The Key Strategic Issues Facing 'Task Systems' in Generating and Sustaining a Competitive Advantage
Organizations in today's competitive environment need defined strategic management plans to ensure their missions and visions are materialized. Strategic management depends on identification of core competencies, and gaining competitive advantage over competitors. Not only this, but it requires consistent evaluation of the external and internal environment for exploiting opportunities and eliminating threats. The following research endeavours to investigate the nature of strategic management by focussing on core competencies and sustainable competitive advantage.
Moreover, the researcher endeavours to investigate how the theories related to core competencies and competitive advantage are applicable in real life by using a case study on Task Systems, a London based office furniture firm. The purpose is to identify the challenges that hinder or promote the development of core competencies required for sustainable competitive advantage at Task Systems. The research first sets out by introducing the concept of strategic management, and the elements that constitute it followed by a literature review to investigate models and theories that are commonly used by managers to develop strategic plans and implementation. The aim is to analyse which model is the best fit for Task Systems' to generate and sustain competitive advantage.
Chapter 1 Introduction
Doing business in today's competitive environment requires complex consideration for assets, resources, skills and strategic vision. As an organization expands and grows its need for strategic management increases with even more complex plans and implementation processes. Strategic management involves consideration of the environment based on situation analysis. It involves evaluation of current objectives by crafting mission and vision statements to reflect future business. Based on these analyses, the organization then devises strategic plans based on its business core competencies and business concept. Strategic management does not stop here.
The next phase is to determine the action plan by utilizing its resources to construct its internal infrastructure to serve its external structure. Individual groups are assigned tasks with accountability and they are monitored against benchmarks or standards to see whether they are meeting the organizational objectives or not, and to check whether any improvement program is required for implementation. In the above context Hugh Macmillan and Mahan Tampon (2000) define strategic management as follows:
“…is about envisioning and realizing the future....strategy should both provide an idea about the future and generate the action necessary to realize that idea... Ideas and actions to conceive the future”.
Thus, strategic management is an on-going dynamic process. It requires synergy from all aspects of the business to work towards new directions following the changing business environment based on long-term and short/medium term vision. The various types of strategies include marketing, administration, legal, human resources and financial as well as information technology directed towards common corporate objectives. These strategies take into account of corporate values, culture, goals and mission and visualization of goals by easing the process of achieving them.
Due to the dynamic nature of strategic management, organizations may adopt it specifically to gauge core business areas or implement it holistically. Moreover, the widespread acceptance of the practice of strategic management has made it a necessary tool for business operations rather than an optional management approach.
There are two broad approaches to strategic management.
a. Industrial organization approach - This involves the use of economic theories based on competition, resource allocation, economies of scale and assumptions of self -interest behaviour such as profit maximization.
b. Sociological approach - This is based on human interactions, satisfying behaviour as well as profiteering.
Whichever the approach an organization adopts, the rationale is to plan and manage resources efficiently and effectively to minimize wastage and optimize resources.
To successfully adopt and implement strategic management, the business plan must be supported by the three important elements, according tony (2004). These are "adequate resources, an appropriately aligned organizational structure and the motivation of the organizational members to exert sustained goal-oriented effort." Rooney’s statement reflects the misconception that strategic awareness, on its own, guarantees success, regardless of the required infrastructure and resources. Conversely, strategic management requires careful consideration for the company's current resources and improve it to materialize the organization’s vision.
The distinction between planning and implementation is thus clear, as it is one thing to visualize while it is an entirely different state of affair to implement. Implementation requires focus, consistency, and flexibility. It requires awareness and consideration. Management of resources, alone, does not constitute strategic management if it lacks planning. Likewise planning is useless unless the management is consistent in its progressing implementation. The key is to balance both planning and implementation with consistency and flexibility towards change. As Hamel and Prahalad (1993) note, long-term success depends on the ultimate challenge of pursuing strategy for sustaining competitive advantage as the industry evolves.
Sustaining competitive advantage, therefore, is the challenge for firms that want to attain successful strategic management. Competitive advantage refers to the exploitation of tangible and intangible resources to develop strategic plans to cater to customers' needs. During the industrial era, these had been material resources and assets while during the post-industrial era they evolved and referred to as intellectual property, technology and human resources in addition to material, financial and asset resources. Regardless of the nature of resources exploited, competitive advantage is achieved by differentiating oneself from a market full of heterogeneous competitors and the strategic intent.
An organization needs to be aware of its internal strengths and weaknesses. It is only then it would be able to plan to exploit the external opportunities by minimizing threats. While theoretically, it is easier to demonstrate through models and theories, pragmatically organizations find it difficult to achieve competitive advantage despite having strategic intent.
Task Systems is one such organization, which the researcher has chosen for this research to demonstrate how it has strategic inclination yet faces the challenges of achieving sustainable competitive advantage.
Task Systems is an office furniture firm based in London, Specializing in custom-designing, manufacturing and distributing office furniture and accessories to corporate and individual customers. Task Systems has been following the industry pattern without having holistic strategic focus. Partly because it has been following industry management practices and has been successful so far due to the consistent demand for office furniture. However, for the future, as the industry matures and consumer preferences changes, it will need to evaluate its core competencies to achieve sustainable competitive advantage.
The main research question that the researcher endeavours to investigate is:
What are the key strategic issues facing 'Task Systems' in generating and sustaining competitive advantage?
To support rationale for the above answers the following research issues need to be investigated:
a. What is meant by strategic management
b. What are core competencies and how it helps firm to compete?
c. How is sustainable competitive advantage achieved?
The objective of this research is to demonstrate how strategic management is a critical approach for organizations of the 21st century to compete in the business environment. The purpose is to show that realizing core competencies is not enough for organizations to remain in today's highly competitive market.
Instead, organizations need to be flexible, yet focused on its strategic vision, resources and core competencies to sustain competitive advantage. Furthermore, the researcher aims to use strategic business models to demonstrate how decision makers at Task Systems can realize and resolve the challenges the organization faces or is going to face in the future.
