The Difficulties of Consumer Value Store, Using the Management by Departments - Assignment Example

Q1-Could disruptive innovation and quality management help in overcoming the difficulties of this company? Introduction In the year 2000, the Consumer Value Store was forced to say good bye to almost 7.2 million customers. Due to this reason the company’s annual revenue was restricted to $ 20 billion, which otherwise would have been approximately $ 22.5 billion. Loss of such a large amount of customers brought shivers to the camp. The company’s decision makers had no other options, other than to critically analyze their setup, and to look out for mistakes that they made in the past. Most of the problems were related to the customer services and prescription orders. To deal with these problems the company decided to establish Pharmacy Service Initiative (PSI). The role of PSI was to demarcate the areas that required improvement or modifications. The issues identified by PSI were not specific to CVS; rather, it included the complaints from customers regarding cancellation of orders, and wastage of time at the pick-up spot. Analyzing the situation and its complication, the first question that comes in the mind is what could be the solution, or what steps must be taken in order to make the difference? Since the problems are common with other pharmacy stores, it demands something innovative, and in this regard, one has to answer the question, could disruptive innovation and quality management help in overcoming the difficulties of this company? Companies can innovate three ways. Firstly, New and Improved products should be introduced to target the high-margin customers to whom old products are not satisfying enough. Secondly, to the customers who can’t afford much, cheap alternatives should be launched of the existing expensive products which can fulfil their requirements without being a burden to their pockets, and lastly, new products should be introduced in order to create new markets and bring fresh consumers. (Christensen et al., 2004) Disruptive innovation refers to mode of expanding and establishing new customer base, by adding services or introducing newer products and technology that may disrupt the existing market linkages. In contrast to disruptive innovation there is sustainable innovation that does not affect the existing market linkages; rather it aims at adding value to the products or services. However, defeating incumbents with sustainable innovation is very hard. The problems with CVS are common in almost all the companies that deal in pharmaceuticals. Furthermore, the margin for innovation remains very narrow, because the stakes are too high, and the safety of the customer is top priority. Setting The problems faced by CVS were due to the errors and pressure laid by the customers. It could either expand the size of the office and add more staff to work as techs, or it good think out of the box and introduce some low value service or scheme that could bring in new customers. By doing so it will become more popular, and this will add more customers. Meanwhile the normal dealings will continue to maintain the projectile of incumbent growths in normal state. The addition of new services will also add a new dimension, and will provide a direction of expansion. The degree of implementation of disruptive innovation depends on the state of the company, and the competition it is facing from the external world. The survival of incumbent services was not a problem for CVS, because the issues that hindered the company’s growth were unavoidable. The company could not do much about those clients whose refills were limited or exhausted; it could not give drugs if there was a risk of reaction, or if the doctor was not available within the allotted time. However, the company could look out for other options like expanding its services by introducing generic drugs and opening online drop off web interfaces. It could establish mobile service of distributing drugs or moving store on wheels from town to town. Framework/ Theory The main idea behind disruptive innovation is to attract new customers, meanwhile sustainable innovation sticks to seasoned customers. Disruptive innovation usually bring in cheaper and much affordable alternatives to the market, while sustainable innovation only improves the quality or adds value to the product (Henderson, 2006; Yu & Chang, 2010). This improvement does not attract any new client; meanwhile the old customers continue to use the product. Apparently this technique is safe for maintaining the trajectory of sales; however, the case with CVS requires new customers, because it has already lost its customers. In this regard disruptive innovation may be the alternate to solve the problem, because it aims at establishing new market linkages. Sustaining innovations, whether they involve incremental refinements or radical breakthroughs, improve the performance of established products and services along the dimensions that mainstream customers in major markets historically have valued. Examples: a microprocessor that enables personal computers to operate faster and a battery that lets laptop computers operate longer (Davenport et al, 2006: 288) To understand how disruptive innovation can be of help to CVS, one needs to consider the business models that can come handy in such a scenario. A business model has four important components that are profit formula, processes, resources, and the value propositions. Profit formula defines the relationship between assets and fixed cost structure, and the margins and velocity required to recover them (Dannels, 2004; Hwang& Christensen, 2008). Processes include all the activities that are aimed at undertaking the assigned tasks in a consistent way, such as