StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Three Ways That Create Value for a Firm - Essay Example

Cite this document
Summary
In the paper “Three Ways That Create Value for a Firm” the author discusses three ways that create value for a firm and positional and resource-based advantages. While the first approach is based on the strategic positioning of the product, the second is based resource-based theory…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.5% of users find it useful
Three Ways That Create Value for a Firm
Read Text Preview

Extract of sample "Three Ways That Create Value for a Firm"

 Three Ways That Create Value for a Firm Sull and Escobari (2004) discuss three ways that create value for a firm but given the unpredictable business environment, they suggest positional and resource-based advantages are sustainable. While the first approach is based on strategic positioning of the product or within the industry, the second is based resource-based theory. The three approaches to enhance firm value have different underlying principles and may be applicable in different circumstances. The first is identifying a product with no competitors or which others would not easily venture into. It is not merely identifying a product but as Durkin (1997) states innovative firms make investments in knowledge to develop new products which give them monopoly in the international market. The second contention is on the resource-based theory (RBT) of the firm where rare and valuable resources give it a sustainable competitive advantage (Peteraf & Wernerfelt cited by Bowman & Ambrosini, 2000) while the third approach states that firms should be able to seize opportunities faster than other firms and gain value. The first approach pertains to product and industry innovation while the third concentrates on strategy innovation. The knowledge development in the first approach again would imply investments in resources – technical or human. Hence, all three approaches are not independent of each other although each has its own distinctive features. . The positional approach is also based on Porter’s theory of five competitive forces which determine the firm’s profitability and attractiveness (Porter, 1985). The journal does not specify whether the industry and value of such firms relate to competitiveness in their own nation or the nation where products have been marketed. Pharmaceutical industries operate globally and hence this aspect is not clear whereas Porter insists that competitiveness and productivity pertains to national productivity, which should enhance the value of the firm in the nation in which it operates (Davies & Ellis, 2000). Resources can be defined as anything that gives advantage or disadvantage to the firm. (Mills et al, 2003). The support theory of Johnson et al (2005) divides the resources as threshold resources and unique resources, where threshold resource satisfies customer’s minimum requirements and unique resources contribute to competitive advantage and make it difficult for the competitor to copy the value. A successful business needs to secure the resources according to Scott et al (2005) which the journal specifies should be to secure the employees, core business and networks. While Hamel (1998) states that strategy innovation attracts new customers and thereby enhances firm value, Kim and Mauborgne (2005) that “Value innovation makes the competition irrelevant by offering fundamentally new and superior buyer value in existing markets, and by enabling a quantum leap in buyer value to create new markets.” This principle conforms to the example of EasyJet cited by Sull and Escobari where the airline identified and seized the opportunity to enter the market with cheapest air tickets. Once the opportunity is seized, as stated in the journal, to create value, it is essential to attract the resources to execute the plan. This implies that the third approach is not independent of the resource-based approach which is why in conclusion the authors may have suggested only positional and resource-based advantages as sustainable. Thus we find that the first approach concentrates on the product and industry while second gives importance to resources. The third approach pertains to first-mover advantage but this approach to create value would require the support of the other two approaches. In the world of uncertainty and hyper competition, firms can continue to create value and sustain advantage over competition by adopting certain strategies. Hyper competition demands constant change in technology and processes to meet the challenges which Porter (1996) classifies as operational effectiveness (OE). He calls hyper competition a self-inflicting wound. OE is different from strategic positioning and means performing similar activities better than rivals perform. It requires better utilization of resources. The Japanese have always been able to offer lower costs and superior quality with OE. Through TQM, time-based competition, and benchmarking, resources can be utilized to the optimum level. Secondly, workforce diversity brings about innovation and creativity, thereby enhancing competitive advantage and firm value. Diversity facilitates when a firm uses the output orientation where the individuals and teams are given the authority to make operational decisions (Bassett-Jones, 2005) when systems and processes that add value are too complex for managers to control through supervision and not as Sull and Escobari maintain that responsibility for value creation lies with the managers. Sull and Escobari state that reliance on global capital markets leave companies vulnerable to shifts in global prices and exchange rates but Bartram (2000) contends that because of realistic capital market imperfections like agency costs, transactions costs, taxes, and costs of financing, risk management at the firm level is a means to increase firm value which is to the benefit of the shareholders. They attempt to leverage risks through the use of derivative financial instruments. In hyper competition firms must also take into account the perceived use value subjectively created by the customer who uses consumer surplus as the criterion in making purchase decisions (Bowman & Ambrosini, 2000). Thus, in the insurance market in UK, companies have reduced prices in the face of hyper competition and appointed brokers to pass value to the customer (Watson, 2001). This is classic in the sense suppliers have to pass value to the customer in order to survive. Knowledge management is another technique to sustain competition and create value (Drew, 1999). Unilever PLC held workshops around the world to map its knowledge of tomato sauce technology. It could determine unique factors that contribute to taste, texture and quality of the product. IBM’s turnaround since the 1990s was due to its efforts to exploit and develop knowledge in its businesses. Organizational learning can contribute to value as transfer of knowledge takes place either in tacit form or embedding it into processes and organizational routines (Nonaka cited by Corso, Martini, Paolucci & Pellegrini, 2001). Thus to sustain in hyper competition, workforce diversity, operational effectiveness, knowledge management, organizational learning and customer focused approaches can be effective. References: Bartram, S. M., (2000), Corporate Risk Management as a Lever for Shareholder Value creation, Financial Markets, Institutions & Instruments, Vol. 9 No. 5 Bassett-Jones, N., (2005), The Paradox of Diversity Management, Creativity and Innovation, Creativity and Innovation Management, Vol 14 No. 2 pp. 169-175 Bowman, C., & Ambrosini, V., (2000), Value Creation Versus Value Capture: Towards a Coherent Definition of Value in Strategy, British Journal of Management, Vol. 11, 1–15 (2000) Chan Kim, W and Mauborgne, R(2005) Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, Harvard Business School Press,Boston. Corso, M., Martini, A., Paolucci, E., & Pellegrini, L., (2001), Knowledge Management in Product Innovation, International Journal of Management Reviews, Vol 3 Issue 4 pp. 341-352 Davies, H., & Ellis, P., (2000), Porter's competitive advantage of Nations, Journal of Management Studies, 37:8 Dec 2000 Drew, S., (1999), Building Knowledge Management into Strategy] Making Sense of a New Perspective, Long Range Planning, Vol. 32, No. 1, pp. 130 to 136, 1999 Durkin, J. T., (1997), Perfect Competitive and Endogenous Comparative Advantage, Review of International Economics, 5 (3) 401-411 Hamel,G(1998)’Strategy Innovation and the Quest for Value’, Sloan Management Review,39,78 Mills, J and Platts, K and Bourne, M (2003)’Competence and resource architectures’, International Journal of Operations &Production Management, 23:9,977-994 Porter, M (1985) Competitive Advantage, The Free Press and colophon are trademarks of Simon & Schuster Inc, New York Porter, M. E.., (1996), What is Strategy? Harvard Business Review, Nov/Dec96, Vol. 74 Issue 6, p61, 18p Scott, P and Foster, K D(2005)’Building continuity into strategy’, Journal of Corporate Real Estate,7:2,105-119 Sull, D N and Escobari, M(2004) ‘Creating Value in an Unpredictable World’, Business Strategy Review, Autumn Watson, G., (2001), Subregimes of Power and Integrated Supply Chain Management, The Journal of Supply Chain Management, Spring 2001 Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Three Ways That Create Value for a Firm Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/management/1539614-no-name
(Three Ways That Create Value for a Firm Essay Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/management/1539614-no-name.
“Three Ways That Create Value for a Firm Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/management/1539614-no-name.
  • Cited: 0 times

