How to use frameworks to drive sustainability within supply chains.
Sheldon M. Rose
Simplifying Supply Chains, Elevating Value, Transforming Strategies.
Every profit-seeking organization must create value, erode value and charge for value to ensure the sustainability of their business. For firms to be sustainable, they must nullify their competitor’s advantages. As firms duplicate advantages, there is less and less to differentiate between them. This duplication leads to the commoditization of the marketplace caused by the forces of strategic convergence (Siggelkow,2020).
Firms can create value through product differentiation, cost or quality advantages, or their business model. A business model is used to create value and profits for a firm. The activities that firms undertake to create, erode and charge for value are its business model (Teixeira, 2019). A business framework is a process and base of what operating strategies guide a business or organization. In other words, it is a guide for value creation within firms. Therefore, through logical deduction, it can be reasoned that business models inform frameworks and that frameworks allow for the implementation of business models.
Thales Teixeira, in his book Unlocking the Customer Value Chain, describes the use of frameworks such as S.W.O.T. Analysis, Game Theory and Michael Porter’s Five Forces as highly successful frameworks that brought about sustainability and growth for companies in the 1980s, 1990s and early 2000s. Clayton Christensen, late Harvard Professor and noted author, also agrees that ’a deep understanding of the underlying principles of business models is a potent tool, not just for management theorists but practitioners. Knowing how to build (or rebuild) a seamless business model allows the strongest leaders to stave off disruption from their competitors’. This point is made in the foreword of Mark W. Johnson’s book Reinvent Your Business Model: How to Seize the White Space for Growth Transformation (2019).?
In his book The Bezos Letters: 14 Principles to Grow Your Business Like Amazon, Steve Anderson alludes to frameworks to create and sustain businesses. ‘Building your business within the framework of your flywheel encourages companies to think long-term and filter activities through its bigger flywheel goals.’ Otherwise, you could waste time and money on activities that might be profitable in the short term but don’t help you build or keep the momentum going. Sustainability is, therefore, precisely, as described by Anderson, the ability to keep going.
Bradley et al. (2018), associates at powerhouse consulting firm McKinsey and Company, have noted in their book Strategy Beyond the Hockey Stick – People, Probabilities, and Big Moves to Beat the Odds (2018) that ‘Frameworks and tools, the likes of which you find in your typical business book or consulting deck, can help structure your thinking and can help generate ideas.’ This idea is well-aligned with Clayton Christensen’s view in The Innovator’s Dilemma (2016) that nascent firms rely heavily on resources (people, equipment and technology, etc.) to generate the processes that the firm will eventually measure and maintain forming values. This Resource, Process, Values Framework is another successful example of how firms can create value and build sustainable business models using frameworks.?
Firms who embark on value-creating & charging within their operating arenas can ensure sustainability by applying the following recommendations:
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Use consumer behaviour to inform strategic planning.
Research has shown that whilst product differentiation and other forms of competitive advantages can aid in building sustainability, customer behaviour and the customer value chain have a more significant role. This forces firms to decouple value-creating and value charging from the traditional business model to disrupt business models are the main drivers for sustainability. (Teixeira, 2019)
?To ensure the sustainability of any business, you must know what your customers want. It is crucial to understand what drives their decision making as well. Once your firm has this information, it can then look into the ‘jobs to be done or the customer value chain for those activities suitable for decoupling or intermediation. Because the competitive forces that drive firms towards strategic convergence (Siggelkow, 2020) form the basis of typical strategic planning – the goal is to erode competitors’ value. Firms that align their strategic planning with consumer behaviour rather than product differentiation or other competitive forces can disrupt value chains and business models, shifting the boundary of the effective frontier. By creating complex, integrated value creation systems within their operations, firms make duplication by competitors difficult, which improves sustainability. Firms must break the mould of competitiveness through product differentiation and focus on the most potent threat to firm sustainability – consumer behaviour.
?Align firm capabilities with consumer values (real and perceived)
Firm capabilities are directly related to the path taken by a firm to reach its current state. The Resource Process Value (RPV) Framework shows clearly how the evolution of firm resources – people, technology, know-how feeds the creation of processes that ensure consistency in service delivery and how, through monitoring and measurement, firms create the values that will eventually form their culture. (Christensen, 2016)
?Culture, therefore, is the perception the firm holds of the marketplace and its position within it. In other words, it’s how the firm creates and charges for value within a marketplace. But if a firm’s view of the marketplace is looking inside-out, how will it respond to changes in the task environment? One word – slowly, and also, with great resistance. You cannot ask a firm to be what it isn’t. To break the stranglehold of the cultural forces that hold them ransom, firms must break the mental models that restrict how firms view the competitive landscape.
