Strategic Value Chain Management

Models for Competitive Advantage

Qeis Kamran

• Publisher: Kogan Page
• Year: 2020
• ISBN:
  9780749484439
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

A supply chain is the process of all parties involved in fulfilling a customer request, while a value chain is a set of interrelated activities a company uses to create value and a competitive advantage. In Strategic Value Chain Management the authors bring together a variety of disciplines, showing how to move from traditional supply chain management to value chain management. Research from the (ISM) International School of Management, Germany, originating from a network of companies in a range of sectors, is integrated with case studies to demonstrate particular concepts. Strategic Value Chain Management brings together theory and practice and presents tangible ways of creating competitiveness in a changing world through the use of effective models and frameworks. Challenging the traditional Porters Five Forces Model, the authors introduce the important academic disciplines of cybernetics and systems sciences as essential drivers of strategy within the supply chain, supported by case studies illustrating their implementation.

02

A treatise of cybernetics, system sciences and complexity sciences

Underlying organic and social phenomena is a simple but fundamental natural law which is primarily ignored in strategic and management sciences: ‘self-organization’. This law is responsible for the markings, and the shapes of those marks, on the bodies of cows and tigers. It is responsible for creating the shapes of sand dunes in the Arabian Sahara. And it is responsible for a flock of birds self-organizing themselves in flight – even though as a whole they do not know what each individual bird’s next action will be, they are still able to master the most complex tasks of navigating the planet for thousands of miles for survival without a leader, a strategist. And it is responsible for how the human heart organizes itself and how its cells are coordinated to beat so masterfully that within the span of a human’s life of 80–90 years, a disruption rarely occurs.

Figure 2.1 Map of complexity as science and these theories are organized

Author’s interpretation, based on Sayama (2010)

Figure 2.1 details

The details are given below with a couple of features in each.

• Game theory: Bounded rationality and cooperation versus competition
• Collective behaviour: Phase transition and social dynamics
• Networks: Scaling and graph theory
• Evolution and adaptation: Machine learning and artificial intelligence
• Pattern formation: Spatial ecology and dissipative structures
• Systems theory: Homeostasis and feedbacks
• Nonlinear dynamics: Phase space and Chaos.

Imagine giving one of the birds in the flock the position of leader, or giving the affairs of heart-beating to human beings to organize and manage its activities on a daily basis – things might surely turn sour. Figure 2.1 describes an overall holistic view of the sciences of complexity and the wide spectrum it covers. Although covering the whole spectrum is optimal, that is beyond the scope of this book.

Evolution is nothing else but a history of self-organization. Emergence is embedded in its DNA, its atoms, in its structure and how it knows what to do, how to shape itself, for example, how the eye knows to be an eye and a finger knows to be a finger in an embryo. How it is possible that the sole of a newborn’s foot knows to be thicker than the skin of its other parts although it has never walked before. Emergence welcomes change and takes its forms by adaptation in an order that it actually can survive. The quest for survival is nature’s ultimate doctrine. Survival is embedded in every action and activity of nature. Order and chaos are just as much a natural phenomenon as the shape of a ‘fractal’ (Mandelbrot, 2003). The notion that complexity arises from complicated matters instead of some simple natural rules and that these simple natural rules give rise to very complex objects and phenomena is not what is generally observed. Knowing that an object can be complex and simple at the same time does not occur to the observer. They tend to think that complexity must be complicated, and this notion is ever-present. The laws of mathematics reveal that things can be simple and complex, depending on the way the observer sees it. Mandelbrot’s is the most powerful and well-known set of simple rules, which are widely recognized and famous outside of mathematics. It is not only known because of its aesthetic appeal, but moreover because of the simple rules that constructs and emerges as the complex structure, and Mandelbrot’s model is the best form of displaying mathematics via visualization.

When a set of objects is observed, one sees that it is complex, but knowing and observing the set from a holistic perspective one can see that it is simple. If an object is simple and complex at the same time, or one or the other, it all depends on the quality of the observer’s knowing. Thus, self-organization is the most powerful law in nature by an emerging conglomeration of simple rules. Translating insights from the sciences of complexity to organizational behaviour and organizational cybernetics and precisely into the field of strategy is a demanding task, but the resource and time is well invested, thus by this analogy many accomplishments not yet known to the field may give rise to the viability the organization seeks (Beer, 1959, 1966, 1972, 1981, 1985; Foerster, 2003a; Ulrich and Probst, 1984).

