Competitive Advantage
Competitive advantage is gained when a company can utilize effective strategies to give the customer the best value. When a company and its products are perceived as superior to its competitor by the target market, this creates a competitive advantage for the company. To give the target market greater value, a company can provide quality, greater benefits, and services or offer low prices. To achieve a competitive advantage over other firms and competing products needs a suitable business strategy. Porter suggested four “generic” strategies that aim to gain competitive advantage; cost and differentiation leadership strategies target competitive advantage in a broad industry segment or market range. In contrast, the cost focus and differentiation focus are aimed at a narrower industry or market.
Cost Competitive Advantage
The target of cost focus is offering the lowest possible price to a targeted niche market. Once a company understands the market dynamics and customer needs, they can offer a lower price to other market players. However, to offer low prices, a company must utilize inexpensive raw materials, a skilled workforce, control costs, and streamline its operations. There are many avenues of keeping operational costs low such as offshore manufacturing, cutting down on extra being offered to the customer, and government subsidies, which will enable the company to pass on lower costs to the consumer. Furthermore, a company can consider product design and re-engineering to create efficient and cost-effective products. The delivery method is also a vital aspect to consider, resulting in substantial cost saving.
Product/Service Differentiation
The focus of this strategy is creating a unique product or service that is as exclusive as possible. Good research and development, innovation, and quality are vital to the success of this strategy. Furthermore, for the market to understand what you offer, effective marketing and segmentation are crucial. Segmentation is critical to ensure as it will narrow down a market where competitors are targeting a broader customer base. However, it is essential to ensure customers have diffrent wants and needs other than the products already in the market.
Cost Leadership
This strategy focuses on streamlining internal processes to ensure cooperation and effective functionality between all functional organization areas. The strategy requires; high productivity levels, high utilization capacity, a bargaining power to negotiate best prices for production inputs, and lean production methods. Furthermore, effective technological use in production and effective distribution channels is vital to this strategy. Cost leadership can either utilize low costs or a more extensive market share with average prices.
Differentiation leaderships
Differentiation leadership aims to achieve a competitive advantage targeting broader markets and industry-wide opportunities. The strategy involves positioning the business to meet buyer criteria. However, the company has to adjust its design and production to factor in extra value-added features, resulting in higher production costs. Since the strategy uses buyer’s criteria, there is a potential of charging a premium price for a product. Differentiation leadership is about giving the customer reasons to pay a premium price and prefer a product over other products, thus meeting production costs. This strategy is characterized by branding, consistent promotional support, industry-wide distribution, and superior product quality, thus Persuading customers to become brand loyal and paying a premium for their products.
Enterprise Resource Planning
An enterprise resource planning system is a collection of integrated programs used to manage vital organizational operations. The Enterprise resource planning system has a database at its core shared by all users. The database enables all organization employees to access relevant data needed to support planning and operations in their diffrent departments. The complex enterprise of an EPR system is essential in controlling costs and product flow since it integrates real-time information from the entire organization.
However, for an EPR system to be effective, it requires substantial resources, effective collaboration from diffrent departments, and strong managerial support. Management support is crucial since the costs incurred to obtain and maintain an EPR system are high. Furthermore, the change in operations and processes for the integration of an EPR needs substantive support from management.
An EPR system is very good at promoting and enforcing best practices in an organization by providing improved data access.
The integrated database of an EPR system facilitates operational decision-making by availing real-time organizational data from diffrent departments. Management can make informed decisions at a faster rate since the system seamlessly integrates diffrent departments.
Multiple systems operating in diffrent platforms do not interface reliably; thus, the organization is disconnected, and information flow from diffrent departments is slow. However, the integrated software applications of an EPR system ensures departments are interconnected, and vital information is available. Well informed and interconnected departments offer employees the chance to make informed decisions without having to wait on management since they can access data from any department.
