Answers to Exam
1. Explain by using 2 companies in HK as how they have used Core Competencies to differentiate & position themselves in the market? (Progressive companies differentiate themselves and position their products to maximise their potential through core competencies)
Core competencies are the organization’s strengths and abilities developed competitors to replicate. These core competencies are the most important activities over a long period of time. They provide value to customers and are difficult for to the firm. Core competencies are what your firm knows, encompassing both skills and unique capabilities.
For example, the Esquel Group of Companies, a Hong Kong based garment company, is now the largest manufacturer of men’s shirts. For over the two decades, the company experienced an exponential growth. Today, family owned Esquel’s sales to p US$500 million made on orders for 48 million shirts a year and 5 million pairs of pants and other garments.
According to Marjorie Yang, the chairman of Esquel Group of Companies, the company’s growth is attributed to Andy Grove’s theory of ‘only the paranoid survive”. She said that the company strongly subscribe the theory and constantly strive to improve and that has lead to continuous efforts to stay ahead of competition.
In their efforts to stay ahead of the competition, the company then focus on the quality of their products and started trading up its customer base early in 1980’s. The company then provides more services to customer and has developed merchandising capabilities. In the 1990’s, it move from being just an order taker and started provide more merchandising especially fabrics.
With the company’s drive to get more quality products, the company backward integrated to make fabrics. It started making knit fabrics and made a very big investment in a dye yarn mill in China. This had made the company take over the Japanese who used to be the main supplier of high quality fabrics. The company now farms long staple cotton in Xinjiang, Western China, which is among the best breeds of cotton in the world.
Its strategy has paid off and its customer base today includes the cream of the industry -- labels like Polo Ralph Lauren, Tommy Hilfiger, Brooks Brothers, Hugo Boss, Nordstrom, Eddie Bauer, Abercrombie & Fitch and Lands' End.
With Miss Yang’s math degree in MIT, she understands the power of technology, and as such leveraged its used in the opration of the company. This helps the company get it products to market faster, reduced wastage in the production process and move foods faster through supply chain. In addition, her knowledge on technology was also used to develop technology that could reduce energy consumption and better protect the environment. Moreover, the company is unique with their philosophy of knowledge sharing with the competing companies.
According to her, there nothing we can do with to reduce the price of oil however there are clever things that can be done to reduce the consumption of water and energy and that can be done through the use of technology engineering. Currently, the company has 200 engineers running around doing studies which include environmental including energy studies because according to Yang, a large chunk of the problems of the environment comes with inefficient use of energy resources.
In addition, the company allows sharing of knowledge and management skills with other competing companies. This, according to Yang, would put pressure to her company to run faster than the others. While some other companies consider sharing trade secrets a corporate suicide, Esquel considers this an approach that actually benefits the company.
Sharing knowledge is one philosophy that Esquel instills in the whole company. According to Yang, although competitors buy their software package, it does not simply improve productivity. There no such thing as magic. Technology is like a diet pill that you take and then still has to go and exercise.
Creating an environment which stimulates a culture where people are willing and eager to share information is vital for a company to excel. Esquel have created a workplace in which ideas are flying fast and thick which resulted to an exponential growth of the company.
Esquel core competencies are focus on the knowledge sharing of the people within the organization. Communicating their individual ideas made the company a market leader. Esquel is a people organization. It cares more on the people within the organization and with the community with their concern on the environment in which they operate on.
Another company in which has used its core competencies to differentiate and position them in the market is Automatic Manufacturing Limited (AML). AML is a 30 year company specialized in design and manufacturing services for a wide range of electronic products.
Consecutively, AML Group is a winner of the Hong Kong Industry Award in 2004 and 2005. Being recognized as the leader of productivity and wuality in the industry, AML Group employs advanced technology and modern management to generate continuous innovation, while practicing the TQM and Fit-sigma to achieve most competitive costs and lead time.
AML is recognized of deploying a design assurance to verify weak points in initial product designs and to make improvement before a prototype is made. In addition, AML developed customized equipment to enhance quality towards zero-defect and deploying a critical chain project management to shorten dependable time to market.
AML concentrates on top quality product and service. Moreover, the company enhances the standard in organization governance and value chain partnering. Separate Board of Directors from the Top Management Team is a culture in AML to outweigh competitors.
