Managing Quality, Innovation and Knowledge Quality Innovation and Competitive Advantage 1W Pitrus

Competitive Advantages Denotes a firm’s ability to achieve market superiority over its competitors. Provide superior value for customers In the long run, a sustainable competitive advantage provides above-average performance. A firm has many options in defining its long-term goals and objectives, the customers it wants to serve, the products and services it produces and delivers, and the design of the production and service system to meet these objectives. 2W Pitrus

Competitive Advantages A position where a firm is able to create more value for customers than its competitors, while earning a superior return on investment. Competitive advantage requires position of superior resources (tangible & intangible assets) and competencies that are valuable, rare, durable and inimitable (hard to copy). Example: Kopi Luwak: rarity of the coffee beans Creating a sustainable competitive advantage depends on developing and executing a good strategy. 3W Pitrus

Quality & Competitive Advantage Characteristics of a strong competitive advantage Driven by customer wants and needs Producers can charge premium prices for high quality Quality improvement leads to increased market share A significant determinant of business profitability Matches the organization’s unique resources (CC) with the opportunities in the environment Durable and lasting and difficult for competitors to copy Provides a basis for further improvement Provides direction and motivation to the whole organization 4W Pitrus

Sources of Competitive Advantage Classic literature on competitive strategy suggests that a firm can possess three basic (generic) types of competitive advantage: Cost leadership; Differentiation; and Focus on a particular market niche Modern thinking has added a fourth source of competitive advantage: an organization’s people. 5W Pitrus

Cost Leadership A firm pursuing a cost-leadership strategy attempts to gain a competitive advantage primarily by reducing its costs below its competitors. To generate a sustained competitive advantage depends on that strategy being rare and costly to imitate. Firms that practice this produce high volumes of mature products and achieve their competitive advantage through low prices. They emphasize achieving economies of scale and finding cost advantages from all sources. 6W Pitrus

Cost Leadership A cost leader can achieve above-average performance if it can command prices at or near the industry average. Low cost can result from high productivity and high capacity utilization. Moreover, improvements in quality lead to improvements in productivity, which in turn lead to lower costs. A firm positions itself by leveraging its strengths. Example: Wal-Mart, Redbox 7W Pitrus

Differentiation Is related with the development of a product or service that offers unique attributes in its industry that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it and achieve higher profits. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. However, a firm that uses differentiation as its source of competitive advantage must make its products or systems difficult to copy. Example: Breezes Resorts 8W Pitrus

Focus a firm concentrates its resources on entering or expanding in a narrow market or industry segment. It is usually employed where the firm knows its market segment and appealing to only one or a few groups of consumers or industrial buyers, to a not many select target markets. It is also called a segmentation strategy or niche strategy. Such products/services competitively satisfy customers’ needs. 9W Pitrus

Three generic types of competitive advantage 10W Pitrus

Three generic types of competitive advantage More Examples: Toyota LUSH OSCAR HEALTH INSURANCE Whole Foods Four Quadrants Advisory VIRGIN AIRLINES ETSY APPLE NIKE W Pitrus11

Risks of the three generic strategies 12W Pitrus

Organization’s People The human resource is the only one that competitors cannot copy, and the only one that can synergize – that is, product output whose value is greater than the sum of its parts. The competitive advantage resulting from an organization’s people can drive low cost and differentiation. Hiring and training better people than the competitor can become an immeasurable competitive advantage for a company. 13W Pitrus

Focus of Strategic Quality Initiatives TQM and performance: A strategic perspective (Jiju & Preece, 2002). Studies focused on the effectiveness of TQM initiatives using self-assessment frameworks in improving performance. 14W Pitrus

Focus of Strategic Quality Initiatives Example (1): USA General Accounting Office (GAO). Common features among studies organizations: Strong leadership, employee involvement, customer focus, open culture and partnership programs. Results: Improvements in employees relations, quality, costs, market share, profitability and customer satisfaction. 15W Pitrus

Focus of Strategic Quality Initiatives Example (2): An international quality study. Industry: computer, automobile, banking & healthcare. Results: Process improvement and suppliers accreditation practices improved performance. 16W Pitrus

Focus of Strategic Quality Initiatives However, a large number of studies have shown that between 60% and 80% quality initiatives fail or fail to show significant impact o performance. 17W Pitrus