Definition of key terms and concepts
Strategic management - “Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages” (Dress et al 2005).
Core competency - “…the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies…” (Hamel and Prahalad 1990).
Sustainable competitive advantage - "A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy" (Barney 1991).
The following research is divided into the following sections.
• The first section is an introduction of the concept of strategic management and how core competencies are the keys to organization's achieving sustaining competitive advantage. To demonstrate the researcher has chosen Task Systems Ltd. – a London based organization.
• The second section offers an overview of Task Systems - its management, organizational structure, industry in which it operates and competitors, based on interviews of the top management and external research.
• This is followed by section three - a literature review that explores the various concepts and models for identifying core competencies, industry patterns, sustaining competitive advantage by various theorists.
• Section four is a methodology section, which outlines the methods adopted and how the researcher has achieved the research results.
• After having studied the theories and models, the researcher applies them on Task Systems by evaluating it in the light of the models discussed in section five. Finally, in section six, the researcher offers conclusions of the study with recommendations for Task systems to overcome the challenges and issues it faces.
Chapter 2 Case Study: Task Systems
Task Systems Private Limited (LDC) is a member of the Curzon Group, a holding company that specializes in comprehensive property support service (Task Systems Official Website 2006). Joint managing directors, Costas Kravis and Tony Adultery, and a support staff of fifty plus employees, lead the company. Except for the annual financial return and budget, Curzon Holdings does not have any influence on Task Systems ‘day-to-day management practice. This set up has given Task Systems the freedom it requires to achieve its mission which is to "progressively build up a solid base of understanding with each of our clients" and to make their clients "feel that we are part of their business", according to Kravis.
The mission is to share a common aim with their clients and to pursue excellence in everything they do. To achieve this, the main aim of the organization is to gain customer loyalty through personal attention, short lead-time and long-lasting relationships with clients (Appendix 1 Kravis Interview). For this purpose, Task Systems has developed a full range of professional services to support its clientele. Services range from surveying, designing, advising and planning of the site using innovative methods and keeping the Health and Safety, and British Standards Specifications for office furniture in mind. The designs developed are based on a combination of existing and new product lines to match the customer's aesthetic sense and practical needs (Task Systems Official Website 2006).
The company has its own designing, planning and fitting team that works in collaboration with its supply chain. Although, Task Systems does not maintain material stock, nevertheless its supply chain has been set up with efficient and timely local suppliers to cater to Task Systems ‘needs. With a distribution centre located in east London and transportation fleet of its own, the company has been able to cut down on its delivery lead time from one to four weeks as opposed to the industry standard eight weeks (Appendix 1)
Furthermore, with the support of its well-trained professionals, the company ensures that the quality of its products and services consistently meet the required standards. On a regular basis, production processes and service delivery are monitored to ensure quality standards are consistent throughout organizational processes. Employees enjoy the open culture at Task Systems adopted for promoting knowledge growth. As a result, turnover rate is low and mature employee base continues to grow (Task Systems Official Website 2006).
Hence, despite being only 26 years old with approximately fifty plus employees, it is considered one of the most competitive players in the industry, competing with brand names like Been, Herman Millar and Steelcase.
An organizational structure of a firm is defined by its components, business units, interaction relationships and the hierarchy of the authority of power. The hierarchy set within the firm is the basis upon which management makes decisions, communicates with employees and implements control. From Task Systems' organizational chart (See Appendix 4), one observes that it is relatively horizontal in structure. There is no such hierarchy within the organization. The management comprise of the following people who are also the decision makers of the company:
Costas Kravis – Joint MD (Sales, Finance, and Purchasing)
Tony Adultery – Joint MD (Marketing, Operations and Design)
Simon Wade – Product Development Manager (Design, Product and Marketing)
Bob Gills – Operation Manager (Warehousing and Logistics) (Kravis, Appendix 1)
Each individual has a functional role within the company to carry out business processes such as sales, project management, product development, product design and operations etc. Furthermore, Task Systems is a process-based organization. Its core processes, such ascend-to-end work, material and information flows, are the functional departments that drive it towards achieving its organizational objectives and business strategies. This structure is not unique but has been described by scholars as a process organization structure(Hammer 1996; Ostroff 1999).
Unlike core process organizations, Task Systems has not fallen prey to shortcomings such as focussing only on task-based performance, losing sight of the business processes or relying on total specialization. Instead, Task Systems has based its organizational foundation on combination management such as specialization in office furniture business processes; focus on both organizational objectives and performance; and consistent quality standards to provide customer with quality products and services as described in their mission at all stages of production.
The decision-makers, mentioned above, are responsible for devising strategies and implementing them. Employees belonging to the relevant departments participate in the implementation of strategies, as they are responsible for each client that comes their way. Consequently, Task Systems does not follow task-based management but rather focuses on order fulfilment processes by assigning each sales person with a project to handle it from start to completion. This approach helps them to concentrate on the value and profitability of the process of production, by eliminating waste, multi-channelling skills and ensuring employees are cross-trained to increase core knowledge (Ostroff 1999;Appendix 1).
Office Furniture Market
The office furniture industry comprises of products such as desks and tables, seating, storage units, panels, screens, shelves and accessories. According to Commercial Due Diligence Report (2001), sales of new furniture and seating account for 20 present of the total expenditure of organizations, despite many also spend on second-hand office furniture.
The UK market has grown by 6.2 present, from 1996 to year 2000,indicating that there has been a decline. Some of the reasons include postponement of office furniture purchase in favour of new electronic equipment; lower priority given to office furniture in favour of office space expansion and refurbishment; and change in work practices. However, this trend cannot be used to see the overall growth of the market.