Generally, AML’s core competence is directed on their organizational structure and on the innovativeness of quality of products and services of the company. With these initiatives, the company outweighs its competitors.
2. Explain how capabilities and competencies are affected by Mckinsey 7S principle. Give example! (McKinsey's 7S Matrix - it's application in regards to developing capabilities and competencies)
McKinsey 7S framework was originally developed as a tool to enable broader thinking when organizing a company effectively, strategy must be thought about in terms of how it works in conjunction with a variety of other elements. Developing capabilities and competencies requires attending the 7 variables of the model an using them as a framework to diagnose how an organization currently operates and how development might be designed. Moreover, when all 7 variables are aligned and facing the vision mission and strategy, there is momentum to successfully operate.
In developing competencies and capabilities, it is important that the organization should take into account the 7 variables. These include shares values, staff and skills, systems, strategy, structure, and style. When developing core competencies and capabilities, organization must take a closer look to these variables. It should be properly examined in which area does the organization have an edge. From these it should be taken into account to develop these variables for the advantage of the organization.
Shared Values are an organization’s values, beliefs, mission and objective. Values and beliefs can be found by examining the way an organization tries to meet its stakeholder’s needs. It is important to consider the importance of sharing the values and beliefs in the organization. Strengthening capabilities and competences is critical in common shared values and beliefs.
Another is the staff and skills. In order to achieve its strategic goals, an organization should regularly examine its skills and staffing requirement to identify whether or not it needs new capabilities/competencies and new ways of working. Most importantly to consider in developing competencies and capabilities are the staff because they are the ones working in the organization and trying to examine their needs of working conditions is basically important. Staff and skills is critical in the success of the organization.
Another variable is the system. The organization systems and processes is important to contribute to meeting a strategic goal. Examples can include communication and performance management system. Efficient system can be a core competency of an organization when it working best for their operations.
Strategy usually is the organization’s overall plan aimed at achieving its objectives taking into account any external factors outside of the immediate team. Developing a strategy could become a competence of the organization since mostly strategies are giving way of the success of any organization.
Structure defines who does what and who is accountable for. It also provides coordination between section, teams, and individuals through identifying the line of the organization’s structure.
For example with the case of AML, they have separated the responsibilities of the board of Directors and the Top Management Team which has contributed to their fast growth.
Finally, style is defined as the deeper level of basic assumption and beliefs and shared by members that operate unconsciously and define an organization’s view itself. An organization with a unique style would most likely have a core competence over the others.
3. Why do you think that strategic thinking must be part of long-term plans of organizations? (Why should strategic thinking be part of the strategy of a company?)
Strategic thinking is a process which involves top management and its senior officers to create a picture of what the organization wants to become. It is this powerful future profile that will drive the direction, nature and composition of the business.
Specifically, strategic thinking involves deep reflection on a company's strategy, direction and an envisioned future. It defines the nature of its products, customers, market segments and its geographical markets in the future.
Firstly, the decisions which are made through strategic thinking has long term implications on a company. For example, the decision by a property developer to go into the education business through setting up private colleges and institutions of higher learning has a long term impact on the group in terms of long term commitment in cash flow and to stakeholders such as students, lecturers, government authorities and suppliers.
Secondly, strategic thinking influences decisions that have wide impact on a company. Thus, Intel Corp, the world's largest computer chip maker is thinking strategically, with its plans to acquire telecommunications company Voice Technologies Group Inc. as it will have a wide impact on its business and the industry. The acquisition will provide Intel with the capabilities and features to enable most leading PBX systems sold worldwide to work with its computer telephony server systems and IP gateways.
Thirdly, strategic thinking influences decision that are of great significance to the company to the extend that it changes something significantly. Thus, IBM is thinking strategically when it is planning to sell more of its products directly to customers. It will be of great significance to the company as it will become dependent on its "build to order" manufacturing capabilities, which is critical in selling PCs and servers directly. This new strategic thinking is of great significance to IBM as its success in the PCs business now hinges on its ability to lead strategic changes in the way it organizes its electronic commerce, website and simplify its product line.
The following are the benefits of strategic thinking:
Responsive to change
Strategic thinking explores the big picture, delves into long term, broad and significant implications of a company and the industry or industries it operates in. Through this process it enables a company to respond to change swiftly, which is most critical factor for survival in this digital age. Microsoft for example was thinking strategically four years ago when it discarded its definition of its company as a PC company at a time when the Internet is beginning to make "personal computing" a losing bet.
