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Supply chain management and hypercompetition

Supply chain management and hypercompetition Logist. Res. (2009) 1:5–13 DOI 10.1007/s12159-008-0002-5 OR IGINAL PAPER Herbert Kotzab Æ David B. Grant Æ Christoph Teller Æ Arni Halldorsson Received: 23 January 2008 / Accepted: 16 July 2008 / Published online: 16 August 2008 Springer-Verlag 2008 Abstract Firms nowadays face significant challenges in 1 Introduction their operating environments, which have been character- ised in two different ways. From a strategic management Since the early 1990s firms have faced significant chal- perspective these environments are in a state of hyper- lenges in their operating environments, including stagnant competition while from a logistics or supply chain or decreasing market volumes, shorter product and tech- perspective these environments require market responsive- nology lifecycles, and more demanding consumers and ness predicated upon agile supply chains. However, firms competition driven by price that forces participants to must also rely on many inter-organisational relationships to rationalise resources wherever possible (e.g. human ensure efficient and effective movements within their sup- resources or logistics). These environments have been ply chains. This paper discusses the relationships among characterised in two different ways. these concepts and proposes a research framework com- From a strategic management perspective D’Aveni [1] bining aspects of the hypercompetition and responsiveness characterises such environments as being in a state of and agility viewpoints. hypercompetition. Hypercompetition is a condition of rapidly escalating competition based on price-quality Keywords Supply chain management  positioning and first-mover advantage to either protect or Hypercompetition  Network model  Logistics strategy invade established product or geographic markets, and which requires substantial financial resources in the firm and/or alliances with other firms to utilise more substantial financial resources. H. Kotzab (&) From a logistics or supply chain perspective Christopher Department of Operations Management, [2] characterises such environments as requiring a market Copenhagen Business School, responsiveness that calls for the establishment of agile 2000 Frederiksberg, Denmark e-mail: hk.om@cbs.dk supply chains. Agile supply chains are able to adapt much faster to market changes in terms of product volume and D. B. Grant variety to meet customer needs. Logistics Institute, University of Hull, However, supply chain management (SCM) is not Hull HU6 7RX, UK e-mail: d.grant@hull.ac.uk restricted solely to a focal firm due to increased global- ization and lengthy supply chains. Firms must rely on inter- C. Teller organisational relationships to ensure the efficient and Institute for Retail Studies, University of Stirling, effective movement of products and supplies, money, and Stirling FK9 4LA, UK e-mail: christoph.teller@stir.ac.uk information to all relevant parties in the supply chain. This paper discusses the relationships among these A. Halldorsson concepts and proposes a research framework combining School of Management, University of Southampton, aspects of D’Aveni’s [1] hypercompetition and Christo- Southampton SO17 1BJ, UK pher’s [2] responsiveness and agility viewpoints by e-mail: A.Halldorsson@soton.ac.uk 123 6 Logist. Res. (2009) 1:5–13 Table 1 Strategic and managerial issues for environmental levels of turbulence [8] Turbulence level 1 2 3 4 5 Environmental Repetitive Expanding Changing Discontinuous Surprising turbulence Slow Fast incremental Predictable Discontinuous and unpredictable incremental Strategic Stable Reactive Anticipatory Entrepreneurial Creative aggressiveness Based on creativity Based on Based on Discontinuous experience extrapolation Based on Incremental Incremental Based on observable Novel precedents opportunities Organisational Stability seeking Efficiency driven Market driven Environment driven Environment responsiveness creating Rejects change Adapts to change Seeks familiar change Seeks related change Seeks novel change Manager type Custodian Controller Growth leader Entrepreneur Creator Leadership Political Rational Inspirational Charismatic Visionary Key knowledge Internal politics Internal operations Historical markets Global environment Emerging possibilities positing two questions. Firstly, under what conditions 4 and 5 are more demanding and require organisational might inter-organisational relations and supply chain pro- strategies to be more entrepreneurial and creative and to cesses overcome responsiveness and hypercompetitive consider restructuring internal and external organisational challenges? Secondly, once these conditions are known relationships, particularly supply chain relationships. how might a firm design and manage its inter-organisa- The increase in the rate of change and thus the concept tional relations and supply chain processes in order to of time as regards this change, product lifecycles and so on survive in such an environment? We first discuss aspects of also affects modern businesses and supply chains. Fine the turbulent business environment that firms now face. introduced the term ‘clockspeed’ to describe an industry’s evolutionary life cycle, which is a function of the speed at which products, processes and organisational structures are 2 The turbulent business environment introduced [9]. As an industry’s clockspeed increases competitive advantage is difficult to sustain. Fine argued Business environments changed dramatically during the that the ultimate source of sustainable competitive advan- 1990s. Stagnant and decreasing market volumes had major tage is a company’s ability to manage its supply chain, i.e. impacts on profit margins in various industries during the being market responsive in a time-conscious and turbulent 1990s. For example, net profit margins of grocery retailers environment. in many countries, excluding the United Kingdom, are in a Table 1 also illustrates an increased complexity in discouraging range between -0.5 and ?1.5% [3]. modern business environments, which also has conse- The nature of customers and consumers also changed quences for the management of supply chains. Lewin during that time. Changing consumer tastes, increased argued there are parallels with complexity in natural sci- consumer sophistication, smaller household sizes and the ence. Traditional business hierarchies with command and growth of older consumer segments, inter alia, have pre- control structures minimise interactions among actors in an sented new challenges for manufacturers and retailers [4]. organisation’s environment, which in turn inhibits crea- Many industries have also experienced a power shift tivity [10]. Lewin considered management should be from manufacturers to retailers, mainly due to the guided by complexity science and recognise that relation- increasing size of several retail players [5, 6]. Wal-Mart’s ships are an organisation’s desired output, from which sales in 2000 of nearly US $194 billion were