Managing Value for Competitive Advantage Company Analysis - Essay Example

? Company Analysis Executive Summary The business environment has undergone tremendous transformation over the last few years. There has been a fundamental shift from just concentrating on economic profitability to a business model that is cognizant of the larger circle of people who can affect or can be affected by a firm. This model of building relationships with stakeholders has proved to have a ripple effect of increasing the profitability of companies. The key to competitive advantage is through value creation and addition to the offerings to the stakeholders. The company considered in this case study is Toyota Corporation. An in-depth analysis of the level of stakeholder relationships in the company illustrates how the company has managed to create meaningful connections that are a pillar to its success. The company has grown consistently over the years and at the core of its strategy is the commitment to offer value to its clients. The process of creating value and building strong relationships with stakeholders has a direct result of positively impacting on the profitability of the company. Therefore, it is recommended that companies should adopt a value creation strategy in order to remain competitive. The stakeholders’ relationships should also be strengthened to help a business to remain sustainable in the long-term. a) Critically evaluate classic and current literature to discuss the importance of “creating and adding value for the stakeholder” as a key requirement for sustained competitive advantage in the 21st century organizational environment. The rapid changes in business environment in the 21st century demand that businesses reinvent themselves in order to remain relevant. The economy has changed from being commodity based to become a knowledge –based one. Sources of value creation have shifted from tangible assets to intangible things such as social and human capital. Advances in technology and globalization have given the issue of making networks and building long-term relationships more prominence (Castell, 2000). Simply put, in the information age, the flow of communication plays a vital role in enabling the business to succeed. According to Freeman (1984), the term stakeholder may be defined as any group or individual who are in a position to affect or be affected by a company’s objectives. The type of interests that the stakeholders have in a company differs. For instance, investors have a stake in the equity of the firm. In addition, other direct stakeholders such as customers, employees, suppliers and competitors have a stake in the financial success of the company. Wheeler and Sillanpaa (1997) also included individuals and groups that speak for the environment, non-human species and future generations in the list of stakeholders. This type of stakeholders is interested mostly on the impact that the firm has on people and on the environment. Further, Freeman states that there are two fundamental issues that should be articulated in the analysis of stakeholder theory and value creation (1994). First, the fundamental question on the purpose of the organization must be answered. This sets the stage for the management to elaborate on the core function that the firm engages in. The shared purpose of the value that the organization creates helps to rally the stakeholders to work hand in hand towards achieving their goal. The second issue that should be considered is about the responsibility of the management to the stakeholders. It is accepted that sustainable economic value can only be created by the voluntary coming together of people to improve the wellbeing of each other. It is imperative the organization outlines how it intends to do business and precisely the kind of relationships it intends to build with the stakeholders. Creating value for stakeholders provides a win-win scenario for both the firm and the stakeholders (Jones et al, 2002). When a company creates products and services that customers are willing to buy, offering rewarding jobs that are fulfilling to employees, building mutually beneficial relationships with suppliers and gives back to the community, the end result is that the company becomes a phenomenal success. Corporate performance should be assessed in terms economic development, environmental impact and the social equity. For a business to remain competitive in these challenging times, the differentiating factor is no longer only about the price. Successful companies have to build relationships with their stakeholders by creating and adding value in their offerings. Sustainability is very critical for every firm with long term goals. Businesses need to be responsible citizens and the strategic directions that a company takes should be in line with the agenda of sustainability. By factoring in sustainability, a company positions itself to reap long-term benefits. According to Ellington (1998), for a company to remain competitive it has to embrace the culture of sustainable operations. This essentially means that the company has to utilize all the resources available in a responsible and diligent manner. The magnitude of sustainability is enormous considering issues such globalization, climate change and population growth. Therefore, a company has to remain committed to undertake all its operations in a manner that is both ethical and environment friendly. The customers have also become very selective and people seek services which are certified as sustainable. For instance, paper manufacturing companies have to demonstrate that they have mechanisms in place to replenish the forests from which they source their raw materials from. Other issues related to sustainability include a commitment to recycle and re-use as much as possible. Creating and adding value is the surest way to a genuine competitive advantage for organizations in the 21st century and beyond. The question on whether stakeholders’ relationships contribute to business success has been a subject of research fro many years. Kotter and Heskett (1992) showed that companies oriented towards stakeholders had a significantly higher sales and employment record compared to firms that were shareholder oriented. Serving the interests of stakeholders has a ripple effect given that those stakeholder oriented companies were observed to have four times growth in sales and over eight times growth in employment as compared to the others. Companies that put more emphasis on ethics and social performance are the most profitable. The logic behind this is that the stakeholders that provide information that can be used to tap new opportunities and be able to solve problems at their nascent stages before they become costly. Corporate social responsibility has a correlation to the financial performance of a company. According to Berman et al (1999), companies that have strong value relationships