The Report also notes, according to the survey, change in demand is expected to increase by 48 present due to the change in business activities in companies, private commercial constructions and need for durable office furniture, even though the UK economy has been one of the factors contributing to the slowdown in the market(Commercial Due Diligence Report 2001)
The high demand for office furniture stems from construction of new buildings, refurbishment of existing ones, renewal requirements and replacement of obsolete furniture. Modern offices are adopting open-plan offices that require fashionable furniture to match the new lifestyle. The lifecycle of the market, therefore, varies from five to fifteen years (Commercial Due Diligence Report 2001)
The office furniture market is relatively traditional, as clients tend to rely on tendering, word of mouth, and advertisements in publications to identify their suppliers. Their decisions are based on the following top factors, among others:
a. Reliability of completion date
b. Quality of products offered
c. Speed of service
d. Provision of on-going support
e. Minimum disruption caused
g. Company reputation (Commercial Due Diligence Report 2001)
Apart from the above, clients are also inclined towards office furniture by factors like coordinated use, style and comfortable furniture with longer durability and custom-made according to statutory regulations for safety and ergonomics. These factors are opportunities for manufacturers to explore. Alternatively, corporate customers are not inclined towards the high cost of investment in new furniture. Instead, they are looking for long-lasting, good quality furniture at minimum cost. The use of electronic equipment has also eliminated the need for bulky storage furniture such as cabinets for filing and storage etc. (Commercial Due Diligence Report 2001).
Major players, recognized by clients, include Project Office Furniture,Samas Systems Furniture, Roneo, President, Ahrend, Farrells, Flexiform,Martella and Morris among others. The market is highly fragmented with companies specializing in manufacturing, contracting and distributions well as combination services (Commercial Due Diligence Report 2001).The following are the main competitors of Task Systems:
Herman Miller, Inc.
The international firm is a manufacturing company, specializing in sale of furniture, systems, products and services for offices in the health-care and residential sector. The company is a public limited listed in the NASDAQ 100 with their headquarters based in Michigan, United States. With historical records, such as nine decades of furniture experience and ranked among Fortune Most Admired Companies in2001, Herman Miller is a highly established player (Commercial Due Diligence Report 2001).
The company was founded in 1912 in Michigan and is considered the pioneers in office furniture industry since 1974. It has more than 50manufacturing plants in 15 countries dealing in products such as seating, storage, furniture systems, interiors, and technology products. The company has won 34 design awards for new products and product enhancement in the past decade (Commercial Due Diligence Report2001).
Been is perhaps the oldest competitor as it claims to have been a family business founded in 1790. The company specializes in consulting and planning of designs, concepts and manufacturing of modern office furniture. With sales for Been touching EUR 114 million through various channels of distribution, the company is perhaps one of the largest manufacturers and a specialist in office furniture. With offices spreading across East and West Europe, Asia and Middle East, Been is expected to grow more in the future (Been Official Website 2006).
Chapter 3 Literature Review
Competitive Advantage Analysis:
The purpose of strategic management is to achieve competitive advantage. In this regard, contemporary theorists of strategic management are divided into two groups. One group believes in market-driven approach, while the other believes in resource-based view.
Of the former group, Michael Porter is most renowned for his work on strategic management and competitive advantage. Porter, in his pioneering work - Competitive Strategy (1980), is of the view that strategy formulation is affected by environmental factors. He introduces the concept of five forces model and argues that an organization operates and competes within its industry based on market forces, such as rivalry between the existing firms, new entrants ‘potential, substitutability of products and the bargaining power of buyers and suppliers. The nature of competition is also determined by these forces.
To counteract these forces, he has presented the idea of generic strategy. Generic strategy helps organizations to achieve sustainable competitive advantage through cost leadership, differentiation of products, and focus on niche segments. Porter believes every business, regardless of the prevailing competition, needs to adopt these strategies to effectively compete within its marketplace.
Thus, competitiveness can be defined as the value of products and services of the firm, for which the customer is willing to pay for. Customers have certain expectations of benefits from products and services (Drejer 2002). According to Kotler (1999), they buy products because their basic needs are being fulfilled. For example, the physical properties of the product fulfil certain expectations and/or certain elements of the product meet current or future expected needs. Firms that offer them, either through tangible products or through intangible ones, gain a competitive advantage.
Competitive advantage is further categorized as follows:
a. Advantage through industry structure
b. Advantage through network relations
c. Advantage through brand image
d. Advantage through customer relationships
e. Advantage through government protection
f. Advantage through distribution channels
g. Advantage through market standards (Drejer 2002).
The above categories help firms to exploit opportunities within the industry and gain positional advantage. However, strategic management is about not only gaining the positional advantage but also creating value for the customers in terms of satisfaction, quality standards, and sustaining the same (Drejer 2002).
Conversely, another group of theorists argues that if a firm fails to achieve one or more strategies, then it will not be able to position its product in any segment let alone become profitable. This is because competitive strategies are based on the achievement of the difference between cost and price. This is only possible if strategists drive down costs, as price is limited in scope and extent of the customer’s willingness to pay. Resource-based theorists, therefore, emphasize on the efficient use of individual resources in organizations.
Prahalad and Hamel (1990) along with Ansoff (1965) and many others argue that key resources, skills and technologies, are the core competencies of organizations. Resources such as people, machinery, raw material, knowledge, brand image and patents etc. are the basic elements of the firm that it organizes and controls to produce goods and services. Firm’s ability to identify specific set of resources can be used to create competitive advantage (qt. Lawson 2002). Sustainability is also inherent in the ease with which firms utilize or substitute resources or use them in combination to achieve competencies and capabilities(Prahalad and Hamel 1990 qt. Lawson 2002).
In this context “competencies refer to the fundamental knowledge owned by the firm such as knowledge, people skills, experience, innovation, unique information etc.” These elements help organization to become distinct from competitors, whether in functional areas or in the market.
The basic premise posit by resource-based theorists is to focus on firm’s individual resources, competencies and capabilities when devising strategies to compete within the industry. Sustainable competitive advantage, in turn, is achievable when the organization exploits these elements. The only limitation in this approach is that the organization is too focussed on its internal resources, and its organization, that it tends to neglect the market opportunities and trends.
