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Monday, May 02, 2005

New Sources Of Strategic Advantages

(Via HBSWK)John Seely Brown & John Hagel argue, Traditional structural sources of advantage like geographic barriers, regulatory barriers, and economies of scale have eroded. Squeezing savings from operations generally yields diminishing returns. In the search for new sources of advantage, two broad schools of strategy have emerged.
- The core competency school of strategy - a firm's business strategy on the core competencies of a firm & strategic advantage lay in clearly identifying and strengthening core competencies within the firm.
-The leverage school of strategy—strategy focused less on capabilities within the firm and more on opportunities to achieve competitive leverage by mobilizing resources outside the firm. Using different labels—value nets and business ecosystems—managers can create strategic advantages by shaping and leveraging broader networks of resources beyond their individual enterprise
Boom times saw the leverage school looking strong and during economic downturn, the core competency school of strategy resurged. Companies can design strategies to fully exploit those internal capabilities that truly distinguish them in the marketplace, and companies can mobilize the resources of other companies to deliver greater value to their customers. But, as presented, each of these strategies is incomplete. When customers demand more and control more, a company cannot rely solely on its own capabilities, no matter how distinct. Similarly, a company will struggle to mobilize outside resources unless it can offer exceptional capabilities in return. The real strategic power comes when a company integrates and extends these two schools of thought, amplifying the value of its distinctive internal capabilities by creatively and aggressively harnessing
With capability building, distinct capabilities remain the basis of strategy but must rapidly evolve among collaborators to remain a source of strategic advantage
. JSB & JH argue, "The competitive edge ultimately depends on a firm's institutional capacity to rapidly deepen its distinctive capabilities and to accelerate learning across enterprise boundaries, rather than simply mobilizing static resources".
Commenting on the progress being made by China & India, JSB & JH state,the most striking observation was the deep sense of urgency expressed by executives in both China and India, shaped by a clear understanding that wage rate arbitrage is not a sustainable source of advantage. Instead, these executives are highly focused on rapid incremental innovation, both in terms of processes and products, and creatively bootstrapping their capabilities wherever possible. Tom Friedman provides a compelling perspective on the challenge. A key message of the book. JH & JSB argue is that, if companies act aggressively, they can turn this challenge into an advantage. The capabilities that are being built in these two countries are available to all who understand how to harness them. Western executives remain much too complacent about the challenge, making the opportunity does become a significant threat.
In addition the authors argue :
- Fast working + distinctive advantage = Temporary advantage. These need to be aggressively refreshed through rapid incremental innovation. Relative capability is no longer the key strategic metric; it is the relative pace of capability building.
- Most executives view specialization as a formula for shrinking the business, rather than growing it, truth is specialization is a prerequisite for profitable and sustained growth particularly,dynamic specialization—the commitment to eliminate resources and activities that no longer differentiate the firm and to concentrate on accelerating growth from truly distinctive capabilities. First wave of specialization—the movement away from conglomerates to focused businesses. We are already in the midst of second wave of specialization—unbundling three very different business types that currently reside in most companies: customer relationship businesses, product innovation and commercialization businesses, and infrastructure management businesses. Specialization does not mean fragmentation of enterprises.
- If the primary business challenge is to accelerate capability building, companies must pick their areas of focus carefully and avoid spreading themselves too thin. By specializing more tightly, companies actually enhance their incentives, opportunities, and capabilities for innovation. Again, the key is to pursue specialization explicitly as a platform for growth, rather than viewing it as a defensive strategy.
- FAST strategy approach encompassing four management imperatives: focus, accelerate, strengthen, and tie together.
- JH & JSB a urge the senior management team (as well as the board of directors) to spend a week together touring key offshoring centers in India and China, meeting with companies that are already active in these areas and understanding the pace of change, rather than simply taking a snapshot of current capabilities. There is no substitute for this direct and shared experience
- Whats applicable to enterprises also apply to nations –increasing competitive abilities by focusing on capability building.. This focus is not restricted to education and training policies, but encompasses a broad range of public policy issues, including immigration policy, infrastructure investment programs, intellectual property regimes, financial market regulation, and labor policy. More fundamentally, this will lead to a shift in the "common sense" model for public policy, from a push approach to a pull approach.. Excellent vignettes of distilled wisdom - Based on the outline & thematic strength - the book is a must read.

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