In a dynamic and unpredictable competitive environment many organizations are not able to match their manufacturing capabilities to competitive strategy that is needed to sustain competitive advantage. The industry ecosystem framework, which highlights the important role played by the interaction between industry life cycle and rate of technological change, is particularly useful in providing a basis to integrate corporate strategy issues with operations strategy.
Source: Lei and Slocum (2005)
Quadrant 1 of the industry ecosystem framework, titled steady evolution, is characterized by mature industry growth and a low rate of technological change. Firms occupying this quadrant play the role of “consolidators” by using different competitive priorities. Low cost, driven by economies of scale, is critically important. Firms must also be able to cater to varying demand levels and the need for product variations, necessitating the need for volume and mix flexibility. Mix flexibility enables a firm to offer a variety of products from standard platforms, thereby allowing consolidation of its competitive position in the marketplace as we have seen used by Dell. Standardized platforms allow for product variety through choice of components, allowing for a variety of quality dimensions, such as performance quality, conformance quality, reliability, durability, serviceability and perceived quality, playing important roles. Delivery dependability ensures customer satisfaction. Firms operating in the steady evolution quadrant use flexible process technology in their manufacturing processes and use information exchange and planning technologies for coordination and control purposes. Adequate capacity is required to cater to volume and sourcing fluctuations resulting from market and supply chain discontinuities. The infrastructure links suppliers and customers to the firm and must support continuous improvement practices. Lightweight product development teams are formed to handle minor modifications needed for incremental product improvement.
Quadrant 3, the fast growth industry ecosystem, focuses on industries that are in the “ramp-up” phase of their lifecycle and are operating in situations characterized by a relatively low rate of technological change. Quadrant 3 firms must be concept drivers to operate in such high growth ecosystems. In these situations, they must plan for continued growth, focus on the development of core products, and maintain the differentiation of their products. Developing customer support for their product concept is critical and requires unique value propositions and scalable business models to cater to market growth (Lei and Slocum, 2005). Innovations that target emergent market requirements provide an important competitive priority in developing modular as well as architectural innovation. Further, rapid growth necessitates quick responses to market change. Rapid change requires a flexibility competitive priority, ranging from supplier flexibility on the input side; to labor flexibility, equipment flexibility, material handling flexibility, expansion and routing flexibility on the process side; and to volume flexibility, mix flexibility, new product/modification flexibility and delivery flexibility on the output side. Firms in quadrant 3 thrive on their flexibility-based competences. Finally, product differentiation is achieved through product performance, product features and aesthetics dimensions of quality.
On the structural front, concept drivers use design technology to aid new product development efforts. Quadrant 3 firms incorporate practices such as design for manufacturability, concurrent engineering and quality function deployment to align the product development efforts with appropriate manufacturing processes. Flexible capacity, process technologies and sourcing arrangements across the supplier network ensure that quadrant 3 firms can adapt to the rapid growth requirements. Appropriate organizational practices require cross-functional new product development teams led by a strong project manager who have resource authority to make major expansion decisions.
The wild, wild west industry ecosystem in quadrant 4 is characterized by high rate of technological change, uncertain market boundaries, multiple competing technologies and standards, and numerous entrants from a wide number of industries. In quadrant 4, technological changes can occur at any time to confound existing business models and strategies, thereby creating a chaotic business environment. Management must determine the specific issues that need to be addressed, and develop business and operations strategies to meet rapidly changing business conditions. If a firm is too early or too late in switching from old to new technologies, the organization suffers either a lag in market demand or an absence of competitive offerings. New technological can challenge firms financially until revenues from the new offerings exceed the high costs of development and new market entry. Firms in this quadrant must be pioneers who compete with new products that can be developed within the scope of new technologies. Rapid growth in the market makes it difficult to have a clear understanding of evolving market requirements. Adaptation requires constant innovation for long-term success.
On the other hand, the creative destruction industry ecosystem in quadrant 2 is characterized by new technologies or disruptive innovations that reshape underlying value propositions. New entrants from other industries change the competitive dynamics. The concept learners occupying this quadrant operate in a mature industry necessitating focus on current market innovation.
Industry ecosystems characterized by high rates of technological change must focus on the competitive priority of high levels of innovation. Both pioneers and concept learners engage in basic and fundamental research and develop patents to sustain their position in their technology intensive ecosystems. The continuous change in technology requires constant product modification flexibility to sustain competitive leadership. Product performance is an important criterion in the development of modular and architectural innovations. Mix flexibility helps to serve several market segments and explore potential niches. The innovation competitive priority needs to be supported by structural choices, including proprietary technologies, flexible production systems and sourcing arrangement with leading suppliers; and infrastructural choices, specifically creation of small-sized independent teams. These operations strategy elements form the initial basis for competing in situations characterized by high rate of technological change. Over the course of time, firms move through a stage-based progression in strategy development in which once the technology starts getting stabilized other competitive priorities become important during the latter stages.
Source: Nair, A. and Boulton, W. R. 2008. Innovation Oriented Operations Strategy Typology and Stage-based Model. International Journal of Operations & Production Management, Vol. 28, Iss. 8, 748-771.
Reference:
Lei, D. and Slocum, J. W. (2005), Strategic and organizational requirements for competitive advantage. Academy of Management Executive, 19(1): 31-45.