
attributes. These attributes were originally expressed
by Barney (1991) as:
•Valuable
•Rare
•Imperfectly imitable
•Non-substitutable
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 VRIN

We can think of these VRIN distinctions as a filter:

•First, does your resource neutralize a threat or
exploit an opportunity?
•If so, is it rare enough that it is available either only to
you or to a small enough number of competitors that
the advantage it provides is not marginalised?
•If so, how long can this advantage be protected? Or,
put another way, how long before it is imitated or
substituted?
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 Sustainable Competitive Advantage

A firm is said to have a competitive advantage when it is

implementing a value-creating strategy that is not
simultaneously being implemented by any current or
potential competitors. For this advantage to be sustained
two things must apply:
•The resources within a market, and available to the firms
competing within it, are not equally spread.
•These resources are not mobile: that is, they are
company specific in some way, and are likely to remain
that way.
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 Competencies – bundling of resources

Some resources may create a competitive advantage

on their own, such as a unique supply of a raw
material (water in the whisky industry) or a piece of
intellectual property (a formula for a drug), it is more
useful to think of resources in combination. Resources
working together create a more powerful force, which
leads to a better competitive advantage.

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 Types of Competence

• Threshold Competence

• Core Competence

• Distinctive Competence

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 Threshold Competence

• At the basic level these are competencies that allow

the firm to exist and operate, but provide no
competitive advantage:
– Without these competencies no level of operation is
possible
– In the VRIN framework, at the threshold level
competencies will provide little value, because all
companies in the market should be able to do these
basic things

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 Core Competence
At the next level exist what are termed core competencies. Hamel
and Prahalad (1990) propose that for a competence to be core to the
business, it must:

•Provide open access to a variety of markets

•Contribute significantly to performance
•Be difficult to imitate.

This adds some clarity, but Eden and Ackerman (2005)  further
propose that, unlike a threshold competence, a core competence
contributes directly to the business’s strategic goals.

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 Distinctive Competence

The term ‘distinctive competence’ has been coined to

describe a competence that is so valuable, rare,
inimitable and non-substitutable, and so aligned with
business goals, that it creates a clear competitive
advantage. Quite simply, a competence is distinctive if
others are unable to emulate it.

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 Competencies in Service Provision

There are several factors that make the operation of

delivering a service different from that of producing a
product:
•Simultaneity of production and consumption
•Presence of the customer in the conversion process
•Intangibility of services

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 Customer Orientation

Van Looy et al (2003)  have suggested that

competence in services is all about developing a
customer orientation. This concept is comprised of:
•The capacity to understand the customer’s priorities
•The ability to speak the customer’s language
•The ability to empathise with the customer
•The ability to show consideration for the customer
•The ability to de-risk the customer’s business
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 Dynamic Capabilities

• Describe a firm’s ability to integrate, build and

reconfigure competences to address rapidly
changing environments
• Are not reactive, problem-solving events in
spontaneous response to a stimulus but intentional,
planned, and deliberate
• Impact upon resources or bundles of resources
(competencies) to change them to meet a
perceived future state

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 Dynamic Processes
Ambrosini and Bowman (2009) state that dynamic capabilities
comprise four main processes:

•Reconfiguration – the transformation and recombination of assets

and resources. This may occur after a merger or acquisition, where
the new shape will realize new synergies that previously didn’t exist
•Leveraging – the replication of processes or systems across
operational units
•Learning – the increase in effectiveness and efficiency that is the
outcome of reflection on failure and success
•Integration – the pulling together of resources to create new
competencies

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 Summary
The strategy process is therefore as follows:
1.Understand what your business is – business definition model
2.From the MBV:
(a) Investigate your overall market environment – PESTEL
(b) Define your immediate competitive position – Porter’s Five Forces
(c) Understand what your customer wants – value theory
•From the RBV:
1. Define what you need to be good at to exist in the market – core
competencies
2. Leverage your competencies to create a competitive advantage – distinctive
competencies
(a)Analyse the nature of your competitive advantage to understand how
sustainable it is, and therefore how your competence must change to maintain
advantage – dynamic capabilities

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