about five creativity, culture and productivity emerge. Thus, tradi- times higher than Procter & Gamble’s sales of approxi- tional, linear and mechanistic hierarchies of business are mately US $40 billion in the same year [7]. going to be replaced more and more by decentralized and The rate of change has increased dramatically during the modular networks that are cooperative-oriented, autono- last twenty years and has developed increased business mous and indirectly coordinated [10]. ‘turbulence’ [8]. Five levels of turbulence and their impact Beyond these perspectives of rapid and significant on organisations are presented in Table 1. Turbulence levels change and ‘displacement competition’ where a firm can 123 Logist. Res. (2009) 1:5–13 7 only gain market share by decreasing a competitor’s mar- Table 2 Competitive advantage in hypercompetitive situations [13] ket share, the development of inter-organisational Firms seek competitive advantage through relationships and supply chain processes should enable Market moves firms to obtain a competitive advantage [6, 11]. Such an Low price (cost) or differentiation strategies orientation is readily characterised by the concept of SCM; First-mover advantage or timing which is recognised as a necessary strategic weapon for Developing new products or new markets ensuring a firm’s competitive advantage and is considered a management-driven competency [12]. We next discuss Building barriers Resource-based advantage or know-how aspects of hypercompetition. Strongholds Deep pockets 3 Theory and aspects of hypercompetition Scale There are two different meanings for hypercompetition. Firstly, the term describes an intensive rivalry and rapidly create their own cash reserves through mergers and alli- changing condition in markets or industries. According to ances [1]. D’Aveni [1] this phenomena can be identified in almost We consider the elements of these four arenas fit into every industry from consumer goods to telecommunica- two of Johnson and Scholes’ [13] generic strategy options, tions. Secondly, it presents a conceptual model for the market moves and building barriers, that firms can adopt in strategic behaviour of firms and inter-organisational rela- order to gain competitive advantage as shown in Table 2. tionships from a management point of view. In both cases Market moves relate to being market responsive while it is necessary to know how to cope with hypercompetition. building barriers relate to establishing near-monopolistic The theory of hypercompetition argues that firms oper- or oligopolistic market behaviour. The former option fits ate in four different competitive ‘arenas’ within their with Christopher’s [2] concept of market responsiveness or respective industries [1]: agility, however, the latter option reduces market respon- siveness. We next consider aspects of SCM affected by 1. Cost and quality: A firm can have either a low cost-low hypercompetition. quality product or a high cost-high quality product. Over time a low cost producer will increase quality and a high cost producer will decrease prices, thus 4 SCM and hypercompetition there will be convergence in the minds of the customer and a possible perception that the product is a The logistics and SCM literature distinguishes between an commodity. institutional level (who performs logistics/SCM) and a 2. Know-how and timing: A firm’s knowledge base and functional level (how is logistics/SCM performed). the timing of product releases can be very important to Another characteristic is the application of a systems view, its success. Procter & Gamble and IBM are two firms i.e. systems thinking that supports the integration of all that have used their strong patent portfolios to garner activities within a logistics system or supply chain [12]. extra revenues of up to a billion dollars a year. This means that individual components in such systems 3. Strongholds: These are markets, geographical or should not be treated in isolation since they are inter- product, where a firm is very strong and which provide related [14]. From an institutional point of view, one can a source of continuous sales and profits. These almost- distinguish between micro- and macro-logistics/SCM sys- proprietary markets provide certain profits and cash tems depending on the unit of analysis [15]. flows to allow the firm to attack a competitor in its Some authors argue that a firm’s supply chain functions market. should be considered as micro-systems [12]. However, we 4. Deep pockets: Here a firm will have a large amount of consider these systems are subsystems of macro-systems, cash reserves to help it in times of change, introduce such as technological infrastructure (e.g. traffic systems, new products, enter new product markets and attack IT-systems). As micro-systems are also linked to one competitors. another (e.g. raw material suppliers, manufacturer, retailer, Having an advantage in all four arenas does not neces- and third-party logistics providers) there is also the notion sarily provide a continuous competitive advantage; they are of a meta-system that focuses on the coordination of only temporary sources of advantage in hypercompetitive logistics and supply chain systems in different firms. Here, markets since competitors in every market will also seek to competitive settings such as hypercompetition seem to improve the quality of their products, reduce costs and apply not only to micro-systems but also to meta-systems. 123 8 Logist. Res. (2009) 1:5–13 Stern et al. [16] recognised that a marketing channel, or and the requirement for variety is high. Lean works best in essentially a supply chain, is the result of different envi- high volume, low variety and predictable environments’’ ronmental intercourse. [2, p. 39]. A change in one environmental factor will consequently Both environmental situations may be present within change the overall setting, including design and manage- one supply chain. A classic example is cotton sweaters ment of a supply chain. This situation has been neglected produced by Benetton [2]. Benetton mass-produces certain by many SCM researchers, who put more emphasis on styles of sweaters in order to decrease costs of production discussing SCM from the viewpoint of the supply chain, and they are uncoloured and unprinted. Colour dyeing and but not from the competitive background of the supply printing of the sweaters occurs just before they go to chain and the individual firm [17, 18]. market to take advantage of current fashion trends in Further, the formation of long-term relationships is individual markets. contingent on various interrelationships within the wider This approach combines the benefits of both lean/agile environment of the supply chain, especially the nature of and speculation/postponement strategies and is shown in competition in a particular industry. Thus, to be market Fig. 1. The decision point where a lean or push strategy responsive in hypercompetitive environments, a firm can changes to an agile or pull strategy has been termed the consider using differentiation strategies for existing prod- ‘decoupling’ point. It is the point or depth in the supply ucts/logistics services or markets, being the first mover in a chain where ‘‘real demand is made visible… reflects the particular market, or introducing new products/logistics ongoing requirement in the final market place as close to services in existing or new markets in order to build real-time as possible’’ and ‘‘should also dictate the form in competitive advantage. Deeper and more meaningful which inventory is held’’ [2, p. 41]. Indeed, some authors relationships within the firm’s supply chain will be have considered positions both in a manufacturing setting required to do so. and termed the resultant position as ‘leagile’ [23]. There are two tensions between the value or push chain The adoption of both lean and agile strategies in one and demand or pull chain strategic positions that developed hybrid supply chain and the location of the de-coupling during the 1990s and primarily relate to cost and value, point will vary with different product and supply chains respectively. One is the lean production position, which [20]. Flow of product up to the decoupling point may be considers value creation from the customer’s perspective forecast-driven whereas flow of product after the decou- but focuses on the product and waste that surrounds pling point should be demand-driven [2]. activities related to the entire production system [19]. The A hybrid supply chain scenario that allows compatibility lean position is based on Ohno’s work in Japanese auto- of the lean and agile concepts and which suggests strategies of cost reduction and market responsiveness should also be mobile manufacturing, and represents an efficiency approach towards logistics or SC activities and encom- compatible under a hypercompetitive supply chain sce- passes techniques used in just-in-time (JIT), total quality nario. Thus, the concept of an agile SC being market management (TQM) and materials resources planning responsiveness and demand driven can be combined with (MRP) environments. market move strategies in a hypercompetitive environment In contrast, the agile position is a flexible approach to that is time and cost-driven to effectively establish an logistics or supply chain activities that enables rapid ongoing competitive advantage, as opposed to a short-term response and change and has its origins in flexible manu- advantage within a solely hypercompetitive context. facturing systems. It encompasses customer demand and We posit the main questions for managers, whose firms involvement in designing and implementing product man- operate more and more in responsive and hypercompetitive ufacturing and supply chains [2, 20]. Empirical examples markets, as: of agile supply chains are efficient consumer response • What are the conditions under which inter-organisa- (ECR) systems in the food supply chain [21]. tional relations and supply chain processes help Although theoretical discussions of both lean and agile to overcome responsiveness and hypercompetitive positions were developed during the last 15 years, they are challenges? not entirely new concepts. Bucklin’s theory of channel • And, when knowing these conditions, how should firm structure developed in the 1960s is based on two similar relations and supply chain processes be designed and concepts: postponement and speculation [12, 22]. Some managed in order to survive in a responsive and authors have attempted to choose and defend either an agile hypercompetitive environment? or lean position arguing that the two concepts appear To address these questions we now introduce a con- incompatible. The difference between the two positions was succinctly described by Christopher: ‘‘agility is needed ceptual framework showing the relationship between in less predictable environments where demand is volatile responsiveness and hypercompetition that extends the 123 Logist. Res. (2009) 1:5–13 9 Fig. 1 Decoupling point analysis—an FMCG example [19] domain of the supply chain to a ‘meta-level’. This meta- resource-based view of the firm (RBV). They apply the level domain and our framework consider how logistics notion of the firm as the level of analysis. The body of and supply chain systems are influenced relative to tech- literature within both marketing and logistics/SCM, how- nological, infrastructure, political, social and economic ever, seems to verify that the boundaries of the firm are environmental factors. much more blurred than suggested by TCE and RBV. The increasing division of labour in a supply chain governed by a hybrid form of governance mechanism [26] has been 5 Inter-organisational structures and a framework recognised as a means of competitiveness through terms for hypercompetition and SCM such as ‘strategic sourcing’ [27] and ‘cooperate to com- pete’ [28]. And yet, we can argue these terms may be The changing business environment impacts organisational considered more commonly as SCM. structures. Within a traditional business setting, firms are The predominant views on SCM relate to the integration typically perceived as single, self-contained units with of business processes [29] and relationship management clear and determinate internal and external boundaries, e.g. [17] in a supply chain to achieve competitive advantage. set by physical location factors or laws [24]. These Although the level of analysis has moved away from the boundaries have also become more blurred in today’s firm towards inter-organisational relationships both TCE competitive environment as shown in Fig. 2. and RBV [30] and the means of creating and developing Traditional hierarchies with their command and control resources and capabilities [31] can still be applied to structures are more and more being replaced by decen- achieve improvement. tralized, modular, cooperative-oriented, autonomous and The wider context of the supply chain or network, par- indirectly coordinated networks, in concert with Lewin’s ticularly its adaptation in organising economic activities [10] suggestions. Such new organisational constructions under the condition of hypercompetition, has yet been not overcome discrepancies and borders in space, time and explicitly discussed. All SCM models assume competition behaviour faster and better than conventional structures. as a given—a ‘ceteris paribus’ presumption. However, as For the borderless organisation, Chandler’s rule of ‘struc- Fine [9] and Dawson [8] both argued firms are set in ture follows strategy’ [25] might be better thought of as dynamic environments and change according to their ‘structure follows flexibility and innovation’, due to such influences, i.e. today’s markets are changing rapidly. changing and unstable conditions. Within the grocery Halldorsson et al. [32] argued that SCM itself is not a industry, Wal-Mart and Procter & Gamble have already theory, but should be understood and explained by refer- developed a good example of a borderless organisation, ences to existing theoretical frameworks of economics, where internal (functional) and external (organisational) strategic management, distribution channels, and organi- boundaries