Reasons for Lack of strategic focus in quality initiatives 1.Management might not always understand the implications or appropriateness of the quality initiatives they adopt. 2.Conformance to requirements approach is inconsistent with the strategic intensions of the business, which should focus on customer and culture. 3.Contiguous improvement did not permeate the strategic process 4.TQM programs may lack focus on critical business areas that have a good return on quality. 18W Pitrus

Reasons for Lack of strategic focus in quality initiatives 5.The lack of top management commitment 6.Lack of focus on critical business processes, no resource support for long-term improvement efforts and a lack of integration and synergy between TQM programs and fundamental strategies of the business. 7.Poor timing and pacing of TQM initiatives that are generally crisis led. 8.Competitors can quickly imitate management techniques, new technologies, inputs improvements and superior ways of meeting customers’ needs. 19W Pitrus

Reasons for Lack of strategic focus in quality initiatives 9.TQM concepts and terminology are barriers to success, because there is no consensus on the meaning. 10.Quality initiatives are carried out in isolation, and do not involve other departments and functions such as marketing and strategic planning. 11.Quality initiatives are too introspective and internally focused with little external focus. 12.Issues have been raised concerning self- assessment frameworks and their validity, real effectiveness and strategic focus in improving the performance of organizations. 20W Pitrus

Reasons for Lack of strategic focus in quality initiatives 13.Lack of infrastructure support for cultural change and people issues. 14.Lack of focus and effective enterprise guidance in targeting critical areas for change during quality improvement programs. 15.Lack of measurements in all key areas, particularly at a strategic level. 16.Managerial or organizational mind-sets, such as they are individualist in nature, internally competitive, problem solving and crisis oriented, linear thinking and control oriented, are inconsistent with TQM philosophy. 21W Pitrus

propositions focusing on strategic quality initiatives To create and sustain competitive advantage, organizations: 1.Must build a posture that is so strong in selective ways that the organization can achieve its goals despite unforeseeable external forces that may arise. 2.Must continually satisfy the requirements and expectations of the external environment. 22W Pitrus

propositions focusing on strategic quality initiatives 3.Must prioritize and focus quality initiatives on critical areas or processes that result in: customers’ appreciation of the added value to the organization’s product and service, and their willingness to pay for it over competitors’ products and services; and adding value to organization’s profit, market share, reputation and position, and to all its stakeholders, including the community. 23W Pitrus

propositions focusing on strategic quality initiatives 4.Must be dynamic and have the ability to drive, respond and anticipate the continually changing forces, requirements and expectations of both external and internal environment. 5.Must create and use an intelligent system that stores and uses internal expertise and knowledge required to support organization’s processes. 24W Pitrus

propositions focusing on strategic quality initiatives 6.Must measure the Cost of Quality (COQ), otherwise resources are spent on improvements customers do not care for and/or projects with only marginal benefits. 7.Must report COQ extensively as a means of accurately communicating the impact of quality project on the business, thus enabling the prioritizing and coordination of valuable resources and the motivation of the personnel. 25W Pitrus

propositions focusing on strategic quality initiatives 8.Must have a concise guidance to implement quality improvements effectively. 9.Must implement quality improvement programs that focus on improving operational effectiveness and satisfying both customers and stakeholders. 26W Pitrus

Focus of Strategic Quality Initiatives Focusing on strategic quality initiatives results High performance design Intrapreneurship Decentralisation Superior service Enhanced flexibility and variety Continuous innovation Timeliness 27W Pitrus

Final Word Even if you’re on the right track, you’ll get run over if you just sit there - Will Rogers 28W Pitrus

Additional Readings Barney, J. B. (1991). Company resources and sustainable competitive advantage. Journal of Management 17, pp Jaspreet Gill, (2009) Quality follows quality: Add quality to the business and quality will multiply the profits. The TQM Journal, 21(5), pp. 530 – 539 doi Newbert, S. L. (2007). Empirical research on the resource-based view of the company: An assessment and suggestions for future research. Strategic Management Journal, 28, pp Ulrich, D., & Lake, D. (1991). Organizational capability: Creating completive advantage. Academy of Management Executive, 5(1), pp W Pitrus