Alberts PDF

Gaining and Sustaining a Competitive Advantage in an

Optometric Practice

by

Nicolaas Francois Alberts

A Short Dissertation Submitted

as

Partial Fulfilment

as

Required of the Degree Master of Commerci

ill

Business Management

ill

The Faculty ofEconomic and Management Sciences

at

The Rand Afrikaans University

under

Study Leadership of TFJ Oosthuizen

October 2002

Johannesburg

SYNOPSIS

Kotler (1997:53) defines competitive advantage as " ... a company's ability to perform

in one or more ways that competitors cannot or will not match". Companies strive to

build sustainable competitive advantages. Those that succeed deliver high customer

value and satisfaction, which lead to high repeat purchases and therefore high

company profitability. Competitive positioning is important and crucial in the rapid

changing environment wherein organisations find themselves. Differentiation of

service or product is ofutmost importance to satisfy current clientele and to draw new

business. Any organisation unable to differentiate to offer something unique finds

itself part of a vast majority of "middle-of-the-road" organisations on the road to

nowhere, even ifgeneral quality of service and product is acceptable.

The study is aimed at developing a model by which a competitive advantage can be

gained and sustained in an optometric practice. Different ways of gaining and

sustaining competitive advantage is explored through current literature review in

order to establish and develop the suggested model. Quantitative research was done in

the greater Gauteng region by means of a mail survey to a random sample of

optometrists. Two hundred and fifty questionnaires were sent out with a 19,2%

response rate.

The highest conformity amongst respondents is given to the Employee dimension

with the least conformity given towards the Market dimension. Respondents thus

value the Employee dimension as the most important factor in gaining competitive

advantage. It is suggested that Porter's Value Chain be altered to have Human

Resource Management forming the foundation of the value adding activities. Human

Resource Management thus plays the most important role in adding value as it is

utilised as medium through which value is passed on to clients. This view is in

contrast with Porter's where Human Resource Management only served as a

supporting function.

ACKNOWLEDGEMENTS

I wish to express my gratitude towards the Lord for His blessing and guidance without

which this dissertation would not have been possible. I would like to thank my parents

for their love and support in all aspects of my life. You have nurtured my potential

and unleashed my true capabilities. Annelene, Kobus and Chrisna have always

believed in me and have played an important role in forming my character - thank

you very much. To my loving wife and sole mate, Louisa, I would like to express my

most sincere gratitude for her true love and unfaltering support in my efforts to

complete my studies. You are a true friend and comrade without which I would not be

complete.

I would also like to thank my study leader, Theuns Oosthuizen for his extended

guidance with my dissertation.

TABLE OF CONTENTS

CHAPTERI-INTRODUCTION page 1

1.1 Background 1

1.2 Problem Statement 6

1.3 Objectives of Study 8

1.4 Research Methodology 8

1.5 Demarcation of Study 9

1.6 Summary 9

1.7 Chapter Outline 10

CHAPTER 2 - COMPETITIVE ADVANTAGE DYNAMICS 11

2.1 Introduction 11

2.2 Competitive Advantage Defined 12

2.2.1 Low-Cost Provider Strategies 16

2.2.2 Differentiation Strategies 18

2.2.3 Best-Cost Provider Strategy 19

2.2.4 The Value Chain 20

2.2.5 Business Strategies 22

2.2.5.1 Intensive Growth 23

2.2.5.2 Integrative Growth 23

2.2.5.3 Diversification Growth 24

2.3 Sustainability of Competitive Advantage 24

2.3.1 Sustainability of Cost Leadership 25

2.3.2 Sustainability of Differentiation 26

2.3.3 Sustainability of a Focus Strategy 27

2.3.4 Creating Competitive Advantage through 28 Service

2.3.5 Competitive Advantage through People 33

2.3.6 The Learning Organisation 37

2.4 Strategies for Defending the Competitive Advantage 38

2.4.1 Raising structural barriers 38

2.4.1.1 Fill product or positioning gaps 39

2.4.1.2 Block channel access 39

2.4.1.3 Raise buyer switching costs 39

2.4.1.4 Defensively increase scale economies 40

2.4.1.5 Form coalitions to raise barriers 40

2.4.2 Increasing expected retaliation 40

2.4.2.1 Signal commitment to defend 40

2.4.2.2 Signal incipient barriers 41

2.4.2.2 Match guarantees 41

2.4.2.4 Establish defensive coalitions 41

2.4.3 Lowering the inducement for attack 42

2.4.3.1 Reducing profit targets 42

2.4.3.2 Managing competitor assumptions 42

2.5 Pitfalls in Defence 43

2.6 Competitive Advantage through Customer Focus 43

2.6.1 Organisation Culture and Competitive 44 Advantage

2.7 The Changing Basis of Competitive Advantage 46

2.8 Conclusion 47

49 CHAPTER 3 - RESEARCH METHODOLOGY

3.1 Introduction 49

3.2 Research objectives 49

3.3 Sample size 49

3.4 Research design 50

3.5 Survey method 50

3.6 Questionnaire 53

3.7 Question Groups 53

3.7.1 Product and Service 55

3.7.2. Market 57

3.7.3. Technology 58

3.7.4. Employees 59

3.8 Coding ofthe questionnaire 60

3.9 Conclusion 61

CHAPTER4-RESULTSOFSTUDY 63

4.1 Introduction 63

4.2 Survey response 63

4.3 Demographic profile 63

4.4 Questionnaire frequencies 68


4.4.2 Market 73

4.4.3 Technology 75

4.4.4 Employee 77

4.5 Reliability analysis 79

4.6 Normal distribution 79

4.7 Inter-group differences 80


4.7.2 Dimension Frequencies 82

4.4 Conclusion 82

CHAPTER 5 - CONCLUSION AND RECOMMENDATIONS 83

5.1 Introduction 83

5.2 Conclusion 83

5.3 Recommendations 87

LIST OF REFERENCES 90

APPENDIX A - QUESTIONNAIRE 93

APPENDIX B - TECHNIQUES FOR ASSESSING COMPETITIVE 106 ADVANTAGE

APPENDIX C - FREQUENCY DISTRIBUTIONS 107

APPENDIX D - RELIABILITY ANALYSIS 115

LIST OF FIGURES

Figure 1.1 Porter's Generic Competitive Strategies page 3

Figure 1.2 Competitive Advantage Through Human Resource Management 4

Figure 2.1 The Five Competitive Forces That Determine Industry Competition 14

Figure 2.2 The Value Chain 21

Figure 2.3 The Service Triangle 30

Figure 4.1 Nature of practice. 63

Figure 4.2 Number of optometrists employed in the practice/so 64

Figure 4.3 Number of practices owned. 64

Figure 4.4 Number of complete years practice/s exist. 65

Figure 4.5 Number of complete years optometrist has been practising. 65

Figure 4.6 Number of complete years as owner or shareholder of an optometric practise. 66

