Category: Organizational Management

RESEARCH BRIEF: Strategic Management for competitive advantage: Theories and practice

by Gaurav Kakkar. Email at kakkarg@vt.edu

Performance is the crux of any business and strategic management is the epicenter governing that performance and creating value for customers, owners and stakeholders. Strategic management is the way managers funnel firm’s functions and actions to fulfil market demand. It is a framework to assess internal and external factors to a firm, integrate activities to learn, adapt and create value both in present and into the future (Amason, 2011). It can be defined in multiple ways. Chandler (1962) defines it as “the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out the goals”. According to Andrews (1987), strategy is the “pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of the company it is or is to be”. Both these definitions concentrate on the enterprise itself while defining the strategy. Hofer & Schendel (1978) incorporated external factors while defining the strategy as “the fundamental pattern of present and planned resource deployment and environmental interactions that indicate how the organization will achieve its objectives”. According to Kenichi Ohmae (1982), business strategy is all about competitive advantage with the purpose to “enable a company to gain, as efficiently as possible, a sustainable edge over its competitors”. Gilbert et. al. (1988) defined business strategy as “a set of important decisions derived from a systematic decision making process, conducted at the highest levels of the organization”. And the most recent explanation in the list of prominent attempts to define strategy was by Hoskisson et. al (2008). According to them, it is “an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain competitive advantage”. While these definitions vary in approaches and perspectives, they all describe creation of superior value to achieve competitive market advantage by a firm. Strategic management thus aim at positing the firm within an attractive and manageable environment making it a unifying force guiding the firm to success in the competitive environment. But the next question would be how can the management of Forest products industry in the United States can use these definitions and design their own strategies. The following section of this article discuss prominent theories of strategic management and their applications

1. The resource-based view of the firm

This theoretical perspective emerged during the late 20th century and claims that companies can be seen as bundles of resources, that resources are heterogeneously distributed across companies, and that the market for resources is imperfect (i.e., resource differences persist over time) (Eisenhardt & Martin, 2000). These resources include tangible and intangible assets, capabilities, organizational processes, attributes, information, knowledge etc. that are under firm’s control. As a consequence, firms can create and sustain competitive advantage by acquiring and leveraging resources that are valuable, rare, inimitable and non-substitutable (Barney, 2001; Barney, 1991; Grant, 1991). Despite being most widely accepted approach for achieving competitive advantage, it is also criticized as vague in nature when identifying key resources affecting success (Priem & Butler, 2001). Figure 1 shows the theoretical framework of the approach.

Figure 1. Framework of resource-based view of the firm (Stendahl, 2009).

2. The organizational capabilities approach

This theory opens up the “black box” of resource-based view and explains how resources and capabilities create value and facilitate competitive advantage for firms. Barney (2001) states: “resources are considered valuable if they contribute to either differentiation or cost advantages for a firm in a certain market context.” The term ‘capabilities’ refers to the firm’s capability to distribute and re-assemble its resources to improve productivity (Makadok, 2001) and realize its strategic goals (Teng & Cummings, 2002). Figure 2 shows the theoretical framework of the approach. Korhonen and Niemela (2005) further strengthened this theory by providing a useful overview of the major differences between resources and capabilities:

Figure 2 Resources, infrastructure and organizational capabilities (Stendahl, 2009).
  1. Whereas resources are either tangible or intangible, capabilities combine both: capabilities are clusters of tangible, input resources and knowledge based, intangible resources.”
  2. “Unlike resources, capabilities have an operational, process dimension – they are not factor stocks, but they are factor flows: capabilities present what a firm can do, they are activities, organizational rather than individual skills.”
  3. “Capabilities often take a routine-like form and are path-dependent: if a company were to be dissolved, its capabilities would disappear as well.”