There are pioneers of the science that have bridged chaos and complexity sciences into other fields – they have contributed to the scientific and practical understanding and have revealed the power of self-organization as a natural phenomenon, within the context of their fields. It is important to list some vital scholars’ observations on self-organization that are essential for management and strategy. Below are some prime examples of this phenomenon and the great contributors:

• Alan Turing, by his patterns – ‘Under certain not very restrictive conditions (which include a requirement that the sphere be relatively small but increasing in size) the pattern of breakdown of homogeneity is axially symmetrical, not about the original axis of spherical polar co-ordinates, but about some new axis determined by disturbing influences’ (Turing, 1952).
• Belousov, by his chemical reaction – Boris Belousov is famous for discovering a chemical reaction that spontaneously exhibits temporal periodicity. Zhabotinsky discovered its power and developed it further, calling it the ‘Belousov–Zhabotinsky (BZ) reaction’ – a chemical clock. Herman Haken used the BZ reaction as a paradigm in his ‘synergetics’ (Haken and Knyazeva, 2000). ‘The philosophical consequences of synergetics, the interdisciplinary theory of evolution and self-organization of complex systems… Synergetics can be considered as one of the modern, most promising research programs. It is oriented towards the research for common patterns of evolution and self-organization of complex systems of any kind regardless of the concrete nature of their elements or subsystems’ (Haken and Knyazeva, 2000). This BZ reaction is a prime and standard example of complex behaviour in textbooks on non-linear dynamics.
• Benoit Mandelbrot, by his fractals – The term fractals was coined by Mandelbrot (1977) to describe the many phenomena of nature in which small parts resemble the whole. ‘The veins in leaves look like branches; branches look like miniatures trees, rocks look like miniature mountains’ (Mandelbrot and Taleb, 2010). Similar patterns can be found in economic data and the parts often relate to the whole according to what we can observe as the ‘power law’. Fractal finance has not yet earned a place in Ivy League MBA classrooms. Volatility breeds volatility and markets keep the memory of past happenings and moves; it comes in clusters and lumps. Long-run market returns are dominated by a small number of investments. The Mandelbrot set fractals natural principle (ZZ2+C) signposts Mandelbrot’s equation and feeds back on itself (Mandelbrot, 1977).
• Stafford Beer, by his ‘first principle of organization’ – ‘Managerial, operational and environmental varieties, diffusing through an institutional system, TEND TO EQUATE; they should be designed to do so with minimum damage to people and to cost. The function of management is emerging, as it must finally be understood, as a subsystem of a viable system – and not as some hierarchical overload’ (Beer, 1985). The design and creation of Beer’s VSM model is one of the most vital and powerful introductions of the power law into social sciences.

• Ross W. Ashby (1962), by his ‘principles of self-organizing systems’ – ‘…, but it’s fundamental and is only too readily forgotten when one comes to deal with organizations that are either biological in origin or are in imitation of such systems. With this in mind, we can now start to consider the so-called “self-organizing” system. We must proceed with some caution here if we are not to land in confusion, for the adjective is, if used loosely, ambiguous, and, if used precisely, self-contradictory… To say a system is self-organizing leaves open two quite different meanings. There is a first meaning that is simple and unobjectionable. This refers to the system that starts with its parts separate (so that the behavior of each is independent of the others’ state) and whose parts then act so that they change towards forming connections of some type. Such a system is “self-organizing” in the sense that it changes from parts separated to parts joined.’
• Von Foerster, by his ‘self-organizing systems and their environments’ – ‘Let me briefly summarize…: […]
  1. By a self-organizing system, I mean that part of a system that eats energy and order from environment.
  2. There is a reality of the environment in a sense suggested by acceptance of the principles of reality.
  3. The environment has structure’ (Foerster, 2003a).

What is expected to be called self-organizing from the system is that it develops eigen behaviours to create order out of disorder. The author suggests another complementary definition:

The system has the attributes of self-meaning out of chaos and a self-transforming but identity-preserving structure out of randomness by a holistic awareness of its environment and itself. One of the chief attributes of a self-organizing social system is the ability to maintain its identity.

Indiscriminate intervention into the system by prerogative means does not possess ‘requisite variety’ (Ashby, 1958). There we find the reason why state interventions throughout the financial world do not heal the world’s...

Table of contents

• Preface
• Acknowledgements
• Introduction
• 01 Michael Porter – the founder of competitive strategy
• 02 A treatise of cybernetics, system sciences and complexity sciences
• 03 Introducing the six forces model
• 04 Global value chain management strategies and models for competitive advantage Co-authored with Lukas-Arved Eiben, MBA
• 05 Economic dimension of the six forces model and practical implications Co-authored with Maryam Sezavar, MIM
• Conclusion
• Appendix: Economic layer, supply chain and collaboration (Co-authored with Dr Rolf Neise)
• Index