Technological infrastructure in a company eases an employee’s workload, saves time, and makes work efficient. Implementation of an ERP in an organization creates the need to upgrade all technological infrastructure in an organization. Thus other than the advantages of an EPR system, further technical improvements ensure an improved work process. The time used to document, process, and execute information will be reduced, making work more efficient and effective. Finally, an EPR system offers management the chance to have a wholesome view of the organization. The ability to receiving seamless real-time data from diffrent departments allows the management to make improvements across the entire company. Thus the company has a better chance of increasing its efficiency and performance since diffrent departments have been improved, meaning change is effected organization-wide.
Centralizing the IT Function
A centralized network connects all users to one central server that stores user information and complete data. Centralized server monitoring is excellent for companies that need visibility and network control since the centralized system monitors data flow in the servers. A centralized IT function has several advantages and disadvantages:
The benefits of adopting this type of structure include lowered hardware expenses. When components are distributed across locations in an organization, there is a need for duplicate or extra equipment. Thus the increased redundancy increases cost, and the cost can be reduced by keeping all equipment and servers in a central place. Secondly, the IT staff productivity is increased as the centralized structure makes routine tasks easier and gives better oversight. Managing tasks such as security patches, updates, and software installations from one location increase productivity and reduce costs.
Furthermore, an organization’s purchasing power is increased as it is cheaper to procure large organizational purchases than departmental purchases. Software licenses and support contracts are more comfortable negotiating for an entire company resulting in better contract terms and complementary support and integration services. Improved information flow is another advantage of a centralized IT system as it prevents data silos. Connectivity of diffrent departments to the central server makes data sharing across departments seamless, leading to better collaboration and data sharing. Finally, the centralized system helps meet industry-specific regulations- HIPAA, Sarbanes-Oxley Act, which require a certain degree of database and IT centralization.
DISADVANTAGES
However, the centralized IT system also has several disadvantages, including dependence on network connectivity, which means a loss of connectivity if a server goes down. Furthermore, the lack of servers increases the chances of data loss. IT resources are not configured according to departmental needs; thus, department decisions need to go through a chain of approvals. Additionally, it is labor and cost-intensive to respond to new technological trends. Since the system is decentralized, it will need an entire overhaul of the system to incorporate upgrades. The slow response to technological trends is a competitive disadvantage since competitors might capitalize on the new technology—finally, the challenge of prioritizing project requests from diffrent departmental LOB’s.
Pilot Implementation Methodology and the Parallel Implementation Methodology
A pilot implementation entails changing a new system by introducing a system to one section of a company- pilot group, before implementing it to the whole organization. The pilot implementation ensures an organization verifies a system that works perfectly before massively restructuring the company. The implementation methodology has several advantages and disadvantages. The first advantage is identifying problems or failure early enough without wide-spread organizational impact offers an opportunity for addressing them. Training of other employees can be supported while the program is being implemented.
Furthermore, employees who were engaged in the pilot program can help in training. Implementation is easier and cheaper to manage since it is only on a small scale. However, the implementation strategy also has several disadvantages: since the change-over happens from department to department, it takes longer to implement. The new system has to replace the old system; thus, the department might lose the data if the system fails. Finally, scale issues can be problematic since the system can work well for 20 people but fail when it is supposed to serve 2,000 people.
Parallel implementation methodology is implemented simultaneously in an organization for a given period. Since the implementation is executed while the old system is still operational, it is less risky even though it is the most expensive approach since support is needed for both networks, and work is duplicated. Data is input into both systems, thus producing two sets of results, but when the staff is comfortable with the new system and functions well, the old system is shut off.
The parallel implementation methodology has several advantages and disadvantages, including users can compare output from both systems to ensure correctness. Since the known-good system is running, there is little risk of data loss. The change-over happens gradually, thus presenting a chance for the employees to be trained gradually. As both systems are functional, data from both systems can be compared to test for the new system’s functionality. However, the system has disadvantages too, including: Managing both systems makes this methodology much more expensive. The method is time-consuming and exhausting as data must be input in two diffrent systems. Furthermore, intensive data entry could lead to data misrepresentation.