were set aside [21]. sations. This view considers SCM as an intersection of Two predominant theories in economics, strategy and theories from various disciplines that present strategic organisation are transaction cost economics (TCE) and the implications for particular managers [33]. Table 3 presents 123 10 Logist. Res. (2009) 1:5–13 Fig. 2 Driving forces for changing firms [24] some of these theoretical approaches from various disci- not only able to discuss the functional perspective of a plines and their consequences for hypercompetition. supply chain, but also the stability of its functionality and the Hypercompetition adds a new dimension to each theo- generative mechanisms for successful relationships. Further, retical approach. We believe research interest lies both conditions of hypercompetition attack the presumption of with how hypercompetition constrains a particular theory the supply chain as an open system by questioning not only and how problem solving capacity can be enhanced. the boundaries of the system, but what is more important Research outcomes would include investigating new attri- how to establish interfaces between these particular envi- butes that not only have theoretical implications, but also ronmental conditions and the individual supply chain. generate new opportunities of actions for managers. Our assumptions are based on a normative model in The conditions of hypercompetition and market respon- order to recommend why, when and how to design inter- siveness help us to question not only how clear but also how organisational relationship-based management decisions under hypercompetition for strategic management in firms. stable inter-organisational relationships are. TCE directs the focus to the extant nature of inter-organisational relationships, The theoretical grounding of our research is in theories that i.e. the ‘nuts and bolts’ or contractual considerations, while reflect upon the boundaries of the firm such as TCE, RBV RBV directs the focus towards issues such as what compe- and a network approach (cf. Table 3). tencies are necessary to compete in hypercompetitive markets Figure 3 depicts these theoretical approaches in a but more importantly how to prevent erosion of current proposed hypercompetition and SCM network framework. competencies under these conditions. Also, to what extent is For the last two decades, much effort has been put into the network organisation is a precursor or a hurdle, respec- the understanding and explaining industrial markets as a tively, for hypercompetitive and responsive markets. set of interdependent, inter-organisational relationships. Our Considering only marketing and logistics, hypercompet- framework considers these processes of exchange and itive conditions mobilise focus towards issues where we are adaptation between firms but extends the analysis to include 123 Logist. Res. (2009) 1:5–13 11 Table 3 Theoretical approaches versus hypercompetition (adapted from [32]) Economic and organisational perspectives versus hypercompetition Theoretical approach ‘Traditional view’ Consequences for hypercompetition Transaction cost economics (TCE) Why firms? How static are boundaries of the firm? • Most efficient boundaries of the firm • Type of governance structure How unambiguous are the boundaries of the firm? • Vertical/horizontal integration Vertical/horizontal competition Resource-based view (RBV) Why do firm differ? How to develop and preserve core competencies under hyper-competition? • Firm heterogeneity What characterises the core competence behind the hyper-competitive firm? • Dynamic capabilities Network approach (NP) Describing attributes of inter-organisational Do networks exist in hyper-competitive relationships environments? Development and management of inter- Are inter-organisational relationships to be organisational relationships ‘‘developed’’ ex-ante, or is their nature much more ‘‘emerging continuously’’ Logistics/SCM-perspectives versus hypercompetition Theoretical approach ‘Traditional view’ Consequences for hypercompetition and SCM Marketing channels perspective A channel is a set of interdependent What are the major drivers for a successful organisations involved in the process of channel setting? making a product/service available for use or consumption Which function has to be performed by whom in How stable are these functions? order to make the product/service available? Logistics systems perspective The holistic view on business logistics helps to What are the boundaries of the systems? overcome institutional and/or functional barriers in solving logistical problems In such a setting, logistics system are defined as How do we have to set up such systems under sets of elements (parts, components) which are hypercompetition (question of interfaces?) in a relationship where the elements receive an input (e.g. costs) and transform this input to an output (e.g. service) Agile supply chains An agile SC is flexible in terms of both How do we achieve cost reductions in a manufacturing and logistics activities flexible SC environment? An agile SC is demand-driven How do we set up and manage a SC to be responsive to demand and competition? understanding the design and management of inter-organi- exhibited in Table 3 as consequences for hypercompetition sational relationships in a situation of hypercompetition. from the various perspectives. We argue that elements of hypercompetition, manifested As noted in our discussions above this integrative and by their TCE and RBV characteristics, impact a supply chain environmental approach has not seen much investigation in network containing inter-organisational relationships. This the logistics and SCM disciplines. Thus, a research agenda impact is across all participants in the network, not just the to empirically test this framework should: focal firm, and is thus ‘meta-level’ in its significance. (1) determine which elements of hypercompetition in a Therefore, a focal firm should consider the state of hyper- focal firm’s environment are relevant to the firm’s competition across their network in order to effectively network; design and manage these relationships. That should include (2) determine whether relevant elements are necessary consideration of the market move and building barriers ele- antecedents to establishing inter-organisational rela- ments presented in Table 2. Further, the questions behind tionships with other network participants; and such consideration should include, inter alia, the questions 123 12 Logist. Res. (2009) 1:5–13 4. Leeflang PSH, van Raaij FW (1995) The changing consumer in the European Union: a ‘‘meta-analysis’’. Int J Res Mark 12:373–387 5. Dawson JA (2000) Viewpoint: retailer power, manufacturer power, competition and some questions of economic analysis. Int J Retail Distrib Manage 28(1):5–8 6. Kotzab H, Teller C (2003) Value-adding partnerships and co- opetition models in the grocery industry. Int J Phys Distrib Logist Manage 33(3):268–281 7. Fortune 500 (2001) Fortune, vol 143(8), 16 April 8. Dawson JA (1995) Strategies for retailers in Europe by 2000. In: Johnson M et al (eds) Facing up to the challenges of retailing. ESOMAR, Amsterdam, pp 191–204 9. Fine C (1998) Clockspeed: winning control in the age of tem- porary advantage. Persues Books, Reading 10. Lewin R (2001) Complexity: life at the edge of chaos, 2nd edn. 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Supply chain management and hypercompetition

