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Xavier Van de Lanotte

[October 13, 2003]

Collaborative Management: The Future Of The Competitive Environment

BY XAVIER VAN DE LANOTTE


With increasing competition in the telecommunication industry, managers are hard pressed to identify new strategies aimed at growing sales and cutting costs.  Markets are competitive by nature: A place where we all seek the best terms for the exchange of resources (cash, goods, services) regardless of what side of the transaction we find ourselves. As a result of the competition for resources needed to pursue business and trade, the confrontation of market supply and demand constrains us with price/cost and volume boundaries.  Although we contribute an infinitesimal fraction to the market balance, in theory our individual transactions do not affect the market equilibrium.

At the equilibrium point, which is assumed for competitive markets (many sellers, many buyers), securing additional sales would require a higher marginal cost (or lower sales price), which implies a diminishing return. Then, how can managers get around this dichotomy and capture more sales revenues, AND/OR produce at below market cost?

In the Schumpeterian view, disruptive technologies and business models in the telecommunication industry leave room for the more entrepreneurial firms to achieve profitability despite the market forces. In effect, the competitive firm uses innovative approaches to move around the equilibrium point by increasing its value output and optimizing the process by which it creates and delivers that value.  As a result, this gives rise to a profit potential until competitors have caught up and a new equilibrium point is found. Competing is all about creating more �bang� for each �buck.�

The increasing complexity of customer and end-user IT and telecommunication solutions provides firms in the industry with the opportunity to perpetuate this �increased bang� creation process. The focus of the firm�s value proposition shifts from the product/service towards the design (customization), integration and administration of the solution. But with the fragmentation of the industry, the value added of the solution also resides with a greater number of specialized firms.  To address this issue, renegade competitors have set the trend consisting of managing and optimizing the broader solution environment.

Value chain management provides a framework for firms to optimize the value added of their customer solutions and paves the way to dynamic collaborative management models, one of the five keystones in developing a competitive advantage:

  • Customer value

  • Functional and operational performance

  • Core competency and focus

  • Strategic relationship management

  • Network and collaborative management systems

Figure 1

A FOCUS ON COLLABORATIVE MANAGEMENT
The objective for this series of articles on value chain management is to present five keystones of competitive strategy. These keystones work together to yield maximum sustainable competitive advantages and empower firms to exceed their profitability objectives and succeed in the marketplace.

We began by establishing customer value maximization as the guiding principle for developing a firm�s differentiated market advantage. Then, we broached the concept of value creation objectives to institute a baseline for a firm�s functional and operational performance advantage. Next, we suggested that firms seek to complement their core competency with the comprehensive capabilities of the value chain in order to improve their customer focus and develop a sustainable competitive advantage. In last month�s article, we discussed why firms turn to strategic relationships to enhance their market appeal and what the requirements are for successfully developing and managing a relationship advantage.

The final keystone of the competitive strategy model deals with the optimization of the linkages between various elements of the value chain. This is accomplished through collaborative management involving the various members of the value chain. For the concluding article of this series we will discuss the impetus for establishing collaborative management systems, and how they contribute to the development of competitive advantages. We will also mention areas and degrees of collaboration, and share a few thoughts on the automation and the future of inter-company collaboration processes.

THE BIG PICTURE
David Bohm, a renowned physicist and philosopher, said that we need to �view the world in terms of universal flux of events and processes� and �give up altogether the notion that the world is constituted of basic objects or building blocks. Would this exempt the �business world� where industry structures and corporate organizations form silos with missions to promote specialization, know-how and effectiveness and yield productivity and economies of scale?

Peter Senge, author of �The Fifth Discipline: The Art and Practice of The Learning Organization,� concurs with Bohm�s view and writes that we are �taught to break apart problems, to fragment the world.  This apparently makes problems more manageable� and concludes that �we pay a hidden, enormous price.  We can no longer see the consequences of our actions; we lose our intrinsic connection to a larger whole. Hence, Senge sees the need for �Systems thinking,� which is a �framework for seeing interrelationships rather than things, for seeing patterns of change rather than static �snapshot.�

While Senge recognizes the importance of carving out manageable portions out of larger complex problems, he urges us to not lose sight of the whole. Indeed, the optimization we accomplish through synergy and productivity in one area may not carry through and equally optimize the �whole.� Therefore, firms need methodologies to reestablish the interconnectedness with their surrounding environment and processes to manage the interrelationships of the elements affecting their value proposition so as to optimize the whole.

Value chain management brings within reach of companies the objective for them to achieve synergy and efficiency through specialization while simultaneously managing the optimization of the total customer solution; hence produce incremental customer value AND yield superior profits. It allows them to recognize and establish the interconnections of the comprehensive solution environment. This leads them to achieving optimal value output and greater performance by the value creating activities and resources of the value chain. To manage the dynamics of the interrelationships and quickly adapt the value chain to the changes in the marketplace, firms establish collaborative management processes.

Figure 2

The competitive attributes of a collaborative management system are characterized by the specialized resources it gathers, the capabilities of the value activities that are distributed throughout the system, and the routines, or collaborative management processes, that link the activities of the system.

Specialized resources:  Firms gain access to specialized resources of other members of the value chain �network.� Infrastructural capabilities, knowledge resources and market access contained within the �shared� environment are leveraged and more effectively utilized to maximize the total value output across the value chain. It optimizes firms� asset utilization and configuration.

Value activities:  Firms configure and organize sub-processes by which differential value is created and market opportunities are developed within the value chain �network� so as to optimally tailor customer solutions that meet specific market segment needs. Access to more value activities of the �network� increases the options by which firms can meet the exact customer value requirements.

