Chapter 3: Strategic Initiatives for Implementing Competitive Advantages

Strategic Initiative

Organizations can undertake high-profile strategic initiatives including:

• Supply chain management (SCM)
• Customer relationship management (CRM)
• Business process reengineering (BPR)
•  Enterprise resource planning (ERP)

 Supply Chain Management (SCM)

Supply Chain Management involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability. Four basic components of supply chain management include:

1.  Supply Chain Strategy is the strategy for managing all the resources required to meet customer demand for all products and services.  
2. Supply Chain Partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics.  
3. Supply Chain Operation is the schedule for production activities including testing, packaging, and preparation for delivery.
4.  Supply Chain Logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing.

An organization will generate an efficient operation when it applies these steps and information flows among the members in the organizational.

Wal-Mart and Procter & Gamble (P&G) SCM

 

Wal-Mart and P&G implemented a tremendously successful Supply Chain Strategy (SCM). The system links Wal-Mart’s distribution centers directly to P&G’s manufacturing centers. Whenever, a Wal-Mart customer purchases a P&G product, the system will send a message directly to P&G’s factory for a reorder. 

The effective and efficiencies SCM systems for an organization

• Decrease the power of its buyers
• Increase its own supplier power
• Increase switching costs to reduce the threat of substitute products or services
• Create entry barriers thereby reducing the threat of new entrants
• Increase efficiencies while seeking a competitive advantage through cost leadership

The effective and efficiencies SCM systems effect on Porter’s Five Forces

 Customer Relationship Management (CRM)

Customer Relationship Management (CRM) involves managing in all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization's profitability. The systems help organizations understand and manage their customers well.

Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems.

For Charles Schwab, he had recouped the cost of a multimillion-dollar CRM system in less than 2 years. The system allowed Schwab to segment his customers in terms of serious and non-serious investors. The CRM system looked for customers that had automatic withdrawal from a bank account as a sign of a serious investor. The CRM system looked for stagnant balances as a sign of a non-serious investor. Charles Schwab could then focus efforts on selling to serious investors, and spend less time attempting to sell to non-serious investors. While for Kaiser, he used CRM to enforce more rigorous eye-screening for diabetic patients.

CRM is not just technology but a strategy, process and business goal that an organization must embrace on an enterprise wide level. Although CRM has many technical components, it is actually a process and business goal simply enhanced by technology. Organizations must first decide that they want to build strong customer relationships and then they determine how IT can support their goals.

CRM overview

Business Process Reengineering (BPR)

Business process is a standardized set of activities that accomplish a specific task such as processing a customer’s order. Business process reengineering (BPR) is the analysis and redesign of workflow within and between enterprises. The purpose of BPR is to make all business processes best-in-class. In the Reengineering the Corporation, the book that is written by Michael Hammer and James Champy there are seven principles for BPR that are recommended.

Finding Opportunity using BPR

(First Case) The diagram below shows the different ways to travel the same road.

A company could improve the way that it travels the road by moving from foot to horse and then from horse to car. However, true BPR would look at taking a different path. A company could forget about traveling on the same old road and use an airplane to get to its final destination. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster, and more direct way of doing business.

(Second Case) Progressive Insurance Mobile Claims Process based on the diagram provided below.

 

Radical and fundamentally new business processes enabled Progressive Insurance to slash the claims settlement from 31 days to four hours. Typically, car insurance companies follow this standard claims resolution process: The customer gets into an accident, has the car towed, and finds a ride home. The customer then calls the insurance company to begin the claims process, which usually takes over a month (refers the left Figure). 

Progressive Insurance improved service to its customers by offering a mobile claims process. When a customer has a car accident he or she calls in the claim on the spot. The Progressive claims adjustor comes to the accident and performs a mobile claims process, surveying the scene and taking digital photographs. The adjustor then offers the customer on-site payment, towing services, and a ride home. (refers the right Figure).

A true BPR effort does more for a company than simply improve it by performing a process better, faster, and cheaper. Progressive Insurance’s BPR effort redefined best practices for its entire industry. The figure displays the different types of change an organization can achieve, along with the magnitude of change and the potential business benefit.

Enterprise resource planning (ERP)

Enterprise resource planning (ERP) integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprise wide information on all business operations. Keyword in ERP is “enterprise”.

The true benefit of an ERP system is its ability to collect the many different forms of data from across the different organizational systems and correlate, aggregate, and provide an enterprise wide view of organizational information. 

Sample data from a sales database

Sample data from an accounting database

These are the spreadsheets display, examples of differences in data that can be fixed by using an ERP system.