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Copyright © 2008 by Springer-Verlag
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Engineering; Engineering Economics, Organization, Logistics, Marketing; Logistics; Industrial and Production Engineering; Simulation and Modeling; Operation Research/Decision Theory
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Abstract

Logist. Res. (2009) 1:5–13 DOI 10.1007/s12159-008-0002-5 OR IGINAL PAPER Herbert Kotzab Æ David B. Grant Æ Christoph Teller Æ Arni Halldorsson Received: 23 January 2008 / Accepted: 16 July 2008 / Published online: 16 August 2008 Springer-Verlag 2008 Abstract Firms nowadays face significant challenges in 1 Introduction their operating environments, which have been character- ised in two different ways. From a strategic management Since the early 1990s firms have faced significant chal- perspective these environments are in a state of hyper- lenges in their operating environments, including stagnant competition while from a logistics or supply chain or decreasing market volumes, shorter product and tech- perspective these environments require market responsive- nology lifecycles, and more demanding consumers and ness predicated upon agile supply chains. However, firms competition driven by price that forces participants to must also rely on many inter-organisational relationships to rationalise resources wherever possible (e.g. human ensure efficient and effective movements within their sup- resources or logistics). These environments have been ply chains. This paper discusses the relationships among characterised in two different ways. these concepts and proposes a research framework com- From a strategic management perspective D’Aveni [1] bining aspects of the hypercompetition and responsiveness characterises such environments as being in a state of and agility viewpoints. hypercompetition. Hypercompetition is a condition of rapidly escalating competition based on price-quality Keywords Supply chain management  positioning and first-mover advantage to either protect or Hypercompetition  Network model  Logistics strategy invade established product or geographic markets, and which requires substantial financial resources in the firm and/or alliances with other firms to utilise more substantial financial resources. H. Kotzab (&) From a logistics or supply chain perspective Christopher Department of Operations Management, [2] characterises such environments as requiring a market Copenhagen Business School, responsiveness that calls for the establishment of agile 2000 Frederiksberg, Denmark e-mail: hk.om@cbs.dk supply chains. Agile supply chains are able to adapt much faster to market changes in terms of product volume and D. B. Grant variety to meet customer needs. Logistics Institute, University of Hull, However, supply chain management (SCM) is not Hull HU6 7RX, UK e-mail: d.grant@hull.ac.uk restricted solely to a focal firm due to increased global- ization and lengthy supply chains. Firms must rely on inter- C. Teller organisational relationships to ensure the efficient and Institute for Retail Studies, University of Stirling, effective movement of products and supplies, money, and Stirling FK9 4LA, UK e-mail: christoph.teller@stir.ac.uk information to all relevant parties in the supply chain. This paper discusses the relationships among these A. Halldorsson concepts and proposes a research framework combining School of Management, University of Southampton, aspects of D’Aveni’s [1] hypercompetition and Christo- Southampton SO17 1BJ, UK pher’s [2] responsiveness and agility viewpoints by e-mail: A.Halldorsson@soton.ac.uk 123 6 Logist. Res. (2009) 1:5–13 Table 1 Strategic and managerial issues for environmental levels of turbulence [8] Turbulence level 1 2 3 4 5 Environmental Repetitive Expanding Changing Discontinuous Surprising turbulence Slow Fast incremental Predictable Discontinuous and unpredictable incremental Strategic Stable Reactive Anticipatory Entrepreneurial Creative aggressiveness Based on creativity Based on Based on Discontinuous experience extrapolation Based on Incremental Incremental Based on observable Novel precedents opportunities Organisational Stability seeking Efficiency driven Market driven Environment driven Environment responsiveness creating Rejects change Adapts to change Seeks familiar change Seeks related change Seeks novel change Manager type Custodian Controller Growth leader Entrepreneur Creator Leadership Political Rational Inspirational Charismatic Visionary Key knowledge Internal politics Internal operations Historical markets Global environment Emerging possibilities positing two questions. Firstly, under what conditions 4 and 5 are more demanding and require organisational might inter-organisational relations and supply chain pro- strategies to be more entrepreneurial and creative and to cesses overcome responsiveness and hypercompetitive consider restructuring internal and external organisational challenges? Secondly, once these conditions are known relationships, particularly supply chain relationships. how might a firm design and manage its inter-organisa- The increase in the rate of change and thus the concept tional relations and supply chain processes in order to of time as regards this change, product lifecycles and so on survive in such an environment? We first discuss aspects of also affects modern businesses and supply chains. Fine the turbulent business environment that firms now face. introduced the term ‘clockspeed’ to describe an industry’s evolutionary life cycle, which is a function of the speed at which products, processes and organisational structures are 2 The turbulent business environment introduced [9]. As an industry’s clockspeed increases competitive advantage is difficult to sustain. Fine argued Business environments changed dramatically during the that the ultimate source of sustainable competitive advan- 1990s. Stagnant and decreasing market volumes had major tage is a company’s ability to manage its supply chain, i.e. impacts on profit margins in various industries during the being market responsive in a time-conscious and turbulent 1990s. For example, net profit margins of grocery retailers environment. in many countries, excluding the United Kingdom, are in a Table 1 also illustrates an increased complexity in discouraging range between -0.5 and ?1.5% [3]. modern business environments, which also has conse- The nature of customers and consumers also changed quences for the management of supply chains. Lewin during that time. Changing consumer tastes, increased argued there are parallels with complexity in natural sci- consumer sophistication, smaller household sizes and the ence. Traditional business hierarchies with command and