BUSINESS POLICY LEARNING NOTES
Chapter 4: Business-Level Strategy 4-9 Information Networks Information networks enable a firm to coordinate interdependencies between internally- and externally- performed value-creating activities to increase flexibility and responsiveness. Examples include real-time linkages between manufacturers and suppliers or subcontractors, or between retailers and suppliers. These linkages can improve time-to-market of new products by coordinating design and production activities and reduce out-of-stock occurrences by shortening the order-restock cycle. Customer relationship management (CRM) is one form of an information-based network process that firms use to better understand customers and their needs. An effective CRM system provides a 360- degree view of the company’s relationship with customers, encompassing all contact points, involving all business processes, and incorporating all communication media and sales channels. The firm can then use this information to determine the trade-offs its customers are willing to make between differentiated features and low cost, which is vital for companies using the integrated cost leadership/differentiation strategy. Total Quality Management Systems These systems have been established to improve product quality (from a customer perspective) and to improve productivity in the performance of the internal value-creating activities. Firms develop and use TQM systems in order to (1) increase customer satisfaction, (2) cut costs, and (3) reduce the amount of time required to introduce innovative products to the marketplace. Improving product quality focuses on product reliability, performance and utility, and enables the firm to differentiate its products and charge higher prices, while lowering the costs of manufacturing and service. Competitive Risks of the Integrated Cost Leadership/Differentiation Strategy This is a risky strategy, as it is difficult for firms to perform primary and support activities in ways that allow them to produce relatively inexpensive products with levels of differentiation that create value for the target customers. Moreover, to properly use this strategy across time, firms must be able to simultaneously reduce costs incurred to produce products (as required by the cost leadership strategy) while increasing products’ differentiation (as required by the differentiation strategy). Being “stuck -in-the- middle” implies that the firm will not be able to manage successfully the five competitive forces and will not achieve strategic competitiveness. In fact, these firms can only earn average profits when industry structure is favorable or when other firms in the industry also are “stuck -in-the- middle.” BUSINESS POLICY LEARNING NOTES
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- Summer '12
- Business, Marketing, cost leadership strategy, business-level strategy