Business Strategy and Adaptability - Assignment Example

BUSINESS STRATEGY AND ADAPTABILITY Name Course: Tutor Institution City and State What are some problems with traditional ‘industry analysis’ that are (impliedly) highlighted by the authors? The authors have pointed out some of the essential elements of the business environment that were traditionally used to analyze the industry in the past. They argue that the use of such elements to characterize the industry is outdated due to the dynamic nature of the market. According to the authors, the traditional industrial analysis approach assumes that the business environment is stable with no unpredictable elements. However, the cases presented by the authors depict a constantly changing market where the strategies for market positioning do not apply anymore. For example, the fall of the top ranked companies has increased tremendously from 2% to 14% from 1960 to 2008. It is also evident that the traditional approaches have not taken into account the unpredictability of the business brought about by technological changes. The emergence of technology has created a constantly evolving market. New technologies are introduced on a daily basis which requires the manager to review and adjust their plans. Moreover, globalization has created a broad and unending industry structures which make it impossible to measure position. However, the traditional approaches rely on strategy review which does not adhere to frequent changes in the industry. Furthermore, the conventional methods have proven insufficient as they depend on a bordered industry with well-defined business structures. In contrast, the contemporary business environment is open with dynamic components. Porters 5 Forces model was built on particular assumptions about building competitive advantage through building scale or focusing on a niche for example. Do the authors say there is a potential problem with that, and if so what is it? As articulated by the authors, the aim of any strategy is to establish a competitive advantage by leveraging on smart market positioning or by putting together the right competencies and capabilities for production and supply. According to them, market positioning relies on determining an attractive niche or a dominant scale. Therefore, based on the industry analysis, businesses perform periodic strategy review. Moreover, companies use the industry analysis to forecast the market trend and adjust their organizational structures accordingly. However, the authors point out that relying on attractive niche and dominant scale to establish a competitive advantage has potential problems. This is because scale and niche are considered static in the new business environment and are not adaptive to changes in the market. They argue that the new environment characterized by globalization and technological changes introduces dynamic elements. They assert that sustainable competitive advantage arises from learning and adapting quickly to the new changes in the market. Moreover, managers are now required to practice the culture of reading the change signal in the market and experiment rapidly to gain competitive advantage. Also, market niche and scale rely on the traditional approaches which assume that the business environment is static which is not the case in the current world. What are second-order organizational capabilities? (p5) Give an example. What do we need to do to deal with change that is rapid according to these authors? The second-order capabilities as highlighted by the authors are the ability of businesses and their leader to adopt and maintain flexible business models that can quickly adapt to rapid changes in the market. They present a business strategy that is mainly focused on learning and adapting to new changes. They include: The ability to read quickly and act on signals. The ability to experiments frequently rapidly and economically The ability to manage complex multi-stakeholder systems The ability to mobilize employees who are their greatest resources The authors introduce a new way of dealing with rapid change which involves learning how to develop new strategies and do new things. They maintain that companies should avoid perfecting the routine activities and develop new ways of doing things based on market dynamics. According to the authors, business should shift from the traditional approaches that relied mainly on a stable and predictable business environment. The existence of new technologies requires flexible organizational structures and business process that is easily adjustable. Moreover, they propose that managers should be able to learn changes in the market and develop responsive business models to gain competitive advantage. In other words, they should be able to read change signals and adapt quickly. What do the authors mean by leveraging ‘existing assets and capabilities to experiment with business models’? The authors meant that a company could use its existing asset to develop different business models as a way of exploring market opportunities. They provided an alternative experimentation approach that has been successfully implemented by adaptive companies to adjust to the dynamic business environment. Giving an example of Tesco, the authors highlight the need to continuously change the business model, routines, and strategies to capture new market opportunities. For example, as illustrated in the article, Ikea used its assets to experiment on a new business model. The company identified a growth in the nearby real estate whenever they opened a store. Therefore, they decided to explore the niche by engaging in mall development which later became a successful model. It is evident that experimenting should not only be limited to developing new products and services. As demonstrated in the article, new business environment results in the change of various factors. As the need for new goods and services rises in the market, companies also need to change their business models, strategies and routines to meet new requirements. Moreover, Changes in business environment create new opportunities while the old ones become obsolete. Similarly, firms also need to renew their production processes and processes to adapt quickly to the new environment. Why is the ability to create strategies at the network or system level important? Capacity to develop strategies at system and network level is vital because it helps a company expand and improve value creation to its customers by promoting individual adaptiveness. It creates opportunities for collective market strategy through close cooperation with clients and suppliers. The contemporary