Sustainable Competitive Advantage
The latest school of thoughts, according to Drejer (2002), does not follow any one specific school of thoughts. Instead, the new approach to strategic management is based on the competitive advantage through positional advantage as well as through managing their assets and resources efficiently. The bottom-line is that core competencies for these firms are to plan production of goods at the least cost with superior quality programs, yet create value for the customers.
Creating an overall competitive advantage for the modern firm is through not only external factors such as positional advantage, product uniqueness and value to customers, or internal factors such as efficient utilization of resources and asset management, but a combination of the two.
However, according to Drejer (2002), there is a third element, which plays a critical role in competitive advantage. Theorists such as Abbegglen & Stalk (1985 qt. Drejer 2002) argue that firms are also responsible for the economic environment and the society in which they operate. This leads to the concept of stakeholders. Competitive advantage is also dependent on the shareholder and the stakeholder’s value. Sustainable competitive advantage is inherent in resolving the problem of sustaining the economic framework by creating value to the customers and society in the short and long run (Rappaport 1992 qt.Drejer 2002).
Managers of successful organizations realize that to develop sustainable competitive advantage they need to incorporate values for the customers as well as those responsible for running the company. Elements like corporate social responsibility, employee well-being, philanthropy and environmental protection affect productivity.
According to Hall (1992) sustainable competitive advantage is defined as when companies "consistently produce product/delivery systems with attributes which correspond to the key buying criteria for the majority of customers in their targeted market…” However, this definition is limited in the sense that it takes into neither account of core competencies nor the resources to be used to produce products or services.
For this reason, Asker (1989) argues that core competencies are the basis of competition. Core competencies enable organizations to gain sustainable competitive advantage in the long term, unless organizations have differentiation competencies, such as technology unique to the market.
Sustainable competitive advantage, therefore, is inherent in the integration of both external and internal productivity by creating value for the customers. Firms that want to be sustainable in the long run need to lower their internal costs and improve competitiveness through value creation and optimization strategies.
Core competencies, as discussed earlier, are a source of competitive advantage. In fact, they provide the framework for sustainable competitive advantage. Determining core competencies requires the organization to differentiate the various competencies through competence grid (see Appendix 5). The different types of competencies should be categorized as core or support competencies. When differentiating competencies, firms need to distinguish them according to the following:
a. Firm specific versus public domain - this refers to the firm specific tangible and intangible resources that affect the firm’s sustainability.
b. Human versus technological - this refers to the pool of human skills and the technological advantage the company has over competitors.
c. Product, process and administrative competencies - this refers tithe production methods adopted whether it is product based, or process based.
Core competencies can therefore, be distinguished by locating in the competence grid the competencies that are firm specific. Core competencies have low impact on external performance yet resources such as financial, research, management and technology etc. do help the organization to optimize opportunities. At the same time, it is critical for firms to optimize products, processes and administrative activities by exploiting both human and technological competence. Moreover, core competencies are important for providing the desired sustainable competitive advantage that firms desire to compete in the short and long run (Drejer 2002; Prahalad 1993).
External Analysis Models:
Having explained the theoretical framework and importance of strategic management in terms of sustainable competitive advantage, it is now imperative to discuss the various models presented by the theorists.
Porter's Five Forces
This is perhaps one of the most important models used by academicians and managers alike when dealing with strategic management. The Five Forces Model has been introduced by Porter in his book Competitive Advantage (1980) and today is widely used to evaluate an industry. According to the Model, an industry is governed by five forces:
a. Supplier power - A firm needs to gauge factors like supplier concentration and their bargaining power; differentiation of inputs; importance of volume flow; costs as well as threat of integration etc.
b. Buyer power - Firms need to identify the buying power of buyers; the demand; the brand/image; sensitivity to price; their willingness to buy substitutes as well as product differentiation, buyer incentives and concentration.
c. Threats of substitutes - A firm needs to determine whether substitutes are easily available to buyers or not; the price of substitutes and how buyers are inclined towards it.
d. Barriers to Entry - Established industry leaders may and may not enjoy absolute cost advantage depending on the structure of the industry. A firm needs to evaluate the barriers (or non-barriers) that will stop (or allow) newcomers from entering the industry such as regulations, economies of scale, capital requirements, brand, switching costs, distribution channels and absolute cost advantages.
e. Degree of Rivalry - The firm's position and how much competition it faces depends on exit barriers, concentration of rivals, fixed costs, value added features provided, differentiation, brand, diversity in competitors and the industry's growth potential (Porter 1980).
In this model, the firm is like a box impact by different forces. Competitive advantage is gained by creating barriers to entry and creating product value for long lasting shelf life. Sustainability is maintained by creating diversified products or segments to combat adverse effects of new entry. However, this, according to (Asker 1989),is limited in its scope in identifying sustainable competitive advantage as the model does not take into account of firm specific core competencies, how it uses its resources or assets. Long shelf life, according to critics, does not guarantee sustainability.
There is another model for gauging external macro environmental factors called PESTLE also known as PEST, STEP or STEEP analysis. This model has been introduced by Johnson and Scholes (1993). The acronym stands for:
P - Political
E - Economic
S - Social/cultural
T - Technological
L - Legal
E - Environment
This model is used to identify the macro factors that influence the organization and have impact on its present or future policy. The rationale is that businesses operate within its environment and are influenced by the factors that govern the environment. It must also be noted that these factors do not influence the organization as distinct separate factors but often as a combined force. The PESTLE analysis, therefore, is used to separate them to ease the process of identification of issues and challenges faced by the organization. Some examples for each of the factors are given by Johnson and Scholes(1993). However, this list should not be considered comprehensive as these elements may change from industry to industry and from firm to firm.
Political - tax policy, government regulations, tariffs and trade restrictions. It may also include policies regulating the environment of the industry.
Economic - Macro and micro economic factors such as inflation, unemployment, exchange rates, growth rate and economic cycles can impact the performance of the business.