 

 

 

Figure 3 Framework of contingency based strategic fit (Ginsberg & Venkatraman, 1985)

3. Strategic Fit and contingency perspective

This theory of business policy design is based on concept of matching organizational resources with the corresponding environmental context (Chandler, 1962). According to this perspective, market competition and technological development continuously erodes key success factors of an industry. Thus the firm would eventually lose its value over time. Collins (1994) recommended the constant renewal of competitive advantages of the firm making the firm an adaptive system evolving to environmental change. Accordingly, in addition to achieving a strategic fit with present conditions, companies must simultaneously aim for strategic fit of tomorrow, that is, they must develop a feedback mechanism to adapt and learn. Figure 3 shows the theoretical framework of the approach.

4. The dynamic capability view

Figure 4 Resource management process through Dynamic approach (Sirmon, Hitt, & Ireland, 2007)

This theory builds on the adaptive nature of contingency perspective and suggests that cross-functional capabilities in a firm are dynamic in nature. According to Eisenhardt and Martin (2000), Dynamic capabilities “create value for firms within dynamic markets by manipulating resources into new value-creating strategies”. These capabilities developed through learning mechanisms help the firm in not only achieving differentiation and/or cost leadership but gives it the potential to continuously reinvent. The details of a dynamic capability are often idiosyncratic and pathdependent, but the main features are more common (Eisenhardt & Martin, 2000). This theory attempts to prepare the firm for volatile market conditions by enhancing its existing resources and competitive advantages. Figure 4 shows the theoretical framework of the approach.

Creating value is inherent to every firm while translating available inputs to desired outputs. But value creation is never easy. Customers can learn and change without warning, competitors can take over with something of better value. The suppliers would want to increase their bargain power. Changing demographics, economic and technological conditions and unforeseen catastrophizes can undermine any competitive advantage of the firm. To summarize, it is important for the firm to develop sustainable strategies in order to sustain volatile market conditions and maintain its competitive advantage. Strategy is about when and where to go and how to get there in the best way. The theories introduced in this article are amongst the most commonly employed for strategic management by businesses all around the world. It is the firm’s responsibility to put these theories to practice based on its product range and market segment, The management should also include product development and resource management decisions into the long term strategy design when translating these theories to principles and practice.

References

  • Amason, A. C. (2011). Strategic management: From theory to practice. New York: Routledge.
  • Andrews, K. R. (1987). The concept of Corporate Strategy. Homewood, IL: Irwin.
  • Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 99-120.
  • Barney, J. (2001). Is the resource-based view a useful perspective for strategic management research? Yes. Academy of Management Review, 41-56.
  • Chandler, A. (1962). Strategy and structure: chapters in the history of American enterprise. Cambridge, MA: MIT Press.
  • Collis, D. (1994). Research note – how valuable are organizational capabilities. . Strategic Management Journal, 67-73.
  • Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic Capabilities: What are they? Strategic Management Journal, 1105-1121.
  • Gilbert, D. R., Harlman, E., Mauriel, J. J., & Freeman, R. E. (1988). A logic for Strategy. Cambridge, MA: Ballinger Publishing.
  • Ginsberg, A., & Venkatraman, N. (1985). Contingency Perspectives of the Organizational Strategy: A Critical Review of the Empirical Research. The Academy of Management Review, 421-434.
  • Grant, R. (1991). The resource-based theory of competitive advantage: implications for strategy formulation. California Management Review, 114-135.
  • Hofer, C. W., & Schendel, D. (1978). Strategy Formulation: Analytical Concepts. St. Paul: West Publishing.
  • Hoskisson, R. E., Hitt, M. A., Ireland, R. D., & Harrison, J. D. (2008). Competing for Advantage (2nd ed.). Mason, OH: Thomson/South-Western.
  • Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-capability views of rent creation. Strat. Manage. J., 387-401.
  • Ohmae, K. (1987). The Mind of the Strategist: The Art of Japanese Business. New York: McGraw-Hill.
  • Priem, R., & Butler, J. (2001). Is the resource-based “view” a useful perspective for strategic management reserach? Academy of Management Review, 22-40.
  • Sirmon, D., Hitt, M., & Ireland, R. (2007). Managing firm resources in dynamic environments to create value: Looking inside the black box. Academy of Management Review, 273-292.
  • Stendahl, M. (2009). Product Development in the Wood Industry (Doctotal Thesis). Uppasala: Swedish University of Agricultural Sciences.
  • Teng, B. S., & Cummings, J. L. (2002). Trade-offs in managing resources and capabilities. Acad. Manage.Executive J., 81-91.