Figure 4.7 Positioning of current practice/so 66

Figure 4.8 Approximate size of current client base. 67

Figure 4.9 Age of respondents in complete years. 67

Figure 4.10 Gender of respondents. 68

Figure 4.11 Product and Service - Individual Question Frequencies 69

Figure 4.12 Product and Service - Grouped Frequencies 69

Figure 4.13 Market - Individual Question Frequencies 72

Figure 4.14 Market - Grouped Frequencies 73

Figure 4.15 Technology - Individual Question Frequencies 75

Figure 4.16 Technology - Grouped Frequencies 75

LIST OF TABLES

Table 2.1 The Major Classes of Growth Opportunities page 23

Table 2.2 Risk of the Generic Strategies 25

Table 3.1 Advantages and Disadvantages of Different Survey Methods 25

Table 4.1 Reliability Analysis 79

Table 4.2 Normal Distribution Analysis 80

TableBl Techniques for Assessing Competitive Advantage 106

Table C1 Please indicate the nature of your practice/so 107

Table C2 How many optometrists are employed in your practice/s? 107

Table C3 How many practice/s do you own? 108

Table C4 How many complete years does your practice/s exist? 108

Table C5 How many complete years have you been practising as an optometrist? 108

Table C6 How many complete years have you been the owner or shareholder of an optometric practise? 109

Table C7 How would you classify the area your current practice(s) is situated in? 109

Table C8 What is the approximate size ofyour current client base? 109

Table C9 What is your age in complete years? 110

Table C10 What is your gender? 110

Table C11 Section B Frequencies 111

Table C12 Section C Frequencies 113

Table D1 Normal Distribution - One-Sample Kolmogorov-Smirnov Test 115

Table D2.1 Group Statistics - Question 2 116

Table D2.2 Independent Samples Test - Question 2 116






Table 5.2 Independent Samples Test - Question 5 119









Table DI0.1 Group Statistics - Question 10 124

Table DI0.2 Independent Samples Test - Question 10 124

TableDll Factor Frequencies 125

CHAPTER 1

INTRODUCTION

1.1 Background

Similar to other professional services, optometry can not be classified as a true service

only. It also offers a product range in the form of spectacles, sunglasses, contact lenses

and/or relative accessories. The whole chain of service and product delivery classically

involves multiple interactions between client, staff and optometrists. Collier (1994:5)

calls these interactions "moments of truth" in which the company must create and

establish the milieu of ultimate customer care. Each and every staff member needs to see

the successful creation of truth moments as his/her personal goal in order to achieve

success. Because of this complexity, competitive advantage is an elusive concept that

much need to be grasped and implemented in order to ensure survival in the ever

changing environment.

Various academic institutions in South Africa offer courses (mostly diplomas) in

optometry with the Rand Afrikaans University (RAU) the only exception offering a

Bachelor degree in optometry (B.Optom). The industry in optometry has also developed

from a closed window business, where regulations prohibited open windows to the

public, into a highly marketable and open window industry where advertising and

displaying is the industry norm. This sudden change in the marketplace has almost taken

the optometric industry by surprise. Many of the older and established groups are headed

by optometrists from the "closed-window" era, who struggle to adapt their thinking to the

high!y competitive environment prevailing currently.

Global competition is getting tougher daily and companies are increasingly looking at

ways of gaining competitive advantage in their areas of operation. Optometry is no

exception in this regard. Recent times have seen franchising and joint venturing in

1

loptometry where previously most practices were one-man operations or partnerships.

This added a new dimension to the competitiveness in the industry with factors like

economy of scale and brand awareness becoming more relevant.

Virtually every aspect of the business environment is experiencing accelerating change,

particularly globalisation of markets. Optometry in South Africa has yet to experience the

globalisation of highly successful optometric groups from other parts of the world. The

increasingly turbulent environment places a severe penalty on complacent management,

as knowledge of all types is subject to rapid obsolescence and erosion. Surprising enough

business success has also shown to reinforce complacency (Naumann, 1995:5). Naumann

(1995:5) attributes this to the fact that things making companies successful during certain

periods are reinforced continuously without keeping track of the changes in the

environment and demand. He also states that it is specifically people at Chief Executive

Officer (CEO) level that seize to make short term changes to company culture. Surviving

companies in the global markets are those who were better able to change and adapt to

their environment and customer demands.

Kotler (1997:53) defines competitive advantage as " ... a company's ability to perform in

one or more ways that competitors cannot or will not match". Companies strive to build

sustainable competitive advantages. Those that succeed deliver high customer value and

satisfaction, which leads to high repeat purchases and therefore high company

profitability.

Micheal Porter was one of the first contemporary scholars to apply traditional economic

thinking to management problems. Porter (1985:35, 1990:58) explains corporate strategy

in terms of a competitive marketplace. He identifies four generic strategies (1) cost

leadership; (2) differentiation (3) cost focus and (4) focused differentiation (see Figure

1.1). The matrix suggests that competitive advantage can be gained through lower cost

and differentiation to provide unique and superior value to customers in terms of product

quality, special features, of after sale service.

2

Figure 1.1 Porter's Generic Competitive Strategies

~ c. 0

Providing innovative products or services that are not offered by its competitors

Choosing a superior location - one that is more accessible to its customers

growing body of research-based evidence indicates that a firm's Human Resource

Management (HRM) practices can have a rather strong impact on competitive advantage

(Kleiman, 1997:27). Stanford professor Jeffry Pfeffer in his book Competitive Advantage

Through People (1994:56) has described the potential impact of HRM practices on

competitive advantage. Pfeffer identified 16 HRM practices that, in his opinion, can

enhance a firm's competitive advantage (see figure 1.2).

Figure 1.2 Competitive Advantage Through Human Resource Management

HR Practices

Pre-Selection Practices HR planning (3) lob analysis (4)

Selection Practices Recruitment (5) Selection (6)

Post-Selection Practices Training/development (7) Performance appraisal (8) Compensation (9) Productivity improvement programs (10)

Practices Affected by External Factors

Workplace justice (11) Unions (12) Safety and health (13) International (14)

(Source: Pfeffer, 1994:56)

Employee-Centered Organisation- Competitive Outcomes

Competence Motivation Word-related Attitudes

Centered Outcomes Advantage

Output Retention Legal compliance Company image

Cost leadership Product Differentiation

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Pfeffer states that in some instances, firms can achieve cost leadership through the use of

effective HRM practices. HRM-related costs associated with recruitment, selection,

training, compensation, and so forth comprise a significant portion of a firm's

expenditures. These costs are especially high in service-related industries where firms

spend about 70 percent of their budgets on payroll costs alone. Those doing the best job

of containing them, therefore, stand to gain a financial advantage over their competitors.

It is also possible to trace some indirect influences of HRM practices on competitive

advantage, like the link between employee-centered outcomes and organisation-centered

outcomes (see Figure 1.2). Although the evidence just presented shows that effective

HRM practices can strongly enhance a firm's competitive advantage and the reason why

these practices have such an influence will be explored in the preceding study.

