Chapter 3 : STRATEGIC INITIATIVES FOR IMPLEMENTING COMPARATIVE ADVANTAGES

STRATEGIC INITIATIVES

a) Supply chain management (SCM)
b) Customer Relationship Management (SCM)
c) Business Process Reengineering (BPR)
d) Enterprise Resource Planning (ERP)

SUPPLY CHAIN MANAGEMENT (SCM)

Supply Chain Management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability.

Four basic components of supply chain management include :

1. Supply chain strategy
   -Strategy for managing all resources to meet customer demand
2. Supply chain partner
   - Partners throughout the supply chain that deliver finished products, raw materials, and services.
3. Supply chain operation
   - Schedule for production activities
4. Supply chain logistics
   - Product delivery process

 

Effective and Efficient SCM system's effect on Porter's Five Forces

 

Effective and efficient SCM systems can enable an organization to :

• Decrease the power of its buyers
• Increase its own supplier power
• Increase switching costs to reduce the threat of substitute products or services
• Create entry barriers thereby reducing the threat of new entrants
• Increase efficiencies while seeking a competitive advantage through cost leadership

 



CUSTOMER RELATIONSHIP MANAGEMENT

Customer Relationship Management (CRM) involves managing all aspects of a customer's relationship with an organization to increase customer loyalty and retention and an organization's profitability.

Organizations such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems.

CRM is not just a technology, but a strategy, a process, and a business goal that an organization must embrace on an enterprise wide level.

CRM can enable an organization to :

• Identify types of customers
• Design individual customer marketing campaigns
• Treat each customer as an individual
• Understand customer buying behaviours

An overview of CRM

 

 

BUSINESS PROCESS REENGINEERING (BRP)

 

 

Business Process is a standardized set of activities that accomplish a specific task, such as processing a customer's orders

 

 

Business Process Reengineering (BPR) is the analysis and redesign of workflow within and between enterprises

- The purpose of BPR is to make all business processes best-in-class

 

Reengineering the corporation - book written by Michael Hammer and James Champy that recommends seven principles for BPR

 

 

 



Finding Opportunity Using BPR :

 

• A company can improve the way it travels the road by moving from foot to horse and then horse to car
• BPR looks at taking a different path, such as an airplane which ignores the road completely
• Progressive Insurance Mobile Claims Process

• Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit

 

 

ENTERPRISE RESOURCE PLANNING

 

Enterprise Resource Planning (ERP) integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprise wide information on all business operations.

 

The keyword in ERP is "enterprise"

ERP systems collect data from across an organization and correlates the data generating an enterprise wide view

Chapter 2 : IDENTIFYING COMPETITIVE ADVANTAGE

Identifying Competitive Advantage 

"What is competitive advantage?"

Competitive advantage (CA) product or service that an organization's customers place a greater value on than similar offerings from a competitor. Unfortunately, CA is temporary competitors keep duplicating the strategy. Then, the company should start the new competitive advantage. 

We will learn about namely three tools in this chapter namely The Five Forces Model, The Three Generics Strategies and The Value Chains. 

THE FIVE FORCES MODEL

Michael Porter's Five Forces Model is a useful tool to aid organization in challenging decision whether to join a new industry or industry segment. 

The Five Forces are : -

1. Buyer Power
2. Supplier power 
3. Threat of substitute products or services
4. Threats of new entrants
5. Rivalry among existing companies

BUYER POWER 

• High – when buyers have many choices of whom to buy.
• Low – when their choices are few.
• To reduce buyer power (and create competitive advantage), an organization must make it more attractive to buy from the company not from the competitors.
• Best practices of IT-based
  
           - Loyalty program in travel industry (e.g. rewards on free airline tickets or hotel stays ) 

The Competitive Environment

Bargaining Power of Customers./Buyer power

• Customers can grow large and powerful as a result of their market share. 
• Many choices of whom to buy from
• Low when comes to limited items
• E.g. : used loyalty programs (Jusco card, Tesco card, - being a members to get the discount)

b

       SUPPLIER POWER

•          High – when buyers have few choices of whom to buy from. 
•          Low – when their choices are many.
•           Best practices of IT to create competitive advantage.
•        E.g. Business to Business B2B marketplace – private exchange allow a single buyer to  posts it needs and then open the bidding to any supplier who  would care to bid. Reverse  auction is an auction format in which increasingly lower bids. 

