Building Sustainable Competitive Advantage

Through Executive Enterprise Leadership

Dhirendra Kumar

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317170884
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Unternehmensstrategie

In Building Sustainable Competitive Advantage Dhirendra Kumar shows how the Enterprise Excellence (EE) philosophy is a holistic approach for leading an enterprise to total excellence. It does this by focussing on achieving sustainable significant growth in revenue and profitability, reducing the business cycle time, strategically managing the enterprise risk and focusing on the needs of the customer. There may be various organizations within an enterprise but they must all focus on meeting or exceeding customer needs. Therefore, EE is an integrated approach affecting every employee, every functional area and strategy within the organization. Enterprise risk must be identified, assessed and prioritized; developing a growth strategy proposal which leadership has to execute in order to achieve goals. As business leaders spearhead the efforts, they must minimize, monitor and control the probability and/or impact of unfortunate events and maximize the realization of opportunities. The achievements in Enterprise Excellence can range from greater cost efficiencies, improved market perceptions, fundamental changes to markets, to new product and service offerings. There may also be significant upgrades in skills, technology, and business strategies. The scope of Enterprise Excellence can also range from operations activities, to business functions, to overall organization and to the enterprise as a whole. Building Sustainable Competitive Advantage is a comprehensive reference book for practising professionals, teaching faculty, and students alike.

1

Enterprise Excellence Model

The Enterprise Excellence (EE) philosophy is a holistic approach for leading an enterprise to total excellence by focusing on the needs of the customer whether within the state, the nation, or the world while building sustainable competitive advantage. As global competition is increasing, anything less than EE is not enough. Many US companies have already started setting up their pursuit of excellence under the executive leadership to meet the Asian threats (Japanese, Chinese, Koreans, etc.). They are also preparing for increased competition from the Economic Community (Shore, 1990). Shore is identifying three key elements in building sustainable competitive advantage to achieve the EE:

• complete customer satisfaction;

• minimum cycle time;

• minimum resources consumed.

This is achieved by changing the way the business is run, i.e., business transformation is a necessity and not a luxury. The central constructs of the theory are value, work processes, decision-making, and social networks (Zhongyuan et al., 2011). Value is a measure of the extent to which an enterprise provides a market that the consumers in this market want. Increasing variations of offerings from what consumers want results in decreasing value. Value can also accrue from providing customers an offering they did not expect, e.g., Apple’s iPhone. This leads to innovation whereby the market changes its desires. Market innovators are usually not transformers; their innovations cause the other players in the market to have to transform. Thus, for example, Macy’s innovated in the retail marketplace; JC Penny was thereby forced to transform.

Other companies have been driven to pursue excellence through visionary executive enterprise leadership. This includes activities such as strategic visioning, innovating products, core competency and strategic marketing. Hence, look at excellence from a different perspective. For example (Zink, 2007) tried to come up with a new definition for excellence, based on a review of the historical development of the total quality movement. Dahlgaard-Park and Dahlgaard-Park (2007) proposed, on the basis of a review of eight excellence frameworks, a new model called the 4P model that depicted the factors for sustainable excellence, and Komashie et al. (2007) identified the different factors for creating excellence in the health-care and manufacturing industries. As reviewed in the articles in the special issue of the Journal of Management History, it became clear that among these and other authors there was no agreement on which factors (elements) create sustained enterprise performance. This agreement is all the more important as the times have changed considerably since the special issue was published. In 2007 the credit crisis hit, causing the most severe recession since the 1930s (Colvin, 2009). At the same time a wave of trends and developments, including globalization (Bakker et al., 2004; Starbuck, 2005; Schuster and Copeland, 2006; Sirkin et al., 2008; Ramamurti and Singh, 2009), new technology (Malone, 2003; Light, 2005), ascension of Asian markets (especially China and India) (Backman and Butler, 2007; Nath, 2008; Nobrega and Sinha, 2008), environmental, demographic and other issues were sweeping the business world and reshaped the world economy. Additional discussion is presented in Section 1.2 – Excellence Models’ Evergreen Characteristics.

Therefore, the following sections are presented in this chapter:

1.1 Historical Enterprise Excellence Models

1.1.1 Innovation

1.1.2 International Business Excellence Statistics

1.2 Excellence Models’ Evergreen Characteristics

1.3 Development of the Enterprise Excellence (EE) Model

1.3.1 Enterprise Growth Strategy (EGS)

1.3.1.1 Business vision and mission

1.3.1.2 Innovative growth ideas

1.3.1.3 Market growth strategy

1.3.1.4 Core competency

1.3.2 Enterprise Risk Management (ERM)

1.3.2.1 Strategic risk management (SRM)

1.3.2.2 Integrated risk management

1.3.2.3 Other risk areas

1.3.3 Enterprise Transformation (ET)

1.3.4 Strategy Execution and Measurement

1.1 Historical Enterprise Excellence Models

There is no uniformly accepted definition of enterprise excellence. Initially business leaders were concentrating their efforts on operations, and then moved on to business and finally concentrating their efforts on the enterprise. Variety of EE models are discussed in the literature including the following.