with employees and customers had a higher return on investments. The ability to create meaningful and sustainable relationships with concerned entities forms the success of a business. It is evident from the literature review above that value creation is an important factor in the success of a company. The business world is becoming extremely agile and competitive and the companies that will prosper into the future are those that manage to cultivate meaningful relationships and add value to the stakeholders. Stakeholders’ relationship should not be taken as a way of sidelining the shareholders; great stakeholder relationships automatically mean that the business and shareholders will gain more. Value addition provides a competitive advantage to a company in that it helps to set them apart from the competition by providing a beneficial effect on the customers and other stakeholders. b)  Critically examine the current strategy of an organization of your choice, evaluating how successfully theoretical concepts have been applied to date, that are perceived to create and/or add value for the organization’s various stakeholder groups Case Study: Toyota Toyota is a Japanese automotive company that has had tremendous growth over the years. The company has outperformed its competitors in the industry by maintaining an upward trajectory even when the entire automotive industry was on the downturn. The secret to the company’s success is through the mastery of the value creation system with the entire chain of stakeholders. The company has pioneered in the creation of novel concepts in the supply chain management process and other operational systems hence managing to effectively utilize its resources and maintain profitability. The value creation based system is based on several factors that have a synergetic effect. One of the areas of customer value creation where Toyota has prospered is in the customer relationship. Toyota has positioned itself as a company that provides value for money. This means that Toyota defines its customer value through provision of high quality products at an affordable price. Specifically, Toyota differentiates itself from competitors by emphasizing on the fulfillment part of the customer value relationship. A case in point was when the company had to recall some defective vehicles in the United States market. The affected customers who had bought the Lexus brand of Toyota were provided with a similar vehicle to use as the defective one was being sorted. Once the defects were corrected, the vehicles were returned to the owners with a full tank of fuel. This shows that Toyota genuinely values its clients and the long-term result of this commitment is that it attracts genuine loyalty. In fact, industry statistics show that Toyota clients are among the most loyal. Toyota also developed the phenomenal Toyota Production System that defines the processes and systems in the operations of the company. The fundamental trait in this aspect of operation is that employees are not slaves of technical processes or the mechanisms of the production line, rather the employees are tasked with using their intelligence so that the factory produces just the right amount of products that the customers are demanding for. This helps to avoid wastage and maintain production of high quality vehicles. Empowering the line employees also helps to create a sense of trust and importance among them hence increasing productivity. The Toyota Production System actually synchronized the orders department with the production department and the suppliers so that the different arms could work harmoniously. By bringing along the suppliers into the system, the company pioneered the “Just in Time” delivery system. The benefit of the strategy is that it saved Toyota from having to invest in a lot of inventory hence lowering costs. On the other hand, the suppliers had an opportunity to streamline their delivery by only bringing the required pieces on each delivery. This creation of value to both parties is a critical factor that fostered positive results. The employees got a chance to use their initiative to decide on what has to be done and how fast it had to be done unlike previously where the line workers had minimum opportunity to make any decision. The Toyota Production System blended well with the company’s mission of producing quality vehicle models at an affordable price. The system enables the company to manufacture each vehicle to individual specifications by the customer at a much lower cost than other companies. It also made it possible for flexibility in the manufacturing schedule depending on the order flow. Cost saving is also improved since the company does not need expensive warehousing and there is reduced wastage. The system has undergone continuous improvements over time and it has been adapted as benchmark in the industry. With this system in place, Toyota has managed to outrank its competitors as the leader in profitability and productivity. Although Toyota does mass production of vehicles, it still manages to afford some customization because the production system is versatile enough. Another aspect of the Toyota Company that has given it a strategic advantage is in Research and development. The leaders of companies in the world agree that a successful business model of innovation is the key to future competitive advantage. The company has implemented a unique value creation system that fuels innovation. This system supports responses to customer feedback and if a certain feedback is a promising idea, the design team takes it up for consideration. Through this customer feedback, Toyota Company always has a steady supply of fresh ideas that the company uses to make new products. This concept of crowd-sourcing ideas is not unlike that applied in the internet and software development realm. It should be noted that the Toyota Production System can only work effectively if all the stakeholders collaborate. The company has developed a partner like relationship with its suppliers to implement the Toyota Production System. In fact, Toyota encourages its suppliers to also use the same system in their operations. It is absolutely necessary that the suppliers deliver their components timely, with quality as well as in the right quantity. Realizing the importance of these suppliers, Toyota has invested heavily in educating its suppliers and seeking to develop long term relationships with them. The result is a win-win scenario for both Toyota and the suppliers. From the above discussion, the Toyota Company has successfully implemented value creation. The company has managed to position itself in a strongly competitive manner given that it has significantly increased its market share. The building of value based relationships also plays an important role in solidifying the leadership position of Toyota. The core competencies of Toyota are in human capital, relationship