CHECK THESE SAMPLES OF Three Ways That Create Value for a Firm

Managing Shareholder Value

With this background this paper envisages presenting a report on the degree of profit measure of economic surplus and shareholders funds economic value accurate the metrics of the key economic visions of a firm.... he above factors necessitate adopting a proper measure for the assessing the value of a firm from a shareholder's perspective and Economic Value... hellip; The standard models dealing with the internal financial management of any firm mostly uses the cash flow analysis for review and decisions on capital expenditures....
8 Pages (2000 words) Essay

Millennium Pest Control Services

It is very essential for a firm to constantly aim at the configuration of its value.... Adding value to the services and products in an organization is entrusted to the operations management for evolving suitable operational strategies to achieve higher value for the products and services.... Having completed this initial and important part of the marketing strategy, the firm is now in the process of configuring the value, set the price, communicate the set values to the prospective customers and deliver the values to the utmost satisfaction of the customers....
12 Pages (3000 words) Case Study

Three Value Disciplines: Characteristics of organizations

In their 1993 Harvard Business Review article Michael Treacy and Fred Wiersema offered a unique strategic framework of three value disciplines.... … Depending on the value an organization sells, it operates within one of three value disciplines: operational excellence, customer intimacy or product leadership.... In their 1993 Harvard Business Review article Michael Treacy and Fred Wiersema offered a unique strategic framework of three value disciplines....
12 Pages (3000 words) Essay

Past Performance of the Lego Company

Even when a firm is not over-diversified a high level of diversification can have a negative impact on the long term performance of a firm.... The level at which over-diversification occurs varies across companies, because each firm has different capabilities to manage diversification.... Though this will ensure short-term gains are generated it may have a severe impact on the long-term investments and prospects of the firm....
8 Pages (2000 words) Essay

Self-organization in complex systems

In order for a company to create value, it has to provide unique experiences with its consumers by the way it transacts with it.... hellip; When companies become short-sighted in the process of utilizing the promises of the information technology and they lose sight of what is important to consumers, it can backfire against the company as noted in those companies who failed in utilizing information technology in the co-creation of value with consumers.... The Internet has enabled the consumers to interact with the company in many ways, making them the most important co-creator of value in the process....
11 Pages (2750 words) Essay

Select two firms in the same industry:

The chain comprises of various activities that builds and create value within an organization and ends in the entire value… An organization is split into two categories, value chain activities and support functions. Inbound Logistics-The Company receive the goods from its suppliers....
12 Pages (3000 words) Research Paper

Economics of Competition

Herfindahl–Hirschman Index is measured by adding the squared market share of each firm in the industry.... Most of the markets contain large firms and the presence of even a single large firm is sufficient to influence the price through output adjustment.... This helps to create a more precise measure of industry concentration.... There are other ways to use market power....
6 Pages (1500 words) Assignment

Financial Performance and Equity Value of EasyJet Plc

The net profit of a firm can be reached by deducting interest and tax amount from the operating profit amount.... The rationale behind it is that financial ratios are independent of the size of the firm as they represent themselves as ratios, rather than an absolute value.... This ratio actually discloses the strength of current assets to repay the current liabilities of the firm.... The research paper “Financial Performance and Equity value of EasyJet Plc....
14 Pages (3500 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us