The recurring question on the minds of our readers is whether they can
still profitably operate a business in the telecommunication industry.
Margins are low and stocks are depressed, yet we are intuitively buoyed by
the knowledge that telecommunication technologies will affect our
lifestyles to a far greater extent in the future than they do today.
A lesson learned from the latest economic depression is that rogue
competitors aren�t only interested in eroding the incumbent leaders�
market share by a few percent points; they are motivated to change the
rules of the game. To them the telecommunication business is a nascent
industry and they might very well mold what the future may hold for it.
They play hardball and, whether they win or lose, they have begun to
effect significant changes in the marketplace already; shaping opinion and
demand and forging new competitive business models.
Competitive firms in the telecommunication industry must relentlessly work
on two key objectives: Meeting the demands of its markets and managing its
capabilities to improve their effectiveness and efficiency. The relentless
pursuit to improve performance with regards to these objectives is at the
pinnacle for achieving growth and profitability, especially in highly
competitive sectors and when market conditions are volatile. But when new
products and services abound and technology clock speed revs up, can firms
hold on to the prospect of profitability and growth?
They most certainly can when they manage their value chain successfully
and develop their competitive strategies with clear objectives for:
- Customer value
- Functional and operational performance
- Core competency and focus
- Strategic relationship management
- Network and collaborative management systems
A FOCUS ON PERFORMANCE
Last month, in the first of a series of five articles on value chain
Customer Value: A Keystone In Competitive Strategy,� I discussed the
opportunity for firms to gain competitive advantage by focusing on
customer value. In this second article, the focus is on managing the
firm�s capabilities to strengthen its competitive position and meet its
Unless a company can produce and deliver customer value cost effectively,
it is not competitive as it can not sustain viability. Hence, it is
critical that functional and operational performance be addressed in the
competitive strategy formulation. Meanwhile, as is explained below, value
chain management unleashes significant opportunities for firms to cost
effectively improve their performance and even accrue their capabilities
in order to meet their customer value objectives. In subsequent articles
of this series, other keystones of competitive strategy, and how they tie
together, will be discussed.
The object of any firm is to serve a market for which it produces and
markets products or services in order to make a profit. To that effect,
firms organize functions and activities to basically acquire resources,
transform them, sell products and services, and deliver them. Amongst the
various tasks that companies perform some are core, some are support and
others are management or governance. The quality with which successive
tasks are arranged and co-managed within the firm determines both the
efficiency and the effectiveness of the firm.
But firms aren�t home free by merely seeking to achieve effectiveness and
efficiency in each and every function of their departmental organizations.
For instance, benchmarking studies could show how individual departments
fulfill their goals economically and with great efficacy against their
peers in the industry. Yet in the realm of the firm�s overall performance,
their individual contribution in creating customer value may blemish. As
corporate organizations evolve, they are prone to succumb to some of the
Departments continuously vie for the limited corporate
resources. Industry data typically provides the guiding benchmarks for
allocations but, in an effort to stimulate innovation, differentiation,
and greater productivity, funding allowances for special activity
projects usually alter the final distribution of resources.
- As internal organizations develop their identities, their natural
tendencies are to base their goals and objectives on the flow of the
money. An organizational hierarchy is established based on the source of
funding, in other words, on how the money comes in and flows through the
firm. Hence, departments develop myopia and shift their focus from the
customer to the internal organizations.
- Internal processes become burdensome and proliferate at the expense
of inter-organizational linkages. At the execution level, corporate
strategy and objectives are obscured and callousness develops with
regard to the effective utilization of the corporate resources.
- An increase in the division between organizational lines causes a
lack of joint accountability for corporate results and limits effective
concentration of resources on value creation.
- Employees have limited inter-departmental involvement. They follow
guidelines and are aware of their objectives and the corporate results,
but fail to perceive how their tasks and activities affect customer
value and the company�s bottom line.
The symptoms or consequences of these types of behavior are that:
- In an attempt to improve productivity and effectiveness, these firms
are affected by the law of diminishing returns;
- The cost basis goes up without the customers perceiving any
additional value from their relations with the firm;
- Cost-cutting measures are precarious as firms have limited
visibility into what exactly is producing value for the customer;
- Inter-departmental relations become somewhat antagonistic as, in the
ranks, employees fail to perceive the objectives and the value of other
- Instead of considering business model changes and putting a greater
emphasis on customer value, firms tend to address their problems by
focusing on product innovation, reorganization and management changes;
measures that are costly (even with the prospect of future cost savings)
and without lasting effects on their competitive advantage in the
Competitive firms cut costs when they have achieved productivity gains in
excess of what the demand can profitably absorb. Their customers perceive
the value as they willingly pay the competitive firms� prices. Their
profits result from a greater effectiveness in performing value activities
over alternative customer solutions available in the market.
