Creating Competitive Advantage - Essay Example

? Creating Competitive Advantage Introduction There is a major transformation that is occurring in the way that firms relate with the customers. The digital economy has enabled the customers to have a lot of information on companies which allows them to make informed decisions. The integration of processes and sharing of relevant information between partners has largely been due to the presence of e-commerce which is a relatively new trend in the market place (Clark & Lee 2000, p. 102). The automation of business practices and the electronic integration of data by various businesses stemming from the need to be more transparent in the conduction of various activities has also largely affected the way that customers are relating with the firms that produce goods that they need. In analyzing the information sharing, this paper will look at relevant examples so as to elaborate on the inherent need of information to both the customers and the firms. Discussion The supply chain becomes more efficient with the increased coordination of activities due to automation. Consequently, the need for inventories is reduced. Proctor and Gamble (P&G) is a company that has been operational in the world for a long time. The manufacturer has a relationship with the retailer Wal-Mart (Clark & Lee 2000, p. 126). The relationship between the two companies has to be analyzed from a transactional perspective as well as from an operational and strategic one. The two companies, apart from sharing information with each other have gone ahead to share the same information with their customers. This has stemmed from the need by the companies to involve their customers in the pricing of products as well as increasing the value of these products. The basis of the relationship between the companies and the customers is based on mutual trust. P&G and Wal-Mart are not only partners but also competitors. Therefore, the trend that they have set in the sharing of information can be analyzed from the benefits that the two derive from being in a relationship with each other as well as with their customers. The sharing of information has to be approached cautiously. Naturally, many companies are skeptical that the information that they share with the customers as well as competitors would be used in a negative manner which may hurt the company’s profitability. Doctors concede that the patient they treat today have a major difference from the patients that they treated in the years gone by. Once a patient seeks out a doctor, the patient is usually armed with information regarding the treatment procedures that are available for the conditions that they may have. The doctor will start by giving the patient the preliminary information regarding the condition from where the patient will inquire more on the treatment procedure and the condition. The patients will want to know the different risk factors that are involved in treatment as well as the benefits that are to be gotten from the procedures. This sharing of information between doctors and patients explains why the business environment is changing. The consumers of certain products require that the producers share the information that they have on the products (Seidmann & Sundararajan 1998, p. 34). There are very many chat rooms on the internet that are aimed at sharing information on a hoard of topics. The members of these chat rooms will critique as well as praise some products. At the end of it all, the consumer is armed with the necessary information in order to make a certain purchase. When Michael Dell started IBM, the cost of a computer was $3,000. This suggested that the markup from selling the machines as well as the costs were too high. He saw it prudent to reduce the costs associated with the assembly of the machines so that they would retail at lesser prices. In attempting to do this, he had to use less expensive methods of sourcing for the raw materials as well as internal ways that would cost less. The box, speakers, memory, hard disks and drives were being sourced from other suppliers. This meant that the company could not lower its prices to a level that would not be beneficial to it. The overall cost of the materials was $1,200. Other internal materials that were being produced by the company as well as the labor and management involved cost the company $200. This meant that the total inputs for the computers were $1,400. Therefore, when the company lowered the price of the computers to $2,000, the amount that the company got was $600. In creating a competitive advantage, the value of the products being marketed has to be analyzed. This means that the amount that the customer is willing to pay for the products must exceed what the company sells the product at. There must be a dialogue between the firm and the customers so that the price of the product is decided. Customers usually value the products based on a number of factors the most basic being the relative need that they have for the product. The willingness of a customer to purchase a certain product means that the product is valuable to them. Prior to 1975, before the securities market was deregulated in the United States, the overall cost charged by brokerage firms was $30. The customers and the firms were not so much in partnership in deciding this amount. The customers were nevertheless eager to part with that amount so that they could make a trade. After the deregulation of the market, competition increased and the firms started consulting with the customers so that the cost of trading was reduced to as low as $5 per transaction. The value of the transaction even when it was $5 could still have been estimated as being $30 since the customers had indicated their willingness to pay the latter amount. The marketing of products requires that the company has all the relevant information. This may be in regard to the competitors, the suppliers and the customers. Information is usually regarded as power. This means that the customers as well as the firms that do have the most information are the ones that are likely to be more successful. The information that the company has is important in the way that they package their products. The customers usually value the products depending on the information that they have regarding the quality of the product (Cachon & Fisher 1997, p. 270). One of the most difficult things to decide for companies is the amount that the customer may be willing to pay for a given product. If a product is valued at $200, then the customer who purchases the product is thought to have valued the product at $225 or as high as $300 meaning that the $200 represents the best value for their money. Partnerships between the customers and the firms that produce products that the customer is willing to buy aid in the co-creation of those products’ specifications. This may include the products price and other details. The way that business is conducted has been refined over the last 75 years, not by competition, but by the customers. Today, the customers are more informed, connected, active and empowered. The creation of value for the products has become a priority for most firms. The expectations of the customer have to be met in order for the firms to have a meaningful relation with them. There are over a billion cell phones in the world. Moreover, there are very many PCs that are in the possession of people and that are connected to the internet. This means that people are always in connection with each other and share information regularly. As discussed earlier, the presence of chat rooms means that the flow of information is constant. The dialogue that is ongoing in such chat rooms is evidence that the way that businesses were traditionally conducted has changed (Lee, Padmanabhan & Whang 1997, p. 548). Companies that ignore this fact do so at their own peril. Co-creation is a joint effort between the customers and the firms that produce the goods that these customers do require. The process is not based on the traditional way in which the main aim of a company was to please the customers. This means that the customer and the firm are equal partners in the creation of value. The customer is allowed to construct the context in which he desires the experience to be. The two partners are meant to define the problems together as well as the way that the problem is to be solved. References Cachon, G., and Fisher, M. 1997. “Cambell Soup’s Continuous Replenishment Program: Evaluation and Enhanced Inventory Decision Rules, “ Production and Operation Management, 6, 3, Fall, 266-276. Clark, T. H. and Lee, H. G. 2000. “Performance, Interdependence, and Coordination in Business to-Business Electronic Commerce and Supply-Chain Management,” Information Technology and Management, 1, 85-105. Clark, T. H. and Lee, H. G. 2000. Procter&Gamble: Improving Consumer Value through Process Redesign, HBS Case #9-195-126. Harvard Business School, Boston, MA Lee, H., Padmanabhan, P., and Whang, S. 1997. “Information Distortion in a Supply Chain: The Bull Whip Effect,” Management Science, 43, 546-58. Seidmann, A. and Sundararajan, A.1998. “Sharing Logistics Information Across Organizations: Technology, Competition, and Contracting,” in Information Technology and Industrial Competitiveness, C. Kemerer (Ed.), Kluwer Academic Publishers Read More