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Currently viewing the tag: "Competitive Advantage"

Many large corporations depend on M&A for growth and executives can boost the value that deals create. But poorly executed M&A can saddle pic 2 Board Excellence M&Ainvestors with weak returns on capital for details. In fact, the margin between success and failure is slim.

Many Boards are reluctant to cross the line between governance and management. The level of engagement is often outside the comfort zone for some executives and directors. As such, they miss opportunities to help senior executives win at M&A.

There is a need to modernize the Board’s role in M&A. Modernizing the role of the Board in M&A can result in the alignment of the Board and management on the need for bolder transactions with more upside potential. Further, this is essential in achieving a competitive advantage.

The 3 Core Opportunities in M&A

There are 3 core opportunities for the Board to play an impactful role in M&A.

  1. Potential for Value Creation. The first core opportunity, potential for Value Creation enables the Board to challenge the executive’s thinking on potential transactions. This is an opportunity for the Board to maintain constant touch with the company’s M&A strategy, the pipeline of potential targets, and emerging deals.
  1. PMI Plans. This is an essential core opportunity that enables the Board to boost value creation to as much as 2-3x the net value. Post-merger Integration (PMI) Plans representat an opportunity to pressure test against stretch growth and cost goals before and after a deal. Greater variation in the quality of post-merger plans exist compared to financial analysis and pricing of transactions.
  1. Competitive Advantage in M&A. Competitive Advantage is a core opportunity that is unrelated to a transaction’s deadline. This is an opportunity to create a competitive advantage through M&A skills. These are corporate assets that can be difficult to copy. Making that decision to create a competitive advantage through M&A can lead to bolder decisions with more upside results.

The 3 core opportunities can promote greater Board engagement. When this happens, discrete deals can be converted into ongoing deal processes and dialogues that can deliver greater value from M&A.

Maximizing Core Opportunities to Attain the Greatest Deal

The potential of the 3 Core Opportunities to embolden the role of the Board in M&A is great. Organizations just need to have a good understanding of each core opportunity and the underlying key areas or dimensions of each key area. Let us take a look at the 1st Core Opportunity: Potential for Value Creation.

The Potential for Value Creation has 3 critical key areas that can challenge that lead opportunistic transaction to succeed. One critical key area is Strategic Fit.

Strategic Fit is key to determining why a company is a better owner than competing buyers. Deals driven by strategy succeed more often when they are part of a stream of similar transactions that support that strategy. This is a key element in Strategy Development.

How can we enhance the role of the Board relative to this key area? The Board can play a vital role in clarifying the relationship between a potential transaction and strategic planning. They are also in the best position to define how the deal will support organic-growth efforts in target markets and provide complementary sources of value creation.

The other key areas under the Potential for Value Creation are Financial Statements and Risks vs. Rewards. The Financial Statements is a key area that can correct the Board’s tendency to put emphasis on price-to-earnings multiples which can be limiting. The Risks vs. Rewards, on the other hand, is a key area that challenges the Board to acknowledge uncertainties in pro forma.

The other 2 Core Opportunities also have their own essential points or dimensions the Board must focus on. Only then can these core opportunities be of the maximum potential of modernizing the Board’s role in M&A and gaining the greatest value.

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Management processes–everything from how a company manages risk to how it gets supplies Global Process Optimization Pic2for factories to how it manages and develops people–are some of the primary ways that global companies impose order and consistency on a diverse set of global operations.  Companies believe that processes can help share knowledge across divisions and regions to achieve operational excellence. Likewise, seamless delivery and service processes can be central to meeting customer expectations.

In a world where the pace of competition is increasing faster than ever, best-in-class processes can create competitive advantages when it comes to innovation and risk management. However, researches have shown that companies are particularly poor at managing processes. Often there are just too many processes. Worst, executives often do not know where to begin; a Leadership Development dilemma.

Global Process Optimization is the strategic approach to building a real Competitive Advantage.  However, it can be a challenge and there are pitfalls that organizations must face.

The Pitfalls of Organizations

Global organizations are particularly poor at managing processes. Processes are considered one of the 3 weakest aspects of organizations and strengthening them is crucial.