RESEARCH BRIEF: Determinants of Exports Performance

by Edgar Arias, PhD candidate, Virginia Tech

International marketing encompasses the disciplines focused on the trade of goods and services across global boundaries (CharlesDoyle, 2011).  Studying the determinants of exports performance has been one of the major priorities in the field since the 1970s.  However, despite of the tremendous attention devoted by researchers, a comprehensive theory that explains export performance is yet to be developed.  Some consider that knowledge on this field is fragmented, diverse and sometimes even inconsistent, which makes export performance one of the most contentious fields in international marketing (Katsikeas, Leonidou, & Morgan, 2000).  The globalization of businesses, and the importance of exports for industries such as the Hardwood Industry, justify and incentive additional research in pursue of a better understanding of the factors that determine the success of export ventures (Parhizkar, Miller, & Smith, 2010).

Figure 1. Synthesis of performance models (Sousa 2006)
Figure 1. Synthesis of performance models (Sousa 2006)

There have been several studies that have attempted to revise the existing literature on export performance, for example: (Leonidou, Katsikeas, & Samiee, 2002; Shaoming & Simona, 1998; Sousa, Martínez‐López, & Coelho, 2008).  These studies have been able to provide a perspective on what factors have been proposed as determinants of export performance.  Sousa, in particular, studied the literature between 1998 and 2005, and developed a framework that condenses the results of 52 papers in the export performance literature.  In general, Sousa found that most attempts of developing a framework to explain export performance indicate the presence of at least four elements: internal factors, external factors, control variables and moderating variables.  The internal factors relate to multiple dimensions of the firm: firm characteristics (e.g. size, international experience, market orientation, etc.), export marketing strategy (e.g. product, price, promotion, distribution, etc.) and management characteristics (e.g. export commitment and support, education, international experience, etc.).  External factors relate to the environment that surrounds the firm, domestically and internationally: foreign market characteristics (e.g. legal and political, environmental turbulence, cultural similarity, etc.) and domestic market characteristics (e.g. export assistance).  Control factors (variables) may be either internal or external factors that are of no interest for researcher, but need to be controlled in order to suppress any potential effect in the study.  The selection of control variable depends on the research question, so one researcher’s internal or external variable can be another researcher’s control variable and vice versa.  Finally, moderating variables are those that influence the relationship between independent and dependent variables.  Not all studies accounted by Sousa’s in his literature review include either control of moderating variables.  Figure 1 depicts Sousa et al synthesis of performance models.

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Students and faculty from Virginia Tech and Purdue University travel to Costa Rica

Assistant professor Henry Quesada from Virginia Tech and associate professor Eva Haviarova from Purdue University joined efforts to organize a student field trip to Costa Rica and to collaborate with the Costa Rican Forestry Office in delivering educational activities during the Spring break.

Figure 1. Students listen to biologists Jose Rojas and Oliver Castro from Costa Rica Tech during their lecture on the importance of tropical forest.
Figure 1. Students listen to biologists Jose Rojas and Oliver Castro from Costa Rica Tech during their lecture on the importance of tropical forest.

Students from both institutions signed for the course Global Issues in Sustainability. This 3 credit-hour class has as a goal to study issues impacting the sustainability of natural resources such as the forest, water, and wild life in a global context. The course includes a one-week field trip to Costa Rica where students participate in a series of experiential learning activities to understand and gain knowledge on how private businesses, government institutions and local universities work together to promote and educate current and future generations in the sustainable use of natural resources.

