Competitiveness
The incorporation of the principles of competitiveness to the development of the functions, activities and operations of the company, allows it to increase its level of competitiveness, however the effectiveness with which these principles are applied will determine the level of that competitiveness that the company is achieved., or the level you are at.
There are four stages in the evolution of competitiveness, each of them has a specific name and a series of characteristics that distinguish them, this is how it is:
| Stage I. | Incipient | Very low level of competitiveness |
| Stage II. | Acceptable | Regular level of competitiveness |
| Stage III. | Higher | Good level of competitiveness |
| Stage IV. | Outstanding | Very high level of competitiveness |
The characteristics of each stage are as follows:
Stage I. Incipient.
The company is highly vulnerable to changes in the environment as it works in a self-defined way, acts according to market pressures or at the whim and mood of its owners, the application of competitiveness principles is practically null and has little control over their destiny, reacting rather by intuition to changes in the environment and thus becoming disoriented and confused by everything that happens, both internally and externally.
Stage II. Acceptable.
The main points of vulnerability have been remedied by having the right foundations to do well in the eyes of the consuming public and the competition. The principles of competitiveness are applied acceptably, and although they are not fully mastered, it is clear that to continue competing it is necessary to strengthen them, the management team takes responsibility for the future of its organization and directs its destination towards where it visualizes what is best for it, representing this a great advantage for the company.
Stage III. Higher.
The company begins to occupy leadership positions and is characterized by the degree of innovation it maintains within its market. It masters the principles of competitiveness, stays awake and reacts immediately to any change in the environment. Although in a balanced way it pays attention to the ten principles of competitiveness, it gives greater emphasis to organizational culture to achieve homogenization of the thinking, feeling and actions of all its personnel.
Stage IV. Outstanding.
The company that is in this stage is considered visionary, due to the generation of managerial technology at an accelerated pace, serving as a benchmark for the rest of the industry, since it is the one that is generating the changes and the others are adapting to them.
At this stage, the organization lives in constant threat from competitors from previous stages, as they try to find weaknesses and gaps in the market.
The principles of Competitiveness are applied with high efficiency and all members of the company have a real conviction of them. They are able to share their managerial technology with other companies, whether or not they are from the business or the industry in which they compete. The company shows willingness to share the results and the ways to reach its current position.
The main point of reference for the company, throughout the competitiveness process in which it has immersed itself, is the business mission.
Background
The term competitiveness is widely used in business, political and socio-economic circles in general. This is the reason for the broadening of the reference framework of our economic agents, who have gone from a self-protective attitude to a more open, expansive and proactive approach.
Competitiveness has an impact on the way of planning and developing any business initiative, which is obviously causing an evolution in the business and entrepreneur model.
The comparative advantage of a company would be in its ability, resources, knowledge and attributes, etc., which said company has, the same ones that its competitors lack or that they have to a lesser extent that makes it possible to obtain returns superior to those of those.
The use of these concepts supposes a continuous orientation towards the environment and a strategic attitude on the part of large companies such as small ones, recently created ones or mature ones and in general in any kind of organization. On the other hand, the concept of competitiveness makes us think of the idea of "excellence", that is, with characteristics of efficiency and effectiveness of the organization.
- a) Competitiveness and business strategy
Competitiveness is not the product of chance nor does it arise spontaneously; It is created and achieved through a long process of learning and negotiation by representative collective groups that configure the dynamics of organizational behavior, such as shareholders, managers, employees, creditors, clients, by the competition and the market, and finally, the government and society in general.
An organization, whatever the activity it carries out, if it wishes to maintain an adequate level of competitiveness in the long term, must sooner or later use formal analysis and decision procedures, framed within the framework of the "strategic planning" process. The function of this process is to systematize and coordinate all the efforts of the units that make up the organization aimed at maximizing global efficiency.
To better explain this efficiency, let's consider the levels of competitiveness, internal competitiveness, and external competitiveness. Internal competitiveness refers to the organizational capacity to achieve the maximum performance of available resources, such as personnel, capital, materials, ideas, etc., and transformation processes. When speaking of internal competitiveness, we get the idea that the company has to compete against itself, expressing its continuous effort to improve itself.