Based on a McKinsey survey of executives, executives do not know what their processes are.  Inasmuch as there are just too many processes, these processes do not reflect new customer needs. In fact, there exists a resistance to change that can be damaging to an organization.

Organizations have to understand that processes can go wrong on a global scale and it can bring in a lot of challenges to an organization.

The 3 Core Challenges to Global Organizations

Organizations are faced with 3 core challenges when dealing with processes and transforming them to a global scale.

Global Process Optimization pic1

  1. A Plethora of Processes. When there are a plethora of processes, there are just too many processes and too little value.  This happens when executives are unable to differentiate between processes that are essential to creating global value and those that are inessential but offer benefits if these are consistent.  Executives also fail to differentiate between processes that are crucial to customers or those that create value and those that do not. A plethora of processes is also created when the operation is in various locations or as a result of M&A activity.
  1. Overstandardization. How do you know that overstandardization exists? It is when processes are so rigid that they are slow to respond to new growth. As a result, there is a dramatic decrease in local responsiveness. This core challenge often arises because there is just too much concern about maximizing control and reducing risk.
  1. Resistance to Change. This is the third core challenge faced when change is introduced and there is resistance. Resistance to change often occurs when there is difficulty in changing customer-facing processes until the organization is faced with customer backlash. Executives often fail to understand customers’ preference for standard global service. The thinking is often directed towards country-specific variations which are not often what customers like.

Overcoming the 3 core challenges can be done. Organizations just need to take on a 3-phase approach that will ensure that all global processes are enabling performance. These are Prioritize, Optimize, and Implement. A 3-phase approach is an effective tool towards approaching Global Process Optimization in a strategic manner where value is maximized at minimal cost and complexity.

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Value Chain1The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm—in a specific industry—accomplishes to produce a valuable product or service for the market.  The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of subsystems of inputs, transformation processes, and outputs.

Another way to define the Value Chain principle is, “transforming business inputs into outputs, thereby creating a value much better than the original cost of producing those outputs.”  These inputs, processes, and outputs entail acquiring and utilizing resources—finances, workforce, materials, equipment, buildings, and land.

An industry Value Chain includes the suppliers that provide the inputs, creation of products by a firm, distribution value chains, till the products reach the customers.  The way Value Chain activities are planned and executed determines the costs and profits.

Value chains consist of set of activities that products must undergo to add value to them.  These activities can be classified into 2 groups:

  • Primary Activities
  • Secondary Activities

Primary activities in Porter’s Value Chain are associated with the production, sale, upkeep, and support of a product or service offering, including:

  • Inbound Logistics
  • Operations
  • Outbound Logistics
  • Marketing and Sales
  • Service

 The secondary activities and processes in Porter’s Value Chain support the primary activities.  For instance:

  • Procurement
  • Human resource management
  • Technological development
  • Infrastructure

Value Chain Analysis Benefits

The analysis of a Value Chain offers a number of benefits, including:

  • Identification of bottlenecks and making rapid improvements
  • Opportunities to fine-tune based on transforming marketplace and competition
  • Bringing out the real needs of an organization
  • Cost reduction
  • Competitive differentiation
  • Increased profitability and business success
  • Increased efficiency
  • Decreased waste
  • Delivery of high-quality products at lower costs
  • Retailers can monitor each action throughout the entire process from product creation to storage and distribution to customers.

Value Chain Analysis (VCA) Approach

Businesses seeking competitive advantage often turn to Value Chain models to identify opportunities for cost savings and differentiation in the production cycle.  The Value Chain Analysis (VCA) process encompasses the following 3 steps:

  • Activity Analysis
  • Value Analysis
  • Evaluation and Planning

Activity Analysis

The first step in Value Chain Analysis necessitates identification of activities that are essential to undertake in order to deliver product or service offerings.  Key activities in this stage include:

  • Listing the critical processes necessary to serve the customers—e.g., marketing, sales, order taking, distribution, and support—visually on a flowchart for better understanding.
    • This should be done by involving the entire team to gather a rich response and to have their support on the decisions made afterwards.
  • Listing the other important non-client facing processes—e.g., hiring individuals with skills critical for the organization, motivating and developing them, or choosing and utilizing technology to gain competitive advantage.
  • This stage also entails gathering customers’ input on the organization’s product or service offerings and ways to continuously improve.