Edgeman and Eskildsen (2014) have documented a skilled use of an enterprise excellence system to significantly boost performance across an array of key domains, including financial, human capital, and operations including supply chain, but social and environmental performances are not included. The Triple Top Line (TTL): Equity, Ecology and Economy, and the Triple Bottom Line (TBL): People, Planet and Profit are intended to communicate the crucial nature of connecting these to drive alignment between, and hence convergence of, sustainability and enterprise excellence. The relationship among these various elements is very complex, but Edgeman and Eskildsen (2014) are presuming that ethical, effective and efficient (E3) are enterprise governance driven equitable, ecologically sound and economically viable (3E) strategy producing positive TBL (People, Planet and Profit) for the enterprise performance. They have presented their conceptual model (not mathematical equation) in the following expression:

The use of “∫” integration symbol from calculus is to emphasize the importance of integrating enterprise strategy with enterprise governance to produce 3P (People, Planet and Profit) performance. To accomplish sustainable EE, the integrated approach to organizational design function emphasizing superior performance with various domains including innovation, business intelligence and analytics, operational including supply chain, human capital, financial, marketplace, societal and environmental.

Environmental and social elements establish enterprise boundary conditions or constraints that are influenced by competitive environment, and legal and regulatory requirements. The enterprise-level strategy and governance that jointly optimize resilience and robustness must also regard sustainability. In turn these promote sustainable superior performance across the environmental, societal and economic sustainability dimensions of the TBL (Elkington, 1997). Sustainability is a business imperative (Lubin and Esty, 2010) that stimulates enterprise innovation strategies and tactics (Nidumolu et al., 2009) which are capable of providing the next big source of competitive advantage (Laszlo and Zhexembayeva, 2011). Inclusion of sustainability in enterprise strategy and governance is now common practice (Fowler and Hope, 2007). Corporate governance is vital to both corporate sustainability (Aras and Crowther, 2008) and organizational resilience (Avery and Bergsteiner, 2011), especially in high-intensity enterprise environments marked by the need to integrate and govern complex human capital and technological interfaces (Smith et al., 2005).

Some of the business/enterprise excellence (BEE) models are derived from Total Quality Management (TQM) theory and practice. The BEE models supporting America’s Baldrige National Quality Award and the European Quality Award are globally dominant. Effective implementation of BEE models and strategies correlates positively with improved performance in emphasized model areas (Balasubramanian et al., 2005). Inclusion of intelligence and analytics in sustainable EE is driven by rapid evolution of data-driven decision-making toward vastly more complex and computationally intensive “big data analytics,” LaVelle et al. (2011) that support sophisticated transformation and translation of information into actionable enterprise intelligence and foresight.

The following specific characteristics are recognized in these models:

• Executive enterprise leadership in BEE model defines, refines and deploys enterprise mission, vision and strategy in order to fulfill organizational objectives and continuously improve performance in areas of competitive importance, including enterprise innovation and agility, Bou-Llusar et al. (2009).

• Both Total Quality Management (TQM) and BEE models practice innovation, but it is not strongly linked (Sun and Zhao, 2010; Teece, 2010) yet curiously, BEE models have not explicitly attended to innovation’s role in BEE and assessment of its impact on BEE progress.

• Social-ecological enterprise (SEE) model stresses E3 (ethical, effective, efficient and transparent) strategy and governance as causal to enterprise performance of all sorts. SEE thus focuses on integration of E3 governance with 3E (equity, ecology and economy) triple top line (TTL) strategy, while McDonough and Braungart (2002) are emphasizing that (3E) social equity, ecological responsibility, and economic soundness are along with innovation, resilience and robustness.

• Specifically, SEE emphasizes social-ecological innovation (SEI) resulting from strategic integration of sustainable innovation and innovation for sustainability (Edgeman, 2013). Sustainable innovation manifests in enterprise cultures characterized by rigorous, regular, systematic and systemic innovation throughout the enterprise and is central to its strategy, financial performance, and other key performance domains (Wolpert, 2002).

• Gunester et al. (2010) are also emphasizing that eco-efficiency of enterprise governance is positively correlated with operational and supply chain robustness as well as to value differential that increases over time between more and less eco-efficient enterprises.

• Analyzing and assessing both the models carefully, innovation in SEE differentiates SEE from BEE and, while effectively implemented ecologically and socially responsible enterprise governance and strategy has been positively associated with enterprise value (Al-Najjar and Anfimiadou, 2012; Jo and Harjoto, 2011).

• The combination of governance and strategy with innovation capability and capacity that most strongly drives enterprise value (Hart and Dowell, 2011).

• Hence, the critical elements to these models are governance and strategy, enterprise intelligence and analytics, foresight, innovation, reliance and robustness. For example, enterprise intelligence and analytics: Atkinson et al. (2000) and Galbraith (2012) have acknowledged that organization design components enable pursuit of continuously relevant and responsible performance – an effort further aided by appropriate organizational structure. Among the above-listed elements, innovation is one of the most critical elements in achieving the EE and building sustainable competitive advantage, therefore, some literature research on innovation is necessary to discussed.