Sociological/Cultural - Consumer socio-cultural trends, health, safety, population demographics and attitudes trends can help the organization to predict consumption patterns.
Technology - Technological development, innovation, research and development as well as integration influences the production efficiency level and speed with which the organization delivers its products.
Legal - International and local laws, agreements, regional laws, competition law as well as regulations for health and safety etc. Influence the operation processes and where organizations decide to locate production base.
Environmental - issues relating to natural environment have become major concern for society. Therefore, companies need to comply with consumer demands for safe waste disposal, low rate of obsolescence, less environmental deterioration and low energy consumption etc.
Although the above list may look comprehensive, it is nevertheless not enough to gauge the external influences on the organization. For this reason, strategists and theorists usually use PESTLE analysis in conjunction with SWOT analysis. The rationale is that PESTLE merely identifies the factors that influence the organization from a macro perspective but it does really help in locating the key trends and how these trends will affect the organization at a micro level.
In addition, theorists are of the view that external environment analysis is not enough to gauge competitive advantage. In addition, the use of internal analysis models such as SWOT and value chain may further identify the internal resources that are required for gaining sustainable competitive advantage.
Internal Analysis Models:
SWOT Analysis is used in conjunction with value chain analysis. Competitive analysis, according to Johnson and Scholes (1993), is incomplete if it does not take into account of the organization’s capabilities. Managers need to evaluate the external environment, yet at the same time, they need to match their capabilities and resources with the opportunities they want to exploit. Thus gaining a competitive advantage is not about finding opportunities and eliminating issues but it also involve gauging the situation according to the organization’s performance.
The acronym for SWOT stands for strengths, weaknesses, opportunities and threats. While SW is used to gauge internal dimensions, OT is basically used to identify external influences. It complements the value chain analysis by providing managers the opportunity to gauge the industry and the opportunities therein.
The SWOT analysis can be categorized as follows:
Strengths - The firm gauges its strengths in resources, capabilities, assets, brand names, management attributes and cost advantage etc. to develop competitive advantage.
Weaknesses - At the same time, the organization must realize that it has weaknesses which setback the firm from its competitors. These may include a weak brand name, poor reputation, cost structure, and lack of access to resources or distribution channels. These should be eliminated to strengthen its position for gaining competitive advantage.
Opportunities - Conversely, external environmental offers new opportunities for growth, which can only be realized if the management evaluates elements like trends in customer needs, new technologies, regulations or trade barriers.
Threats - At the same time, the organization must always be prepared for competitors and issues that may affect the business, which may include changing consumer preferences, substitute products, new laws and regulations. By using the above evaluation model, the firm can gauge its position. It would be able to develop strategies to exploit opportunities while at the same time eliminate threats and weaknesses(Duncan et al 1999).
Porter (1980) also introduced the concept of value chain analysis, which constitutes the identification of competitive advantage by studying supply chain network and how it can be made to add value tithe products and services offered by the company. "Value can simply be defined as the gap between cost of producing a good or service and the price one can charge (profitability, in other words)" (Lawson 2002). The value chain analysis model focuses on the following key activities:
Inbound logistics - which includes inbound transportation, stock, inventory control and handling
Operations - this includes activities relating to manufacturing and delivering of the products and services.
Outbound logistics - this includes outbound transportation, warehousing and product delivery.
Marketing and sales - activities related to sales, marketing, advertising and selling are included in this analysis.
Service - installation, repair, and training for using products, after sales services etc.
Procurement - these activities are related to acquisition of resources such as material.
Technological development - this include research and development activities, innovation in product design, process reengineering and improvement efforts.
Human resources management - recruiting, training, developing, and rewarding staff for the purpose of adding value to the service offered to customers.
Infrastructure - planning, introduction, implementation, maintaining of systems, financial support, policies, procedures, communication and organizational culture, all make up the infrastructure.
Elements within the value chain help firms to develop expertise and/or diversify new activities to establish competitive advantage. However, according to McCall and Stone (2004), diversification has high associated risks and merely helps organizations to steer away from profit margin pressures. Instead, value chain can be used as a tool for sustainable competitive advantage because it allows firms to diversifying particular market or demand.
For example, some companies diversifying labour pool by training and culturing them towards quality differentiation. Since the value chain is based on the infrastructure of the organization, it is only logical that organizations use it to increase competitiveness rather than to avoid competition.
Value chain analysis does help in identifying activities that would result in the highest profit for the organization with coordinated activities and adds value to the customers. This may include external activities and internal activities of the supply chain, which may or may not be restricted to local boundaries. The synergistic nature of the value chain makes it ideal for implementing allocation strategies for effective and efficient resource utilization, which is why it is considered one of the most important tools for studying organizational competitive advantage (Lawson 2002).
Having analysed the different external and internal models, now it’s imperative to explore implementation models. The 7S model, also known as the McKinsey 7S model, had been Pascale's (1991) discovery of Japanese management style.
However, its adoption is credited to Petersen Waterman along with the support of McKinsey, a global management consultancy.
The basic premise of this model is that planning is not effective if it’s not implemented. The 7S model helps managers to check whether the strategy has covered the necessary factors for successful implementation (Dress et al 2005). These factors are as follows:
Strategy - Management needs to define the set of actions that must be adopted and maintained.
Structure - Management needs to assign tasks and organize it according to the skill sets required.
Systems - Decision makers of the organization need to set up processes and information flows to link organizational components together
Style - The firm needs to establish how management should behave and approach issues
Staff - The company needs to develop managers and staff so that they are equipped to implement the strategic plan
Superordinate Goals - The organization must have long-term vision and short/medium term mission that reflects the values and culture of both the firm and the staffs, to direct it towards its objectives.
Skills - Lastly, the management needs to establish skill sets required. If lacking, then it should be developed.
However, D’Alene and Gunther (1994) are of the view that the 7S model is not holistically accurate in its approach. They argue that traditional competitive advantage cannot be used to compete in today’s hypercompetitive environment.