capital and the structural capital in terms of organizational frameworks. c) Based upon your evaluations and discussions above, justify what future “value creation strategies” you would recommend to the management team for the future “sustainable competitive advantage” of your organisation. The Toyota Company is already a big company with operations in many countries. However the company needs to harness the strategic potential of globalization. One strategy that it can use to strengthen its global operations is by transferring the Toyota Production System to all the places of operation. The system is fully implemented in the Japanese plants and I believe it would add value if it was implemented globally. The strategic benefit that this may provide to the company is that an idle facility may take up demand from an overwhelmed one. The company needs to position itself in readiness for the opportunities and challenges that are posed by globalization. Another recommendation to give Toyota a competitive advantage is the use of hidden value creation potential. Toyota has an enormous client base that is very loyal. The potential of these clients has not been fully utilized to generate additional business. The trend by other automobile companies is has been to introduce financial services. Toyota can introduce a strong credit subsidiary to target clients to whom it can cross-sell to. The Toyota automotive arm can develop a synergistic relationship with the credit arm and this may increase the revenue of the company. The cost of fuel has been increasing rapidly over the years. Most consumers are in dire need of solutions related to viable alternative fuel. The opportunity here for Toyota is to boldly lead the market to where it is headed. The future is indeed towards alternative energy sources but very few automobile companies have invested significantly in vehicles that can utilize such fuels. The value that can be created by the designing and production will cater for the interests of a large number of stakeholders. The customers will have significant savings from fuel bills and the environment conservation groups will also support this cause since it is pro-environment. The impetus of this is that alternative energy and fuel efficiency presents a real opportunity for the company to increase its revenues and also play a role in environmental conservation by reducing the carbon footprint. The recent recall of Toyota’s defective vehicles in the United States has dented the image of the company. Toyota needs to redeem its image and re-establish itself as a company that produces quality products. Defective products can only be as a result of defective processes hence the company needs to look at its processes carefully. Since parts that are used in the vehicle manufacture come from suppliers, it is imperative that a proper control system is put in place to do quality checks. To rectify this situation, the company should invest in training its suppliers on the precise standards that they have to attain in the delivery of the supplies. The company can also use the services of an external auditor to check on the quality of parts that are delivered. The human errors also have to be reduced to the barest minimum by creating multiple layers of oversight. The other sector in which Toyota should improve in is in its customer benefits. The company needs to be cognizant of the fact the overseas market accounts for a large portion of its revenue and as such, they should respond to the customer demands in those regions. The design of cars that are extremely geared to the Japanese people may not receive a large appeal in the Western countries due to different cultures and preferences. Research and development facilities should be located in the major regions so as to understand the particular needs of customers in that region and tailor products that suit them. The feedback mechanism should also be rapid and sufficient. One way of ensuring that proper communication of the company’s values, the dealers should be trained sufficiently to be able to handle all the customer queries. In the case that a dealer is not in a position to answer the customer’s query, an online database should be available for reference purposes. The imminent challenge, in this case, is developing a car that caters for the advanced technological needs of the populace. People are demanding for vehicles that can communicate with their phones, connect to the internet and even link to their homes. Toyota should invest in designing their vehicles to allow for convergence of technologies. For instance, the company can design a car that automatically synchronizes with the phone once the owner enters into the vehicle. Also, technology should allow for enhanced entertainment system inside the car and even allow voice –command control. The issues of accidents can also be minimized by use of technology. Automatic distance and detection devices can be installed to prevent hitting of pedestrians and even other vehicle from behind. Although the company has made tremendous steps in value creation, it cannot afford to let its guard down. The competitors have already copied most of the strategies of Toyota and in order for it to stay ahead, the company needs to keep on improving its processes and encourage innovation. The impact of value creation is self evident since it has an imminent reflection on the company’s financial statements. The case study of Toyota serves to show the impact that value creation can have on a business. Once a small company with presence in Japan only, it has grown to become a respected multinational with a presence in almost all countries. Companies should look at the bigger picture of the stakeholders rather than considering only the shareholders. The creation of a value to the stakeholders offers an opportunity for a company to succeed in terms of financial turnover and also build a positive brand image. The success of a company should be analyzed in a wholesome manner in terms of economic development, environmental impact, and the social effects to the community. Bibliography Castells, Manuel. 2000. The Rise of The network Society. 2nd ed. Malden. Blackwell Publishers. Freeman, R. Edward.1984. Strategic Management: A Stakeholder Approach Boston: Pitman Freeman, R.E., Philips, R. 2002. Stakeholder Theory: A libertarian Defense. Business Ethics Quartely. 33-350 George, B., 2003. Authentic Leadership: Rediscovering The Secrets of Creating Lasting Value. New Jersey. John Wiley and Sons. Grant, R.M. 1991. The Resource Based Theory of Competitive Advantage. California Management Review. Haeckel, A. 1999 .Adaptive Enterprise: Creating and Leading Sense And Respond Organizations. Boston: Harvard Business School Press Rawls, J. 1991. A Theory of Justice. Boston. Harvard University Press Werhane, P. 1998. Moral Imagination in Management Decision Making. Oxford. Oxford University Press Read More