The day will come when people would not use PCs but just a Net connection, A Web application and Web-based application. It was not the financial resources that saved Microsoft.
It was the ability to respond to changes in the industry. In fact, Microsoft's success today is attributed to its ability to respond to changes faster than its competitors. In a matter of few years, Microsoft has transformed itself from a proprietary content service, Microsoft Network (MSN) to development of separate Internet services which include its CarPoint car-buying service and Expedia services.
It has further reinvented itself by creating a multimedia website or portal called MSN.com that also acts as a homepage for Microsoft's Internet Explorer.
In anticipation of more free offerings by competitors, Microsoft has purchased Hotmail to add free services to its e-commerce offerings.
Capitalize on opportunities
In facing an environment of increasing competition and abundance of opportunities, organizations have to think strategically of how best to tap into resources to capitalize on these opportunities.
Strategic thinking enables organizations to determine the viable and more attractive opportunities to pursue. It enables organization to scan the environment for opportunities which they can capitalize on based on their strengths.
Richard Li Tzar-kai was thinking strategically when he bidded for telecom giant, HKT (Hongkong Telecom). He capitalized on the opportunity brought about the great appreciation in the shares of his new founded company, Pacific Century CyberWorks (PCCW) share price has soared more than 19,000 per cent since he took over, thanks to the internet frenzy.
He capitalized on his good network of bankers, convinced four banks which include HSBC Holdings and Bank Of China to loan him US$11 billion. Through leveraging on strengths, he had recently successfully won the mega deal of US$38.1 billion, outbidding Sing Tel to take over Hong Kong's oldest telecommunications company.
I consider PCCW's taking of Cable & Wireless HKT as strategic as it has transformed a 10 month old internet company with no profit and with only 440 employees to one with a profit of US1.47 million profit, over 14,000 employees, 925,000 mobile subscribers and 3.6 million fixed-line subscribers. Strategic thinking is about analyzing and capitalizing opportunities before they fleetingly disappeared.
Strategic thinking explores not only opportunities in the market place but also threats and potential threats in the industry. For example, for a long time, piracy in terms of cassettes, videos and CDs have plagued the music industry. And music companies have been undertaking their own strategies to combat this.
Today, the music industry is facing yet another threat from the internet. Any Internet user can get into the Web and download music as digital signals into a computer. The battle field has now changed, there is no recorded CDs, cassettes or tapes.
Recording companies have been busy suing for the breach of copyright for music found in the Internet. Some have successfully lobbied to made MP recording devices illegal. To counter this threat, Warner Brothers, EMI, BMG and Sony in 1998 announced their cooperation to develop an alternative to MP3, called the Secure Digital Music Initiative which is easy to use and more secure.
Consumers would have to pay recording companies
for the music they downloaded.
Sustain competitive advantage
In this digital age companies need to find new ways to sustain competitive edge in their business. Prior to the advent of the internet, portals and homepages, established companies in various industries from automobile manufacturers to banking, insurance, telecommunications, travel agencies and supermarkets can rely on entry barriers such as high cost of entry, brand recognition, scarcity of distribution channels and limited resources as ways to sustain their competitive edge in the businesses that they have developed over the years.
Today with unprecedented information exchange, we have digital sellers and buyers who can transact with one another over the Net through a click of the mouse. New Internet start-ups such as PCCW as mentioned earlier has taken over brick and mortar company like HKT.
Strategic thinking is needed to find new ways to create competitive advantages in business. In fact, strategic thinking is needed to ensure the long-term survival of an organization. The real intellectual capital of organizations of this digital age, is the strategic thinking capability of its management.
Reinvent the industry
Strategic thinking allows an organization to go beyond reengineering its processes. Restructuring and reengineering is not enough to sustain the competitive edge of an organization.
To become industry leaders, organizations often have to reinvent the industry. Apple for example created an entirely new industry - the personal computers industry. And Time Warner, Electronic Arts and other companies are reinventing the education and entertainment industries and redefining them into the field of "edutainment".
Restructuring and reengineering is about organization transformation. But organization transformation needs to be preceded by industry transformation.
And to undertake industry transformation, leaders in organization need strategic thinking.
Position for the future
Strategic thinking allows the management to create the desired future of an organization. Through a process of strategic analysis and assessment of the opportunities in the environment, the management team can develop a common and a shared vision and strategy for the future of the company.