training, budgeting, development, manufacturing, budgeting planning and etc. Resources explain the current standing of the business and capacity to work; they include people, technology, equipment etc. The value proposition refers to the extent at which the products launched by the company address to the problems faced by customers (Hwang& Christensen, 2008). All innovative ideas start out as half-baked propositions. They then go through a shaping process as they wind their way through the organization to reach senior management. When firms have a single process for all the various forms of innovation, what comes out the other end of the process looks like what has been approved in the past, and it all looks like sustaining innovations (Christensen et al., 2003). Analysis and Recommendations Despite the narrow window of innovation offered by the business, there are still ways to incorporate disruptive innovation to deal with the problems faced by CVS. The company can establish online drop off and home delivery of the order drugs. Moreover it may introduce some packages for new customers like discount of 5% on purchase of drugs with market price less than $100. By establishing an online drop off system will be helpful for CVS, because it will drop down the expense of resources on either side, the customers will not have to travel to the store, further he/ she will save the money spent on reaching the store, moreover, the overall procedure will become environmental friendly. Meanwhile, if the clients fill the information form on the company’s electronic interface, it will safe time of data entry personnel and thus it will overall increase the efficiency of the work carried out. Doorstep delivery will open new way of earning for the company, as the company can charge customers for its delivery charges. Customers who have issue regarding time management will definitely utilize this service. The other issues that were reported by PSI were of more technical and complex nature, for example if the drugs prescribed have chances of reacting with previously prescribed drugs, the systems tend to reject the orders. In this regard, CVS will have to stick to the rules and regulations. Meanwhile, in case of errors generated on the basis of medical insurance, the company can offer a temporal relaxation for the client, and provide the prescribed drugs to them, if all other fields are cleared by the system. In a new-market disruption, attackers take root in a new "plane" of competition or a new context of use outside of an existing market. Consumers historically locked out of a market because they lacked the skills or wealth welcome a relatively simple product that allows them to get done what they had always wanted to get done. These markets typically start out small and ill defined. They dont meet the growth needs of large companies. And the incumbent feels no pain at first. Because it creates new consumption, the disruptors growth doesnt affect the incumbents core business. But as the innovation improves, it begins to pull customers away from the incumbent. And the incumbent doesnt have the ability to play in this new game (Davenport, 2006: 289). Conclusion Disruptive innovation refers to establishing new market linkages. The main aim is to win new customers, who want affordable alternates to their problems. However, disruptive innovation is tricky matter when it comes to health care business. The safety of the client is the priority; therefore, the margin of error is very small. The problems encountered by CVS were inherent to almost all the pharmaceutical providers. Due to this reason, the only way to make a difference is to look out for solutions to these problems. Disruptive innovation may be applied by a company to generate new market linkages, and rescue its popularity among the people. CVS may become a pioneer in introducing online drop off system that will allow the customers to fill in their order from their computers or mobiles, and will save the travelling expenses. Moreover it will improve the efficiency of the company by decreasing data entry load, as the data will automatically be loaded into the companies system, once the order has been placed by the customer. Further, adding a home delivery system will add a new dimension to the company’s services; this will attract all those people, who have problems in reaching CVS stores. It will be helpful for handicapped personnel as well. Q2 – what are the benefits of using the "management by departments" approach in the given scenario? Introduction Although it is a common observation that nearly all organizations work by forming departments as integral structures of the working of the organization, the notion of forming and running effectively such departments in the case of CVS deserves special attention. When weaknesses of the organization are judged more closely, it becomes clearly evident that many of them are due to malfunctioning of the departments of this organization. Also apparent is the lack of concept of division of labor. If CVS has to regain its original position once again, the organization needs to be reorganized into effectively functioning departments. Discussion As far as the implementation of departmental approach for management is concerned, there are sex key elements to it. Strategy Development : First and foremost is the concept of development of strategy that renders an organization capable of handling the difficulties being faced. In the scenario of CVS, the development of strategy should focus on the problems that are currently being faced; e.g. the problem of lack of communication between departments. In this case the strategy should be the delivery of instruction in written form, from one department to another (Warren, 2008). Plan Activities: After the strategy is chosen for implementation, activities