Stock and Lambert (1992: 29-30) argues that, logistics can be a source of competitive

advantage for a firm just like a good product, promotion, and pricing strategy.

Distribution can be used as the primary reason why the target market will purchase, and

distribution can be designed as a unique offering not duplicated by competition. In an era

of shrinking product life cycles, proliferating product lines, shifting distribution chains

and changing technology, mastery of logistics has become an essential ingredient of

competitive success. Companies that view logistics as an offensive marketing weapon

will likely make logistics an integral part of their competitive strategy.

Organising the business environment can playa vital role as a competitive advantage tool

(Georgiades and Macdonell, 1998: 30, Duro, 1989:22). The traditional approach used by

employers to control the output of their workers was to provide a hierarchy of decision

making. Georgiades and Macdonell summarise the effects undermining the creation of

competitive advantage as follows:

it undermines employee confidence,

5

it prevents spontaneous decisions (although they are sometimes necessary for

customer responses),

it removes decisions that affect productivity and quality from the workplace

(often preventing all the facts from being known by the person making the

decision),

and it can build in unnecessary numbers of managers to prop up the hierarchy.

According to Ghemawat (1991:29-36), sustainable advantage can be divided into three

categories: (1) size in the targeted market, (2) superior access to resources or customers,

and (3) restrictions on competitors' options. These advantages are non-exclusive and can

often interact.

Taking the literature overview into perspective it is clear that competitive advantage is a

complex subject encompassing diverse issues ranging from time to leadership as a

competitive tool. The development of a competitive strategy is vital to the survival and

prospering of any organisation wishing to play any significant role in it's relevant

industry. The topic is very relevant and applicable to any organisation. Without a

practical competitive strategy the organisation is like a ship without a rudder - on a

journey to nowhere.

1.2 Problem Statement

Gaining competitive advantage in the business environment and global market place has

become increasingly difficult as low cost leadership is easily copied. Even quality of

products gets copied at lower cost, leading to relatively lower value of the original

product quality. As Porter (1985:35) indicates in his model, a position of advantage can

be attained through either low cost or differentiation. At any given stage though, there

can only be one industry leader as far as low cost is concerned. If not technologically

superior to competitor, this leader can also be easily copied and sustained advantage is

therefor virtually impossible. Even technology can be copied rendering the advantage of

the cost leaders obsolete. Low cost strategies also largely targets a segment of the market

6

that can be called the "bargain hunters" which has low loyalty levels and will purchase

from the lowest seller at any given stage. These consumers also seek quality even at the

low price.

According to Porter's competitive matrix, differentiation seems to be the only other

alternative, especially companies focusing on broad market (see Figure 1.1). In the

optometric industry in South Africa most products available for sale are standard in that it

consists of lenses and frames purchased from wholesalers. Availability of most products

is thus not limited to certain individuals or groups, generally speaking. Financially

strong groups purchase frames directly from overseas and establish wholesale lens

companies within their environment. Taking all of this into account, the supply of goods

is relatively equal with little differences in the types of lenses or frames that can be

obtained by any optometry practice, given the details of the product. Technological

advancements are largely made by manufacturers of lenses and/or frames and released to

the industry, putting everyone on par.

As stated before the franchises within the industry has made economy of scale and brand

awareness very relevant in optometry. Prior to this the South African Optometric

Assosiation (SAOA) established a price list which all the practitioners used. The

franchises are able to give considerable discounts and they advertise this widely. It is

quite safe to say then that they aim at the cost leadership position in the market. It is

relatively easy to copy low prices though by offering the same to clients inquiring about

discount or bettering written quotes of the price leader.

Gaining and sustaining a competitive advantage in such an environment asks for

differentiation in the full service experience of the client, in-house. If companies wish to

stay competitive they have no choice but to adopt total quality management (TOM).

According to Kotler (1997:54), TOM is an organisation wide approach to continuously

improve the quality of all the organisation processes, products and services. Here is an

intimate connection among product and service profitability. Higher levels of quality

results in higher levels of customer satisfaction while supporting higher prices and often,

7

lower costs. Due to the fact that there can only be one low cost leader in the field a huge

gap is left in which other optometric practises can differentiate themselves in different

ways, to gain competitive advantage. Differentiating the offer to customers on service

level is one of the best ways to gain and sustain competitive advantage in a highly

competitive environment.

1.3 Objectives of Study

Gaining competitive advantage can be achieved in various ways by differentiating the

offer to the user or by lower price. Keeping the problem statement in mind, the primary

goal of this study will be to develop a model by which a competitive advantage can be

gained and sustained in an optometric practice. Different ways of gaining competitive

advantage and sustaining it will be explored to establish and develop the suggested

model.

Secondary goals of the study can be summarised as follows:

To assess current perceptions on competitiveness in the optometric market.

To examine current literature on competitive advantage and total quality

management

1.4 Research Methodology

Exploration will be conducted quantitatively. Views and ideas of practicing optometrists

on competitiveness will be attained through the use of questionnaires. A random sample

of two hundred and fifty respondents will be selected from the South Mrican Optometric

Association (SAOA) list of registered optometrists in Gauteng. Questionnaires will be

mail-posted or e-mailed to the candidates.

8

Current literature on gaining and sustaining competitive advantage will be reviewed. Not

only will it indicate the critical issues pertaining to competitive advantage but also serve

as a benchmark against which the questionnaire results can be reviewed.

1.5 Demarcation of Study

The random sample taken from the registered optometrists in Gauteng can not be seen as

being representative of the profession nationally and less so internationally. Findings with

regard to competitiveness obtained in the study, can also not necceserally be made

applicable to other industries. Resistance to response is expected due to the relatively

small size of the market. Suspicion over the motives of the researcher might be quite

high, which can influence the response rate negatively.

The random sample taken from the SAGA list of optometrist may exclude those who are

not members of this body. Because this represents a small percentage of optometrists in

the practice it is of no great concern. Using the mailing method of distributing the

questionnaires might lead to low response rates, which can in turn induce bias. Making

personal or telephonic contact with the respondents might attain a higher response rate

but can adversely affect confidentiality.

1.6 Summary

Competitive positioning is important and crucial in the rapid changing environment

wherein organisations find themselves. Differentiation of service or product is of utmost

importance to satisfy current clientele and to draw new business. Any organisation unable

to differentiate to offer something unique finds itself part of a vast majority of lImiddle

of-the-road ll organisations on the road to nowhere, even if general quality of service and

product is acceptable. The practical implication of the competitive positioning is more

complex than it seems at first sight. Definite goals and objectives need to be formulated

in order for the organisation as a whole to accomplish superior positioning compared to

the other competitors. Communication of these shared goals and objectives is almost

9

more important than the goals itself. Sustaining a competitive advantage calls for long

term strategies that will see to continuity in company approach to service provision. The

focus of this paper will thus be to give some background on the ways competitive

advantage can be gained and sustained in an optometric practice.