Organizations can no longer focus on resources alone but must continuously shift strategic focus to counteract competitor's strategies. Since organizations today operate in dynamic and fast-pace business environments, they need to be agile and ready to cope with any uncertainty. They recommend development of capabilities by controlling threats and by manoeuvring the strategic arenas of competition. These arenas include:
a. price and quality
b. timing and know-how
c. stronghold creation
d. financial soundness
The key is to exploit these arenas by creating temporary competitive advantage, and moving on to new opportunities. In this context, D’Alene(1994) introduces the new 7S, which includes Superior Stakeholder Satisfaction, Strategic Soothsaying, Speed, Surprise, Shifting the Rules of Competition, Signalling Strategic Intent, and Simultaneous and Sequential Thrusts. The new 7S model thus expands and redefined the older model to introduce sustainable competitive advantage in the form of short/medium term dynamic strategies.
Traditionally, during the industrial era, large organizations were the industry leaders as they could take the pressure of fixed costs, cost of entry and cost for operations, yet reap profits. However, in today’s competitive environment, the pressure is not on production processes or on these costs but rather based on a different kind of costs. The driving force for modern organization is innovation. According to Schumpeter (1942), technological change has displaced the force that fuels competition.
Now, organizations must use unconventional intelligence to counteract the forces of the industry. Innovative activity is the key to attain sustainable competitive advantage. There is no emphasis on size anymore. Instead, organizations, small or large, may engage in bulk production and delivery of services through innovative job designs, production processes and adoption of technologies. Consequently, entrepreneurs of medium to large organizations compete on the same platform with the only difference in innovation and technological competencies. Thus emerged the concept of the incumbent firm.
Theorists are of the view that new organizations, which employ information with no agency costs, reap the benefit of economies of scale, exploit opportunities and develop new products or processes to achieve competitive advantage with the least effort. The value of innovation is, therefore, integrated in the incumbent organization’s management. The use of knowledge, idea, research and development to invent new products and improved processes help the firm to add value to the external and internal customers alike.
The incumbent organization also does not involve third party agents to possess knowledge, innovate or implement strategic management. Instead, it utilizes its vertical hierarchy to develop expected value, which leads cohesive decisions and reduces uncertainty. Since knowledge is gained from market surveys and evaluating customers, management can be assured of the reliability of the information and base their decisions on it to create efficient and effective strategies that adapt to the market conditions (Gerick 1995).
The above literature review offers the following key findings:
• Competitive advantage and core competencies concepts are difficult to define as they are dependent on the nature of the organization, its strategy and objectives.
• Theorists are divided in their conception of competitive advantage - resource based view and market based view.
• Competitive according to Porter's market view refers to the strategic management of environmental factors to compete within the industry.
• Conversely, competitive advantage according to resource-based views refers to developing internal core competencies to match the needs of the customers.
• Sustainable competitive advantage can only be achieved if companies develop common values and competencies that help the organization to compete in the long-run. These may be tangible or intangible resources.
• Organizations can identify core competencies and gain competitive advantage by using various models such as Porter's Five Forces and PESTLE for external environment analysis; and SWOT and value chain analysis for internal evaluation of resources. Combined the external and internal resources enable the management to eliminate threats and weaknesses.
• Having established competitive advantage to devise strategic plans, it is critical to also gauge implementation of the same. This can be done through the theory of 7S framework and incumbent organization.
Chapter 4 Research Methodology
Inductive versus Deductive
Academic research involves formal knowledge acquisition and its interpretation. Its reflection is a learning phenomenon. However, such process requires human reasoning based on theoretical frameworks. Depending on the nature of the research and the topic investigated, contemporary research is divided into deductive and inductive reasoning for data research and interpretation.
Inductive approach is defined as:
"a process whereby from sensible singulars, perceived by the senses, one arrives at universal concepts and principles held by the intellect. Thus, from the sense experience of even a single yellow tulip, the intellect grasps that it is a special kind, a kind found in every single tulip. The person proves not only that he sees the tulip but also that he knows what kind of thing the tulip is by the following. Heist able to point out all the others of the same kind. If the individual did not know the essence or whiteness existing in each tulip, he could not group them together." (Johnson-Laird and Byrne 1991 p.16).
Thus, inductive research approach is based on the study of sampling to develop theoretical frameworks. The inductive reasoning combines the fundamental nature of the research topic or issue and uses it to derive concepts, which may or may not have been studied earlier.
Alternatively, deductive research is defined as:
"the human process of going from one thing to another, i.e., of moving from the known to the unknown ... Utilizing what he knows, the human being is able to move to what he doesn't see directly. In other words, the rational person by means of what he already knows is able to go beyond his immediate perception and solve very obscure problems. Thesis the nature of the reasoning process: to go from the known to the unknown." (Spangler 1986, p.101).
This approach is opposite to inductive as it takes into account of the theoretical framework to narrow it down to the topic or research at hand, based on common principles established by other researchers. Thus, the researcher studies what is known theoretically to arrive at what is not known in the case study.
For the purpose of this research the researcher has used the latter approach - deductive reasoning - based on the rationale that for a case study, a researcher needs to have knowledge of various theories and models beforehand. It is only with the knowledge learned beforehand that the researcher is able to deduce whether Task Systems has adopted strategic management concepts or not; and study whether the measures the organization has taken are congruent with sustainable competitive advantage practices as prescribed by theorists.
Moreover, the researcher considers this is an appropriate approach as it helps to determine where Task Systems has gone wrong, which has led it to face challenges for achieving competitive advantage, and to devise measures for resolving these issues.
Primary and secondary data
Information collection in research is critical for basing one’s analysis and conclusions. There are two research methods, which researchers adopt to generate information.
Primary research includes first hand observations, experiments or conducting surveys, focus groups or interviews for raw data.