need to be planned. For this purpose a dedicated team should work on sorting out the way in which the decided strategy will be implemented. In the case of CVS, the plan will be to call a meeting of all employees and train them about the importance and necessity of delivering information between departments in written form. Resource Alignment: The next step to make possible the implementation of the strategy would be to align the required resources. In the given scenario, this can be achieved by simple providing the required stationary to all departments concerned. If further advancement is required, the use of computers and printers to serve the purpose of generating and delivering information between departments can be made (Drejer, 2002). Executive activities: The employees will only follow the new strategy if the leadership of the CVS is willing to work according to the new strategy. So, the leader will have to set an example by working in the manner that is in close approximation to the newly developed strategy. This will allow the workers of CVS to follow a standard pattern of working that can effectively serve the organization. Leaders of all the departments should team up to provide an exemplary model to their workers, to allow them follow their conduct. Result measurements: Once the activity has become a norm, there is a need to analyze critically, if the departments of the company are functioning more efficiently. If this is not the case, the need to improve the working of departments further arises. In the case of CVS, results will be measured by assessing the level of satisfaction that prevails among its customers and workers. An important input in this regard will be the comments of customers that they provide at the counter where products are delivered, since this is the spot where they are actually served. Decision making on the basis of Results: once an insight into the results is attained, the various departments of the CVS should gather together to look for the shortfalls that are discovered by analyzing the results. This data will help the company to develop further strategies for their improvement. Additionally, such analysis of the available data will also serve the purpose of identifying further problems that exist in the working environment of CVS. Conclusion Based on the above discussion, it is clear that adopting a departmental approach in the case of CVS can be beneficial for the organization as well as the customers and employees. Increased satisfaction reduces the turnover rates of employees thereby allowing the organization to spend less on their training needs. Additionally, if interdepartmental communication is effective, it is hoped that many of the problems that exist now will be eliminated with the passage of time. References Charitou, C. D. & C. C. M., 2012. Business Models Strategy. "Responses to disruptive strategic innovation. MIT Sloan Management Review. Christensen, C. M., 2006. The ongoing process of building a theory of disruption. Journal of Product Innovation Management, 23(1), pp. 39-55. Christensen, C. M., 2013. Disruptive Innovation . In: M. Soegaard & R. F. Dam, eds. The Encyclopedia of Human-Computer Interaction. Aarhus: The Interaction Design Foundation. Christensen, C. M., Jerome, H. G. & Jason, H., 2009. The innovators prescription: a disruptive solution for health care. New York: McGraw-Hil. Christensen, C. M., Raynor, M. E. & Anthony, S. D., 2003. Six keys to building new markets by unleashing disruptive innovation, s.l.: Harvard Management EEUU. Curtis, L. H. & Schulman, K. A., 2006. Overregulation of health care: musings on disruptive innovation theory. Law and Contemporary Problems, pp. 195-206. Danneels, E., 2004. Disruptive technology reconsidered: A critique and research agenda. Journal of product innovation management, 21(4), pp. 246-258. Davenport, T. H., Leibold, M., & Voelpel, S., 2006. Strategic management in the innovation economy: Strategy approaches and tools for dynamic innovation capabilities. Erlangen: Publicis. Drejer, A. .2002. Strategic management and core competencies: Theory and application. Westport, Conn: Quorum Books. Enders, A. et al., 2006. The Relativity Of Disruption: E-Banking As A Sustaining Innovation In The Banking Industry. Journal of electronic commerce research, 7(2). Govindarajan, V. & Kopalle, P. K., 2004. How Legacy Firms Can Introduce Radical And Disruptive Innovations: Theoretical And Empirical Analyses.. Academy of Management Proceedings, 2004(1). Hart, S. L. & Christensen, C. M., 2002. Hart, Stuart L., and Clayton M. Christensen The great leap.. Sloan Management Review, 44(1), pp. 51-56. Henderson, R., 2006. The innovators dilemma as a problem of organizational competence. Journal of Product Innovation Management, 23(1), pp. 5-11. Hwang, J. & Christensen, C. M., 2008. 1. Hwang, Jason, and Clayton M. Christensen. "Disruptive innovation in health care delivery: a framework for business-model innovation. Health Affairs, 27(5), pp. 1329-1335. Kohlbacher, F. & Hang., C. C., 2007. Disruptive innovations and the greying market. s.l., IEEE. Krotov, V. a. I. J., 2008. RFID as a disruptive innovation. Journal of theoretical and applied electronic commerce research, 3(2), pp. 44-59. Markides, C., 2006. Disruptive Innovation: In Need of Better Theory. Journal of product innovation management , 23(1), pp. 19-25. Thomond, P. T. H. & Fiona, L., 2003. Disruptive innovation: Removing the innovators dilemma.. s.l., British Academy of Management Annual Conference:Knowledge into Practice. Warren, K .2008. Strategic management dynamics. Chichester, West Sussex, England: J. Wiley & Sons. Yu, Dan, and Chang Chieh Hang., 2010. A reflective review of disruptive innovation theory." International Journal of Management Reviews 12(4), pp. 435-452. Read More