How firms gain competitive advantage in the changing business dynamics - Essay Example

? Change: How firms gain competitive advantage in the changing business dynamics Executive Summary In the current environment of volatility and rapidly transforming socio-economic and political imperatives, the change management has increasingly become key element of competitive advantage for the business organizations. The need to identify the drivers of change and incorporating the same within the business strategies by organizational leadership has become top priority for mot only to succeed but also to survive. The five authors discussed in the paper it helps them to understand, anticipate, evaluate and analyze changes to identify the drivers of change and explore opportunities for exploiting them. They believe that changes are good for the firms and firms which have flexible approach are better able to absorb changes and surge ahead of others. In the highly competitive market, firms need to leverage their competencies for competitive advantage. The various modules and mechanisms of evaluating and analyzing the performance metrics become highly critical factors for success of the firm. Kaplan and Norton’s balanced scorecard and Rockart’s critical success factors not only complement each other but also provide the industry with the impetus to improve and innovate processes so as to exploit the potential of existing and new market. Introduction In the current environment of volatility and rapidly transforming socio-economic and political imperatives, the change management has increasingly become key element of competitive advantage for the business organizations. The need to identify the drivers of change and incorporating the same within the business strategies by organizational leadership has become top priority for mot only to succeed but also to survive. The internal and external exigencies influence the performance of the firms and therefore need to be analyzed, evaluated and exploited for gaining leverage against their rivals in the industry. Indeed, the firms survive or fail in the competitive market mainly because they either unable to anticipate changes in the environment or failed to exploit the opportunities that were offered by the changes to survive and gain competitive edge. The visionary outlook of the leadership and the innovative approach of the firms are vital inputs that facilitate and create opportunities to maintain their niche market position. The paper would primarily be evaluating the works of five authors who have introduced radical concepts in the business strategies to cope with the environmental changes. Section 1 What is change and how companies cope with changes Change is inevitable and irreversible process that provokes reaction and forces people out of their comfort zone. Most importantly, impact of change becomes most visible when it is viewed adversely. Bateman and Zaithaml (1990) stress that organizations need to change because the environment within which they operate is constantly changing. The organizational leadership therefore becomes the vital ingredient that prepares and motivates people to become flexible. It not only helps them to adopt changes but also to look for opportunities in contextual changes which can be exploited for improving their productivity and outcome. As the following authors assert, changes become enabling factors when they are explored for opportunities. Indeed, the authors have different perspective on change and change management. Change management has become a critical issue for firms. They emphasize that it helps them to understand, anticipate, evaluate and analyze changes to identify the drivers of change and explore opportunities for exploiting them. They believe that changes are good for the firms and firms which have flexible approach are better able to absorb changes and surge ahead of others. Some of the mechanisms that are evolved to cope with changes are: fostering business alliances; using technology; thinking out of the box; being innovative through new development and R&D; creating learning environment; exploiting human competencies; organizational leadership initiatives etc. Section 2 W. Cham Kim & Renee Mauborgne (Blue Ocean Strategy) Kim and Mauborgne strongly claim that strategic innovation is important for making special space within the market not only for competing but also to ensure competitive advantage for sustainable period of time. According to them, business universe primarily comprises of two types of space called red ocean and blue ocean. The space occupied by existing industries who are constantly vying to outperform each other in order to survive in the highly competitive environment. They operate within the broader parameters rules and regulations and use traditional methods of outsmarting each other to capture larger share of the market. McDonald’s, Wal-Mart, fashion Houses all come under this category. They mainly compete by exploiting their competencies and customers’ preferences and innovate their strategic planning for value addition. Most importantly, in red ocean, the industries’ competition increases, reducing the scope of their growth. The survival techniques become cutthroat where margin of profit is increasingly bargained for survival or for maintaining market share. Blue ocean on the other hand, uses new ideas to invent new industry from within the red ocean industries having almost no competition. The strategy of blue ocean industry is fundamentally based on innovative input derived from within the products of existing industry that provides the new company with relatively long term