1.7 Chapter Outline

Chapter one serves as introduction to the study to be undertaken. Crucial issues like the

background to the study, problem statement and demarcation of the study are addressed.

In chapter two a comprehensive and in-depth literature overview will be given to set the

stage for the rest of the project. All possible and relevant sources will be consulted to get

a better understanding of competitive advantage and ways to achieve it.

Chapter three will deal with the research methodology of the study conducted and will

give insight into the ways and means attempted to make the study measurable,

representative and relevant.

The fourth chapter will reveal the results of the study in an academic, easy and

presentable way, giving readers the chance to understand and interpret it easily as well as

adhering to the formal structure expected in such a study.

The last chapter (Chapter five) will hold the conclusions of the study as obtained and

formulated out of the findings of Chapter four. Furthermore, recommendations will be

made, using the problem statement, literature study, results and conclusions as

foundation.

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CHAPTER 2

COMPETITIVE ADVANTAGE DYNAMICS

2.1 Introduction

Organisations globally are faced with rapid changes in the market place. These changes

directly influence the basis of competitive advantage making it a dynamic and elusive

concept. Organisations are seldom fortunate enough to enjoy a competitive advantage that

is not eventually matched or countered by competitors. At the same time, merely catching

up to a rival's competitive edge is no assurance of success. The dynamics of competition

and the inevitable cycle of innovation, imitation, and equilibrium ensure that sole reliance

on anyone competitive advantage ultimately leaves an organisation vulnerable. Most

competitive advantages such as product differentiation are quickly matched or exceeded

by competitors. Organisations should never rely too heavily on anyone strategy or

product. They should continuously develop new products and organisational abilities.

Responses that are merely defensive or reactive to the innovations of competitors fail to

provide a competitive advantage. Active measures are needed that anticipate competition

with visionary strategies (Werther and Kerr, 1995:11).

Global competition increasingly demands a continuous search for new ways of adding

value, not only in the core strengths and technologies of the organisation but also across

the broad spectrum of activities that form its customer focused practices. Experimentation

implies anticipating and even initiating customer needs rather than simply responding

once demand becomes apparent.

Competitive advantage is a complex subject covering diverse issues focusing on

competitive tools such as quality, speed, innovation, leadership, time utility, place utility

and various other factors that will be discussed in this chapter. Developing a competitive

strategy is vital to the survival and prosperity of any organisation wishing to play any

significant role in its relevant industry. This chapter will review literature regarding

competitive advantage and relevant aspects to the topic.

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2.2 Competitive Advantage Defined

McNamee (1990:1) states that the phrase "Competitive Advantage" was never as

commonplace as it is today and therefor argues that the current, common usage reflects

the progressive development of the discipline of strategic planning. One of the starting

points for the practice of strategic planning lies in the discipline of industrial economics

(McNamee, 1990:1). Driving this model is the economist's view that competition should

be fair and free before the industry as a whole will tend towards equilibrium.

The goal of the strategic planner could be described as to build sustainable and profitable

competitive advantage. The historical synthesis of the major landmark techniques

developed in the pursuit of this goal is outlined in Table 2.1 (see Appendix B).

Kotler (1997:53-54) defines competitive advantage as an organisation's ability to perform

in one or more ways that competitors cannot or will not match. Organisations ultimately

strive towards building a sustainable competitive advantage. Those that succeed deliver

high customer value and satisfaction, which in turn leads to high repeat purchases and

therefore high organisation profitability. Thompson and Strickland (1998:134) define

competitive advantage as the condition when the organisation has an edge over their rivals

in attracting customers and defending this position against competitive forces.

Michael Porter is one of the most renowned writers on the subject of competitive

advantage. Porter (1990:34) acknowledges that there is no one universal competitive

strategy and only strategies tailored to the particular industry and to the skills and assets

of the particular organisation succeed. More recent literature on competitive advantage is

still based on Porter's theory (Thompson and Strickland, 1998:136-172, Kotler, 1997:229

236) and used as benchmark for the current theory.

The type and scope of competitive advantage can be combined into the notion of generic

strategies, or different approaches to superior performance in an industry as discussed

earlier in Chapter 1 (see Figure 1.1). It is clear from the generic strategies that there is no

one type of strategy that is appropriate for every industry. Different strategies can

however coexist successfully in many industries. -Underlying the concept of generic

12

strategies (low-cost, differentiation, best-cost, focus) is that competitive advantage is at

the heart of any strategy (Porter, 1990:34).

According to Porter (1990:34) two central concerns underlie the choice of a competitive

strategy. The first concern is the industry in which the organisation competes. Industries

differ widely in the nature of competition, and not all industries offer equal opportunities

for sustained profitability. Competitors in the clothing industry might be more focused on

price and quality of products supplied to their customers as compared to the lawyer

focused on delivering a service to his/her client.

Thompson and Strickland (1998:175) argue that the most important drivers shaping an

organisation's best strategic options fall into two broad categories:

the nature of the industry competitive conditions

the organisations own resources and the competitive capabilities, market position

and best opportunities.

According to Thompson and Strickland (1998:175) the dominant strategy shaping

industry and competitive conditions revolve around the following issues:

what stage in the life cycle the industry is in (emerging, rapid growth, mature,

declining), the industry's structure (fragmented versus concentrated)

the relative strength of the five competitive forces

the impact of industry driving force

the scope of competitive rivalry (particularly whether the organisation's market is

globally competitive

Porter's (1990:34) second central concern is positioning within an industry. Competitive

position reflects a continuous battle among competitors. Some positions are more

profitable than others, regardless of the average profitability of that industry. Kotler

(1997:295) defines positioning as the act of designing the organisation's offering and

image so that they occupy a meaningful and distinct competitive position in the mind of

the target customer. Every organisation will want to promote those few differences that

will appeal most strongly to its target market. In addition to responding to and influencing

13

industry structure, organisations must choose a position within the industry. Positioning

embodies the organisation's overall approach to competing. At the heart of positioning is

competitive advantage.

Both industry structure and competitive position are dynamic. Continuous changes in

consumer demands or technological aspects for example, may fundamentally change the

way the industry is structured or alter the competitive positioning of an organisation.

Porter (1990:35) is of the opinion that the nature of competition is embodied in five

competitive forces (see Figure 2.1) and their strength varies from industry to industry. The

forces ultimately determine the long-term industry profitability because it shapes the

prices organisations can charge, the costs they have to bear and the investment required to

compete in the industry. The strength of each force is a function of industry structure or

the underlying economic and technical characteristics of an industry.

Figure 2.1 The Five Competitive Forces that Determine Industry Competition

THREAT TO NEW ENTRANTS

1 BARGAINING POWER

OF SUPPLIERS

RIVALRY AMONG EXISTING .

