CHAPTER 3: STRATEGIC INITIATIVES FOR IMPLEMENTING COMPETITIVE ADVANTAGES

Supply Chain Management

  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. The four basic components of supply chain management are:

1. Supply chain strategy - the strategy for managing all the resources required to meet customer demand for all products and services.
2. Supply chain partners -the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics.
3. Supply chain operation - the schedule for production activities including testing,packaging and preparation for delivery. Measurements for this component include productivity and quality.
4. Supply chain logistics - the product delivery processes and elements including orders,warehouse, carriers, defective product returns, and invoicing.  

Effective and Efficient Supply Chain Management's Effect on Porter's Five Forces

  Effective and efficient supply chain management 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 efficiency 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.

CRM overview

Based on the figure,its provides an overview of a typical CRM system. Customers contact an organization through various means including call centers, web access, email, faxes, and direct sales. A single customer may access an organization multiple times through many different channels. The CRM system tracks every communication between the customer and the organization and provides access to CRM information within different systems from accounting to order fulfillment. Understanding all customer communications allows the organizations to communicate effectively with each customer.

CRM Strategy

  

  It is important to realize that CRM is not just technology, but also a strategy that an organization must embrace on an enterprise level.Although there are many technological components of CRM, it is actually a process and business goal simply enhanced by technology. Implementing a CRM system can help an organization identify customers and design specific marketing campaigns tailored to each customer, thereby increasing customer spending. A CRM system also allows an organization to treat customers as individuals, gaining important insights into their buying preferences and behaviors and leading to increased sales, greater profitability,and higher rate of customer loyalty.

Business Process Re-engineering

  A business process is a standardized set of activities that accomplish a specific task, such as processing a customer's order. Business process re-engineering (BPR) is the analysis and redesigns of workflow within and between enterprises. The concept of BPR traces its origins to management theories developed as early as the 19th century. The purpose of BPR is to make all business process the best-in-class.

Seven Principles of Business Process Re-engineering

Finding Opportunity Using BPR

  Companies frequently strive to improve their business processes by performing tasks faster, cheaper, and better.

Better, Faster, Cheaper of BPR

  Based on the figure that displays different ways to travel the same road. A company could improve the way that it travels the road by moving from foot to horse and then from horse to car. However, true BPR would look at taking different path. A company could forget about traveling on the same old road and use an airplane to get to its final destination. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster and more direct way of doing business.

Pitfalls of BPR 

  One hazard of BPR is that the company becomes so wrapped up in fighting its own demons that it fails to keep up with its competitors in offering new products or services. While American Express tackled a comprehensive re-engineering of its credit card business, MasterCard and Visa introduced a new product- the corporate procurement card. American Express lagged a full year behind before offering its customers the same service.

Enterprise Resource Planning

  Today's business leaders need significant amounts of information to be readily accessible with real-time views into their businesses so that decisions can be made when they need to be, without the added time of tracking data and generating reports.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.

Auto Insurance Claims Processes

CHAPTER 2: IDENTIFYING COMPETITIVE ADVANTAGES

Chapter 2: Identifying Competitive Advantages


What is competitive advantages?

Competitive advantages is a product or service

 that an organization’s customers place a greater

 value on than similar offerings from a competitor

First-mover advantage occurs when an organization can significantly impact its market share by being first to market with a competitive advantage

 Organizations watch their competition through environmental scanning.

        Environmental Scanning is the acquisition and analysis of events and trends in the environment external to an organization.

There are three common tools used in industry to analyze and develop competitive advantages include:

 - Porter’s Five Forces Model  

- Porter’s three generic strategies  

- Value chains

Porter’s Five Forces Model 

Porter’s Five Forces Model determines the relative attractiveness of an industry.

      1) Buyer power 

      2) Supplier power

      3) Threat of substitute products or services

      4) Threat of new entrants

      5) Rivalry among existing competitors

Buyer Power 
(high when buyers have many choices of whom to buy from and low when their choices are few)

 There are two ways to reduce buyer which are through loyalty programs and switching cost.

 Loyalty program  - rewards customers based on the amount of business they do with a                                      particular organization

 Switching costs   - costs that can make customers reluctant to switch to another product or 
                                service

Supplier Power 
(high when buyers have few choices of whom to buy from and low when their choices are many)

Supplier power is the converse of buyer (customer) power. A supplier organization in a market 
will want buyer (customer) power to be low. The supplier wants to be able to set any price it 
wants for its goods, and if buyers (customers) have low power, then they do not have any 
choice but to pay the high price since there are only one or two suppliers.

What is an example of an organization with “high” supplier power?