competitive advantage. They are formed in two ways. They can be carved out as completely new industry from within the existing one like eBay which was the first online auction site and started a new concept on the cyber space. The other way is to cross the existing boundaries of the firms to create new industry. The creative ideas and innovation give rise to long term competitive advantage. One of the exemplary examples of blue ocean industry is BIC Pens. BIC has passionately followed blue ocean strategy because its ball point products have been major revolution for the industry. Simultaneously, it has constantly strived to introduce wide range of differentiated writing product line so as to maintain an edge against its competitors. Most pertinent is the fact that diversification and development of new products were intrinsically linked to the daily requirements of the people at large. Apart from ball point pens, BIC Butane disposable lighters were highly successfully in the market that was previously inundated with traditional matchsticks for lighting stoves and cigarettes. The research and development wing of BIC played important role in BIC’s blue strategy that facilitated the company to maintain its niche market position. The rapid expansion of the French company, BIC across the geographical boundaries has retained its global market position mainly because of its blue ocean strategies. The innovation was targeted for common man and the cheap but useful products like ball point pens and disposable lighters were ass produced for mass consumption. It was able to maintain its niche market through economy of scale where cost was significantly reduced. Thus, blue ocean strategy, as Kim and Morborgbe say, ‘is all about creating new land, not dividing up existing land… they create a leap in value for customers as well as for the companies… they create brand equity that lasts for decades’. Section 3 Robert S. Kaplan & David P. Norton (Balanced Scorecard) Kaplan and Norton reinforce the fundamental objectives of business that they must make profits by producing goods and services that meets the needs of the people. Hence, as value propositions for various stakeholders and shareholders, managerial leadership should evolve strategies and plans for maximizing profit through increased operational efficiency and customer satisfaction. The strategic performance metric becomes critical factor for managerial leadership as it provides important tools to evaluate performance outcome. The inconsistency in product development and customer requirements adversely impacts the profits. Improvements in productivity must be aligned to the changing preferences of the people so as to improve performance and profitability of the organizations. The authors argue that some defined measures called ‘balanced scorecard’ can give an exhaustive overview of the performance and help identify the area that is adversely impacting the performance. This is an important breakthrough as balanced scorecard method uses financial measures that also complement operational efficiency. Thus giving a widespread overview of mutually dependent vital performance measurement elements like customer satisfaction, internal processes, innovation and improvement activities etc. that have direct ramifications on financial performance. Most importantly, they are also major drivers of operational efficiency and future financial performance. The balanced scorecard is easy, effective and efficient way of gauging organizational performance. It mainly evaluates performance on 4 major platforms: customer perspective; internal business perspective that explores core competencies of workers and organization to exploit; innovation and learning for continuous improvement; and lastly, financial perspectives that is focused on maximising profits for stakeholders. Thus, BSI is not only an important criterion that lends credibility to the organization but it is clearly designed to maximize profit for various stakeholders. The BSI strongly supports the controls and measures used for improving the performance of the firms. They also facilitate transparency in the working. It helps organization to improve and improvise its performance to gain competitive advantage within the industry. At the same time, they also become important benchmark for quality of services and help to provide the organizations with strong leverage to deliver exemplary service in defined service area. McDonald’s is a good example of using the BSI to constantly improve its performance. Looking from the major four perspectives as suggested within BSI, McDonald’s is able to maintain its niche market. While customer service has been its main objectives, through operational efficiency, it has significantly maintained its product and service quality. It has flexible approach towards changes and therefore encompasses them within its managerial strategies. It is for this reason that it uses local flavor and taste within the broader scope of its product-line in its various outlets across the globe. Customizing its products to suit the tastes of its customer is another innovative approach that has made it so popular amongst the masses. Section 4 Robert F. Rockart (Critical Success Factor) Rockart has summarized Ronald Daniel’s critical success factors for industries. The myriad types of industries have been evolved with different objectives and with varying resources and competencies. The businesses therefore try to leverage their resources to gain maximum advantage in the market. In the contemporary times, competencies and resources of the firms are used in business strategy to create