COMPETITORS

BARGAINING POWER OF BUYERS

i THREAT OF

SUBSTITUTE PRODUCTS OR

SERVICES

Source: Porter (1990:35)

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In the long term, organisations succeed relative to their competitors if they possess

sustainable competitive advantage. Organisations across the world follows various

strategic manoeuvres and market initiatives to win customer favour, out-compete rivals

and secure a market edge. Due to the dependence of the strategies on the specific nature

of the organisation and industry, strategies is almost as unique as the organisation itself.

When the most important differences among competitive strategies are evaluated two

universal issues are evident (Thompson and Strickland, 1998:135), namely:

whether the organisation is targeting a broad or narrow market.

whether the organisation is pursuing a competitive advantage linked to low cost

or product differentiation.

Five distinct approaches stand out according to Porter (1990:35-39) (see Figure 1.1).

Thompson and Strickland (1998:136) support these approaches.

Low cost leadership - Appealing to a broad spectrum of customers based on being

the overall low-cost provider of a product or service. Low cost leadership is the

ability of an organisation to design, produce, and market a comparable product

more efficiently than its competitors. This efficiency is based on the organisation

having lower input costs relative to rivals while producing comparative goods to

the competition.

Broad differentiation - Seeking to differentiate the organisation's product offering

from that of rival companies in ways that will appeal to a broad spectrum of

buyers. Differentiation is the ability to provide unique and superior value to the

buyer in terms of product quality, special features or after-sale service. The

organisation cultivates those strengths that will give it a competitive advantage in

one or more of the value areas.

Best-cost provider strategy - Giving customers more value for the money by

combining an emphasis on low cost with an emphasis on upscale differentiation.

The aim is to have the best (lowest) costs and prices relative to producers of

products with comparable quality and features.

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Focused or market niche strategy based on lower cost - Concentrating on a narrow

buyer segment and out-competing rivals by serving niche members at a lower cost

than rivals.

Focused or market niche strategy based on differentiation - Concentrating on a

narrow buyer segment and out-competing rivals by offering niche members a

customised product or service that meets their tastes and requirements better than

rival companies.

Competitive advantage of either type translates into higher productivity than that of

competitors. As opposed to efficiency, productivity is achieved by minimising input and

maximising output. The low-cost organisation produces a given output using less input

than competitors require. The differentiated organisation achieves higher revenues per

unit than competitors.

2.2.1 Low-Cost Provider Strategies

In markets where many buyers are price sensitive attempting overall low-cost provider

may prove to be a powerful competitive approach. The aim is to operate the business in a

highly cost-effective manner and open up a sustainable cost advantage over rivals. The

strategic target of the low-cost providers is low cost relative to competitors, not the

absolutely lowest possible cost. In pursuing low-cost leadership, organisations must

ensure that services and product features which is considered as essential by the buyer, is

included in the package offered. A product that is kept too simple in order to keep costs

down, might weaken instead of strengthen the competitiveness. Furthermore, it matters

greatly whether the organisation achieves its cost advantage in ways difficult for rivals to

copy or match. The value of a cost advantage depends on its sustainability.

A low-cost leader has two options for achieving superior profit performance. Firstly it can

use the lower-cost edge to under-price competitors and attract price-sensitive buyers in

great enough numbers to yield sustainable profits. Secondly it can refrain from price

cutting altogether, keeping it's current market share and use the lower-cost edge to earn a

higher profit margin on each unit sold, thereby raising the organisation's total profits and

overall return on investment.

16

Being the low-cost provider in the industry provides some attractive defences against the

five competitive forces (see Figure 2.1). These defences in combination or individually

strengthens the competitive position of the low-cost provider by raising the boundaries of

entry to other organisations due to superior profit ability of the organisation.

In meeting the challenges of rival competitors, the low-cost provider is in the

best position to compete on the basis of price, to use the appeal of lower price

to secure sales and to remain profitable in the face of strong price competition.

Low cost is a powerful defence in markets where many buyers are price

sensitive.

In defending against the power of buyers, low cost provide an organisation

with partial profit-margin protection, since powerful customers are rarely able

to bargain price down past survival level of the next most cost-efficient seller.

In countering the bargaining leverage of suppliers, the low-cost producer is

more insulated than competitors from powerful suppliers if the primary source

of its cost advantage is greater internal efficiency.

Manoeuvres to counter potential entrants may include price-cutting to make it

harder for a new rival to win customers. The pricing power of the low-cost

provider acts as a barrier for new entrants thus strengthening the competitive

position of the organisation.

Competing against substitutes, the low-cost leader is better positioned to use

low price as a defence against companies trying to gain market inroads with a

substitute product or service (Thompson and Strickland, 1998:145).

The biggest risk of the low-cost provider strategy is to focus too much on price-cutting,

resulting in lower rather than higher profitability. Secondly a low-cost leader strategy may

fail to emphasise proprietary strategies to handle or relegate rivals to playing catch-up.

The value of the cost advantage depends on its sustainability. Sustainability, in turn,

hinges on whether the organisation achieves its cost advantage in ways difficult for rivals

to copy or match. Thirdly the low-cost leader may become too fixated on cost reduction,

resulting in products or services not offering what buyers want (Thompson and

Strickland, 1998:145-146).

17

2.2.2 Differentiation Strategies

Differentiation strategies are an attractive competitive approach when buyer preferences

are too diverse to be fully satisfied by a standardised product or when buyer requirements

are too diverse to be fully satisfied by sellers with identical capabilities. The essence of a

differentiation strategy is to be unique in ways that are valuable to customers and that are

difficult for competitors to imitate or copy. Differentiation enhances profitability

whenever the extra price the product commands outweighs the added costs of achieving

the differentiation. Competitive advantage results once a sufficient number of buyers

become strongly attached to the differentiated attributes, features or capabilities

(Thompson and Strickland, 1998:147).

There are four differentiation-based approaches to creating buyer value. One is to

incorporate product attributes and user features that lower the buyer's overall costs of

using the organisation's product. A second approach is to incorporate features that

increase the performance a buyer gets out of the product. Thirdly features to enhance

buyer satisfaction can be incorporated in non-economic or intangible ways. A fourth

approach is to compete on the basis of capabilities and to deliver value to customers

through competitive capabilities that rivals do not have or can not afford to match (Stalk

et aI, 1992:57-69).

There are no guarantees that differentiation will produce a meaningful competitive

advantage. If. buyers perceive little value in the unique attributes or capabilities an

organisation offer, then the differentiation strategy will not result in competitive

advantage. Attempts at differentiation are set to fail if the basis for the differentiation is

easily imitated by competitors. Rapid imitation means that an organisation never achieves

real differentiation and thus no competitive advantage. To build competitive advantage

through differentiation an organisation must seek lasting sources of uniqueness that are

burdensome for rivals to overcome (Thompson and Strickland, 1998:152). Other common

pitfalls and mistakes in pursuing differentiation include:

Trying to differentiate on the basis of a factor that does not lower a buyer's cost or

enhance a buyer's well being, as perceived by the buyer.