The attitude of competitive firms is to first and foremost solve their
customers� problems, not to create one by limiting their focus on their
products and services and burdening the customers with the complexities of
acquisition, integration and upkeep. To that effect, they engage all of
their resources to maximize value creation. They align their processes and
organizations to most effectively channel and preserve value in the course
of addressing the specific needs of their respective customer segments.
These firms continuously optimize their business models, seek alternatives
and assess trade-offs to maximize the total sum of gains.
Hence, the priorities for effectively managing functional and operational
performance in the competitive firm are thus established:
- Ensuring that all operational and functional activities operate with
clear customer value objectives (as opposed to internal service
objectives), establishing performance metrics accordingly, and sharing
accountability for level of service, cost and profitability across the
- Managing and organizing the activities based on the unique
requirements of the customer segments to most effectively channel and
preserve the value created along the value chain.
- Continuously seizing opportunities embedded in the value chain to
gain productivity through synergy and economies of scale and to cut
Achieving operational and functional performance is truly a
collaborative effort requiring all organizations and departments not only
to pull in the same direction, but also to be extremely cognizant of how
their respective outputs affect customer value. Furthermore, it behooves
firms to extend this philosophy beyond the confines of the enterprise and
engage other companies within the value chain to actively collaborate in
achieving these objectives.
A functional value analysis is suited for identifying the firm�s value
creating abilities and the efficiency and effectiveness with which
activities are performed. Benchmarking is in fact very useful in that it
provides an effective diagnostic tool to indicate which areas operate at
sub-optimal performance levels. Yet, to improve competitive performance,
it is recommended that the actual capabilities be gauged against customer
needs and customer value objectives as resulting from a customer value
last month�s article on this subject).
The following are some examples of fundamental performance assessment
questions that you could ask yourselves to determine whether your firm�s
activities have the proper focus in order to increase your competitive
- Can my employees tell me how their activities contribute to customer
value creation? Do they understand their roles and objectives within the
value chain? Are my department heads aware of the premium customers are
willing to pay in exchange for their contributions?
- Does my model favor collaborative decision making versus internal
services selling? Do my processes (and systems) equally emphasize value
preservation (effectiveness) than they do value creation (efficiency)?
- Are my offer platform and organization flexible enough to engage
exactly the resources necessary to meet my customers� specific
requirements (no more, no less) and thus avoid value destruction? What
steps are taken to promote cost variability?
- How do I manage my sales process and my funnel? Are my other
organizations, such as product management, marketing, training and
engineering, actively involved in the sales process? Are they part of
the sales team or are my account managers the only sounding board to the
- Can my product and service development initiatives benefit from
collaboration with other companies (customers, suppliers, peripheral
vendors, etc.) and access to specialized resources that they control?
What steps are taken to actively manage that process?
- Where in my value chain are the opportunities for leverage, synergy
and economies of scale? Is my firm prepared to capitalize on our
strategic relationships and manage the organizational ramifications
With this approach to value chain management, firms monitor more
effectively the allocation of their resources and ensure that their
capabilities are directed with the proper focus, i.e.: The customer. They
achieve greater functional and operational performance as their processes
are more effective, efficient and productive. The competitive advantage
thus achieved grants these firms greater latitude to take advantage of
emerging opportunities, manage their market strategies accordingly and
We recommend that firms actively engage in analyzing the value creating
abilities of their operations and functional organizations as this also
holds the key to defining the firms� focus, core competency and
differentiation strategies. Next month, we will discuss the significance
of these strategic elements in creating a competitive advantage and how
they play out in the successful management of the value chain.
Xavier Van de Lanotte is
the president of VXTConsulting, Inc. Xavier advises telecommunication
services and equipment firms on Competitive Strategy, Customer Value,
Alliance Management, and Distribution and has worked in this industry in
various parts of the world for 15 years. For more information on value
chain management, please visit us at
contact us at
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