market sustainability over a period of time. Volatility of market and changing dynamics of business have been the major elements that have driven the companies to identify and evaluate factors that are essential to the success of the firms. Each company therefore seeks to look for those critical elements from within its resource that significantly contributes to the success. Rockart was the first person to call those factors as ‘critical success factors’ or CSF that are necessary for improved performance that can provide the firms with competitive advantage. CSF are vital ingredients of a firm’s competitive advantage. The resource and capabilities of the firms are strategic processes that are exploited by organizational leadership for improving performance. The capabilities and resources give distinct edge to the firm. There can be a number of elements within the firms that can be used by firms to gain leverage. But in the current times, the firms need to be more innovative in their strategic planning to create new avenues of opportunities which can be exploited to gain competitive advantage. Exploring and identifying CSF therefore increases its chance of long term sustainable performance. Rockart’s CSF are widely different to the generic strategy of Porter mainly because Porter has used traditional means of metric to evaluate performance. Rockart on the other hand, explores innovative ways across its resources and capabilities that can be used as CSF. There could be any number of CSF within a firm but the important question is that of identifying the most feasible and most effective elements that can assuredly give competitive advantage through increased performance. Thus, firms normally try to identify 2 to 5 critical success factors which can be focused on to optimize performance outcome. Wal-Mart’s logistics and supply chain is one of the most vital CSF that has given it an enviable market position within the industry. Microsoft, on the other hand, exploits its knowledge base to maintain its niche market. Interestingly, Rockart has used the concept of CSF to strengthen the information flow within the firm and thereby evolve appropriate strategy for competitive edge. Thus, the organizations continuously make effort to identify factors and issues that would help produce the desired outcome with efficiency. The companies use various methodologies like benchmarking, TQM, Six Sigma etc, to improve processes and quality standard that can increase their performance, profit and market credibility. Today the companies need to be focused to develop dynamic business strategies which can identify the critical factors of change. Montgomery (2004) says that business strategy must be a dynamic in its approach so that it can guide the development of a company over long period of time. The changing dynamics of the global business has necessitated strategies for distinctive competencies to give the company market leadership. Section 5 D’Aveni (Waking Up to New Era of Hypercompetition) A’Aveni’s article is exceedingly relevant in the contemporary environment of technology and rapid globalization that has expended the scope of businesses across the globe. According to him, the mushrooming of firms/ business has not increased the competition in the market but four major factors have resulted in hyper-competition. Increased customer awareness and their changing demands; Technology that has transformed the way businesses are conducted; falling entry barriers or liberalization of economies that has expedited globalization and facilitated expansion of business across geographical boundaries; and lastly the use of deep pockets where money power is used to overcome competition. Big businesses gobble up small ones through business alliances, takeovers etc. D’Aveni has been quite expansive on the vagaries of hyper-competition and believes that hyper-competitors thrive on continuous innovation in their products, processes, strategies and goals. Their success depends on their being ‘disruptive’ or in their ability to disturb the market. The firms use lateral thinking to evolve creative processes and means to ‘generate new competitive advantage’. The customers therefore are constantly getting new products at comparatively low cost. The firms diversify and enter new market to stun the industry and thereby gain advantage. In hyper-competition, the product has short life cycle, so the firms continuously innovate to give something new to customers either through value addition or through new product development. Samsung is a scintillating example of hyper-competitor which has continuously provided the masses with new products which has not only stunned the market but also the consumers. The recent 3-D television with HD screen and facility has been an instant hit and people are now looking expectantly for ‘what more’. The product and services in hyper market get obsolete very fast. So companies need to be highly consciousness of their rival’s new strategies and turn ideas into actions speedily to outsmart them and retain market position. The author also asserts that through dynamic maneuvering, companies can keep their edge. They can have long term dominance in the industry through 4 different mechanisms: price-quality; know how/ time; strong hold creation/ invasion area; and deep pocket area. The low cost quality products that meet the changing demands of the people must be timely introduced in the market. The competitor also must be ready for diversification when competition nears saturation. A manufacturing unit can also become major marketing agent for new entrants. This way, while it can exploit its marketing