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
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.
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 [email protected].
We welcome your questions and thoughts about this article. |