18

Over-differentiating to the extent that price is too high relative to competitors or

that the differentiating attributes exceeds the buyer's needs.

Charging too high a premium for the differentiated offer.

Ignoring the need to signal value and depending only on intrinsic product attribute

to achieve differentiation.

Not understanding or identifying what buyers consider as value.

(Porter, 1985:160-162)

A low-cost producer strategy can defeat a differentiation strategy when buyers are

satisfied with a basic product and do not think additional attributes are worth a higher

price.

2.2.3 Best-Cost Provider Strategy

This strategy aims at giving customers more value for their money. It combines a strategic

emphasis on low cost with strategic emphasis on more than minimally acceptable quality,

service, features and performance. The aim is to create superior value by meeting or

exceeding expectations of customers on key quality-service-features-performance

attributes and by beating their expectations on price. It is this superior value to the

customer, translating into competitive advantage for the organisation.

The competitive advantage of a best-cost provider comes from matching close rivals on

quality-service-features-performance and providing the offering at a cost lower than that

of rival organisations. A best-cost provider strategy has great appeal from the competitive

positioning point of view. It produces superior customer value by balancing a strategic

emphasis on low cost against a strategic emphasis on differentiation. Effectively it is a

hybrid strategy that allows an organisation to combine the competitive advantage of both

low cost and differentiation to deliver superior buyer value (Thompson and Strickland,

1998:152).

Thus achieving advantage requires an organisation to make choices. If an organisation is

to gain advantage, it must choose the type of competitive advantage it seeks to attain and

a scope within which it can be attained. According to Porter (1990:38) the worst strategic

19

error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This

is a recipe for strategic mediocrity and below-average performance, because pursuing all

the strategies simultaneously means that an organisation is not able to achieve any of

them because of their inherent contradictions.

2.2.4 The Value Chain

Porter (1990:40) argues that competitive advantage grows out of the way organisations

organise and perform discrete activities (see Figure 2.2). The basis of this argument is that

the operations of any organisation can be divided into a series of activities such as

salespeople making sales calls, service technicians performing repairs or optometrists

consulting clients.

Organisations create value for their buyers through performing these activities. The

ultimate value an organisation creates is measured by the amount buyers are willing to

pay for its product or service. An organisation is profitable if this value exceeds the

collective cost of performing all the required activities. To gain competitive advantage

over rivals, organisations must either provide comparable buyer value but perform

activities more efficiently (lower cost) than competitors, or perform activities in a unique

way that creates greater buyer value and commands a premium price (differentiation)

(Porter, 1990:40).

The activities performed in competing in a particular industry can be grouped into

categories as indicated in The Value Chain (see Figure 2.2). All the activities in the value

chain contribute to buyer value. Activities can firstly be divided into the category

involved in the ongoing production, marketing, delivery, and servicing of the product

(primary activities). Secondly support activities such as those providing purchased inputs,

technology, human resources, or overall infrastructure functions to support the other

activities. Every activity employs purchased inputs, human resources, some combination

of technologies, and draws on organisation infrastructure such as general management

and finance.

20

Figure 2.2 The Value Chain

Organisation infrastructure

Human resource management

Technology development

Procurement

INBOUND OPERATIONS OUTBOUND MARKETING AFfER-SALES

LOGISTICS LOGISTICS AND SALES SERVICE

I

~ ~ ,..... Z

(Source: Porter, 1990:41)

To achieve a cost advantage, the cumulative costs across the value chain of the

organisation must be lower than the cumulative costs of rival organisations. There are two

ways to accomplish this (Porter, 1990:41):

Perform internal value chain activities more efficiently and manage the factors

that drive the costs of value chain activities in a cost-effective way.

Restructure the value chain to eliminate some cost-producing activities.

In order to pursue a low-cost strategy, the organisation has to scrutinise each cost-creating

activity and determine the main driving factor affecting the cost thereof. Knowledge about

cost drivers must be utilised in managing the cost of each activity downward. The

organisation must be proactive in restructuring the value chain, reengineering business

processes, and eliminating non-essential work steps. Successful low-cost providers

usually achieve their cost advantages by exhaustively pursuing cost savings throughout

the value chain (Thompson and Strickland, 1998:153).

The second way according to the value chain to establish competitive advantage is based

on differentiation. Differentiation is subject to the organisations understanding of what the

customer values, where along the value chain to create the differentiating attributes, and

about what resources and capabilities are needed to produce brand uniqueness. The

21

possibilities for differentiation exist in virtually every activity along an industry value

chain, most commonly in:

Purchasing and procurement activities that ultimately spill over to affect the

performance or quality of the organisations end product.

Product research and development activities that aim at improved product

design and performance features, expanded end uses and applications, shorter

lead times in developing new models, added user safety, or enhanced

environmental protection.

Production research and development and technology-related activities that

permit custom-order manufacture at an efficient cost, make production

methods more environmentally safe, or improve product quality, reliability and

appearance.

Manufacture activities that reduce product defects, prevent premature product

failure, extend product life, allow better warranty coverage, result in more end

user convenience, or enhance product appearance.

Outbound logistics and distribution activities that allow for faster delivery,

more accurate order filling, and fewer warehouse and on-the-shelf stock-outs.

Marketing, sales, and customer service activities that can result in superior

technical assistance to buyers, faster maintenance and repair services, more

and better product information or greater customer convenience.

Managers need to fully understand the value-creating differentiation options and the

activities that drive uniqueness to devise a sound differentiation strategy and evaluate

various differentiation approaches (Porter, 1990:124).

2.2.5 Business Strategies

Using either cost advantage or differentiation as business strategy the organisation need to

focus on the practical implementation of the strategy. The major aim of the business

strategy is growth. According to Kotler (1997:77) three major classes of growth

opportunities exists, and within them there are specific growth strategies as reflected in

Table 2.2.

22

Table 2.1 Major Classes of Growth Opportunities

INTENSIVE GROWTH INTEGRATIVE GROWTH DIVERSIFICATION GROWTH I

Market penetration Backward integration Concentric diversification

Market development Forward integration Conglomerate diversification

Source: Kotler (1997:78)

The major classes of growth opportunities (see Table 2.1) will be discussed in more detail

below.

2.2.5.1 Intensive Growth

Primarily, the course of action from corporate management should be to review whether

any opportunities exist for improving the existing business performance. The organisation

considers whether it could gain more market share with its current products in their

current markets (market-penetration strategy). The next step is to consider whether it can

find or develop new markets for its current products (market-development strategy).

Lastly it considers whether it can develop new products of potential interest to its current

markets (product-development strategy).