competencies by offering customers more choices vis-a-vis products, the significant gain in revenues is hugely attractive. The deep pocket option gives larger firms, more leverage through acquisitions, alliances etc. which increases their resource competencies, thus giving them longer market sustainability. Interestingly, he has come up with new strategy that uses new 7S as against McKinsey’s 7s- style, structure, staffing, system, skill, subordinate goals and strategy. Aveni’s 7s are: stakeholder’s satisfaction through profit maximization; strategic soothsaying by anticipating customers’ changing requirements; speed; surprise; signal are public announcement to manipulate rival’s strategies; shift the rule are designed to give new angles or perspective to the products; simultaneous or sequential strategic thrust are used to confuse other competitors by introducing multiple product and services. Section 6 James F. Moore (Predators and Prey: New ecology of competition) Moore’s article is general in its assumption that many numbers of companies or firms within a defined industry compete against each other through various means: cost differentiation; innovation, supply chain etc. He has compared the natural ecosystem with that of business ecosystem. He says like predators and preys both survive in the natural ecosystem or forest without affecting the broader structure of the forest. The co-existence is the key that can be learnt by the organizations in the business ecosystem. Indeed, in the market, co-existence through competitive business practices becomes the important ingredient of market. The companies develop core competencies in areas that give them competitive advantage and promote sustainable market position. Business’ are designed to serve the needs of the people. The firms meet the changing demands of the masses through the development of new products and business processes. Drucker (1999) claims that external environment is intrinsically linked to the business performance. Hence, managerial leadership adapts flexible approach to meet the contingencies and identify and exploit their potential for the organization’s advantage. Moore has not said anything special that has not already been researched by other business experts. The changing patterns in the business ecosystem are important indicator of innovative business practice that are adopted by firms to survive. Moore says that the study of businesses which have matured in the market can give important tips to fledglings or new entrants. I do not believe that such is either practical or would be relevant for new entrants because firms need to evolve constantly to meet the challenges of time. So the previous strategies that were adopted by the firms will have no relevance in the present time as values and environment change with time. The study of business The article falls short on many fronts vis-a-vis business drivers that influence performance and competencies, the pitfalls that need to be avoided in the competitive market, the drivers of change etc. All the businesses and firms cater to the needs of the people and strive to achieve their wider business goals through efficient and effective processes that optimize productive outcome. Conclusion The five authors discussed in the paper have all broadly focused on the needs of the firms that can give them sustainable performance and market edge. In the highly competitive market, firms need to leverage their competencies for competitive advantage. The various modules and mechanisms of evaluating and analyzing the performance metrics become highly critical factors for success of the firm. At the same time, they also serve to enhance firm’s ability to innovate and create a credible database of elements that can be exploited by firms to sustain their competitive advantage for longer period of time. Blue ocean strategy of Kim and Morborgne is highly pertinent for hyper-competitors, as termed by D’Aveni because they have long sustainability and cannot be easily imitated! Kaplan and Norton’s balanced scorecard and Rockart’s critical success factors not only complement each other but also provide the industry with the impetus to improve and innovate processes so as to exploit the potential of existing and new market. The technology based companies like Dell are constantly improving their processes and innovating to give value to their customers. They are combining processes like balanced scorecard and critical success factors to boost their core competencies. Indeed, it can be correctly concluded the articles hugely facilitate in understanding the business compulsions of the contemporary times and provide huge insight into the volatility of the market. References Bateman, Thomas S., and Carl P. Zeithaml. (1990) Management: Function and Strategy. Homewood, IL: Irwin. BIC Pen Corporation. Retrieved from: http://www.bicworld.com/en/homepage/homepage/ D’Aveni, Richard. (1997) Waking Up to New Era of Hypercompetition. The Washington Quarterly, 21(1), 183-195. Drucker,P. (1999). Management Challenges for the 21th Century. New York: Harper. Kim, Cham W. and Morborgne, Renee.(2005) Blue Ocean Strategy. Harvard Business Review. Kaplan, Robert S. & Norton, David P. (Jan-Feb 1992) Balanced Scorecard: Measures that Drive Performance. Harvard Business Review. Montgomery, Cynthia A. (January, 2008) Putting leadership back into strategy. Harvard Business Review. Moore, James F. (May-June 1993) Predators and Prey: New ecology of competition. Harvard Business Review. Rockart, Robert F.. (April 1959) Chief Executives Define Their Own Data Needs. Harvard Business Review, 57(2), 81-93 Read More