1. Fundamentals of Strategic Advantage
Chapter 10
Fundamentals of Strategic Advantage

3. Strategic Management
Most significant form of management decision making
We are concerned about:
a process: planning
a product: strategy
The thinking about both is called strategic management

4. What is Strategy ? Proposed definition: It is not an exact science
It cannot be calculated
There are no cook-book approaches
Proposed definition:
Strategy is the pattern of resource allocation decisions made throughout an organization.
These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them.

5. What is Strategic Management ?
Strategic management is concerned with deciding on strategy and planning how that strategy is to be put in effect via :
Strategic analysis
Strategic choice
Strategic Implementation
Several levels
Corporate strategy
Business strategy: within business unit
Functional Strategy: e.g. IS strategy

6. Requirements for a Relevant Strategy
The strategy needs to :
be used proactively;
recognize that there are severe limits to the predictability of the future;
take account of the organizational, political, and psychological dimensions of corporate life;
be accepted by the majority of those concerned with strategy to be a realistic relevant tool for more effectively coping with the future.

7. Model of Strategic Management Elements
Expectations
objectives and
power:culture
The
Environment
Resources
Strategic
Analysis
Generation
of options
Resource
Planning
Strategic
Choice
Strategic
Implemen-
tation
Evaluation
of options
Organization
structure
Selection
of strategy
People
and systems

8. Diversity of Strategic Problems and Decisions
Strategic decisions are :
broad in their scope;
enduring in their effects;
difficult in their reversal;
worth devoting time and resources
Factors that determine the nature of strategic problems
the nature of the industry;
the nature of the enterprise;
the current circumstances;
the organization’s environment.
examples of strategic decisions:
- FORD to launch a new model
- Delhaize to diversify in non-food products
- BP to invest in his own distribution system
the nature of the industry;
type of products produced
access and nature of required materials
investments in R&D
nature of the market (Belgacom)
the nature of the enterprise;
size of the organization
personnel intensive
ownership of the organization
degree of maturity
internationalization
the current circumstances;
state of the economy
the organization’s environment
developing countries
industrial and social infrastructure
government attitude and state control

9. The nature of strategic change
Continuity
Incremental
Flux
Global
Established strategy
remains unchanged
May make good
sense but the world
may change faster
than the strategy
No clear
direction to
the change
Change of this scale
happens at times of
crisis when the
organisation is out of
step with the world

10. Model1: Porter’s five forces model
Focussed on the competitive world
Thread of new
entrants
Bargaining
power of
suppliers
Rivalty amongst
existing
competitors
Bargaining
power of
buyers
Thread of
substitute products
or services

11. Model2: Life cycle analysis
Four stages in life cycle of a product or industry:
Introduction
early adopters
demand unknown
Growth
entry of competitors
fight for share, undifferentiated products and services
Maturity
saturation of users
fight to maintain share, emphasis on efficiency and cost
Decline
demand < supply

12. Model3: SWOT analysis
A SWOT analysis defines the relationship between internal and external appraisal in strategic analysis
Internal factors
Strengths
Weaknesses
Opportunities
Opportunities
External
factors
Strengths
Weaknesses
Threats
Threats

13. Strategic Analysis: Values and Objectives
Porters value chain model
Administration and infrastructure
Human resource management
Product/technology/development
Procurement
Support activities
Value
added -
cost =
MARGIN
Inbound
logistics
Operations
Outbound
logistics
Sales and
marketing
Services
Primary activities

14. Value chain of Porter: ICT Influence
Supporting
activities
Infrastructure
HRM
Technology
Procurement
MIS, DSS, EIS, ES multimedia, VR
ES, DSS, MIS
DSS, ES, GSS, CASE
EDI, DSS, Voice technology
MARGin
Robots
CAD/CAM
Simulation
MRP VR
CIM
Scheduling
EDI
CD/ROM
Multimedia
DSS
GIS
Internet
Laptops
Wireless
Tracking
EDI
EDI
DSS
Profit
Inbound Operations Outbound Marketing Services
Primary activities

15. Application of Information Technology
Different levels
1. Strategic
2. Offensive
3. Defensive
4. Cost-justified
5. Controlled

16. Business Process Reengineering

17. What is BPR ?
More than automating Business Processes to make modest improvements inefficiency.
Fundamental rethinking and radical redesign to achieve dramatic improvements in cost, quality, speed and service.
Combination of :
strategy of promoting business innovations;
strategy of major improvements to operations.
Implementation via:
use of self directed teams
use of case managers

18. Spectrum of reengineering
Business Improvements Business Reengineering
Definition Incrementally improving Radically redesigning
existing processes business systems
Target Any process Strategic business processes
Potential payback 10% - 50% improvements 10-fold improvements
Risk and level of Low High
disruption
What changes ? Same job but more efficient Big job cuts; new jobs;
major job redesign
Primary enablers IT and work simplification IT and organizational redesign

19. Example: Order Management
The order management process
Proposal Commitment Configuration Credit Delivery Billing Collections
Checking
Sales Manufacturing Finance
Logistics
Example:
- IBM credit application process : from 4 specialists , 7 days
to 55% almost instantaneously
45% in one step by case managers.
Average time divided by 100.

20. Supporting Information Technologies
Prospect tracking and management systems
Portable sales force automation systems
Portable networking for field and customer site communication
Customer site workstations for order entry and status checking
Expert systems to match products and services to customer needs
EDI and electronic funds transfer between firms
Expert systems for configuration, shipping and pricing
Predictive modeling for continuous product replenishment
Composite systems that bring cross-functional information to employee workstations
Customer , product and production databases.

21. FORD Procurement System: before
Before reengineering: pay when invoice received.
FORD
purchasing
Purchase
order
Vendor
FORD
receiving
Goods
Purchase
order copy
Receiving
document
Invoice
FORD
accounts
payable
Payment
500 employees

22. FORD Procurement System: after
After reengineering :Pay when goods received
FORD
Purchasing
Vendor
FORD
receiving
Goods
FORD
account
payable
Payment
125 employees

23. Toughest Tasks Installing the information technology infrastructure
Dealing with fear and anxiety throughout the organization
Managing resistance by key managers
Changing job functions career paths, recruitment or training
Designing the new business process
Having a clear vision of the new organization

24. Major Obstacles Resistance to change Limitations of existing systems
Lack of executive champions
Lack of executive consensus
Unrealistic expectations
Lack of cross-functional project team

25. Conditions Establish great enough sense of urgency
Create powerfull enough guiding coalition
Formulate clear vision
Communicate vision Remove obstacles to new vision intensively
Systematic planning
Create short-term wins
Anchor changes in the corporation’s culture

26. Melliou and Wilson seven steps (1995)
1. Develop a vision
2. Identify performance gaps
3. Identify processes
4. Define process performance requirements
5. Identify IT capabilities
6. Measure performance achievements
7. Design a prototype