2.2.5.2 Integrative Growth

Often the sales and profits of a business can be increased through backward, forward, or

horizontal integration within the industry. Vertical integration extends the competitive

scope of the organisation within the same industry. It involves expanding the range of

activities of the organisation backward into sources of supply and/or forward toward end

users of the final product. Thus, if an optometrist invests in facilities to produce frames or

lenses rather than purchase them from outside suppliers, it remains in essentially the same

industry as before. The organisation can accomplish vertical integration by starting its

own operations in other stages in the industry's activity chain or by acquiring a

organisation already performing the activities it wants to bring in-house.

23

The only good reason for investing organisation resources in vertical integration is to

strengthen the organisation's competitive position (Harrigan, 1986:535). Integrating

backward generates cost savings only when the volume needed is big enough to capture

the same scale economies suppliers have. When the production efficiency of suppliers can

be matched or exceeded with no drop-off in quality, backward integration might also

generate cost savings. Backward vertical integration can produce a differentiation-based

competitive advantage when a organisation, by performing activities in-house that were

previously out-sourced, ends up with a better quality product/service offering improves

the quality of its customer service, or in other ways enhances the performance of its final

product. The strategic impetus for forward integration has much the same roots as

backward integration.

2.2.5.3 Diversification Growth

Diversification growth is desirable when opportunities can be found outside the present

business in highly attractive market segments and where the organisation has the mix of

business strength to be successful. Competitive advantage is created through

differentiation of current product/service offering to new and current consumers. Three

types of diversification are possible. The organisation could seek new products that have

technological and/or marketing synergy with existing product lines, even though the new

products themselves may appeal to different a different group of customers (concentric

diversification strategy). Secondly, the organisation might search for new products that

could appeal to its current customers even though the new products are technologically

unrelated to its current product line (horizontal diversification strategy). Finally the

organisation might aim at new businesses that have no relationship to the organisations

current technology, products, or markets (conglomerate diversification strategy) (Kotler,

1997:77-78).

2.2 Sustainability of Competitive Advantage

A generic strategy does not lead to above-average performance unless it is sustainable.

The sustainability of the three generic strategies demands that the competitive advantage

of an organisation resist erosion by competitor behaviour or industry evolution. Table 2.2

highlights the different risk profile of the respective generic strategies and can be used to

24

analyse how to attack a competitor that employs any of the generic strategies. A

organisation pursuing overall differentiation, for example, can be attacked by

organisations who open up a large cost gap, narrow the extent of differentiation, shift the

differentiation desired by buyers to other dimensions, or focus. Each generic strategy is

vulnerable to different types of attacks.

Table 2.2 Risks of the Generic Strategies

Risks of Cost Leadership Risks of Differentiation Risks of Focus

Cost leadership is not sustained Differentiation is not sustained The focus strategy is imitated

Competitors imitate Competitors imitate Technology changes Bases for differentiation

become less important to

leadership erode

Other bases for cost buyers

The target segment becomes

structurally unattractive

Structure erodes

Demand disappears Proximity in differentiation is lost Cost proximity is lost Broadly-targeted competitors

overwhelm the segment

The segment's differences from other segments narrow

The advantages of a broad line increase

Cost focusers achieve even lower New focusers sub-segment the

cost in segments

Differentiation focusers achieve

even greater differentiation in industry

segments

(Source: Porter, 1985: 21)

2.3.1 Sustainability of Cost Leadership

Cost advantage is sustainable if there are entry or mobility barriers that prevent

competitors from imitating its sources. Sustainability varies for different cost drivers and

from one industry to another. According to Porter (1985:112) and Thompson and

Strickland (1998: 145), some drivers tend to be more sustainable than others:

25

Scale - Scale is a key entry/mobility barrier, and the cost of replicating scale is

often high because competitors must buy share.

Interrelationships - Interrelationships with sister business units can force a

competitor to diversify in order to match a cost advantage. If there are entry

barriers into the related industries, sustainability can be high.

Linkages - Linkages are often difficult for an organisation to detect and require

co-ordination across organisational lines or with independent suppliers and

channels.

Proprietary learning - Learning is difficult to achieve in practice; it can also be

hard for competitors to catch up iflearning can be kept proprietary.

Policy choices to create proprietary product or process technology - replicating

product innovations or new production processes often poses great difficulties for

competitors if innovations are protected by patents or secrecy. Process innovations

are often more sustainable than product innovations because secrecy is easier to

maintain.

Sustainability not only stems from the sources of the cost advantage, but also from their

number. Cost advantage derived from one or two value activities provides an alluring

target for imitation by competitors. Cost leaders usually accumulate cost advantages

gained from numerous sources in the value chain that interact and reinforce each other.

This makes it difficult and expensive for competitors to replicate their cost position

(Porter, 1985:112).

2.3.2 Sustainability of Differentiation

The sustainability of differentiation depends on the continued perceived value to buyers

as well as the lack of imitation by competitors. Changing buyer needs are an ever-present

risk, which can eliminate the value of a particular form of differentiation. Competitors

may also imitate the organisation's strategy. According to Porter (1985:159)

differentiation will be more sustainable under the following conditions:

If the organisation's sources of uniqueness involve barriers - Proprietary learning,

linkages, interrelationships, and first-mover advantages tend to be more

26

sustainable drivers of uniqueness than simply a policy choice to be unique in a

single activity.

The organisation has a cost advantage in differentiating - The organisation with a

sustainable cost advantage in performing the activities that lead to differentiation

will enjoy much greater sustainability.

The sources of differentiation are multiple - The overall difficulty of imitating a

differentiation strategy depends in part on how many sources of uniqueness an

organisation has. Sustaining a differentiation strategy is usually greatest if

differentiation stems from multiple sources, rather than resting on a single factor

such as product design. Differentiation that results from co-ordinated actions in

many value activities will usually be more durable, since it requires wholesale

changes in competitor behaviour to imitate.

Organisations create switching costs at the same time it differentiates - Switching

costs are fixed costs incurred by the buyer when it changes suppliers, which allow

an organisation to sustain a price premium even if its product is equal to that of

competitors. Due to differentiation creating switching costs, sustainability of

differentiation is increased. Switching costs, like differentiation itself, grow out of

the way, in which a product is used by the buyer. Activities that make an

organisation unique can frequently raise the cost of switching since the buyer

often tailors its activities to exploit the organisation's uniqueness.

Thompson and Strickland (1998:152) also supports this view and adds that any

differentiation element that works well tends to draw imitators. Rapid imitation has the

effect that an organisation never achieves real differentiation and constant innovation is

needed to retain the differentiation advantage.

2.3.3 Sustainability of a Focus Strategy

Porter (1985:267) states that the sustainability of a focus strategy is determined by three

factors:

27

Sustainability against broadly targeted competitors - The size and sustainability of

the competitive advantage created through focus as opposed to the broadly

targeted competitors.

Sustainability against imitators - The mobility barriers to imitating the focus

strategy or being out-focused by a competitor with an even narrower target.

Sustainability against segment substitution - The risk that buyers will be drawn

away to other segments the focuser does not serve.

Thompson and Strickland (1998:156) site some risks of the focus strategy:

Competitors find effective ways to match the service provided to the niche.