system involves various business activities beyond the organizational borders. Companies are engaging in cooperative and collective activities through peer production, offshoring, outsourcing, and value ecosystems. As demonstrated in the article, focusing only on internal strategies does not give companies the opportunity to read the market signals and act swiftly. For example, Nokia is an instance of restricted boundary-oriented strategies. According to the authors, Nokia had been overtaken in the smartphone market by different competitors. Companies like Apple and Google have become market leaders by taking advantage of a collective strategy. They have partnered with various players in application development and hardware companies to enhance market value. As such, the case of Nokia highlights the importance of moving the market not as a single business unit but with the entire ecosystem. Adaptive businesses need to develop a multi-company system through partnerships to capture new market opportunities. Furthermore, they need to practice rapid mobilization by cooperating with others as a way of creating system and network level strategies. This would help improve their individual adaptiveness. What implications does all this have for implementation issues, like structure for example? Dynamic capabilities impacts on businesses in many ways. Adaptability results in changes in business models, market structures, organizational routines, and strategies. Changes in strategies such as marketing or production process affect not only internal business structures but also the market activities. Through adaptability, companies reshape their structures to match the new business environment. Therefore, implementation issues such as economic activities, operational routines, and business models are affected significantly by dynamic capabilities. As illustrated in the article, the second-order capabilities require the flexibility of an organization based on their structures, routines, and models. For instance, adopting a system or network level strategies requires cooperation with competitors and other businesses in production, marketing or supply. As illustrated in the case of Google and Apple, they have to partnered with independent application development companies as well hardware developers to create multi-company systems. This, in turn, leads to the establishment of new business structures and models. Moreover, the inter-business structures also influence the external environment in terms of competition and shift in market demand. Therefore, implementation of the dynamic capabilities changes both internal and external business structures, approaches, and models. Do we need ‘dynamic capabilities’ in every situation? Why or why not? Dynamic capabilities are essential in many situations because of the dynamic nature of many industries. Many industries including electronics, construction machines, medical technology among others are prone to changes due to the emergence of new approaches and consumer needs. As a result, they are required to adopt dynamic capabilities to adapt to the changes. However, such capabilities are not required in every situation. There are industries which are predictable and stable and therefore companies can change by relying only on the industry analysis. In such sectors, positioning is easy due to market predictability. Therefore companies can develop effective frameworks to achieve a strong competitive advantage. For example, energy industry consists of stable and predictable market structures with easy positioning. Many of players in such industry are government bodies and involve larger companies due to legal factors and the initial capital. In such industries, there exists a uniform production flow with static consumer demand. Therefore, it becomes easy to demarcate the boundaries of the industry hence easy positioning. Moreover, it is easy to apply traditional analysis and forecasting to ensure strategic planning. Therefore, one does not always need apply dynamic capabilities to achieve competitive advantage. Traditional industry analysis can be utilized in such predictable business environments for strategy formation. What is strategy Porter talks about how companies need to be flexible and highly efficient given competition and rapid market changes. What is at the root of the problem with this approach to Strategy, according to Porter? According to Porter, managers are blinded by the need to improve operational effectiveness that they fail to focus on strategy. He asserts that companies are motivated by the need to achieve ultimate quality, productivity and speed ignoring the concept of strategy. Many management tools including outsourcing, total quality management, reengineering, time-based competition and partnership have been employed at the expense of strategy. As a result, companies achieve tremendous operational improvement but are unable to translate such into profitability. Operational effectiveness is important for streamlining business process. Moreover, it is essential for achieving organizational goals as far as lean management is concerned. By streamlining business processes an organization can create value under low costs and minimal wastes. However, as pointed out by Porter, achieving operational effectiveness is not sufficient for realizing profits. An organization should be able to convert gains from management effectiveness to sustainable profits to exhibit growth. Furthermore, it is through creating profits that a firm can obtain sufficient funds to run its operations. Sustainable profitability is also an essential element in ensuring that the organizational model is sustainable. Therefore, focusing only on operational effectiveness is insufficient for organizational sustainability. What is meant by ‘operational effectiveness’? How does it contribute to superior profitability? And, if it does, why is that not sufficient according to Porter (at least 2 reasons should be given)? Operational effectiveness as described by Porter refers to the ability of a company to perform better than their competitors in similar activities. It is the process through which a company attains superior efficiency through timely and quality production activities. It follows the concept of lean production where a firm can utilize its inputs better. Porter emphasizes the importance of establishing strategy as an important component in the process to realizing superior profitability. One of the reasons why competitive effectiveness is insufficient is the fact that best practices diffuse rapidly. According to the author, activities of operational effectiveness can be easily