Microsoft, Government regulated products such as energy markets and telecommunication markets in 

some countries

Supply chain consists of all parties involved in the procurement of a product or raw material

 Organizations that are buying goods and services in the supply chain can create a competitive 

 advantage by locating alternative supply sources (decreasing supplier power) through B2B 

 marketplaces.

 Business-to-Business (B2B) marketplace – an Internet-based service that brings together 

 many buyers and sellers

 Two types of business-to-business (B2B) marketplaces:

         

         Private exchange – a single buyer posts its needs and then opens the bidding to any 

         supplier who would care to bid

         Reverse auction – an auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price

Threat of Substitute Products or Services  

(high when there are many alternatives to a product or service and low when there are few alternatives from

 which to choose)

 Ideally, an organization wants to be in a market in which there are few substitutes for its

 products or services.This is difficult to achieve, and most organizations create a competitive

 advantage through switching costs the more painful it is for a customer to switch suppliers, 

 the less likely they are to switch. If a customer has to experience pain when switching to a

 different service provider, then they are unlikely to switch. For example, switching doctors

 usually involves sending all medical records and explaining all past medical history to the new 

 doctor.  Insurance also has to be transferred, along with detailed forms that the customer will 

 be required to complete (such as family history, personal history, HIPAA, etc.)  For these 

 reasons customers have to be extremely dissatisfied with a doctor before they will endure the 

 pain of finding or switching to a new doctor.

Threat of New Entrants 

 (high when it is easy for new competitors to enter a market and low when there are significant entry barriers to 

  entering a market)

     Entry barrier -  is a product or service feature that customers have come to expect from 

     organizations in a particular industry and must be offered by an entering organization to 

     compete and survive

     

What is an industry that has a high entry barrier?

•    Energy                     – the organization has to have the infrastructure to support energy
•    Telecommunications – the organization has to invest in a telecommunications infrastructure                                  prior to offering services
•    Banking                   – the bank must offer its customers an array of IT-enabled services                                    including ATMs and online account services

What is an industry that has a low entry barrier?

• Restaurants      – simply lease a space, obtain a license, and you can sell food
• Catering           – simply offer food and deliver
• Movie rental     – simply buy the movies, pay the licensing fee, and offer the movies for rental                             (although if you want to be a Netflix the entry barrier is high because                                        you have to have the facilities and systems to mimic their movie supply chain)

• 
  

 Rivalry Among Existing Competitors
  (high when competition is fierce in a market and low when competition is more complacent)

 Competition is always more intense in some industries than in others, the overall trend is             toward increased competition in just about every industry


 Porter’s Three Generic Strategies 

• Broad cost leadership  :  Broad strategies reach a large market segment

• Broad differentiation    :  Focused strategies target a niche market

• Focused strategy         :  Focused strategies concentrate on either cost leadership or differentiation

   Value Chains

    

    Once an organization chooses its strategy, it can use tools such as the value chain to  

    determine the success or failure of its chosen strategy

Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order

Value chain – views an organization as a series of processes, each of which adds value to the product or service for each customer

  

value chain

   • Primary value activities acquire raw materials and manufacture, deliver, market, sell, and        provide after sales services

   • Support value activities support the primary value activities

   • Customers determine the extent to which each activity adds value to the product or service

   • The competitive advantage is to:

§ Target high value-adding activities to further enhance their value

§ Target low value-adding activities to increase their value

§ Perform some combination of the two

Value chains with Porter’s Five Forces

If an organization wants to decrease its buyer’s or customer’s power, it can construct its 

value chain activity of “service after the sale” by offering high levels of quality customer 

service. This will increase the switching costs for its customers, thereby decreasing their 

power (buyer power)

CHAPTER 1: BUSINESS DRIVEN TECHNOLOGY

Why we need to study Information Technology (IT)?

IT is everywhere in business. Understanding IT provides great insight to anyone learning about business.

Information Technology’s Impact on Business Operations

• -          Organization typically operate by functional areas or functional silos
• -          Functional areas are interdepends

Information Technology Basics

• -          Information technology (IT) – A field concerned with the use of technology in managing and processing information. IT is an important enabler of business success and innovation
• -          Management information system (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, information and business intelligence

·         Data is a raw facts that describe the characteristics of an event

·         Information is a data converted into a meaningful and useful context.

·         Business intelligence is an applications and technologies that are used to support decision making efforts.

-          IT Resources

·         People use

·         Information technology to work with

·         Information

-          IT Cultures

·         Organizational information cultures include;

• Information-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 a new sales manager’s input each time a new sales strategy is developed.
• 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 insight about crisis and radical changes and seek ways to create competitive advantages.
• Information-Sharing Culture – Employees across departments trust each other to use information (especially about problems and failures) to improve performance.