Value Analysis

The second phase of the Value Chain Analysis necessitates identifying tasks required under each primary activity that create maximum value.  This phase is characterized by:

  • Ascertaining the key actions for each specific activity identified during the first phase.
  • Thinking through the “value factors”— elements admired by the customers about the way each activity is executed.
    • For example, for the order taking process, customers value quick response to their call, courteous behavior, correct order entry, prompt response to queries, and quick resolution of their issues.
  • Citing the value factors next to each activity on the flowchart.
  • Jotting down the key actions to be done or changes to be made to under each Value Factor.

Interested in learning more about the other phases of the Value Chain Analysis Approach?  You can download an editable PowerPoint on Strategy Classics: Porter’s Value Chain here on the Flevy documents marketplace.

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In today’s business environment, learning and knowledge have become key success factors internationally and intangible resources are of vital knowledge management strategyimportance. The struggle between competing firms has moved from tangible resources to intangible resources where knowledge and the ability to use knowledge have crucial roles.

Organizations are becoming more global, multilingual, and multicultural with people being required to work smarter and faster. People have become more connected with them being expected to be “on” all the time and the response time measured in minutes instead of weeks.

Indeed, today’s work environment has become more complex with businesses being threatened by the vulnerability, uncertainty, and crisis that could have been prevented if Knowledge was better managed. Better KM can help companies anticipate uncertainties and design strategies to lessen their impact.

While managers would like to take a strategic approach to avoid an impending crisis, often they find themselves fire-fighting. With a Knowledge Management Strategy, corporate executives can better manage the complex, chaotic, and non-predictable environment, in which companies must achieve performance.

Putting Strategy on Knowledge Management

Knowledge is important to efficiency and productivity. Hence it is critical that organizations manage their Knowledge effectively and strategically. Having a strategy for Knowledge Management will provide companies a plan to better manage information and knowledge for the benefit of the organization.

Effectively, a good KM Strategy can gain senior management commitment to KM initiatives and attract resources for implementation. In the end, it can provide the basis against which the organization can measure its progress.

Taking the 3 Knowledge Management Strategies to Fore

Companies are now feeling the pressure of the need to be more competitive. Taking on a Knowledge Management Strategy can lead competing firms to take the high road to success.

KM Strategy 1: Reckless Negligence
Reckless Negligence is doing little or nothing to improve capabilities in information, data, and KM. This is one strategy that has ceased to be viable in today’s business environment.

KM Strategy 2: Knowledge Competence
The goal of Knowledge Competence is to be an efficient and effective company with sufficient emphasis on responsible management of Knowledge. To date, at least 50% of the companies in the world are in this category.

KM Strategy 3: Knowledge as a Competitive Advantage
The goal of Knowledge as a Competitive Advantage is to up the ante in the spirit of continuous improvement. Undertaking the third strategy involves making KM a critical capability of the organization.  At least 20% of the companies in this world are in this category. This is often adopted by Knowledge-Intensive Industries.

Essentially, our company must create a robust Knowledge environment. However, this can only be achieved when 8 KM critical success factors are put in place.

Interested in gaining more understanding of Knowledge Management Strategy? You can learn more and download an editable PowerPoint about Knowledge Management Strategy here on the Flevy documents marketplace.

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Big corporations, by nature, maneuver like battleships. Held back by their own inertia and current business strategies, turning quickly can be Agile Activity Groupsdifficult when the competitive environment changes. Likewise, high performance as measured by shareholder returns is impossible to sustain over a long period of time.  No company consistently beats the market.

A recent in-depth study of long-term performance, however, suggests an alternative point of view about business strategy. A few large companies outperform peers when the measure of performance is profitability. They maintain this performance edge even during a significant business change in their competitive environments. Agility is one factor that differentiates them from others.

Agile companies adapt business change more quickly and reliably than competitors.  Even as battleships, they have learned to turn quickly as speedboats. Learning the routines of agility makes them be at the forefront of competition.

The Link Between Agility and Performance

 A survey was conducted to determine the link between agility and performance. The survey was focused on determining the way organizations formulated strategy, designed their structures and processes, led their people, and made changes and innovation.