copied by rivals. Competitors can easily adapt to the dynamic market by best practices including new technologies, management techniques, and input improvement. As a result, it creates an unhealthy competition where customers and suppliers are the gaining parties with no superior profitability to the companies. Second, the author attributes competitive convergence to improved operational effectiveness. Competition between the rivals now exists in similar paths as they imitate each other in supplier partnership strategies and cycle times. Therefore, he postulates that operational effectiveness alone results in mutually destructive behaviors. What is meant by strategic positioning? Give an example familiar to you. Strategic positioning means engaging in different activities from a one's competitors or performing the same activities differently. A company can attain a competitive advantage by focusing of what distinguishes it from its rivals. As opposed to operational effectiveness where the main focus is outdoing others in similar activities, strategic positioning requires an organization to develop unique ways of scaling the market or new ways of performing similar activities. A typical example is Trader Joe; the company focuses on unique ways of satisfying its customers by acquiring groceries stock from private producers. The company identified a market niche where customers are in need of non-branded products they can identify with. It targets the elite class which is sensitive to the health impacts of the products. As a result, it entered into a partnership with private grocery producers to satisfy the market. The example of Trader Joe highlights the three sources of strategic positioning. First, it aims at serving few needs that many customers have. As its rival like Wal-Mart focuses on serving the general customer needs, Trader Joe identified the few needs they might have and capitalized on that. Second, the company focuses on broad needs of few consumers. The elite class with interest in non-branded products represents a portion of the consumers. Few but are wealthy clients who are health sensitive. Third, strategic position results from fulfilling general needs of numerous customers in a narrow market. Why does competitive strategy rest on ‘unique activities’ according to Porter? Porter maintains that it is important to engage in unique activities to offer a unique mix of value. According to him, a competitive advantage without unique activities can be compared to a mere marketing slogan than does not stand a chance in the competition. Giving the example of Southwest Airlines Company he emphasizes the importance of identifying market needs and focusing on unique activities to satisfy the customers. As full-service airlines concentrate on numerous destinations and serving various clients, Southwest Airlines concentrates on price-sensitive individuals. It thus capitalizes on fast turn rounds and flying people on specific type of routes making it more profitable. So then, what is strategy according to Porter? How is it defined? Give an example from your workplace? Porter defines strategy as being different from one's rival. It can be defined as the process of choosing different activities to offer a unique mix of value. He adds that a company's strategy relies on the ability to engage in unique activities and provide unique values to its customers. In this respect, a company can determine the value it creates to customers if they are willing to pay a reasonable price for the products and services offered. Porter’s way of attaining a competitive strategy is by creating unique value to customers that are difficult for rivals to copy. In my workplace, the strategy as defined by Porter relates to unique ways we strive to satisfy our customers. Our company deals in the production of cosmetics, especially for ladies. However, the cosmetics industry is already crowded with various players including new and well-established ones. Clearly, there exists stiff competition where many are striving to outdo each other in terms of quality and price. Nonetheless, my company has identified a unique market need. Many of our competitors focus production of oils for preserving unnatural hair. In contrast, our company focuses on an acute population that might need to retain their natural hair especial for black and part of Asian descent ladies. Our unique products have thus attracted a huge market by targeting unexplored market. Why is choosing a ‘unique position’ not sufficient? How do you make the unique position sustainable? Porter denotes that having a unique position is not sufficient for attaining a sustainable advantage. This is because existing companies are likely to imitate it. Rivals are likely to copy the strategy used by a superior company in the market as a way of enhancing their competitive advantage. This, in turn, renders the position obsolete especially when it is adopted by many players. The second type of imitation as illustrated by the author is straddling. This is where a company in this case referred to as a straddler, copies a successful position while retaining the existing one. It imitates new features or technologies from the successful strategy and adds them to its activities. As such, the strategic becomes saturated with many players making it unprofitable due to the existence of similar path competition as witnesses in operational effectiveness. However, Porter provides an effective way of achieving sustainable strategic positioning known as trade-offs. Trade-offs, in other terms, is when activities are incompatible. It means that a company should focus on one position while limiting or not implementing the other at all. This way, it can control or minimize the inefficiencies associated with running both positions concurrently. For example, airline companies can straddle between Southwest’s strategies of point-to-point routes while maintaining the continental airline services. However, it comes with various inefficiencies especially when the existing player has gained immense customer loyalty. Therefore, it is important that they involve trade-offs by concentrating on a single strategy. Why is ‘fit’ important particularly second-order fit for strategy success? Give an example. Fit is important for the success of a strategy because it recognizes the link between activities and how one affects the other. Thus, it helps create a strong chain of activities making it difficult for rivals to imitate. As noted by the author, secure a strategic position is not enough to ensure its sustainability. This is because activities of a strategic position can be easily copied by a rival company