1 ETHIC AND RESOURCES BASED STRATEGY TO IMPROVE OUR COMPETITIVENES POWER Dr. Heru Kurnianto Tjahjono

2 Background  Global Economy and Global Crises  Competitiveness Power

3 The Power of Competitiveness  Number 37 soon after 1998 economic crises.  Turn down to number 54 in ( Source: The World Economic Forum)  One of the reason of this decreasing in power of competitiveness is related to Strategic Human Resource Management.  Ex: Our competitiveness power in tourism, just low price item contribute to competitiveness power, and others like services, technology, infrastructure do not contribute.

4 Natural Resources  We are rich of natural resources like:  mining (oil, gas, coal),  farming,  ocean (fish),  beautiful sceneries,  etc

5 Human Resources  Indonesia actually has a big potential to become ”a leading and enlightening country”.  Ex 1: Indonesian students had won many international science tournaments such as mathematics olympics, physics olympics, and other science tournaments.  From time to time China, Israel and India have competed each other tightly.  Ex 2:The world’s youngest professor who works at one of the universities in USA, Prof. Nelson Tansu, is an Indonesian. He was born in Medan, on Oktober 20, 1977 and still hold an Indonesian pasport.(Source: website of Prof. Nelson Tansu)  It means: Indonesian are potential people.

6 Paper Focus How to organize natural resources and human resources? Strategic Management has an important role Resources Based view is perspective to integrate intangible resources an tangible resources Ethic as based strategy beside resources based view to create social capital as the most important capital in organization.

7  To qualify as competitively valuable or to be the basis for sustainable competitive advantage, a “resource” must pass 4 tests: 1.Is the resource hard to copy? 2.Does the resource have staying power – is it durable? 3.Is the resource really competitively superior? 4.Can the resource be trumped by the different capabilities of rivals? Determining the Competitive Value of a Company Resource

8 How to Organize Our Resources to Achieve Sustainable Competitive Advantage?  Determine our position  Create a strategy map  Create a lingkage between Vision, activities and budget  Integrate management practices between functions 4 Steps  Human capital as foundation  Organization and social capital  Firm or nation Equity  Outstanding Financial Return

9 Determine our position: (1) Internal capabilities (2) External Situation, for ex: The Components of a Company’s Macro-Environment

10 A Firm’s Ethical Responsibilities to Its Stakeholders Owners/shareholders – Rightfully expect some form of return on their investment Employees - Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise Customers - Rightfully expect a seller to provide them with a reliable, safe product or service Suppliers - Rightfully expect to have an equitable relationship with firms they supply and be treated fairly Community - Rightfully expect businesses to be good citizens in their community

11 The Role of Strategic Management Practices and Its Paradox  Strategy as a ”Dream”  Our nation has lost of its ”collective dream” to build and to become a competitive nation.  A Dream actually is an extraordinary energy to push an extraordinary progress.  In a strategy terminology, a dream becomes an essential concept of strategic intent, which is an intention and a willingness to always continually be strived for success.

12  Strategy as Process  One thing that we can learn from the Soeharto era is a grand design or blue print of continuous development.  Good or bad of strategies used during the new era, the existed of implementaton deviations or the existed of corruption, colusion and nepotism, we can see that there was a flow of formal process in a strategy. Starting from Vision, Objectives, Program, Aktivities and Budget.  Conceptually budget follows activity. Activity itself is a translation of vision, objective and program.  But in practice, activity follows budget. Strategy as …

13  Strategy as Politics  In reality, strategy which related to many people and has an extraordinary ”prosperity” usually will invite political process.  Basically political process is related to interest for the wealth access.  In practice often strategy made by an authorized istitution did not work as pro-active strategy. It means implementation did not suitable with previous plan and intention.  Political process is one important factor that explain that phenomena.  Same as in global political strategy, it was not clear to whom the policy of importing rice actually. A policy which only make farmers suffered.  See cases of Ghana and Honduras (Kompas, Thursday November 8, Quote from: Prof. Maksum, Ph.D – UGM farming expert). Strategy as …

14  Strategy as Legitimacy  Many people in Government, business agents and other instituions have not seen strategy as an urgent task.  People make formal strategy only to get an aknowledment and legitimation.  There are still many practices in State Government (Pemda) where process of making Strategy Plan (Renstra) is delegated to staff employees just because it needed for an inspection.  Banking recapitulation case pasca 2008 crises and consultation assistance from foreign consultant BAH, nothing other than for the realization of financial assistance to inject those banks. Strategy as …

15  Strategi as Learning  Crises repetition which we face is part of learning process for our nation.  In strategy perspective, not all strategies will go as pro-active. Many strategies go re-active because of the uncertainty of external environment.  The important thing as an organization, our nation should have capacity to learn in order to anticipate environment changes that often are turbulent. Strategy as …

16 Strategy as …  Strategi as Culture  We do not have the same values to support our bussiness vision and strategies.  Actually culture is the most important intangible resources to achieve sustainable competitive advantage.  Culture is very hard to imitate by competitors because its characteristics embedded in company’s history and involve complex process.  We cannot determines the causes and the effects of what that create a culture.

17 Our Social Capital Social capital consist of structural, relational and cognitive aspects. Social capital related participation, mutual trust and proud of our groups or community. Many research explain that social capital influence degree of performance in many level as individual, group, organization and nation. Putnam (1995) explain that wealth of American decrease. It caused by low of social capital How about social capital in Indonesia?

