Lecture Five: Outline

1. Lecture Five: Outline • The Virtual Organisation • Key Success Factors • Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage • Managing the Virtual Enterprise • Leandri’s Five Best Practices for the New Economy • Exploiting the Virtual Value Chain • Emerging Characteristics of the Virtual Organisation • The Virtual Enterprise “2020 Balance Sheet” • Information Management • Synergy within the Virtual Enterprise • Implications for Competitive Advantage

2. The Virtual Organisation • Parolini (1999) suggests “Universal connectivity is drastically reducing the costs of gathering information, controlling and coordinating transactions with other economic operators.

3. The Virtual Organisation (cont’d) • This reduction in external transaction costs is accompanied by greater environmental turbulence and a need for flexibility that undermine the capacity of large, integrated and diversified companies to withstand the growing competitive pressure.

4. The Virtual Organisation (cont’d) • At the same time, isolated, small companies are finding it difficult to compete

5. The Virtual Organisation (cont’d) • Consequently, competition increasingly takes place between networks or, to use a more generic term, value-creating systems”.

6. Old Success Factors Size Role Clarity Specialisation Control New Success Factors Speed Flexibility Integration Coordination Key Success Factors Source: Ashenkas, Ulrich, Todd and Kerr (1995) cited in Walters (2002)

7. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage • Chatteejee (1998) shows that competitive advantage comes from unique resources that cannot be easily acquired, imitated or substituted by others. When the manger is planning, he or she needs to ask questions such as:

8. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • “What is the basis for the value that comes from the resource?

9. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • Is this basis likely to continue in the future?

10. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • If the basis remains unchanged in the future, how does one know if the resource is inimitable or unsubstitutable?”

11. Managing the Virtual Enterprise Source: Walters (2002)

12. The Virtual Community; a Facilitating Structure Source: Walters (2002)

13. Leandri’s Five Best Practices for the New Economy • Your company captures and shares knowledge.

14. Leandri’s Five Best Practices for the New Economy (cont’d) • You’ve outsourced non-critical functions.

15. Leandri’s Five Best Practices for the New Economy (cont’d) • You’ve made motivating and retaining employees a priority.

16. Leandri’s Five Best Practices for the New Economy (cont’d) • You prototype with lightning-fast speed.

17. Leandri’s Five Best Practices for the New Economy (cont’d) • You’ve linked the company’s value chain across the web.

18. Exploiting the Virtual Value Chain • Bruinette (2001) argues that the key to creating a successful virtual value chain is information management. This is further illustrated through the sequence of five activities required to create value in a virtual value chain.

19. Exploiting the Virtual Value Chain (cont’d) • Gathering information,

20. Exploiting the Virtual Value Chain (cont’d) • Organising the information,

21. Exploiting the Virtual Value Chain (cont’d) • Selecting the information,

22. Exploiting the Virtual Value Chain (cont’d) • Synthesising the information, and

23. Exploiting the Virtual Value Chain (cont’d) • Distributing the information

24. Emerging Characteristics of the Virtual Organisation Source: Walters (2002)

25. The Virtual Enterprise “2020 Balance Sheet” Source: Walters (2002)

26. Information Management • Evans et al (1997) shows Richness is defined by three aspects of information itself.

27. Information Management (cont’d) • The first is bandwidth or the amount of information that can be moved from sender to receiver in a given time.

28. Information Management (cont’d) • Second aspect is the degree to which the information can be customised.

29. Information Management (cont’d) • Lastly, the degree to which the information is interactive acts as an aspect of information richness.

30. Synergy within the Virtual Enterprise • 2 + 2 = 5

31. Synergy within the Virtual Enterprise (cont’d) • Ansoff (1965) identifies the concept of synergy as being the collaboration of two or more activities of an enterprise for mutual gain

32. Synergy within the Virtual Enterprise (cont’d) • Aaker (1998) states that achieving synergy between Strategic Business Units can lead to one or more of the following effects:

33. Synergy within the Virtual Enterprise (cont’d) • Increased customer value

34. Synergy within the Virtual Enterprise (cont’d) • Lower operating costs

35. Synergy within the Virtual Enterprise (cont’d) • Reduced investment

36. Synergy within the Virtual Enterprise (cont’d) • Aaker (1998) continues by identifying commonality in some of the following areas:

37. Synergy within the Virtual Enterprise (cont’d) • Customer and customer applications (potentially creating a systems solution)

38. Synergy within the Virtual Enterprise (cont’d) • A sales force or channel of distribution

39. Synergy within the Virtual Enterprise (cont’d) • A brand name and its image

40. Synergy within the Virtual Enterprise (cont’d) • Facilities used for manufacturing, offices, or warehousing

41. Synergy within the Virtual Enterprise (cont’d) • R & D efforts

42. Synergy within the Virtual Enterprise (cont’d) • Staff and operating systems

43. Synergy within the Virtual Enterprise (cont’d) • Marketing and marketing research

44. Implications for Competitive Advantage • Evans et al (1997) identifies a number of implications that a shift from the traditional economy to the virtual economy will have on competitive advantage.

45. Implications for Competitive Advantage (cont’d) • Existing value chains will fragment into multiple businesses, each of which will have its own sources of competitive advantage.

46. Implications for Competitive Advantage (cont’d) • Some businesses will benefit from network economies of scale, which can give rise to monopolies.

47. Implications for Competitive Advantage (cont’d) • As value chains fragment and reconfigure, new opportunities will arise for purely physical businesses.

48. Implications for Competitive Advantage (cont’d) • Bargaining power will shift as a result of radical reduction in the ability to monopolise the control of information.

49. Implications for Competitive Advantage (cont’d) • Customers’ switching costs will drop, and companies will have to develop new ways of generating customer loyalty.

50. Implications for Competitive Advantage (cont’d) • Incumbents could easily become victims of their obsolete physical infrastructures and their own psychology.