External competitiveness is oriented to the elaboration of the achievements of the organization in the context of the market, or the sector to which it belongs. As the reference system or model is foreign to the company, it must consider exogenous variables, such as the degree of innovation, the dynamism of the industry, and economic stability, to estimate its long-term competitiveness. Once the company has reached a level of external competitiveness, it must be willing to maintain its future competitiveness, based on generating new ideas and products and seeking new market opportunities.
Definition
Competitiveness is understood to be the capacity of a public or private organization, profitable or not, to systematically maintain comparative advantages that allow it to achieve, sustain and improve a certain position in the socioeconomic environment.
Competitive Reinforcement
Competitiveness means a sustainable profit for your business.
Competitiveness is the result of constant quality improvement and innovation.
Competitiveness is strongly related to productivity: To be productive, tourist attractions, capital investments and human resources have to be fully integrated, since they are of equal importance.
Competitive reinforcement actions must be carried out to improve:
The structure of the tourism industry.
The strategies of public institutions.
Competition between companies.
The conditions and factors of demand.
Associated support services.
Competitive strategy
Total quality: a key competitiveness strategy
The world is experiencing a process of accelerated change and global competitiveness in an increasingly liberal economy, a framework that requires a total change of approach in the management of organizations.
In this stage of changes, companies seek to increase productivity rates, achieve greater efficiency and provide quality service, which is forcing managers to adopt participatory management models, taking the human element as a central basis, developing teamwork, to achieve competitiveness and respond in an ideal way to the growing demand for high-quality products and services at all levels, increasingly efficient, fast and of better quality.
To understand the concept of total quality, it is useful to do so through the concept called "paradigms." A paradigm is understood as a model, theory, perception, assumption or frame of reference that includes a set of norms and rules that establish parameters and suggest how to successfully solve problems within those parameters. A paradigm comes to be, a filter or a lens through which we see the world; not so much on a visual plane properly, but rather perpetual, comprehensive and interpretive.
Total quality is a concept, a philosophy, a strategy, a model of doing business and it is localized towards the customer.
Total quality does not only refer to the product or service itself, but it is the permanent improvement of the organizational, managerial aspect; taking a company as a gigantic machine, where each worker, from the manager to the lowest-ranking official, is committed to business objectives.
For total quality to be fully achieved, it is necessary that the basic moral values of society be rescued and it is here, where the employer plays a fundamental role, starting with the prior education of its workers to achieve a more predisposed workforce, with better capacity to assimilate quality problems, with better criteria to suggest changes for the benefit of quality, with better capacity for analysis and observation of the manufacturing process in case of products and to be able to correct errors.
How to stimulate competitiveness
The stimulation necessary for a country, a national company, a transnational, etc., to be more competitive, are the result of a policy promoted by the state that produces the conditions to provide the stability necessary to grow and the construction of a civil state is required. strong, capable of generating, community, cooperation and responsibility.
Some of the conditions required for a country to be competitive is that the State must promote in its government policies the conditions necessary to guarantee the commercial activity that allows the normal development of the commercial activity of these companies.
Competitive reinforcement actions must be carried out to improve certain points, these could be:
- The structure of the tourism industry The strategies of public institutions Competition between companies The conditions and factors of demand Transparency and clear rules that are enforced, within an environment where finances are in order Establish rules A macroeconomic policy that is capable of promoting capital investment, within an economic framework where there is no regulation and control of prices (prices according to supply and demand). Plans for restructuring education in such a way that the The educational sector is in line with the real needs of the productive sector. Especially favoring the low-income Public Education sector. New companies will require qualified personnel who are up to speed with new technologies.The establishment of a solid and committed Government-Private Sector partnership, to promote the growth of technology, productivity, etc., in order to offer competitiveness at the international level within a framework of equal advantages for all. Generic Competitive Strategies Formulation Of Competitiveness Strategies For Facilitating the formulation of competitiveness strategies presents a wide range of possibilities that, without claiming to be complete, can be useful to guide the formulation of general strategies to individuals.Generic Competitive Strategies Formulating Competitiveness Strategies To facilitate the formulation of competitiveness strategies, a wide range of possibilities is presented which, without claiming to be complete, may be useful to guide the formulation of general strategies to individuals.Generic Competitive Strategies Formulating Competitiveness Strategies To facilitate the formulation of competitiveness strategies, a wide range of possibilities is presented which, without claiming to be complete, may be useful to guide the formulation of general strategies to individuals.