18 Our Social Capital  Real sample related structural aspects is the nation commitment to pay tax which is still low and also ”zakat”payments that have not optimum.  From relational perspective, our nation is hit by untrustworthiness one to another, vertically between government and communities or horizontally among the communities.  This is related to corruption, colution and nepotism culture in our country.  From cognitive aspect, there is a tendency that patriotism spirit as citizen tend to be faded.

19 Islamic Values In Business Strategy  Concept  Competency  Credible  Caring  Innovation  Creativity  Customer Intimacy  Efficiency  Fair Process  Trust and Commitment  Voluntary Cooperation  Etc.

20 Blue Ocean Vs. Red Ocean Strategy

21 Blue Ocean vs. Red Ocean Strategy Create uncontested market space Make the competition irrelevant Create and capture new demand Create uncontested market space Make the competition irrelevant Create and capture new demand Compete in existing market space Beat the competition Exploit existing demand Compete in existing market space Beat the competition Exploit existing demand Blue Ocean Strategy Red Ocean Strategy

22 Blue Ocean vs. Red Ocean Strategy Break the value- cost trade off Align the whole system of a firm’s activities with its strategic choice of differentiation and low cost Break the value- cost trade off Align the whole system of a firm’s activities with its strategic choice of differentiation and low cost Make the value-cost trade off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Make the value-cost trade off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Red Ocean Strategy

23 Blue Ocean Strategy Tools Strategy Canvas diagnostic toolA diagnostic tool for building a compelling blue ocean strategy current state of playIt captures the current state of play in the known market space Allow you to understand : where the competition is currently investing the factors the industry currently competes on in product, service and delivery what customers receive from existing competitive offerings on the market

24 Four Action Framework Eliminate Reduce Raise Create eliminated? Which of the factors that the industry takes for granted should be eliminated? reduced well below Which factors should be reduced well below the industry’s standard? created Which factors should be created that the industry has never offered? raised well above Which factors should be raised well above the industry’s standard?

25 Four Action Framework The Case of Cirque du Soleil (A Circus Company) Theme Refined environment Multiple productions Artistic music and dance Eliminate Reduce Raise Create Star performers Animal shows Aisle concession sales Multiple show arenas Fun and humor Thrill and danger Unique venue

26 Six Principles of Blue Ocean Strategy 1.Reconstruct market boundaries 2.Focus on the big picture, not the numbers 3.Reach beyond existing demand 4.Get the strategic sequence right 5.Overcome key organizational hurdles 6.Build execution into strategy Formulation Principles Execution Principles

27 Formulating Blue Ocean Strategy

28 1. Reconstruct Market Boundaries Focus on rivals within industry Focuses on competitive position within strategic group Focuses on better serving the buyer group Head-to-Head Strategy Blue Ocean Strategy Looks across alternative industries Looks across strategic group within industry Redefines the industry buyer group

29 1. Reconstruct Market Boundaries Focuses on maximizing the value of product or service offerings within the bounds of its industry Focuses on adapting to external trends as they occur Head-to-Head Strategy Blue Ocean Strategy Looks across to complementary product and service offerings Participates in shaping external trends over time

30 2. Focus on the Big Picture, not the Numbers Big Picture Focus on the Big Picture, not the Numbers The Four Steps of Visualizing Strategy Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication

31 2. Focus on the Big Picture, not the Numbers Visual Awakening Compare your business with your competitors’ by drawing your “as is” strategy canvas See where your strategy needs to change

32 2. Focus on the Big Picture, not the Numbers Visual Exploration Go to the field to explore the six paths to creating blue oceans Observe the distinctive advantages of alternative products and services See which factors you should eliminate, create, or change

33 2. Focus on the Big Picture, not the Numbers Visual Strategy Fair Draw your “to be” strategy canvas based on insights from field observations Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers Use feedback to build the best “to be” future strategy

34 2. Focus on the Big Picture, not the Numbers Visual Communication Distribute your before-and-after strategic profiles on one page for easy comparison Support only those projects and operational moves that allow your company to close the gap to actualize the new strategy

35 3. Reach Beyond Existing Demand The Three Tier of Non- customers “Soon to be” non- customersFirst tier: “Soon to be” non- customers who are the edge of your market, waiting to jump ship “Refusing” non- customersSecond tier: “Refusing” non- customers who consciously choose against your market “Unexplored” non- customersThird tier: “Unexplored” non- customers who are in markets distant from yours

36 4. Get The Strategic Sequence Right The Sequence of Blue Ocean Strategy Buyer utility Is there exceptional buyer utility in your business idea? Price Is your price easily accessible to the mass of buyers? Cost Can you attain your cost target to profit at your strategic price? Adoption What are the adoption hurdles in actualizing your business idea? A commercially viable blue ocean idea

37 Executing Blue Ocean Strategy

38 5. Overcome Key Organizational Hurdles Overcome Key Organizational Hurdles Cognitive Hurdle MotivationalHurdle ResourceHurdle Political Hurdle

39 5. Build Execution Into Strategy Fair Process of Strategy Strategy Formulation Process Fair Process – Engagement, Explanation, Expectation clarity Strategy Formulation Process Fair Process – Engagement, Explanation, Expectation clarity Attitudes Trust and Commitment – “I feel my opinion counts” Attitudes Trust and Commitment – “I feel my opinion counts” Behavior Voluntary Cooperation – “I’ll go beyond the call of duty” Behavior Voluntary Cooperation – “I’ll go beyond the call of duty” Strategy Execution Exceeds Expectation – self initiated Strategy Execution Exceeds Expectation – self initiated