       THREAT OF SUBSTITUTE PRODUCTS AND SERVICES

•           High – when there are many alternatives to a product or service. 
•           Low – when there are few alternatives from which to choose.
•           Ideally, an organization would like to be on a market in which there are few substitutes of   their product or services. 
•            Best practices of IT    -  E.g. Electronic product -same function different brands

The Competitive Environment

 Threat of Substitutes 

•           To the extent that customers can use different products to fulfill the same need, the threat   of substitutes exists.
•            E.g: electronic product -same function different brands
•            Switching cost- costs can make customer reluctant to switch to another product or              service
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       THREAT OF NEW ENTRANTS 

•            High – when it is easy for new competitors to enter a market.
•            Low – when there are significant entry barriers to entering a market. 
•            Entry barriers is a product or service feature that customers have come to expect from      organizations and must be offered by entering organization to compete and survive
•            Best practices of IT 
•            E.g. new bank must offers online paying bills, acc monitoring to compete.
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The Competitive Environment

          

         Threat of New Entrants 

•            Many threats come from companies that do not yet exist or have a presence in a given      industry or market. 
•            The threat of new entrants forces top management to monitor the trends, especially in        technology, that might give rise to new competitors.
•             E.g. new bank (online paying bills, acc monitoring)

    RIVALRY AMONG EXISTENCE COMPETITOR

•              High – when competition is fierce in a market
•              Low – when competition is more complacent
•              Best Practices of IT
•              Walmart and its suppliers using IT-enabled system for communication and track        
       product at aisles by effective tagging system. 
•               Reduce cost by using effective supply chain.

       The Competitive Environment

          

       Rivalry Among Existing Firms 

•               Existing competitors are not much of the threat:  typically each firm has found its    
        "niche".  
•               However, changes in management, ownership, or "the rules of the game" can give
        rise to serious threats to long term survival from existing firms .
•               E.g: the airline industry faces serious threats from airlines operating in bankruptcy,
        who do not pay on the debts while slashing fares against those healthy airlines who
        do pay on debt. (MAS & AIR ASIA)
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• THE THREE GENERIC STRATEGIES 

The three generic strategies are :

1. Cost Leadership
2. Differentiation
3. Focused Strategy 

COST LEADERSHIP

• Becoming a low-cost producer in the industry allows the company to lower prices to customers.  
• Competitors with higher costs cannot afford to compete with the low-cost leader on price.

DIFFERENTIATION

• Create competitive advantage by distinguishing their products on one or more features important to their customers.  
• Unique features or benefits may justify price differences and/or stimulate demand.
• Ex: i-care by Proton 

FOCUSED STRATEGY

• Target to a niche market
• Concentrates on either cost leadership or differentiation.

• THE VALUE CHAINS
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SUPPLY CHAIN is a chain or series of processes that adds value to product and service for customer. Add value to its products and services that support a profit margin for the firm

SUPPLY CHAIN DIAGRAM 

Chapter 1 : BUSINESS DRIVEN TECHNOLOGY

BUSINESS DRIVEN TECHNOLOGY 

"Information technology is everywhere in business"

BUSINESS OPERATIONS

Business Functions Receiving the Greatest Benefits from Information Technology 

a) Customer Service

b) Finance

c) IT Operations

d) Human Resources

e) Security

Information Technology Project Goals

a) Reduce Costs/Improve Productivity (81%)

b) Improve Customers Satisfaction/Loyalty (71%)

c) Create Competitive Advantage (66%)

d) Generate Growth (54%)

e) Streamline Supply Chain (37%)

f) Global Expansion(16%)





INFORMATION TECHNOLOGY'S IMPACT ON BUSINESS OPERATIONS

"Organizations typically operate by functional areas or functional silos"

"Functional areas are independent"

.

INFORMATION TECHNOLOGY BASICS

Information Technology (IT) : 
- A field concerned with the use of technology in managing and processing information
- Information technology is an important enabler of business success and innovation.

Management Information Systems (MIS) :
- A general name for the business function and academic discipline covering the application of people, technologies, and procedures to solve business problems.
- MIS is a business function, similar to Accounting, Finance, Operations, and Human Resources.

When beginning to learn about information technology it is important to understand :

• Data, information and business intelligence
• IT resources
• IT cultures

Data : 

- Raw facts that describe the characteristic of an event 

Information :

- Data converted into a meaningful and useful context 

Business Intelligence :

- Applications and technologies that are used to support decision-making efforts 

 

 IT CULTURES 

Organizational information cultures include :

• Informational-Functional Culture - Employees use information as a means of exercising influence or power over others. For example, a manager in sales refuses to share information with marketing. This causes marketing to need the sales manager's input each time.
• Information-Sharing Culture - Employees across departments trust each other to use information (especially about problems and failures) to improve performance.
• Information - Inquiring Culture - Employees across departments search for information to better understand the future and align themselves with current trends and new directions.
• Information - Discovery Culture - Employees across departments are open to new insights about crisis and radical changes and seek ways to create competitive advantages.