growth of older consumer segments, inter alia, have pre- control structures minimise interactions among actors in an sented new challenges for manufacturers and retailers [4]. organisation’s environment, which in turn inhibits crea- Many industries have also experienced a power shift tivity [10]. Lewin considered management should be from manufacturers to retailers, mainly due to the guided by complexity science and recognise that relation- increasing size of several retail players [5, 6]. Wal-Mart’s ships are an organisation’s desired output, from which sales in 2000 of nearly US $194 billion were about five creativity, culture and productivity emerge. Thus, tradi- times higher than Procter & Gamble’s sales of approxi- tional, linear and mechanistic hierarchies of business are mately US $40 billion in the same year [7]. going to be replaced more and more by decentralized and The rate of change has increased dramatically during the modular networks that are cooperative-oriented, autono- last twenty years and has developed increased business mous and indirectly coordinated [10]. ‘turbulence’ [8]. Five levels of turbulence and their impact Beyond these perspectives of rapid and significant on organisations are presented in Table 1. Turbulence levels change and ‘displacement competition’ where a firm can 123 Logist. Res. (2009) 1:5–13 7 only gain market share by decreasing a competitor’s mar- Table 2 Competitive advantage in hypercompetitive situations [13] ket share, the development of inter-organisational Firms seek competitive advantage through relationships and supply chain processes should enable Market moves firms to obtain a competitive advantage [6, 11]. Such an Low price (cost) or differentiation strategies orientation is readily characterised by the concept of SCM; First-mover advantage or timing which is recognised as a necessary strategic weapon for Developing new products or new markets ensuring a firm’s competitive advantage and is considered a management-driven competency [12]. We next discuss Building barriers Resource-based advantage or know-how aspects of hypercompetition. Strongholds Deep pockets 3 Theory and aspects of hypercompetition Scale There are two different meanings for hypercompetition. Firstly, the term describes an intensive rivalry and rapidly create their own cash reserves through mergers and alli- changing condition in markets or industries. According to ances [1]. D’Aveni [1] this phenomena can be identified in almost We consider the elements of these four arenas fit into every industry from consumer goods to telecommunica- two of Johnson and Scholes’ [13] generic strategy options, tions. Secondly, it presents a conceptual model for the market moves and building barriers, that firms can adopt in strategic behaviour of firms and inter-organisational rela- order to gain competitive advantage as shown in Table 2. tionships from a management point of view. In both cases Market moves relate to being market responsive while it is necessary to know how to cope with hypercompetition. building barriers relate to establishing near-monopolistic The theory of hypercompetition argues that firms oper- or oligopolistic market behaviour. The former option fits ate in four different competitive ‘arenas’ within their with Christopher’s [2] concept of market responsiveness or respective industries [1]: agility, however, the latter option reduces market respon- siveness. We next consider aspects of SCM affected by 1. Cost and quality: A firm can have either a low cost-low hypercompetition. quality product or a high cost-high quality product. Over time a low cost producer will increase quality and a high cost producer will decrease prices, thus 4 SCM and hypercompetition there will be convergence in the minds of the customer and a possible perception that the product is a The logistics and SCM literature distinguishes between an commodity. institutional level (who performs logistics/SCM) and a 2. Know-how and timing: A firm’s knowledge base and functional level (how is logistics/SCM performed). the timing of product releases can be very important to Another characteristic is the application of a systems view, its success. Procter & Gamble and IBM are two firms i.e. systems thinking that supports the integration of all that have used their strong patent portfolios to garner activities within a logistics system or supply chain [12]. extra revenues of up to a billion dollars a year. This means that individual components in such systems 3. Strongholds: These are markets, geographical or should not be treated in isolation since they are inter- product, where a firm is very strong and which provide related [14]. From an institutional point of view, one can a source of continuous sales and profits. These almost- distinguish between micro- and macro-logistics/SCM sys- proprietary markets provide certain profits and cash tems depending on the unit of analysis [15]. flows to allow the firm to attack a competitor in its Some authors argue that a firm’s supply chain functions market. should be considered as micro-systems [12]. However, we 4. Deep pockets: Here a firm will have a large amount of consider these systems are subsystems of macro-systems, cash reserves to help it in times of change, introduce such as technological infrastructure (e.g. traffic systems, new products, enter new product markets and attack IT-systems). As micro-systems are also linked to one competitors. another (e.g. raw material suppliers, manufacturer, retailer, Having an advantage in all four arenas does not neces- and third-party logistics providers) there is also the notion sarily provide a continuous competitive advantage; they are of a meta-system that focuses on the coordination of only temporary sources of advantage in hypercompetitive logistics and supply chain systems in different firms. Here, markets since competitors in every market will also seek to competitive settings such as hypercompetition seem to improve the quality of their products, reduce costs and apply not only to micro-systems but also to meta-systems. 