Chapter 1.odt

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Operations & Info Management
OIM 210
Ryan Wright

Chapter 1 Organizational strategies - define the way in which a company plans to gain/sustain competitive advantage. Organizational strategies can be classified along two dimension: • whether the business is targeting a broad market or a narrow part of the market. • whether the business wants to engage customers by being less costly or by being unique and ‘differentiated’. For example Walmart is known for providing customers with the lowest prices possible while Rolls Royce is known as a high end luxury brand. The Danger of Relying on Technology New competitors and copycat products create a race to cut costs, cut prices, and increase features that may benefit consumers but erode profits industry-wide. Nowhere is this balance more difficult than when competition involves technology. The fundamental strategic question in the Internet era is, “How can I possibly compete when everyone can copy my technology and the competition is just a click away?” According to Porter, the reason so many firms suffer aggressive, margin-eroding competition is because they’ve defined themselves according to operational effectiveness rather than strategic positioning. Operational effectiveness refers to performing the same tasks better than rivals perform them. Everyone wants to be better, but the danger in operational effectiveness is “sameness.” This risk is particularly acute in firms that rely on technology for competitiveness.After all, technology can be easily acquired. The fast follower problem exists when savvy rivals watch a pioneer’s efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost. Operational effectiveness is critical. Firms must invest in techniques to improve quality, lower cost, and design efficient customer experiences. But for the most part, these efforts can be matched. Because of this, operational effectiveness is usually not sufficient enough to yield sustainable dominance over the competition. In contrast to operational effectiveness, strategic positioning refers to performing different activities from those of rivals, or the same activities in a different way. Technology itself is often very easy to replicate, and those assuming advantage lies in technology alone may find themselves in a profit-eroding arms race with rivals able to match their moves step by step. But while technology can be copied, technology can also play a critical role in creating and strengthening strategic differences—advantages that rivals will struggle to match. The resource-based view of competitive advantage - the idea here is that if a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that have four critical characteristics. These resources must be : valuable, rare, imperfectly imitable (tough to imitate) and nonsubstitutable. Having all four characteristics is key. Miss value and no one cares what you’ve got. Without rareness, you don’t have something unique. If others can copy what you have, or others can replace it with a substitute, then any seemingly advantageous differences will be undercut. Strategy isn’t just about recognizing opportunity and meeting demand. Resource-based thinking can help you avoid the trap of carelessly entering markets simply because growth is spotted. The Innovation Funnel describes the progression from a broad set of innovative ideas to actual implementation and commercialization of finished products. The five stages of the innovation funnel include: • Opportunity Identification • Opportunity Selection • Development & Testing • Production & Launch • Managing the R&D Portfolio The five forces in Porter’s framework are: (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers (5) the bargaining power of suppliers. KEY TAKEAWAYS: • Technology can be easy to copy, and technology alone rarely offers sustainable advantage. • Firms that leverage technology for strategic positioning use technology to create competitive assets or ways of doing business that are difficult for others to copy. • True sustainable advantage comes from assets and business models that are simultaneously valuable, rare, difficult to imitate, and for which there are no substitutes strategic positioning - performing different tasks than rivals, or the same tasks in a different way. Strategic positioning can allow for businesses to be defensibly different, as opposed to operational effectiveness with its inherent risks of “sameness.” Straddling -Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival. scale advantages - advantages related to size. Internet and tech-leveraging businesses are highly scalable since, as firms grow to serve more customers with their existing infrastructure investment, profit margins improve dramatically. value chain - The set of activities through which a product or service is created and delivered to customers. The value
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