The groups of strategies included in this format are six:
- Production strategies. Product strategies. Price strategies. Market strategies. Marketing strategies. Service strategies.
Production strategies:
They present various alternatives regarding:
- Type of production: batch or on request. Form of production: refers to the technology used to produce (manual or mechanized), and the level of technology applied. Capacity and flexibility in the production plant. Level of production: massive or limited.Place to produce that is related to two situations: location of the manufacturing plant inside or outside the country and use of the service of third parties in production processes.
Strategies in relation to the product
- Variability in the presentation of the product Size of the product line, which refers to the number and diversity of products that the company handles Flexibility in the elaboration of the product: referring to its level of customization or standardization Variability regarding the use of products, depending on the geographic environment, climate, age, culture, event or situation Improvements in the container or packaging: shape, size, material, texture, etc. Improvements in the packaging Improvements in graphic design: shapes, colors, typography, images, etc. Quality variability: unique quality, different qualities depending on the price and market segment, also with regard to the desired positioning of the product in the market based on the socioeconomic and socio-cultural levels of the consumers. durability:short life or early obsolescence, durability within the average and long operating life of the product with little level of obsolescence or possibility of updating or scaling. Strategy with respect to traditional design against creative, avant-garde, novel and imaginative design Strategy with respect to technology of the product: leading, average or lagging Strategy with regard to product safety referring to the possible harm that its use or handling may cause to human beings Strategy with respect to ecology, that is, caring for the environment Strategy with regard to ergonomics and comfort, given the characteristics and organic dimensions of the consumer or user Brand strategies with respect to the name that will serve to identify the product, either through the own brand,of the distributor or that of a third party with the right to use and exploit a name adequately positioned in the market, or to handle the product without a brand, which relates it to the producer, distributor or recognized company.
Strategies in relation to price.
During its life cycle and in relation to the target market: introduction, growth and in the maintenance stage.
Marketing / market strategies
Regarding the desired markets and segments and / or market niches, and the selection of distribution channels.
Strategies regarding promotion
They include programs, means and actions to be used to publicize and seek consumer acceptance and loyalty with respect to the products and / or services that the company offers.
Strategies regarding service
As support for the pre-sale, sale and post-sale work.
Strategy Instrumentation
Once the strategies have been formulated, as well as the plans, in order to generate results they must be put into action, for which they must have resources specified in a budget and with time scheduling, frequently through critical path, CPM or Gantt chart..
According to Michael e. Porter's second central issue in competitive strategy is the relative position of the company within its industrial sector. Locating it determines whether a company's profit is above or below the industry average. A company is above or below the industry average. A well-located company can obtain high rates of return even if the structure of the sector is unfavorable and its average profit is therefore modest.
The fundamental basis of performance over the long-term average is a sustained competitive advantage. Although a company can have millions of strengths and weaknesses compared to its competitors, there are two basic types of competitive advantages that a company can possess: low cost or differentiation. The importance of any strength or weakness a company possesses is essentially a function of its impact on relative cost or differentiation. The cost advantage and differentiation, in turn, arise from the structure of the industrial sector. They are the result of the ability of a company to deal with the five forces better than its rivals.
The two basic types of competitive advantage combined with the landscape of activities a company is trying to achieve leads to three generic strategies for achieving above-average performance in an industry sector: cost leadership, differentiation, and focus.
The focus strategy has two variants, cost focus and differentiation focus, as shown in the following figure:
Competitive advantage
| Lower cost | Differentiation | ||
| PANORAMA
COMPETITIVE |
objective
Large |
1.Cost leadership | 2. Differentiation |
| objective
limited |
3A. Cost approach | 3B. Differentiation approach |
Three generic strategies.
Cost leadership
Cost leadership is where the company aims to be the lowest cost producer in its industry sector. The company has a broad landscape and serves many segments of the industrial sector, and may still operate in related industrial sectors. The breadth of the business is often important to its cost advantage. The sources of cost advantages are varied and depend on the structure of the industry sector. They can include the pursuit of economies of scale of own technology, preferential access to raw materials.
