Anorganization functions under many assumptions, as well as, many constraints.
Assumptions, which are about the competition and the external environment inwhich the organization functions, and constraints which are brought out by itsresources, capabilities and capacity to utilize those resources andcapabilities. A good strategy is one, which allows the organization tounderstand the assumptions and manage the constraints, and build a sustainable,profitable business. It is about bringing in something unique that helps theorganization attain competitive advantage and adds value for its customers andother stakeholders. The importance of understanding the internal and externalenvironment, their context, the constraints that are put forward by theresources and capabilities of the organization are key insights that could bederived from the very first case on Robin Hood, through which we all initiatedour discussions.
Theessence of developing a robust strategy, for any organization, lies in the answerto two basic questions – Where to compete and How to compete. Reliance Jio,today does not only compete with the telecom companies, but also with onlinecontent providers, as data and not voice has become the key driving factor forsuccess, when it comes to meeting the constantly evolving customer needs.Apart, from that Reliance Jio also needs to specify its strategic intent andpositioning, to know how it would compete in the areas that it has decided tocompete in.Thisclear understanding of where and how the organization is competing is thefoundation of developing a strong competitive advantage. The example of SouthWest Airlines, which was discussed in class, highlighted the fact that theairline has a very clear idea of their strategic intent and positioning and hasaligned all their resources towards achievement of that intent, which providedthem an inimitable advantage over many other competing airlines and was andremains to be a cornerstone of their success for a large part of its existence.Anotherimportant insight that the sessions brought out was the importance of industryanalysis, by utilizing the Porter’s Five forces framework. I was working withTrident Group for about 8 years and after understanding the framework, I triedto apply it to my company and see where it stands as the Textiles Industry isgrowing at 4% rate and industry analysis presents that- · The overall entry barriers were relativelylow, as the industry is full with a myriad of small players. Entrants need toscale their business for generation of Economies of Scale as the major playersin the Industry are heave weight players with daily production of more than 10Lacs units per day.
· The intensity of rivalry amongst the firmsis very high, with 4-5 major players (Welspun, Vardhaman, Bombay Dying, AlokIndustries & Arvind Textiles). Industry Demand is growing as major playersare consolidating, domestic market potential is rising. Fixed cost ofproduction is very high, profit margin are based on volumes in the industry· Bargaining power of Supplier is very highboth in domestic and international market. Concentration in low in the domesticmarket as many small buyers exist.
In the international export, consumers areBig Retail Chains (Walmat, Siers, JC Penny Etc…) consuming 70-80% of theproduce making their bargaining power very high.· Supplier are very few in the form ofCotton producers association, their bargaining power is high and rates aremarket dependent. · The threat of substitutes is medium tolow. Substitute in the form of players from other developing countriesPakistan/China/Indonesia for the textiles product being developed in cheapermannerOnceyou have identified the ways you want to achieve competitive advantage, anotherkey aspect is understanding how you would sustain it.
This is where I believeunderstanding the resource based view is the key. For any organization to beable to sustain its competitive advantage, their resources should follow theVRIO framework, which means that the resources should be valuable, rare,inimitable, organization. I once again tried to analyze the resource of myprevious employer Trident Group using the VRIO framework, which is highlightedbelow:· Valuable: Trident Group hasthe largest manufacturing plant in terms of capacity and is the largestproducer of Terry Towels in the world. This capacity has been enhanced over theyears and serves as a competitive advantage allowing the organization toproduce volumes catering to the needs of the global markets· Rare: The Technology interms of the sophisticated machinery and integrated plants is rare in theindustry, with only few players available globally to compete.
Organizationalso follows vertical integration with manufacturing of Yarn in-house notdepending on suppliers wholly for the raw material· Inimitable : Theresource capacity is not difficult to imitate, any player with huge capitalinvestment can enter the industry but the supply and distribution network setglobally by the Trident Limited and other major players in the industry Isdifficult to imitate and would require a lot of strategy deliberation and huge investment to gain the trust ofmajor global retailers/customers· Organization: Theorganization is in position to enjoy the competitive advantage in a sustainedmanner with its flat organizational structure with involved decision making.Resources are well utilized within the organization with cross departmentalsynergy and conducive work environment. The organization is known as pay masterin the industry with transparent PMS systemsTowardsthe end, one of the theories that influenced and interested me a lot was thatof the “Trap Of Active Inertia”, that how once winning formula in the past, canbind the organization into a trap, which in a changed scenario, brings themfailure instead.
I tried to lookout for examples in the corporate world, forthe various elements associated with the theory and found the following:· Strategic Frames as Binders : US tiremanufacturer, Firestone, in 1970s, reigned supreme riding on an uninterruptedgrowth of 7 decades. Then, Michelin introduced much economical radial tire.Though Firestone competed head to head with Michelin in the Europe market, itwas blind to the threat to its core market – the U.S-where it continued toproduce conventional tires. As a result it lost considerable market share andwas eventually acquired.
· Process Turn To Routines : McDonalds,might have lost its market share to Taco Bell and Burger King, particularly inforeign markets, due to its heavy focus on routine standardization, and notquickly responding to changing customer needs.· ValuesAs Dogmas: RoyalDutch/Shellin 1930s was dominated by Henri Deterding,a strong leader and a Nazissympathizer. He was shown his way out leading to decentralized control.Shellwitnessed good growth due to decentralization however when oil prices fell in1990s,quick rationalization was hindered due to decentralization. · RelationshipsBecome Shackles: When times change, flexibility is lost,hindering new products and new market focus. Apple initially attracted the mostcreative engineers and saw a steam of success.
But, with passage of time it wasrealized that cost cuts and seed up time to market can guarantee success, itlead to restlessness. In conclusion, Strategy is about positioning theorganization in the minds of the stakeholders, constantly reinventing self, basedon various variables in the environment that may in present or future impactthe functioning of the organization or industry as a whole. TraditionalTrade-off between five forces and the ability of the organization leads tolimited range of price and profit adjustments due to Value-Cost Trade-Off,organization today are moving beyond this creating new value frontiers to servethe customers and retain/expand the market shares. On the flip sideorganizations need to be conscious of the strategies they adopt as no strategyis fool proof, only the in depth understanding of environment with clear visionwill lead to development of resources and capabilities in turn leading tosustained advantage.