making it obsolete. Thus a unique strategic position is not enough for obtaining a competitive advantage since other players have the capability of understanding the imitating it. Therefore, it calls for adopting fit in a particular strategy to make it difficult to imitate. Fit allows for the establishment of a complementary circle among activities. This is where a company creates real economic value by complementing one activity with another. It also allows for using an activity to improve another's value to customers thus creating superior profitability and competitive advantage. The author provides an example of Southwest airline which avoids performing activities that may cause delays to another airline. Activities such seat assignment, meals, and interline baggage transfers are avoided because they might slow down other airlines. The second-order fit, for example, involves the use of one activity to reinforce the other to minimize cost and improve profitability. For instance, different companies can integrate their marketing activities to reinforce each other as a way of reducing marketing cost. Design and demonstrate an ‘activity system for a company familiar to you The activity-system map below demonstrates how Scripps Networks Interactive integrates its activities to achieve competitive advantage in the media industry. The company focuses on content development for television lifestyle media, satellite radio, magazines, books, and the internet. Apparently, the company faces digital convergence where similar companies employ or copy successful strategies to gain competitive advantage. However, Scripps Network has managed to scale the market and maintain a sustainable position by constantly assessing its tradeoff, position and fit as demonstrated in the system activity map below. It has converted the threats imposed by digital convergence into opportunities to secure a sustainable position. For instance, under its primary activity Delivering content, it has introduced a number of small activities including satellite delivery, HD content and cable delivery, international markets and video on demand. However, it faces digital convergence in HD content and video on demand services. As a counter measure, the company engages in tradeoffs where it majors in profitable activities like Cable delivery while compromising HD content. As such, the company can focus and perfect in satellite delivery, cable delivery and international markets hence gaining a competitive advantage. Design an activity system for the ‘airport’ simulation using the materials available in the Student Manual to guide you on key aspects of decision-making. By understanding how the five competitive forces influence profitability in your industry, you can develop a strategy for enhancing your company’s long-term profits’ (Porter 2008:24) Using a case example explain (and illustrate) how and why a 5 forces analysis would be used to achieve improve competitive positioning and long-term profitability. The five forces developed by Porter act as elements for shaping the extent of competition in industry. They can be used as an important tool for attaining long-term sustainability and competitive positioning. A case of Amazon is used to describe the five forces in the e-commerce industry. Amazon is deemed appropriate for the analysis because of its ability to survive various economic challenges including the dot-com burst. Threat to entry As asserted by Porter new companies enter the market with the aim of gaining market share thus exerting pressure on costs, prices and investment rate required for competition. Successful development of any e-commerce firm requires a stable working environment and start-up strategy. However, this is only possible with a strategic approach to daily challenges and suitable financial induction. Amazon has gained maximum locality through services and products thus leveraging the geographic factor to gain competitive advantage. Furthermore, the company can limit operations governed by cost which is high for new entrants hence making it difficult for them to scale to its level. Supplier power Powerful suppliers can limit an industry’s profitability through cost shifting, limiting services or quality or even charging higher prices. Amazon relies on two main supplying fields including books and electronics. The increased number of suppliers for books has, however, limited their bargaining power. As a result, Amazon has a variety of options to select suppliers. The company also acquires its electronics from second dealers thus increasing its bargaining power. The power of buyers Powerful buyers can benefit from industry by demanding increased quality or low prices playing the companies against each other thus hindering industrial profitability. E-commerce industry presents a scenario where customers have high bargaining power. The customer can easily switch from one website to another in search of low prices or high value. However, Amazon's strategy enables it to gain a competitive advantage in the market. It does not operate any retail store thus reducing its operational cost which can be transferred to buyers through low pricing. Threat of substitutes A substitute offers the same value to the customer by a different means. Therefore a company offering substitute products can easily displace the incumbent in terms of value creation to customers. E-commerce companies like Amazon offer diversified goods where buyers are provided with many options to choose from. Although buyers can compare products, Amazon offers new and old products from different suppliers thus ensuring low threat of substitutes. Rivalry among existing companies Existing companies can compete for market share through campaigns advertisements, new products and service improvements. Being a major player in the industry, Amazon faces strong competition from companies like Alibaba, eBay, and Wal-Mart among others. However, Amazon stands a chance of capturing a larger portion of the market share due to increasing barriers to expansion and investment. List of References PORTER, ME (1996), 'What is strategy?' Harvard Business Review, vol. 74, no. 6, pp. 61-78.[ 10 Must Reads on Strategy-Reading 1]. JOHNSON, MW, CHRISTENSEN, CM & KAGERMANN, H (2008), 'Reinventing your business model', Harvard Business Review, vol. 86, no. 12, pp. 50-9. [10 Must Reads on Strategy-Reading 4]. KAPLAN, R & NORTON, D (2000), 'Having trouble with your strategy? Then map it', Harvard Business Review, vol. 78, no. 5, pp. 167-76. REEVES, M & DEIMLER, M (2011), 'Adaptability: the new competitive advantage', Harvard Business Review, vol. 89, no. 7/8, pp. 135-41. Read More