Differentiation
The second generic strategy is differentiation. In a differentiation strategy, a company seeks to be unique in its industrial sector along with some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industrial sector perceive as important, and it sets out exclusively to satisfy those needs. Its exclusivity is rewarded with a higher price. Differentiation can be based on the product itself, the delivery system through which it is sold, the marketing approach, and a wide range of many other factors.
Focus
The third generic strategy is focus. This strategy is very different from the others because it rests on choosing a narrow competitive landscape within an industrial sector. The focuser selects a group or segment of the industrial sector and adjusts its strategy to serve them to the exclusion of others. By optimizing its strategy for target segments, the focuser seeks to achieve an overall competitive advantage.
The focus strategy has two variants. In the cost approach a company seeks a cost advantage in its target segment, while in the differentiation approach a company seeks differentiation in its target segment. Both variants of the focus strategy rest on the difference between the focuser's target segments and other segments in the industrial sector. The segments must have buyers with unusual needs or also the production and delivery system that best serves the target segment must differ from the other segments of the industrial sector.
The cost approach exploits differences in cost behavior in some segments, while the differentiation approach exploits the special needs of buyers in certain segments.
Competitive advantage.
Competitive advantage cannot be understood by looking at a company as a whole. It lies in the many discrete activities that a company performs in the design, production, marketing, delivery and support of its products. Each of these activities can contribute to the relative cost position of companies and create a basis for differentiation. A cost advantage, for example, can arise from such disparate sources as a low-cost physical distribution system, a highly efficient assembly process, or the use of a superior sales force. Differentiation can stem from equally diverse factors, including sourcing of high-quality raw materials, a responsible order entry system, or superior product design.
A systematic way of examining all the activities that a company performs and how they interact is necessary to analyze the sources of competitive advantage, and the Value Chain is the basic tool to do so. The value chain breaks down the company into its relevant strategic activities in order to understand cost behavior and existing and potential sources of differentiation. A company gains the competitive advantage by performing these strategically important activities cheaper or better than its competitors.
Value Activities
Identifying activities of value requires the isolation of activities that are technologically and strategically distinct. Value activities and accounting classifications are almost never the same. Accounting classifications (eg, overhead, direct labor) group activities with disparate technologies and separate costs that are part of the same activity.
Primary activities
There are five generic categories of primary activities related to competition in any industry, as shown in the figure:
Five generic categories of primary activities related to competition
Each category is divisible into several different activities that depend on the particular industry sector and the company's strategy.
Internal logistics. Activities associated with the receipt, storage, and dissemination of product inputs, such as material handling, storage, inventory control, vehicle scheduling, and return to suppliers.
Operations. Activities associated with the transformation of inputs into the final product form, such as machining, packaging, assembly, equipment maintenance, testing, printing or installation operation.
External Logistics. Activities associated with the collection, storage, and physical distribution of the product to buyers, such as warehouses of finished materials, material handling, delivery vehicle operation, order processing, and scheduling.
Marketing and Sales. Activities associated with providing a means by which buyers can buy the product and induce them to do so, such as advertising, promotion, sales force, quotas, channel selections, channel relationships, and price.
Service. Activities associated with the provision of services to realize or maintain the value of the product, such as installation, repair training, spare parts and adjustment of the product.
Support Activities
Supporting value activities involved in competition in any industry sector can be divided into four generic categories, as shown in the figure above. As with primary activities, each category of support activities is divisible into several distinct value activities that are specific to a given industry sector. Technology development, for example, discrete activities could include component design, feature design, field testing, process engineering, and technology selection. Similarly, sourcing can be divided into activities such as qualification of new suppliers, sourcing of different groups of purchased inputs, and continuous monitoring of supplier performance.
Catering. Sourcing refers to the function of purchasing used inputs in the company's value chain, not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and other consumer items, as well as assets such as machinery, laboratory equipment, office equipment, and buildings. Although purchased inputs are commonly associated with primary activities, they are present in every value activity, including support activities.
Technology Development.Each valuable activity represents technology, be it knowledge (know how), procedures, or technology within the process team. The set of technologies used by most companies is very broad, ranging from the use of those technologies to prepare documents and transport goods to those technologies represented in the product itself. Furthermore, most of the value activities use a technology that combines several different subtechnologies that involve various scientific disciplines. Technology development consists of a range of activities that can be broadly grouped into efforts to improve the product and process. Technology development tends to be associated with the engineering department or with the development group.Technology development can support many of the different technologies found in value activities.
