How the Management of Process

Can Help Organizations to achieve Competitive Advantage

The article we are dealing with here is about how American carmakers
are losing the race against the Japanese. More particularly, General
Motors and Ford vs. Toyota. American autos used to dominate the market
since the early invention of cars. However, if you do not sustain a
competitive advantage to stay ahead of your competitors, you are
probably going to be left behind. Success is not a status you reach then
keep forever; rather, it is a continuous process where you should always
strive and aim higher.

In order to be able to analyze the situation, we must first shed some light
on business processes, management of processes and competitive
advantage.

A business process is a collection of related, structured activities that

produce a service or product that meet the needs of a client. These
processes are critical to any organization as they generate revenue and
often represent a significant proportion of costs.

Management of processes is predicated upon the central belief that it is

fundamentally the complex, cross-departmental, technology-enabled
business process that create value for customers and shareholders. This
predication assumes that every significant management activity should
begin with an analysis of customers' needs and have, as an intrinsic
objective, the shared understanding of the key business processes or
organizational capabilities that are critical to satisfying those needs.
Indeed, there is reason to believe that the traditional functional paradigm
has done more to impede customer focused, business performance
improvement over the past two decades than almost any other factor.
Competitive advantage (CA) is a position that a firm occupies in its
competitive landscape (Porter, 1998). Michael Porter posits that a
competitive advantage, sustainable or not, exists when a company makes
economic rents, that is, their earnings exceed their costs. That means that
normal competitive pressures are not able to drive down the firm's
earnings to the point where they cover all costs and just provide minimum
sufficient additional return to keep capital invested. Most forms of
competitive advantage cannot be sustained for any length of time because
the promise of economic rents drives competitors to duplicate the
competitive advantage held by any one firm.

A firm possesses a Sustainable Competitive Advantage (SCA) when it has

value-creating processes and positions that cannot be duplicated or
imitated by other firms that lead to the production of above normal rents.
An SCA is different from a competitive advantage (CA) in that it
provides a long-term advantage that is not easily replicated. But these
above-normal rents can attract new entrants who drive down economic
rents. A CA is a position a firm attains that lead to above-normal rents or
a superior financial performance. The processes and positions that
engender such a position are not necessarily non-duplicable or inimitable.
Analysis of the factors of profitability is the subject of numerous theories
of strategy including the five forces model pioneered by Michael Porter
of the Harvard Business School.

In marketing and strategic management, sustainable competitive

advantage is an advantage that one firm has relative to competing firms.
The source of the advantage can be something the company does that is
distinctive and difficult to replicate, also known as a core competency. It
can also simply be a result of the industry's cost structure – for example,
the large fixed costs that tend to create natural monopolies in utility
industries. To be sustainable, the advantage must be:

1. distinctive, and
2. proprietary
The ability to effectively manage information helps organizations dealing
with changes in the environment, which can result in a competitive
advantage over other firms. An example of gaining competitive
advantage: Organizations make information available for each other in an
efficient way in order to reduce all difficulties of purchasing, marketing
and distribution (Ganesh D. 2005).

Competitive advantage statements help distinguish companies by

highlighting what they offer to the customer using tangible terms and
concepts. The next step is to test those CA statements through
independent market research.

This allows a company to understand their customers' hierarchy of buying

criteria in an objective independent context. From there, companies can
tailor their CA statements to speak directly to the buying interests of the
customer.

Competitive Advantage: a company is said to have a competitive

advantage over its rivals when its profitability is greater than the average
profitability of all other companies competing for the same set of
customers.

Sustainable Competitive Advantage: a company has a sustained

competitive advantage when its strategies enable it to maintain above-
average profitability for a number of years.

Competitive advantages vary from situation to situation and from time to

time. Some basic examples of CAs can be divided in 4 main global areas
(Michael J.2005):
Cost : Low-cost operations
Quality : High quality, Consistent quality
Time : Delivery speed, On-time delivery, Development speed
Flexibility : Customization, Volume flexibility, Variety.
As we have demonstrated earlier, when a firm sustains profits that exceed
the average for its industry, the firm is said to possess a competitive
advantage over its rivals. Michael Porter identified two basic types of
competitive advantage (Porter, 1987):
 Cost advantage.
 Differentiation advantage.

A competitive advantage exists when the firm is able to deliver the same
benefits as competitors but at a lower cost (cost advantage), or deliver
benefits that exceed those of competing products (differentiation
advantage). Thus, a competitive advantage enables the firm to create
superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages

since they describe the firm's position in the industry as a leader in either
cost or differentiation. A resource-based view emphasizes that a firm
utilizes its resources and capabilities to create a competitive advantage
that ultimately results in superior value creation.

The following diagram combines the resource-based and positioning

views to illustrate the concept of competitive advantage:

A Model of Competitive Advantage

Resources

Distinctive Cost Advantage

Value
Competencies or
Creation
Differentiation Advantage

Capabilities
Toyota’s global competitive advantage is based on a corporate philosophy
known as the Toyota Production System. The system depends in part on a
human resources management policy that stimulates employee creativity
and loyalty but also on a highly efficient network of suppliers and
components manufacturers.

The fundamental reason for Toyota's success in the global marketplace

lies in its corporate philosophy – the set of rules and attitudes that govern
the use of its resources (Kotler, 2005). Toyota have successfully
penetrated global markets and established a world-wide presence by
virtue of its productivity. The company's approach to both product
development and distribution is very consumer-friendly and market-
driven.

Toyota's philosophy of empowering its workers is the centerpiece of a

human resources management system that fosters creativity, continuous
improvement, and innovation by encouraging employee participation, and
that likewise engenders high levels of employee loyalty.

Knowing that a workplace with high morale and job satisfaction is more
likely to produce reliable, high-quality products at affordable prices,
Toyota have institutionalized many successful workforce practices.
Toyota has done so not only in its own plants but also in supplier plants
that were experiencing problems.

Although many car manufacturers have earned a reputation for building

high-quality cars, they have been unable to overcome Toyota's advantages
in human resource management, supplier networks and distribution
systems in the highly competitive car market.

Much of Toyota's success in the world markets is attributed directly to the

synergistic performance of its policies in human resources management
and supply-chain networks.
To conclude, the focus of Toyota Production System (TPS) is not just
about “flow” or “pull production” or “cellular manufacturing” or "load
leveling". TPS in Toyota is primarily concerned with making a profit, and
satisfying the customer with the highest possible quality at the lowest cost
in the shortest lead-time, while developing the talents and skills of its
workforce through rigorous improvement routines and problem solving
disciplines.

This stated aim is mixed in with the twin production principles of Just in
Time (make and deliver the right part, in the right amount, at the right
time), and Jidoka (build in quality at the process), as well as the notion of
continuous improvement by standardization and elimination of waste in
all operations to improve quality, cost, productivity, lead-time, safety,
morale and other metrics as needed.
References:

1. Porter, Michael E. 1998 (1985), Competitive Advantage: Creating and

Sustaining Superior Performance, Free Press, New York

2. Ganesh D. Bhatt et. Varun Grover ed. (2005), Types of Information

Technology Capabilities and Their role in Competitive Advantage: An
Empirical Study, Management Science, London

3. Michael J. Tippins, Ravipreet S. Sohi, (2003), IT competency and firm

performance: Is organizational learning a missing link, Strategic
Management Journal

4. Kotler, Philip (8th ed) 2005, Marketing: An Introduction, Prentice Hall,

New Jersey.

5. Porter, Michael E. (1987), From Competitive Advantage to Corporate

Strategy, Harvard Business Review.