Alternatively, primary research also can be carried out through qualitative or quantitative research. Quantitative research involves the use of statistical tools to study market information and for deriving or proving a theory. On the other hand, qualitative research involves the use of opinions written by theorists and scholars on the subject. There are various types of reading materials available in the form of books, magazines, newspapers, the Internet and trade publications, which provide the basis for literature review, and forming a framework for research (Myers 1997).
The researcher has chosen the latter approach as he/she feels that qualitative research offers holistic view on the topic of competitive advantage, and resolutions for the challenges the organization faces. More importantly, the researcher has chosen the interviewing method to incorporate primary data to the research because the researcher believes it is imperative to prove whether theories are applicable in real life or not.
Furthermore, secondary data from publications has enabled the researcher to understand the multiplicity of models inherent in the areas of strategic management, and how they are being used for different processes and purposes to evaluate and achieve competitive advantage by organizations. Moreover, the secondary data has also helped the researcher in identifying which theories or models are more appropriate for the study of Task Systems.
Primary data - The researcher has interviewed three of the major decision makers at Task Systems, namely: Costas Kravis, Tony Adultery and Simon Wade. The transcripts of their interviews are available in the Appendices section. The researcher has also used books, journals and trade publications for generating theories and models reviewed in the literature section.
Secondary data - For the secondary data, the Internet and magazines have been used to support primary data analysis.
The results and analysis of the data collected are noted in the next section.
Chapter 5 Data Results and Analysis
Organizations, in today's fast paced and hypercompetitive business environment, need to produce more efficiently, with considerations for healthier and happier society. New processes and methods have been adopted by companies to standardize this ideology so that organizations fulfil consumer needs. However, the problem is inherent in the clash of the interests between producers and consumers. Taylorist organizations, in the past, have been able to achieve success because they were based on bureaucratic structures and had simple rules and regulations to govern them.
On the other hand, organizations today are constraint by host of factors, ranging from political, legal, socio-cultural, to technological and even natural environment. They are also strived with issues such as standardization, quality control, high expectations, innovation and highly competitive rivals. As soon as products or services arrive in the market, competitors are ready with new ones. Sustainable competitive advantage is therefore no longer inherent in product features because products have become heterogeneous, with little or few differentiation. Instead, it is inherent in the intangible and tangible resources that the organization possesses (Docherty et al 2002).
Scholars in the field of strategic management have been keen on the development of the nature of competition and the elements that govern it. While scholars believe strategic management can be implemented by applying models and theories such as Porter's Five Forces, PESTLE, and7S framework etc., the reality is far more difficult. Organizations, as discussed earlier, are constrained by internal resources and productivity. At the same time, they need to continuously remain aware of the competitors, all the while companies have to remain focused omits original mission and vision. As the business environment changes, it requires firms to be flexible and adaptable to keep up with the trend. Task Systems, according to its management, has been following this strategy.
As an independent company, Task Systems' mission is to establish progressive business relationships with its clientele. Its strategy is to focus on building customer loyalty through personal attention, small lead time, and following single person project handling method. Yet, these objectives have not been consistently achieved and regularly influenced by market conditions. As Kravis says, "there is always need to constantly change due to fluctuating market conditions."(Appendix 1). This view is consistent with the theory of incumbent organizations as projected by Schumpeter (1942) and Gerick (1995).
Task Systems, according to the theory, needs to change in terms of technology, innovation, and improved work processes in order to remain competitive. Likewise, value should be assigned to managing resources, processes and information management, in order to sustain competitiveness. At Task Systems, this practice is seen in the practice of monthly, steering, sales, marketing and design meetings to disseminate and collect information. The aim is to develop "competitive products to offer to the market through an efficient supply chain management and sourcing operation" and through continuous innovation(Kravis, Appendix 1).
However, there are limitations in following this model. The theory of incumbent organization is limited in the sense that it only focuses on change and innovation. This means continuous change at the rate the industry demands, without consideration for focus and long term objectivity. This is clear from the vague organizational mission and vision set by the company. The fact that the organization does not have long term strategic management vision indicates that activities are taking place randomly in an effort to adapt to the competition, not based on well-plan objective strategy.
This lack of strategy can be explained by the management adoption of generic strategies. According to Porter, generic strategies can help organizations to identify unique consumer benefits and create competitive advantage by creating value to the buyers. As a result, the company bases its objective in providing superior value service, low-price and unique products as compared to competitors. The focus of the firm is not on a holistic strategy, but based on differentiation and product value. The furniture market, as indicated in the Due Diligence Report (2001), has demand for products, which have the following values:
a. Reliability of completion date
b. Quality of products offered
c. Speed of service
d. Provision of on-going support
e. Minimum disruption caused
g. Company reputation (Commercial Due Diligence Report 2001)
While for competitors, Herman Miller, Steelcase and Been, it is easy to achieve some or all of the above values but for Task Systems, a small company based in London, it is harder. This is because these values require positioning, infrastructure and cost management to match the requirements of the customers. Nevertheless, Task Systems has been able to achieve all of the above key values despite its small size and limited budget. The management is aware of the importance of capitalizing on these opportunities for the sake of gaining competitive advantage.
This approach is consistent with Porter's Five Forces model(1980) which outlines the importance of identifying industry forces such as buyer's power, supplier power, degree of rivalry, barriers to entry and threats of substitutes. Both Kravis and Adultery, for example, acknowledge in their interviews that the degree of rivalry is intense, especially at the level that Task Systems is competing. Multinationals cater to customers of this segment, provided the purchase is in bulk and the customer is willing to wait for a longer lead-time. Task Systems has capitalized on this unique deficiency by establishing efficient and timely supply chain network and distribution fleet.
Product quality and lead time has become the two main competitive advantages which have enabled the company to have bargaining position with its buyers, who are willing to pay relatively higher price for the kind of service they demand (Due Diligence Report 2001). By gaining advantage over the buyers and the suppliers, Task Systems has managed to eliminate adverse situations. Adultery says, “We have built up business with our suppliers that allowed us to generate buying power with them that is strong enough to protect our position. We are the main purchaser for a number of our suppliers as they are relatively small, this also gives us a certain degree of power." Since there are no substitutes for office furniture, it is not really applicable. Porter's Five Forces model has ideally been integrated for developing a competitive advantage.