Human resources management. Human resource management consists of the activities involved in the search, hiring, training, development and compensation of all types of personnel. It supports both primary and support activities and the entire value chain. Human resource management activities occur in different parts of a company, as do other support activities, and the dispersion of these activities can lead to inconsistent policies.
And it affects the competitive advantage in any company, through its role in determining the skills and motivation of employees and the cost of hiring and training.
Infrastructure of the Company. The company's infrastructure consists of various activities, including general administration, planning, finance, accounting, government legal affairs, and quality management. The infrastructure, unlike the other support activities, normally supports the entire chain and not individual activities. Depending on whether the company is diversified or not, the infrastructure of the company can be self-contained or divided between the business unit and the parent corporation.
Activity Types
Within each category of primary and support activities, there are three types of activity that play a different role in competitive advantage:
Direct. The activities directly involved in creating value for the buyer, such as assembly, machining of parts, operation of the sales force, advertising, product design, search, etc.
Indirect. Activities that make it possible to perform direct activities on an ongoing basis, such as maintenance, scheduling, facility operation, sales force management, research management, vendor registration, etc.
Quality assurance. Activities that ensure the quality of other activities, such as monitoring, inspection, testing, review, adjustment and rework. Quality assurance is not synonymous with quality management, because many valuable activities contribute to quality.
Value Chain (CV)
Each value chain of a company is composed of nine categories of generic activities that are linked in characteristic ways. The generic chain is used to demonstrate how a value chain can be built for a special company, reflecting the specific activities it performs.
The value chain displays the total value, and consists of the value activities and the margin. Valuable activities are the physically and technologically distinct activities that a company performs. The margin is the difference between the total value and the collective cost of performing the value activities. Margin can be measured in a variety of ways.
To diagnose competitive advantage, it is necessary to define the value chain of a company so that it can compete in a particular industrial sector. Starting with the generic chain, individual value activities are identified in the particular company. Each generic category can be divided into discrete activities, as illustrated in the following figure, the value chain of a copier manufacturer.
Defining relevant value activities requires that activities with discrete economics and technologies be isolated. Broad functions like manufacturing or marketing should be subdivided into activities. Product flow, order flow, or paper flow can be helpful in doing this. The subdivision of activities can proceed to the level of narrowing more and more activities that are to some extent discrete. Each machine in a factory, for example, could be treated as a separate machine. Thus, the number of activities is often very large.
The appropriate degree of unbundling depends on the economics of the activities and the purposes for which the value chain is analyzed. The basic principle is that activities should be isolated and separate when they (1) have different economies, (2) have a high potential for differentiation impact, or (3) represent a significant or increasing part of the cost. Using the value chain, successively finer disaggregations of some activities are made while the analysis exposes differences that are important for competitive advantage, or are combined because they are not important for competitive advantage or are governed by similar economies.
Value activities should be assigned to categories that best represent their contribution to a company's competitive advantage. If the ordering process is an important way in which the business interacts with its buyers, for example, it should be classified under marketing. Companies have often gained competitive advantages by redefining the roles of traditional activities.
Everything a company does should be captured within a primary or support activity. Value activity tags are arbitrary and should be chosen in a way that provides the best insight into the business. Labeling activities in service industry sectors often cause confusion because operations, marketing, and after-sales support are closely related. The ordering of activities should largely follow the flow of the process, but this ordering also depends on judgment. Companies often carry out parallel activities, the order of which should be chosen in such a way as to increase the intuitive clarity of the value chain to managers.
Competitive advantage and the value chain (CV)
The value chain of a company is embedded in a larger field of activities called the value system, illustrated in the following figure:
Competitive Advantage and Value Chain
Suppliers have value chains (value up) that create and deliver the purchased inputs used in a company's chain. Suppliers not only deliver a product but can influence the performance of the company in many other ways as well. Furthermore, many products pass through the channels of value chains (channel value) on their way to the buyer. The channels of the value chains (channel value) on their way to the buyer, as well as influences the company's own activities. A company's product eventually becomes part of the buyer's value chain. The ultimate basis for differentiation is a company and the role of its products in the buyer's value chain, which determines the buyer's needs.Gaining and maintaining competitive advantage depends on not only understanding a company's value chain, but how the company fits into the overall value system.