123 8 Logist. Res. (2009) 1:5–13 Stern et al. [16] recognised that a marketing channel, or and the requirement for variety is high. Lean works best in essentially a supply chain, is the result of different envi- high volume, low variety and predictable environments’’ ronmental intercourse. [2, p. 39]. A change in one environmental factor will consequently Both environmental situations may be present within change the overall setting, including design and manage- one supply chain. A classic example is cotton sweaters ment of a supply chain. This situation has been neglected produced by Benetton [2]. Benetton mass-produces certain by many SCM researchers, who put more emphasis on styles of sweaters in order to decrease costs of production discussing SCM from the viewpoint of the supply chain, and they are uncoloured and unprinted. Colour dyeing and but not from the competitive background of the supply printing of the sweaters occurs just before they go to chain and the individual firm [17, 18]. market to take advantage of current fashion trends in Further, the formation of long-term relationships is individual markets. contingent on various interrelationships within the wider This approach combines the benefits of both lean/agile environment of the supply chain, especially the nature of and speculation/postponement strategies and is shown in competition in a particular industry. Thus, to be market Fig. 1. The decision point where a lean or push strategy responsive in hypercompetitive environments, a firm can changes to an agile or pull strategy has been termed the consider using differentiation strategies for existing prod- ‘decoupling’ point. It is the point or depth in the supply ucts/logistics services or markets, being the first mover in a chain where ‘‘real demand is made visible… reflects the particular market, or introducing new products/logistics ongoing requirement in the final market place as close to services in existing or new markets in order to build real-time as possible’’ and ‘‘should also dictate the form in competitive advantage. Deeper and more meaningful which inventory is held’’ [2, p. 41]. Indeed, some authors relationships within the firm’s supply chain will be have considered positions both in a manufacturing setting required to do so. and termed the resultant position as ‘leagile’ [23]. There are two tensions between the value or push chain The adoption of both lean and agile strategies in one and demand or pull chain strategic positions that developed hybrid supply chain and the location of the de-coupling during the 1990s and primarily relate to cost and value, point will vary with different product and supply chains respectively. One is the lean production position, which [20]. Flow of product up to the decoupling point may be considers value creation from the customer’s perspective forecast-driven whereas flow of product after the decou- but focuses on the product and waste that surrounds pling point should be demand-driven [2]. activities related to the entire production system [19]. The A hybrid supply chain scenario that allows compatibility lean position is based on Ohno’s work in Japanese auto- of the lean and agile concepts and which suggests strategies of cost reduction and market responsiveness should also be mobile manufacturing, and represents an efficiency approach towards logistics or SC activities and encom- compatible under a hypercompetitive supply chain sce- passes techniques used in just-in-time (JIT), total quality nario. Thus, the concept of an agile SC being market management (TQM) and materials resources planning responsiveness and demand driven can be combined with (MRP) environments. market move strategies in a hypercompetitive environment In contrast, the agile position is a flexible approach to that is time and cost-driven to effectively establish an logistics or supply chain activities that enables rapid ongoing competitive advantage, as opposed to a short-term response and change and has its origins in flexible manu- advantage within a solely hypercompetitive context. facturing systems. It encompasses customer demand and We posit the main questions for managers, whose firms involvement in designing and implementing product man- operate more and more in responsive and hypercompetitive ufacturing and supply chains [2, 20]. Empirical examples markets, as: of agile supply chains are efficient consumer response • What are the conditions under which inter-organisa- (ECR) systems in the food supply chain [21]. tional relations and supply chain processes help Although theoretical discussions of both lean and agile to overcome responsiveness and hypercompetitive positions were developed during the last 15 years, they are challenges? not entirely new concepts. Bucklin’s theory of channel • And, when knowing these conditions, how should firm structure developed in the 1960s is based on two similar relations and supply chain processes be designed and concepts: postponement and speculation [12, 22]. Some managed in order to survive in a responsive and authors have attempted to choose and defend either an agile hypercompetitive environment? or lean position arguing that the two concepts appear To address these questions we now introduce a con- incompatible. The difference between the two positions was succinctly described by Christopher: ‘‘agility is needed ceptual framework showing the relationship between in less predictable environments where demand is volatile responsiveness and hypercompetition that extends the 123 Logist. Res. (2009) 1:5–13 9 Fig. 1 Decoupling point analysis—an FMCG example [19] domain of the supply chain to a ‘meta-level’. This meta- resource-based view of the firm (RBV). They apply the level domain and our framework consider how logistics notion of the firm as the level of analysis. The body of and supply chain systems are influenced relative to tech- literature within both marketing and logistics/SCM, how- nological, infrastructure, political, social and economic ever, seems to verify that the boundaries of the firm are environmental factors. much more blurred than suggested by TCE and RBV. The increasing division of labour in a supply chain governed by a hybrid form of governance mechanism [26] has been 5 Inter-organisational structures and a framework recognised as a means of competitiveness through terms for hypercompetition and SCM such as ‘strategic sourcing’ [27] and ‘cooperate to com- pete’ [28]. And yet, we can argue these terms may be The changing business environment impacts organisational considered more commonly as SCM. structures. Within a traditional business setting, firms are The predominant views on SCM relate to the integration typically perceived as single, self-contained units with of business processes [29] and relationship management clear and determinate internal and external boundaries, e.g. [17] in a supply chain to achieve competitive advantage. set by physical location factors or laws [24]. These Although the level of analysis has moved away from the boundaries have also become more blurred in today’s firm towards inter-organisational relationships both TCE competitive environment as shown in Fig. 2. and RBV [30] and the means of creating and developing Traditional hierarchies with their command and control resources and capabilities [31] can still be applied to structures are more and more being replaced by decen- achieve improvement. tralized, modular, cooperative-oriented, autonomous and The wider context of the supply chain or network, par- indirectly coordinated networks, in concert with Lewin’s ticularly its adaptation in organising economic activities [10] suggestions. Such new organisational constructions under the condition of hypercompetition, has yet been not overcome discrepancies and borders in space, time and explicitly discussed. All SCM models assume competition behaviour faster and better than conventional structures. as a given—a ‘ceteris paribus’ presumption. However, as For the borderless organisation, Chandler’s rule of ‘struc- Fine [9] and Dawson [8] both argued firms are set in ture follows strategy’ [25] might be better thought of as dynamic