On the other hand, the PESTLE model (Johnson and Scholes 1993) cannot be said to have the same application. PESTLE analysis is used tantalize the external macro environment to gauge weaknesses or opportunities that influence the organization. Political, legal and technological factors do not really affect Task Systems, as the organization does not operate in the capacity, which requires implicit compliance with the law and regulations. The only regulation, which perhaps affects it, is the requirement for safe and ergonomic furniture to comply with healthy workplace practice.
Economic, social-cultural and natural environment to a certain extent have some impact. From the Due Diligence Report (2001) it is clear that the market of office furniture is influenced by changing economic conditions such as inflation, exchange rates, and industry growth rate. Socio-cultural aspects, such as changing business practice influencing preference for modern furniture, have forced firms to change designs and adopt innovations to capture this new market. Similarly, concerns for the environment have influenced the way clients investigate producers - how they acquire, store, use and dispose material for producing office furniture.
However, these aspects could easily have been analysed using the SWOT analysis. SWOT analysis model allows the organization to match internal strengths with external opportunities while threats and weaknesses are minimized by adopting strategies or improvement measures. Task Systems, for example, has exploited the opportunities prevalent in the industry with its ability to have low overhead, change in direction with great speed and disciplined manufacturing approach.
By minimizing head counts, premises, and inventory, it has been able to achieve the cost advantage. On the other hand, the organization also believes in investing in research and development, employee training and managing a competitive supply chain that helps extend its business(Appendix 3). Other than these, Task Systems has also gained competitive advantage through its core competencies (Kotler 1999).These include the following:
a. Differentiation through support services
b. Human resources management
c. Product process and administrative competencies
e. Market structure
f. Distribution channel
Despite the above core competencies, one cannot say Task Systems has achieved sustainable competitive advantage. According to Rappaport(1992), sustainable competitive advantage incorporates values for customers, employees and other stakeholders. The company needs practices that correspond to corporate social responsibility, employee well-being, philanthropy and environmental protection policies. It needs to differentiate itself from competitors based on value creation and optimization of resources.
Whereas Task Systems can claim it has, in place, an open workplace culture, environmental consideration, social responsibility, and an established value chain, nevertheless, other aspects of its business cannot be said to drive it towards sustainable competitive advantage. There is no investment in new technology, intellectual resources, financial resources or physical resources to sustain its decision to change or adapt to new trends. Furthermore, the company is still at a stage where it considers product features and product shelf life as the keys to sustainable competitive advantage (Appendix 3).
Conversely, theorists are of the view that sustainable competitive advantage requires a long-term vision with strategies to optimize resources and match customer needs. Not only this, but competitive advantage is achieved by creating a value chain that includes focus on inbound/outbound logistics, operations management, marketing and sales, service, procurement and technological development (Porter 1980) which are not visible at Task Systems.
As a result, the 7S framework cannot be said to holistically fit Task Systems strategic approach. While structure, systems, style and staff factors are in line, the key drivers such as strategy, skills and super-ordinate goals are absent, making it inadequate in carrying out its strategic plans.
Chapter 6 Conclusions and Recommendations
At the beginning of the research, the researcher has set out to investigate the following concerns. The researcher needed to investigate the key strategic issues that Task Systems faces in generating and sustaining competitive advantage. This investigation has been divided into the following sub-questions
a. What is strategic management?
Strategic management is about envisioning and devising strategy to achieve it by using resources and core competencies. Depending on the nature of the business, industry structure and focus of the organization, strategic management can be adopted to optimize organizational performance. The key is to identify the situation first before plans can be devised and implemented. The dynamic process requires top management to synergize all aspects of business to work towards a particular direction. To demonstrate, Task Systems has been used as a case study. Task Systems no doubt has adopted strategic management practices without being aware of it. Infect, Task Systems has followed the industry norm and adopted the strategy of the incumbent organization by adapting and innovating to match changes prevalent in the business environment. The incumbent organization model is limited in the sense that it does not help Task Systems to focus even though it creates temporary success situations. For this reason, it is imperative for Task Systems to re-evaluate its current strategies and develop it based on core competencies to gain competitive advantage.
b. What is core competency and how can it help firms compete?
For generating competitive advantage and sustaining it, organizations need to evaluate internal resources, develop core competencies and focussed strategies that match with the external customer needs. The organization needs to analyse through various models opportunities, forces and influences that affect it in the short and long term. Moreover, the company needs to focus on the development of core competencies, which would position its products and services at par with competitors like Herman Miller, Been and Steelcase. So far, Task Systems has not been able to fully develop core competencies. Partly this has been because it lacks focus and long-term commitment to its mission. This lack of focus has been the reason why the organization has been forced to adapt to change as it comes without consideration for future implications.
c. How is sustainable competitive advantage achieved?
While it’s easy to identify and develop core competencies to achieve competitive advantage, sustainable competitive advantage is entirely dependent on the management's effective implementation strategies. for this purpose, the researcher has found the 7S framework useful in checking which elements have been covered and which need. More importantly, it is imperative for organizations to establish well-focussed plan integrated by core competencies and resources before it can endeavours to maintain sustainable competitive advantage. Task Systems for example is still at the initial stages of planning and implementation. There has been no formalization of strategies for sustainable competitive advantage. Considering the maturity of the office furniture industry, it is imperative for the organization to develop such a plan in order to retain its position in the long term.
Given the above conclusions, the researcher proposes the following recommendations for Task Systems:
a. Identify core competencies congruent with organization mission and vision.
b. Develop sustainable competitive advantage in the light of organizational strategic plan.
c. Develop implementation strategies to carry out the above plans.
d. Monitor and control core competencies to sustain competitive advantage.
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