The value chains of companies in an industrial sector differ reflecting their histories, strategies, and successes in implementation. An important difference is that a company's value chain can differ in the competitive landscape from that of its competitors, representing a potential source of competitive advantage. Serving only a particular segment in the industrial sector can allow a company to adjust its value chain to that segment compared to its competitors. Expanding or narrowing the geographic markets served can also affect competitive advantage.
The degree of integration within activities plays a key role in competitive advantage. Finally, competing in industry sectors related to coordinated value chains can lead to competitive advantage through interrelationships. A company can explore the benefits of the bigger picture internally, or it can form coalitions with other companies to achieve this. Coalitions are long-term alliances with other companies that lack direct consolidations, such as risk sharing, permits, and provisioning agreements. Coalitions involve coordinating or sharing value chains with coalition partners that broaden the effective landscape of the enterprise chain.
Structuring the Value Chain (CV)
Although value activities are the building blocks of competitive advantage, the value chain is not a collection of independent activities, but a system of interdependent activities. Value activities are related by links within the value chain. Links are the relationships between the way one activity is performed and the cost or performance of another.
Competitive advantage generally comes from the links between activities, just as it does from the individual activities themselves.
Links can lead to competitive advantage in two ways: optimization and coordination. Links often reflect tradeoffs between activities to achieve the same overall result. A company must optimize the links that reflect its strategy in order to achieve competitive advantage.
Links can also reflect the need to coordinate activities. Timely delivery, for example, may require the coordination of activities in operations, external logistics, and service. The ability to coordinate links frequently reduces cost or increases differentiation. Better coordination, for example, can reduce the need for inventory within the company. The links imply that a company's cost or differentiation is not simply the result of efforts to reduce cost or improve performance in each individual value activity. Much of the recent shift in philosophy toward manufacturing and quality heavily influenced by Japanese practice is a recognition of the importance of links.
The links are numerous, and some are common to many companies. The most obvious links are those between support activities and primary activities, represented by the dotted lines in the generic value chain. Product design typically affects the cost of making the product.
More subtle links are those between the primary activities. For example, increased inspection of input parts can reduce quality assurance costs later in the production process, while better maintenance often reduces wasted time on a machine. Links that involve activities in different categories or of different types are often the most difficult to recognize.
Links between value activities arise from several generic causes, including the following:
The same function can be performed in different ways. For example, conforming to specifications can be achieved through high-quality purchased inputs, specifying close tolerances in the manufacturing process, or 100% inspection of finished goods.
The cost or performance of direct activities is improved by greater efforts in indirect activities. For example, better scheduling reduces sales force travel time or vehicle delivery time.
Activities performed within a company reduce the need to display, explain, or service a product in the field.
Quality assurance functions can be performed in different ways.
Although the links within the value chain are crucial to competitive advantage, they are often subtle and go unnoticed. The importance of sourcing when it affects manufacturing cost and quality may not be obvious.
The identification of the links is a process of searching for ways in which each activity of value affects or is affected by others. The generic causes of the links discussed above provide a starting point. Disaggregating sourcing and technology development to relate them to specific primary activities helps to highlight the links between support and primary activities.
The exploitation of the links normally requires information or information flows that allow optimization or coordination. In this way, information systems are often vital to obtain competitive advantages from the links. Recent developments in information systems technology are creating new links and increasing the ability to achieve previous ones. Exploiting the links also often requires optimization or coordination that cuts across conventional organizational lines. The administration of the links is thus a more complex organizational task than the administration of the same value activities. Given the difficulty of recognizing and managing the links,the ability to do so is often based on a sustained source of competitive advantage.
Vertical links
Links do not only exist within the value chain of a company, but also between the chain of a company and the value chains of suppliers and channels. These links, which I call vertical links, are similar to the links within the value chain, the way in which supplier or channel activities are performed affects the cost or performance of a company's activities (and vice versa). Suppliers produce a product or service that the company uses in its value chain, and the supplier value chains also influence the company at other points of contact. The sourcing and internal logistics activities of a company interact with the supplier's order entry system.
Product characteristics of a supplier, as well as other points of contact with a company's value chain can significantly affect a company's costs and differentiation.
The links between the supplier's value chains and the company's value chain can provide opportunities for the company to increase its competitive advantage.