Collaborative management processes:  Firms establish routines which link resource utilization and value activities in an optimal fashion so as to produce the maximum customer value output (vertical market configuration) at the lowest overall cost (horizontal functional efficiency and synergy objectives). Careful planning and management of routines across organizations and companies minimizes the total resources needed to provide the exact customer value output.

COLLABORATIVE MANAGEMENT IN MOTION
Collaborative management is the collective endeavor by multiple organizations and firms operating within a value chain to pull various resources together and coordinate their capabilities in order to more effectively compete in the marketplace. Through relationship management processes, they set common goals and learn to adapt to each other�s operating procedures.  Firms determine the scope of their relationship and the extent by which they choose to integrate their respective processes and systems. Complex multilevel or multi-channel configurations involving many organizations and firms can also be referred to as value chain networks or value networks. 

Collaborative management can span across a broad array of functional and operational areas of the value chain such as:

  • Operations planning and execution;

  • Sales, distribution and support;

  • Market development and management;

  • New service development;

  • Research and development;

  • Financing, investment and infrastructure development;

  • Launch of a new business; and

  • Etc.

Within each of these collaborative management areas, collaboration and integration can occur at various degrees to achieve competitive behavior (i.e.: capture more sales revenues and optimize resource utilization). Different collaborative management processes or systems are used depending on the nature and time horizon of the area of collaboration. The process objectives aim at improving cross-organizational and/or multi-enterprise planning and execution of coordinated activities at higher velocity to address market opportunities with effectiveness and speed, and include:

Value chain planning and strategy development:  To develop strategies and plans based on resources and capabilities within the value chain and incorporate input from other firms operating in the value chain. To support the firms� decisions for investments and specialized resource acquisitions.  o coordinate value chain objective setting and collaborative decision making processes. 

Value chain optimization:  To establish the linkages and design the coordination of activities throughout the value chain. To develop and review the value chain�s capabilities in order to capture more sales revenues. To meet customers� value requirements in various market segments in the most cost-effective manner.

Constraint-based management:  To determine which value output maximizes the returns based on the value chain resources and capabilities available for any given period in time. To focus resources on activities yielding the highest potential return given the current and future constraints within the value chain.

Global optimization:  To monitor how decisions in one area of the value chain affect others and how the global optimization objectives of the value chain can be met. To effectively distribute and organize functional and operational activities across the value chain and maximize synergy and economies of scale.

Concurrent planning:  To dynamically link together on a real time basis the scheduling and decision making modules of all information and planning systems of the firm.  To allow simultaneous planning to occur across the value-chain and populate supply, demand and scheduling systems with current source data.  To optimize the timing and coordination of activities across the value chain.

 Minimize propagation delay:  To increase the effectiveness of collaborative management processes for any time horizon.  To quickly relay events information relevant to scheduling upstream and downstream activities.  To avoid amplification and escalation of adverse situations.  To resolve with speed scheduling conflicts based on problem or opportunity events occurring anywhere in the supply chain. 

THE TREND IN COLLABORATIVE MANAGEMENT
Automation of collaborative management systems adds significantly to the effectiveness and competitive performance of value chain networks. To date, many applications exist to automate the supply side of the equation. Firms have been interlinking with their various supply sources through supply chain management (SCM), and material and enterprise resource planning (MRP, ERP) modules, and have implemented vendor managed inventory (VMI) systems. 

On the demand side, we start seeing an increase in the automation of new dynamic management platforms. Sales force automation (SFA) systems are linked directly with the management systems of indirect distribution channels to more accurately manage the funnel, assess the demand and improve order placement and provisioning processes. Customer relationship management (CRM) applications become increasingly more interactive and collaborative. 

Noteworthy is the progress in some of the following technological developments that will improve and stimulate the future development of automated collaborative management systems. With the gaining popularity of shared database repository systems, and the evolution towards knowledge warehouses, data gets organized and structured in a way that facilitates interactive use by a variety of different user applications. The standardization of SQL (Structured Query Language), used with most current relational database management systems, tremendously facilitate communication across systems. The rapidly growing adoption of XML (Extensible Markup Language) makes universal data access and sharing significantly easier and gives access to new levels of information processing. Momentum gained by improved online order placement and e-commerce systems accentuates the benefits of a seamless environment.  Finally, the increase of intranet and extranet applications expands interactive business to business relationship models and advances collaborative system design.

Going forward, the next logical steps will involve companies extending their efforts at interlinking their existing internal systems. System modules for supply chain management and demand chain management will see further integration into company-wide revenue performance optimization (RPO) systems. This will provide effective control over the internal dynamics of companies� optimal resource management and properly synthesize global enterprise data that will feed their key decision making modules. As they do so, firms will rely increasingly on external source data feeds while data formatting, integrity and security issues over internet and extranet transmission protocols are being put to rest.

In a not so distant future, dynamic collaborative planning, forecasting and simulation modules will emerge. Most systems will require customization to companies� unique environment and will be based on their value chain management experience and objectives. The rate of adoption for automated collaborative management systems will largely depend on the evolution of corporate relationships (trust) and the competitive pressures applied by other companies in the same industry sector.

Notwithstanding the cost and the timing for such systems to become available, collaborative management is a path currently taken by many renegade competitors. By exploring the value chain for opportunities to increase the customer value of their product and service offerings, firms perceive the competitive advantages of collaborating with key suppliers, vendors and partners.  Ultimately, increased demand for their value-added offerings and the optimal use of the value chain resources will allow them to defy the gravitational pull of the market equilibrium and sustain higher profitability objectives.

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 www.vxtconsulting.com, or contact us at info@vxtconsulting.com. We welcome your questions and thoughts about this article.







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