?Alignment of firm capabilities with consumer values allows firms to allocate resources appropriately and improve talent density in areas where it is lacking. The improvement in these two areas alone can change the RPV forces by injecting new resources with new mental models, creating new ways of working, instilling new values and breaking the mould. If firms have a clear understanding of customer values, leaders can direct organizational resources to the areas where they are most needed. Of course, firms must play to their strengths and be aware of the competitive landscape. Still, they must never lose sight of the consumer’s values lest they risk creating a product that is either too early (Kodak – Digital Photo) or too late (Nokia, R.I.M. – Touchscreen Phones). This is the true competitive advantage; aligning firm capacities with consumer values is the easy way to outmanoeuvre your competition, stave off strategic convergence and drive sustainability.
“Culture, therefore, is the perception the firm holds of the marketplace and its position within it. In other words, it’s how the firm creates and charges for value within a marketplace.”
?Managing strategic implementation along a proven roadmap
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Imagine driving along an unfamiliar road to a destination that isn’t known to you, although you have a general idea of the location. Now let’s imagine that you’ve stopped looking at where you’re going, and instead, you’ve started looking at where you’ve been. Of course, you’d be in all sorts of trouble pretty soon – sadly, this is how many firms manage their strategic implementation. They look at where they’ve been using historical data to drive decision making in a forward-looking world. But unfortunately, they miss the cues and the telltale signs that warn of pending danger; in some instances, they cannot course correct in time.
Now imagine that you are currently not just looking ahead but also having a G.P.S. navigation system guiding your every mile, your every meter; this is the benefit of a Sustainability Framework. It is that guide, a proven roadmap based on the accomplishments of a stalwart within the digital arena – with steps that are easy to understand and implement.
?When firms know how they build, test, accelerate and grow, they are aware of how they create value and never lose sight of it. It forms the core of their operations and acts as a guide; like the G.P.S., you may change vehicles, but you can take your guide. In the same way, firms may change how they accomplish particular objectives, but an implementation roadmap such as the one that we suggest will always keep them focused on their goals. A clear understanding of the growth principles has helped them, whether they knew it. Moreover, it can help other firms overcome the encumbrances to change that often cause firms to double down on old ideas when more innovative ones have surpassed them.
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Create integrated operations and inter-related metrics that matter
We have shown through our research that while there is value to be gleaned from traditional operational and financial metrics, there is much more to be learned from integrated metrics. Tools such as orbit charts allow managers to manage the trade-offs within any business. It forces firms to raise the importance of lowly operational metrics like Cash-to-Cash Cycle and Inventory Turnover Ratio (I.T.R.) to the corporate sphere.
By highlighting the inter-relatedness of metrics, firms can see the outcomes of management decisions within their supply chains or operations. Conversely, Siloed views of performance metrics create impressions within firms not necessarily aligned with reality.
In closing
Firms that implement frameworks will cause better alignment of strategic implementation, performance and monitoring with strategic objectives. It will allow firms to utilize forward-looking measures that can inform the best path to take instead of looking back at mistakes that have already been made. Firms will be able to align the allocation of time, money, and effort with consumer values, enabling the creation of complex systems within their operations. Complex integrated systems help ward off the duplication of competitive advantages and help build the sustainability of business models.
Besides impacting the valuing of specific functions within an organization, frameworks are relatively easy to implement. Firms should take a holistic look at their operations and assign new values to roles that were previously entrenched in operations. The firm’s resources and performance measure’s to the top management level, where their input will have greater value as part of an integrated approach that provides end-to-end visibility for decision-makers within the firm.?
Excerpts are taken from:?
Building Sustainable Value Chains in e-Commerce through Inter-related Strategic Frameworks - 2021.
M.S.B.M., Sheldon Rose, Keisha Card, Kimberly-Mae Thompson & Dexter Davis
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2 年Hi Sheldon thanks for the informative post. The challenge though is that most (if not all) of the frameworks were developed based on research in developed economiee and stable environments. In the post-covid world of "disruption" and "transformation" everywhere, firms in developing countries that adopt these nodels may not get the benefits they desire. What then should be the answer? In every crisis there is an opportunity. I think an opportunity exists for persons in developing countries to put forward a technology-focused framework that is specifically designed for the challenges of businesses in emerging economies Western economies have reached capacity and projections indicate that in the future, world economic growth will be driven by Asia and Africa. As such, I think a lot of potential exists to gain super-profits if both businesses and their support firms pay more attention to what is going on in these regions and put forward appropriate solutions to needs - such as more relevant management models!