Supplier links mean that supplier relationships is not a zero-sum game in which one wins only at the expense of the other, but a relationship in which both can win.
The division of the benefits of coordinating or optimizing the links between a company and its suppliers is a function of the balancing power of the suppliers and is reflected in the margins of the suppliers. The balancing power of suppliers is partially structural and partially a function of a company's purchasing practices. Thus, both coordination with suppliers and a strong balance to capture surplus are important for competitive advantage. One without the other loses opportunities.
Channel links are similar to supplier links. Channels have value chains through which a company's product passes.
Channels carry out activities such as sales, advertising and deployment that can replace or complement the activities of the company. There are also many points of contact between the company's value chains and channels, such as the sales force, order entry, and external logistics.
Vertical links, such as links within a company's value chain, are frequently ignored.Even if recognized, independent ownership of suppliers or channels or a history of an adverse relationship can impede joint coordination and optimization. required to exploit vertical links. Some of the vertical links are easier to achieve with coalition partners or sister business units than with independent companies, although this is not assured. As with links within the value chain, exploiting vertical links requires modern information and information systems that are creating many new possibilities.
Competition and the value chain
Competitive landscape and the value chain
The competitive landscape can have a powerful effect on competitive advantage, because it shapes the configuration and economics of the value chain. There are four dimensions of the landscape that affect the value chain:
Segment overview. Product variations produced and buyers served.
Degree of integration. The degree to which activities are performed at home rather than by independent companies.
Geographic panorama. The range of regions, counties, or groups of countries in which a company competes with a coordinated strategy.
Industrial panorama. The range of related industry sectors in which the company competes with a coordinated strategy.
A big picture can allow a company to exploit the benefits of doing more activities internally. It can also allow the company to exploit the interrelationships between value chains that serve different segments, geographic areas, or related industry sectors.
A narrower picture may allow the chain to be adjusted to serve a particular target segment, geographic area, or industry sector to achieve lower costs or serve the target in a unique way. The narrow picture in integration also enhances competitive advantage through purchases of company activities that independent companies do better or cheaper. The competitive advantage of the narrow landscape lies in the differences between the varieties of products, buyers or geographical regions within an industrial sector in terms of the value chain that best lends itself to serving them, or the differences in resources and skills of independent companies that allow them to perform activities better.
The breadth or narrowness of the landscape is clearly related to the competitors. In some industry sectors, a broad picture involves only serving the wide range of product segments and buyers within the industry. In others, it may require both vertical integration and compete in related industry sectors. Since there are many ways to segment an industry sector and many forms of interrelationships and integration, the wide and narrow views can be combined. A company can create competitive advantage by adjusting its value chain to a product segment and exploiting geographic interrelationships by serving that segment globally. You can also exploit interrelationships with business units in related industry sectors.
Segment overview
Differences in needs or the value chains required to serve different product or buyer segments can lead to a focused competitive advantage.
Just as differences between segments favor the narrow picture, however, interrelationships between value chains serving different segments favor the big picture.
Degree of integration
Vertical integration defines the division of activities between a company and its suppliers, channels and buyers. A company can buy components rather than manufacture them itself. Similarly, channels can perform many distribution, service, and marketing functions in place of the business.
A business and its buyers can also divide activities in various ways. One way that a company may be able to differentiate itself is by assuming a greater number of buyer activities. In the extreme case, a company completely enters the buyer's industry sector.
When one views the point of integration from the perspective of the value chain, it appears that the opportunities for integration are richer than is often recognized. Vertical integration tends to be viewed in terms of physical products and replacing entire supplier relationships instead of in terms of activities, but it can encompass both.
Whether integration or non-integration (disintegration) lowers costs or increases differentiation depends on the company and the activity involved. You have discussed the factors that refer to the question in Competitive strategy. The value chain allows a company to more clearly identify the potential benefits of integration, highlighting the role of vertical links, but integration sometimes allows the benefits of vertical links to be achieved more easily.
Geographic Overview
The geographic landscape can allow a business to share or coordinate value activities to serve different geographic areas. Interrelationships are also common among partially distinct value chains that serve geographic regions in a single country.
Geographical interrelationships can increase competitive advantage if sharing or coordinating value activities lowers prices or increases differentiation. There may be coordination costs as well as differences between regions or countries that reduce the advantage of sharing, however.