1.1.1 INNOVATION

Every product will have a life cycle with an infant period, growth period and then the maturity/decline period (Figure 1.1). This product curve is also known as “S” curve. Tarde (1903) defined the “S” process as the innovation-decision process. Once innovation occurs then the innovations generally spread from the innovator to other individuals and groups in the organization. The S-curve maps growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.

Figure 1.1 Product life cycle “S” curve

Innovation is critical to support the sustainability, resilience and robustness of the enterprise excellence model. Therefore, some additional research on innovation is as follows:

• Reinmoeller and van Baardwijk (2005) have documented that enterprises with the greatest diversity in their innovation strategies portfolio are also the most resilient ones with four key innovation strategies: exploration, knowledge management, entrepreneurship and cooperation.

• Innovation has a documented positive impact on environmental and social performance and is inextricably connected to sustainability (Melville, 2010; Terjesen et al., 2011), while leadership innovation has a deep impact on enterprise governance (Birkinshaw and Mol, 2006).

• Hoffmann (2012) provides a means of deeply embedding customer needs in design of sustainability-oriented products, while Edgeman and Eskildsen (2012) provide a means of integrating societal and environmental considerations into the innovation process.

• To support the enterprise intelligence and analytics, organizations with greater technological and market intelligence absorptive capacity are better able to navigate competitive turbulence and are hence more robust (Lichtenthaler, 2009). This is critical to innovation, assimilation and transfer of intelligence, and subsequent mobilization of resources that contribute to improved performance across an array of key enterprise performance dimensions, including innovation and leverage of social capital across the enterprise supply chain and its broader ecosystem (Maurer et al., 2011).

• Human capital is one of the most critical elements in innovation. Hence, their talent and skills be enriched and optimized to drive innovation. Similarly, a better engagement be cultivated between the enterprise and the people for whom the organization innovates, including direct users of its innovations, to yield more fruitful co-creation (Edgeman and Eskildsen, 2012; Hoffmann, 2012).

• Eskildsen and Edgeman (2012) very positively express that social-ecological innovation contributes to enterprise value creation through: revenue growth; cost, risk and waste reduction; strategic redesign of products, processes or business functions; and differentiating the enterprise value proposition.

1.1.2 INTERNATIONAL BUSINESS EXCELLENCE STATISTICS

Business excellence frameworks (BEFs) and national quality awards (NQAs) are administered by national organizations (“custodians”) responsible for a wide range of activities, including promotion and creation of awareness of the national BEF within that nation’s business community. The Australian BEF (the Australian Business Excellence Framework – ABEF) was one of the first four worldwide, developed independently in 1987, SAI Global (2007). It was administered by the Australian Quality Council (AQC) until 2001 when custodianship passed to SAI Global, an ASX 300 company and one of the world’s leading business publishing, compliance, training and assurance organizations. SAI Global is the only privately owned organization currently administering a BEF (Grigg and Mann, 2008). While such a situation could potentially lead to concerns about whether their primary affiliation is to the promotion of the framework or to their shareholders, SAI Global are uniquely well positioned, being also the national standards body in Australia, to market and promote the framework exactly as it does the standards.

According to Grigg and Mann (2008), awareness of the ABEF is lower than was previously estimated in Australia, with under 10 percent of randomly sampled organizations being aware of the model. ABEF evaluators perceived the methods of promoting the ABEF to be relatively ineffective. Worldwide, custodians of business excellence (BE) models reported that awareness of BE had generally increased in their country in the last three years. Miguel’s (2004) research has identified 76 nations which administer a national BEF, although Grigg and Mann (2008) estimate that figure has increased to over 80, with around 50 of these using the Malcolm Baldrige NQA (MBNQA) Criteria and a further 25 having adopted the EFQM European Excellence model (EFQM, 2007). The remaining BEFs are unique and tailored to suit the particular business and cultural context of the nation to which they apply. These include frameworks used in Australia, Malaysia, Singapore, Japan, Mexico, Brazil, South Africa and Canada. Despite this prevalence, there is relatively little in the literature on the subject of promoting and creating awareness of BEFs and awards.

A study on BE awareness levels was conducted by the Australian Quality Council and Deloittes-Touche-Tohmatsu (2000) in Australia and reported high levels of framework awareness and use, with between 70 percent of Australian organizations (and around 90 percent of its public sector organizations) reportedly being aware of the ABEF, and around 34 percent making use of it.

Grigg and Mann (2008) are reporting their global survey statistics: international custodians were asked to assess the extent to which BE awareness had changed in their country over the last three years. Most custodians (75 percent) indicated a “slight” or “substantial” increase, with one (UK) indicating levels remaining the same, and three (Sweden, Australia and Ireland) indicating that levels may have “decreased slightly.” Two countries (Brazil and Canada) indicated that a...