More than 4,700 Directors and Executives from 56 companies were surveyed, of which 34 companies were Fortune 500 firms.

The survey was able to find out that when markets and technologies changed rapidly and unpredictably, the outperformers had the capability to anticipate and respond to events, solve problems, and implement change. As such, this enables Agile companies to easily adapt. Agility is not just the ability to change – it is a cultivated capability that enables organizations to respond in a timely, effective, and sustainable way when changing circumstances require it.

Many an Agile organization involves 4 complementary sets of activities, what we will call Agile Activity Groups.

The 4 Agile Activity Groups to Managing an Agile Company

Agile Activity Groups

  1. Dynamic Strategy Development. This is having a clear, relevant, and shared strategy that is undertaken with 3 key activities integrated within the strategy.
  1. Market Environment Response. This ensures an effective response to the implications of outside signals. Market Environment Response provides an accurate sense of what is going on in the environment.
  1. Response Refinement. This encourages innovation and tolerates failures. These are insights refined from the perceiving routing with a relatively high number of low-cost experiments.
  1. Change Management. Change Management is the mastery of internal program management capabilities needed to convert successful test and innovations into widespread practice. It builds the company’s capability to adopt unambiguous commitment with speed, certainty, and precision.

With the 4 Agile Activity Groups, Competitive Advantage is gained through an ongoing series of advantages that exploit current business conditions.

Interested in gaining more understanding of 4 Agile Activity Groups? You can learn more and download an editable PowerPoint about Agile Activity Groups here on the Flevy documents marketplace.

Are you a management consultant?

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In today’s business environment, learning and knowledge have become key success factors internationally and intangible resources are of vital knowledge management strategyimportance. The struggle between competing firms has moved from tangible resources to intangible resources where knowledge and the ability to use knowledge have crucial roles.

Organizations are becoming more global, multilingual, and multicultural with people being required to work smarter and faster. People have become more connected with them being expected to be “on” all the time and the response time measured in minutes instead of weeks.

Indeed, today’s work environment has become more complex with businesses being threatened by the vulnerability, uncertainty, and crisis that could have been prevented if Knowledge was better managed. Better KM can help companies anticipate uncertainties and design strategies to lessen their impact.

While managers would like to take a strategic approach to avoid an impending crisis, often they find themselves fire-fighting. With a Knowledge Management Strategy, corporate executives can better manage the complex, chaotic, and non-predictable environment, in which companies must achieve performance.

Putting Strategy on Knowledge Management

Knowledge is important to efficiency and productivity. Hence it is critical that organizations manage their Knowledge effectively and strategically. Having a strategy for Knowledge Management will provide companies a plan to better manage information and knowledge for the benefit of the organization.

Effectively, a good KM Strategy can gain senior management commitment to KM initiatives and attract resources for implementation. In the end, it can provide the basis against which the organization can measure its progress.

Taking the 3 Knowledge Management Strategies to Fore

Companies are now feeling the pressure of the need to be more competitive. Taking on a Knowledge Management Strategy can lead competing firms to take the high road to success.

Knowledge Management Strategy

KM Strategy 1: Reckless Negligence
Reckless Negligence is doing little or nothing to improve capabilities in information, data, and KM. This is one strategy that has ceased to be viable in today’s business environment.

KM Strategy 2: Knowledge Competence
The goal of Knowledge Competence is to be an efficient and effective company with sufficient emphasis on responsible management of Knowledge. To date, at least 50% of the companies in the world are in this category.

KM Strategy 3: Knowledge as a Competitive Advantage
The goal of Knowledge as a Competitive Advantage is to up the ante in the spirit of continuous improvement. Undertaking the third strategy involves making KM a critical capability of the organization.  At least 20% of the companies in this world are in this category. This is often adopted by Knowledge-Intensive Industries.

Essentially, our company must create a robust Knowledge environment. However, this can only be achieved when 8 KM critical success factors are put in place.

Interested in gaining more understanding of Knowledge Management Strategy? You can learn more and download an editable PowerPoint about Knowledge Management Strategy here on the Flevy documents marketplace.

Are you a management consultant?

You can download this and hundreds of other consulting frameworks and consulting training guides from the FlevyPro library.