Industrial outlook
The potential interrelationships between the value chains required to compete in related industrial sectors are vast. They can involve any activity of value, including both primary and support. The interrelationships between business units are similar in concept to the geographic interrelationships between value chains. Interrelationships between business units can have a powerful influence on competitive advantage, either by lowering cost or increasing differentiation. A shared logistics system can allow a company to reap economies of scale. All interrelationships do not lead to competitive advantage. Not all activities benefit from sharing.There are also always costs to sharing activities that must be overlaid by profits, because the needs of different business units may not be the same with respect to the value activity.
Coalitions and panorama
A company may pursue the benefits of the bigger picture internally, or enter into coalitions with independent companies to achieve some or all of the common benefits. Coalitions are long-term deals between companies that go beyond normal market transactions, but do not amount to direct mixing. Coalitions are ways or means to broaden the landscape without expanding the business, by hiring an independent company to perform the activities of value, or by agreeing with an independent company to share activities. There are thus two basic types of coalitions: vertical coalitions and horizontal coalitions.
Coalitions can share activities without the need to enter new industry segments, geographic areas, or related industry sectors. Coalitions are also a means of achieving the cost advantages or differentiation of vertical links without real integration, but by solving coordination difficulties between purely independent companies. Because coalitions involve long-term relationships, it should be possible to coordinate more closely with a coalition partner than with an independent company. Although not without cost. Difficulties in reaching coalition agreements and in ongoing coordination between partners can block coalitions or nullify their benefits.Coalition partners remain independent and there is the question of how the benefits of the coalition are thus central to how the profits are shared, and determines the impact of the coalition on the competitive advantage of the company. A strong coalition partner can appropriate all the profits of a shared market organization through the terms of the agreement.
Competitive landscape and business definition
The relationship between the competitive landscape and the value chain provides the basis for defining the relevant boundaries of business units. Strategically distinct business units are isolated by weighing the benefits of integration and disintegration and by comparing the strength of the interrelationships in serving related segments, geographic areas, or industrial sectors with the differences in the value chains that are best adjusted to serve them separately.
If differences in geographic areas or product and in buyer segments require very different value chains, then the segments define the business units. Conversely, the strong and broad benefits of integration or geographic or industry interrelationships extend the boundaries of a business unit. Strong advantages in vertical integration broaden the boundaries of a business unit to encompass activities up and down, while weak advantages towards integration imply that each stage is a distinct business unit. Similarly, the strong advantages towards global coordination of value chains imply that the relevant business unit is global,While strong country differences or regions requiring very different chains imply narrower geographic boundaries for one business unit and another, it may mean that they must be merged into one. The appropriate business units can then be defined by understanding the optimal value chain for competition in different arenas and how these chains are related.
The organizational structure and the value chain
The structure of the industrial sector both shapes the value chain of a company and is a reflection of the collective value chains of competitors. The structure determines the balance relationships with buyers and suppliers that are reflected both in the configuration of a company's value chain and the way in which margins are divided with buyers, suppliers and coalition partners. The threat of substitution for an industrial sector influences the value activities desired by buyers. Entry barriers maintain the maintenance of various value chain configurations.
The set of competitive value chains is, in turn, the basis for many elements in the structure of the industrial sector. Economies of scale and owner learning, for example, arise from technology employed in competitors' value chains. The capital requirements to compete in an industrial sector are the result of the collective capital required in the chain. Similarly, differentiation in industrial sector products results from the ways in which companies 'products are used in buyers' value chains. Thus, many elements of the structure of the industrial sector can be diagnosed by analyzing the value chains of competitors in an industrial sector.
The value chain is a basic tool for diagnosing competitive advantage and finding ways to create and maintain it. However, the value chain can also play a valuable role in the design of the organizational structure. The organizational structure groups certain activities under organizational units such as marketing or production. The logic of these groupings is that the activities have similarities that must be exploited by putting them together in one department, at the same time, the departments are separated from other groups of activities due to their differences. Like shown in the next figure:
Value Chain and Business Logistics
Bibliography
- Competitive advantage (creation and maintenance of superior performance) Michael E. Porter, CECSA editorial. Competitive Strategy (Technique for the analysis of the industrial sectors of the competition) Michael Porter. Editorial CECSA.
