There is a close relationship between value chain and competitive advantage. This can be understood from the fact that value chain essentially refers to the various activities that tend to create value for the firm. It is these value creative activities that tend to serve as competitive advantage. For instance, logistics is an activity of value chain for Amazon which tends to serve as a competitive advantage for the company considering the cost efficiency and the low time required for the delivery. In the regards, Porter value chain analysis is critical which tends to bifurcate these activities into primary activities and supporting activities. For most organisations, the source of competitive advantage tends to embedded in the primary activities which form part of the value chain.
Various examples may be substantiated to support this relationship between the primary activities of the value chain and competitive advantage. Competitive advantage tends to be generated when on account of activities in the value chain, the firm is able to generate some value in the form of superior product or service, low cost and other attributes valued by the customer. For retailers such as Woolworths and Coles, the global supply chain is the core competency on account of which these retailers are able to procure the various products at low costs. This component of the value chain essentially leads to creation of value for the customers in the form of lowest prices which provides competitive advantage. Consider, a technology firm such as Apple which tends to rely on the value chain for generation of innovative hardware products which are technologically advanced and are superior to other products available in the market and it is this aspect in the value chain which serves as competitive advantage for Apple.
Typically, the general strategy deployed by a given firm is also dependent on the value chain and the underlying competitive advantage created. For instance, for a steel producer which has steel plant located near the captive iron ore mines, potentially the competitive advantage would arise on account of the lower cost due to savings in logistics cost and captive mines. Thus, such a company would be expected to adhere to a cost leadership generic strategy. In contrast, consider a pharmaceutical company which is based on innovation and the R&D spending, the core competency would come from innovative new medicines and hence product differentiation would be generic strategy driven by the value added from superior R & D skills and resources allocated.
It is imperative to note that the business process management is also linked to the value chain and competitive advantage. This is because it is imperative to align the processes with regards to strategic objectives that in-turn are linked to the competitive advantage whose source is essentially the value chain. Hence, a company able to product a given product at a lower cost in comparison to competitors would aim to align the processes so as to enhance the competitive advantage by ensuring that overall price is minimised. On the contrary for a firm which tends to focus on innovation as part of the key value addition and competitive advantage, the processes of the firm would also be oriented in order to focus on innovation. This would typically involve hiring talented individuals and having a work culture, management and organisational design which tends to foster innovation and do not inhibit the same.
Strategic alignment is a term which highlights the process through which the underlying activities and processes are aligned with strategic objectives that the company intends to achieve over different timeframes. The process of strategic alignment tends to fundamentally alter the businesses processes through tools such as total quality management, process based competition, business process re-engineering and process oriented organisational design.
The business processes would be subject to total quality management practices in order to ensure that the overall quality of the product or service improves. This may be strategically aligned to the objective of the company whereby it intends to maximise the customer satisfaction by focusing on enhanced quality. Thus, the process of strategic alignment could potentially lead to improvement in the process quality owing to exposure of TQM methods and certifications. These are of high importance in high precision manufacturing foods coupled with industries manufacturing food items and drugs as safety is of paramount importance.
Also, one of the key strategic objectives of the firm could be to lower the cost so as to exhibit cost leadership based competitive advantage. In order to ensure that same, business process re-engineering would be required where the business processes would need to re-designed with the intention of lowering the cost so as to support the strategic intent of the company to emerge as cost leaders. Besides, BPR (Business Process Re-engineering) also aids operational efficiency and may infact also be used as a process for improvement in quality. Hence, strategic alignment of the processes could result in redesigning of these processes so as to aid lower cost, higher efficiency and quality. A typical example in this regards would be to bypass the middlemen and purchase raw materials directly from the source which would lower cost, cut the lead time and ensure better quality of raw materials.
Further, strategic alignment may require redesigning of the organisational structure in order to aid the processes and ensure better linkage with the strategic objectives. In this context, it is imperative to highlight the underlying trade-off that tends to exist between enhancing the process efficiency and functional expertise. The redesigning of organisational structure in line with the strategic alignment could be highly productive as it would be lead to better accountability of employees and provide clarity of objectives. This is essential for maintaining control and ensuring that there is congruence between the priorities of the employees and the management. Additionally, organisational structure redesign also streamlines the processes which tend to aid improvement thus leading to higher chances of achieving the strategic objectives highlighted by the company.
Finally, process based competition is introduced as a means of strategic alignment which ensures that the harmony between the processes and strategy is enhanced while ensuring that the processes do not conflict each other and duplication of processes is minimised so as to maximise the underlying efficiency. This essentially means that the strategy and processes would be inter-linked and hence those processes would be prioritised which tend to aid the achievement of strategic objectives. Therefore, in wake of the above discussion, it is evident that the process of strategic alignment tends to have a significant impact on the business processes as it tends to not only prioritise them but also highlight the manner in which these would be carried out coupled with the quality standards and the relevant accountability in the form of Business Process Owner (BPO).
Question 5
The five forces model put forward by Michael Porter tends to comprise of the five components. The first component is threat of entry which tends to highlight the underlying barriers of entry. An unattractive industry would be one which there are high entry barriers on account of capital expenditure, regulations or technology barriers. For instance, the mobile manufacturing industry has a high entry barrier primarily in the form of technology. Additionally, the mobile network industry also has high entry barriers since spectrum is required which is already occupied by existing players. An industry which is highly fragmented would usually have low barriers of entry.
The second component is bargaining power of buyers which essentially highlights the power possessed by buyers. This would be dependent on the type of goods being provided and the existence of alternative providers. For instance, with regards to basic utilities such as electricity, gas, the bargaining power of buyers is low owing to limited players and the fact that it is a necessary service. With regards to agricultural commodities such as wheat, rice, the large buyers would have significant bargaining power owing to the existence of various suppliers. Usually bargaining power of buyers buying in bulk is higher as is evident in the supermarket industry in Australia which is dominated by a few players.
The third component is bargaining power of suppliers which would be high when there are only suppliers and multiple buyers. For instance, in case of supermarkets in Australia, considering that there are only few buyers such as Woolworths, Coles, the bargaining power of suppliers is low owing to which they have to offer. On the other hand, in the mining industries, there are few suppliers of key commodities and hence they tend to have a high bargaining power. Typically bargaining power of supplier is low in an industry where there are multiple suppliers with only key concentrated buyers.
The fourth component is threat of substitutes as there may be substitutes which the consumer may shift to in case of high prices. The case in point is evident with regards to luxury cars. It is possible for the consumers to shift to budget cars if the luxury car manufacturers increase their price. Further, in relation to grocery items also, it is possible that there is high threat of substitutes. For instance, if there is an increase in the price of grapes, then the consumer may shift to apple or banana. However, with regards to utilities such as electricity and internet, there are very few substitutes.
The fifth component is the industry rivalry or the threat of competition. Examples of industry where level of competition tend to exist are supermarkets in Australia coupled with aviation sector with airlines trying to offer lowest prices to the consumers. Another example of high industry rivalry is the telecommunication industry in India. Competition threat is high for industries where the market structure is oligopoly or monopolistic competition with high bargaining power of buyers.
The five forces model is quite useful in analysing the various competitive forces that tend to influence a given industry. A given manager would use the Porter’s analysis when there is intention for the organisation to enter a given business or a new geography. This analysis is imperative as this would suggest whether the given industry is attractive or not based on which the decision regarding entry and the resource requirement can be estimated. For instance, for a higher competitive industry with high bargaining power of buyers and suppliers, it would make little commercial sense to make an entry and also the resource requirement to engage in competition would be very high.
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