environments and change according to their ‘structure follows flexibility and innovation’, due to such influences, i.e. today’s markets are changing rapidly. changing and unstable conditions. Within the grocery Halldorsson et al. [32] argued that SCM itself is not a industry, Wal-Mart and Procter & Gamble have already theory, but should be understood and explained by refer- developed a good example of a borderless organisation, ences to existing theoretical frameworks of economics, where internal (functional) and external (organisational) strategic management, distribution channels, and organi- boundaries were set aside [21]. sations. This view considers SCM as an intersection of Two predominant theories in economics, strategy and theories from various disciplines that present strategic organisation are transaction cost economics (TCE) and the implications for particular managers [33]. Table 3 presents 123 10 Logist. Res. (2009) 1:5–13 Fig. 2 Driving forces for changing firms [24] some of these theoretical approaches from various disci- not only able to discuss the functional perspective of a plines and their consequences for hypercompetition. supply chain, but also the stability of its functionality and the Hypercompetition adds a new dimension to each theo- generative mechanisms for successful relationships. Further, retical approach. We believe research interest lies both conditions of hypercompetition attack the presumption of with how hypercompetition constrains a particular theory the supply chain as an open system by questioning not only and how problem solving capacity can be enhanced. the boundaries of the system, but what is more important Research outcomes would include investigating new attri- how to establish interfaces between these particular envi- butes that not only have theoretical implications, but also ronmental conditions and the individual supply chain. generate new opportunities of actions for managers. Our assumptions are based on a normative model in The conditions of hypercompetition and market respon- order to recommend why, when and how to design inter- siveness help us to question not only how clear but also how organisational relationship-based management decisions under hypercompetition for strategic management in firms. stable inter-organisational relationships are. TCE directs the focus to the extant nature of inter-organisational relationships, The theoretical grounding of our research is in theories that i.e. the ‘nuts and bolts’ or contractual considerations, while reflect upon the boundaries of the firm such as TCE, RBV RBV directs the focus towards issues such as what compe- and a network approach (cf. Table 3). tencies are necessary to compete in hypercompetitive markets Figure 3 depicts these theoretical approaches in a but more importantly how to prevent erosion of current proposed hypercompetition and SCM network framework. competencies under these conditions. Also, to what extent is For the last two decades, much effort has been put into the network organisation is a precursor or a hurdle, respec- the understanding and explaining industrial markets as a tively, for hypercompetitive and responsive markets. set of interdependent, inter-organisational relationships. Our Considering only marketing and logistics, hypercompet- framework considers these processes of exchange and itive conditions mobilise focus towards issues where we are adaptation between firms but extends the analysis to include 123 Logist. Res. (2009) 1:5–13 11 Table 3 Theoretical approaches versus hypercompetition (adapted from [32]) Economic and organisational perspectives versus hypercompetition Theoretical approach ‘Traditional view’ Consequences for hypercompetition Transaction cost economics (TCE) Why firms? How static are boundaries of the firm? • Most efficient boundaries of the firm • Type of governance structure How unambiguous are the boundaries of the firm? • Vertical/horizontal integration Vertical/horizontal competition Resource-based view (RBV) Why do firm differ? How to develop and preserve core competencies under hyper-competition? • Firm heterogeneity What characterises the core competence behind the hyper-competitive firm? • Dynamic capabilities Network approach (NP) Describing attributes of inter-organisational Do networks exist in hyper-competitive relationships environments? Development and management of inter- Are inter-organisational relationships to be organisational relationships ‘‘developed’’ ex-ante, or is their nature much more ‘‘emerging continuously’’ Logistics/SCM-perspectives versus hypercompetition Theoretical approach ‘Traditional view’ Consequences for hypercompetition and SCM Marketing channels perspective A channel is a set of interdependent What are the major drivers for a successful organisations involved in the process of channel setting? making a product/service available for use or consumption Which function has to be performed by whom in How stable are these functions? order to make the product/service available? Logistics systems perspective The holistic view on business logistics helps to What are the boundaries of the systems? overcome institutional and/or functional barriers in solving logistical problems In such a setting, logistics system are defined as How do we have to set up such systems under sets of elements (parts, components) which are hypercompetition (question of interfaces?) in a relationship where the elements receive an input (e.g. costs) and transform this input to an output (e.g. service) Agile supply chains An agile SC is flexible in terms of both How do we achieve cost reductions in a manufacturing and logistics activities flexible SC environment? An agile SC is demand-driven How do we set up and manage a SC to be responsive to demand and competition? understanding the design and management of inter-organi- exhibited in Table 3 as consequences for hypercompetition sational relationships in a situation of hypercompetition. from the various perspectives. We argue that elements of hypercompetition, manifested As noted in our discussions above this integrative and by their TCE and RBV characteristics, impact a supply chain environmental approach has not seen much investigation in network containing inter-organisational relationships. This the logistics and SCM disciplines. Thus, a research agenda impact is across all participants in the network, not just the to empirically test this framework should: focal firm, and is thus ‘meta-level’ in its significance. (1) determine which elements of hypercompetition in a Therefore, a focal firm should consider the state of hyper- focal firm’s environment are relevant to the firm’s competition across their network in order to effectively network; design and manage these relationships. That should include (2) determine whether relevant elements are necessary consideration of the market move and building barriers ele- antecedents to establishing inter-organisational rela- ments presented in Table 2. 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Journal

Logistics ResearchSpringer Journals

Published: Aug 16, 2008

References