It can help position the company to enable the company to grow. In fact, strategic thinking is needed to ensure that organisations survive in the future.
4. Organizations can re-discover themselves &/or create new products, markets through strategic change. (Strategic Change - this allows companies to rediscover themselves and then aggressively combat the markets)
Generally, organizations are always involved in a variety of change. The change being undertaken by organizations now is inherently complex and often impacts diverse stakeholder groups both internally and externally. As the change portfolio grows the level of complexity grows with it, with many organizations now finding it difficult to understand and track the plethora of change initiatives underway. An added complexity is a reduction in manpower: when rapid and complex change is needed the skilled resources required to deliver it are at their scarcest.
Incremental and transformational are the two types of strategy change. Any organization can implement either of the two approaches or a mixture of the two. Unless it's clear which approach is to be used, the implementation will fall between two stools.
Incremental change doesn't challenge existing assumptions and culture. It doesn't modify the existing organization. It uses existing structures and processes; it causes little disruption; it's relatively low risk; it's slow and it may not produce enough change.
On the other hand, transformational change changes existing structures, the existing organization and the existing culture. It's relatively high risk. It's fast and focuses on major breakthroughs.
Incremental change is aimed at making many small-scale improvements to current business processes. It focuses on small-scale improvements because experience shows the likelihood of succeeding with a small-scale improvement is much higher than of succeeding with a large-scale, 'strategic' improvement project. Incremental introduction is usually carried out at the task or department level under the overall control of the department manager. In incremental change, the participants do not need or want top management involvement, which they see as a hindrance that will slow them down and prevent them in making progress.
It's usually difficult to develop a true business case for any organization under the incremental approach. From the viewpoint of the overall business, the expected improvement is small-scale, almost invisible, and difficult to measure. Yet top management often requires attempts to be made to cost-justify the improvement.
Reengineering is an example of transformational improvement. It involves radically rethinking and redesigning a major business process with the objective of achieving large-scale improvements in overall business performance quickly - and the product development process is a prime target. Product development runs across many of the traditional business functions, and has a high degree of customer and/or supplier involvement.
Reengineering involves redesign of a company's workflow and application of Information Technology to the new workflow with the aim of obtaining competitive advantage. To achieve this kind of breakthrough requires major change to processes, organizational structure and management methods.
Re-engineering aims to optimize the major business processes of a company. Its objective is to make very large improvements in customer service metrics (e.g. reduction of 75% in product development time). The end result of improved business performance is very visible, so very easy to measure. As a result a well-defined business case can be developed for an organization under a reengineering approach.
Re-engineering fundamentally changes the way a company works - which is why it is so difficult. It changes the way processes fit together, changes the way people work, and changes the way systems fit together. It's hard work. Typical activities include rewriting job descriptions, inventing new recognition and reward systems, implementing new computer systems, retraining, changing financial reporting, and changing relationships with suppliers.
Taken for example, The Commercial Press Ltd. which was founded in Shanghai in 1897 was a renowned publisher in the Greater China Region to produce award winning books. The company has diversified its business into distribution and retailing with a strong focus on culture and education.
The Commercial Press landed in Hong Kong in 1914 and has since built the largest bookstore chain in Hong Kong with 16 retail shops, including two university bookstores, located throughout Hong Kong and selling a comprehensive list of books.
By vertically integrating their services across the region, from publishing to distribution and retailing which forms a unique cross-regional organization including Singapore, Malaysia and the North America, the company was also able to present its accumulated wealth of knowledge to customers through various channels.
In 1999, the company quickly realized the significance of Internet as a valuable channel. Modernization for the resource-hungry Internet required The Commercial Press to re-think IT resource utilization. At that same time, IT was beginning to take central role in The Commercial Press. The company began business process re-engineering in 1999 to boost the efficiency of its key company processes.
In 2004, the holding company of The Commercial Press undertook a major Enterprise Resource Planning (ERP) initiative to grease its supply chains further. Today, the electronic business service carries over one million titles online, making it one of the largest Internet listing of Chinese books in the Greater China region and Hong Kong.
In this, it is therefore concluded that strategic changes can lead to re-discovery of the organization since process in necessary changes could change the organizational process and the usual way they operate in the organization thus giving them a chance to discover new products and new ways to combat the rapidly changing business environment.
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