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Quesada delivers a workshop on Business Process Management (BPM) conjointly with Costa Rica Tech

BLACKSBURG, VA. Business Process Management (BPM) is an initiative to orchestrate all processes in an organization. As business organizations compete and become innovators, a higher level of coordination between primary and supporting processes is necessary for the organization to achieve their goals. BPM foundation is the realization and understanding that any organization is composed of processes that are grouped in value chains and those value chains need to be continuously improved using known methodologies such as lean thinking or six sigma. Once the processes are organized and improved, an information technology solution can be incorporated to automate, synchronize, control, and manage the work flow among the processes.

Participants at the BPM workshop learn how to model a process using BPMN 2.0.

During July 26-27, 2012 assistant professor Henry Quesada, from the Department of Sustainable Biomaterials (SBIO) at Virginia Tech, delivered a BPM workshop in San Jose, Costa Rica. A total of 19 people registered for the event, which was organized in conjunction with Costa Rica Tech. This is part of the efforts of SBIO to impact the international community in topics related to sustainable enterprises.

Participants in the workshop learned how to recognize business processes and how to develop a business architecture. Next, participants were introduced to the most important continuous improvement methodologies and they also learned how to model a process using the BPM notation (BPMN 2.0). Finally, a procedure to deploy a BPM initiative was presented through examples and case studies. A variety of teaching methods were used such as teamwork games, business simulations, online delivery, experiential learning, and face-to-face delivery.

If you are interested in learning more about BPM and how it can help your organization to become more competitive, please contact Dr. Henry Quesada at quesada@vt.edu.

RESEARCH BRIEF: Contextual Innovation Management

by Johanna Madrigal, jmadriga@vt.edu

Understanding how to manage innovation is vital when innovating is the strategy to growth and to remain competitive (Drucker, 1999), thus for a successful innovation management model some authors stated that the idea of a single mainstream approach is no longer useful for the fast changing environment in the market. Based on this (Ortt & Van der Duin, 2008) recommend two aspects to be considered when managing innovation. There are:

(http://www.innovationmanagement.se)

1. Definition of the context Innovation management can take place internally and externally.

Internally, the strategy and the organizational structure are key aspects of the organization’s culture therefore they have a great impact on how innovation is managed. With the strategy, an organization can determine if in terms of innovation, the firm wants to be an imitator, a leader or a follower. Also, how an organization is structured, impacts how innovation processes are held (i.e. innovation process per division, centralized innovation process). In terms of external environment, organizations will have to consider terms such as copyright, local laws, type of governments (i.e. egalitarian, authoritative), and legal agreements with other countries (Chiesa, 2001). It is not an isolated process anymore. Just like the evolution of species, innovation management is facing the world approach.

2. Managerial decisions in different contexts

Being an innovation manager means that decisions will be taken constantly within different contexts, having two levels they impact: strategic level where decisions are made before any innovation process starts, and the operational level where decisions are made during the innovation process shaping the outcome on the run. By understanding these contexts, a firm must develop an exhaustive professional profile for the innovation managers. Managing innovation based on contexts brings many advantages since managers can separate for standard approaches which tend to be too rigid and include variations such as the latest scientific research or the adequate timing for product introduction. Also contextual innovation management will enable more flexible processes, including “trial and error” mode as something acceptable in the innovation process. However, as in every approach there are some disadvantages as well. Using contextual innovation management may result in having different approaches with the same organization, which will increase the level of difficulty making innovation happen.

References

Chiesa, V. (2001). R&D Strategy and Organization: Managing Technical Change in Dynamic Contexts. London: Imperial College Press.

Drucker, P. (1999, September 25). Innovate or die: Drucker on financial services. The Economist.

Ortt, J., & Van der Duin, P. (2008). The evolution of innovation management toeards contextual innovation. European Journal of Innovation Management, 11(4), 16.