The preferences and needs of the niche buyer shifts toward other product

attributes.

The segment might become so attractive that other competitors enter it, splintering

segment profits.

2.3.4 Creating Competitive Advantage through Service

The above theories only touch on the subject of the human interaction and the role this

plays in delivering the service/product package. As stated in chapter one, optometry can

not be classified as a true service only. It also offers a product range in the form of

spectacles, sunglasses, contact lenses and/or relative accessories. The whole chain of

service and product delivery classically involves multiple interactions between client,

staff and optometrists. Collier (1994:5) calls these interactions "moments of truth" in

which the organisation must create and establish the milieu of ultimate customer care. All

staff members need to have the successful creation of the "moments of truth" as their

personal goals in order for the service organisation to achieve success. Because of this

complexity, competitive advantage is an elusive concept and implementation is not only

difficult but also essential for survival in the dynamic competitive environment.

Irons (1997:12) states that each service encounter will present its own mix of product and

service elements. The balance may even be shifted, or hard (tangible) elements introduced

to reduce the transiency of the service or strengthen the memory, as, for example, an

28

airline might give passengers a gift or a restaurant might give customers a copy of the

menu. But the essentially soft nature of a service remains and for the management of

services it is the seven aspects listed below, which are crucial. Horovitz (2000:22) states

that opportunities for extending value exist before, after and around the classical activities

the customer carriers out with the organisation. By using these opportunities, the

organisation provide more than a service, it offers a solution to the customer.

Commercially there is a need to consider if it is the service which give distinction or a

significant competitive advantage, rather than simply the values of the core product.

According to Irons (1997:13) seven elements distinguish services:

Services are transient - they are consumed there and then. They have no lasting

material being and may leave only memories or promises.

People mainly represent services - they cannot be separated from the person or the

provider, whose personal characteristics and self-perceptions are on show to the

customer and indeed form an important part of customer perception.

Services are only finally selected face-to-face with the customer and at the time of

consumption.

Services are generally perishable - you cannot have a production run and store

services against future demand. They are, therefore, essentially a series of one-off

production runs.

Standardisation is difficult to achieve - it is difficult to exercise the same controls

over production (service delivery) as you would with a product, for example through

quality controls. This production/consumption process goes on, for the most part,

unsupervised and depends on the individual reactions of the operator for success.

Customers influence the process not just indirectly, as through research or even the

exercise of choice, but directly since they participate in and help make the final

product. Indeed in some cases, as, for example, a restaurant or bar, the customer may

actually be the key ingredient in success - it is they, rather than the food or drink,

which are the attraction to others.

As a result of the previous six points, it is the culture in which these acts are

performed which mostly condition perceptions of service and this culture is internal

and external. It is about the way work is done and the way it is managed.

29

Kotler (1997:468) partly supports this view of Irons by stating that services have four

major characteristics, namely: intangibility, inseparability, variability and perishability.

Expectations and experiences intersperse, and customers draw much of their final belief

from the personality and behaviour of the person they meet, because he or she provides

more clues as to the personal suitability of the solution offered than does the core product

itself. This emphasises the old cliche that services are about people, though it would be

better to rephrase it as services are people. It is from these interactions with the

organisation that customers form their perceptions of the individual rightness of a

solution, whether it be to assess value, decide to buy, repeat purchase or recommend to

others. In turn, these interactions are repeated in the internal relationships within the

organisation, which can be seen as a triangle as shown in Figure 2.2. Whereas the

traditional manufacturing organisation operates only along the right-hand axis, the service

business operates along all three, with those interactions that are so vital to the

perceptions of customers along the base. To be in balance, it is necessary for the culture

on the base axis to relate to that on the other axes.

Figure 2.3 The Service Triangle

Internal culture

Market

Traditional marketing

Organisation

The interaction

Staff

Source: Irons (1997:15)

30

This seLVice revolution has taken shape due to the following trends (Irons, 1997:7):

The emergence of the discriminating aware customer. Delivery will thus

increasingly become the focus of effort and reward. People have become more

experienced, more demanding, more inclined to seek value and more often in need

an opportunity to identify with a supplier who understands them.

Technology is only really successful where it plays a part in bridging the gap

between the organisation and customer and helping to build relationships.

Customers increasingly seek seamless solutions where it is their needs, not

technical considerations that are supreme.

Meeting the seLVice revolution head on calls for radical changes in management

and a holistic approach to implementation.

The key decisions faced by most organisations today are linked to the consequent

demands for better seLVice at delivery. This is a great opportunity, but only if such

seLVices can be provided straightforwardly, without bureaucracy and in a way that makes

the customer feel a part of the transaction, not just a target. However, the critical barrier to

achieving such seLVice success on any long-term and stable basis lies beyond simply

identifying the need to respond to customers. It is of instrumental importance to align staff

behind the tasks necessary to achieve the new objectives and, above all, to develop an

approach to management which permits this (Irons, 1997:8, Booms and Bitner, 1981:48).

Indeed, this is probably the greatest challenge faced by business today, because what is

needed is radically different from traditional structures and management styles, with a

greater consistency of both internal and external relationships.

In short the impact of seLVice is to be felt way beyond the confines of customer care or

other such tactical considerations. In true service companies, customer expectations are

the basis for strategic management. Good seLVice requires a high degree of operational

efficiency across many areas of activity and competence. Unless this efficiency has a

strategic context, it will never become effective at the only point where it really matters

with the customer, since it is here that value is created satisfaction and profit are generated

(Irons, 1997:11). In support, Kotler (1997:478) states that excellent managed seLVice

companies share the following six characteristics: a strategic concept, a history of top

31

management commitment to quality, high standards, systems for monitoring service

performance, systems for satisfying the complaints of customers and an emphasis on

employee and customer satisfaction.

There has to be a total focus on the market; indeed, the whole business has to be driven by

the customer not simply focused on the customer. Customer focus is often a simplistic

substitute for internal focus, and simply leads to a new bureaucracy, for example that of

quality, with true service as an afterthought. Customer driven, on the other hand, means

that it is customer expectations and the need to fulfil them, or better still exceed them,

which sets the agenda (Irons, 1997:15). Research conducted by Parasuraman and Berry.

(1991:16) established that customers evaluate service quality along five dimensions

namely:

Tangibles - physical facilities, equipment and appearance of personneL

Reliability - ability to perform the promised service dependably and accurately.

Responsiveness - willingness to help customers and provide prompt service.

Assurance - knowledge and courtesy of employees and their ability to inspire trust

and confidence.

Empathy - caring, individual attention to the customer.

In a service organisation, most of the efforts are aimed at targets - customers and staff

and the product can only be made at the point of sale, with the involvement of the

customer. Customer contact, and so their perceptions of the organisation and its offer are

no longer confined to a small group but are a function of a range of people who may even

comprise the entire staff (Irons, 1997:31). Nor does the customer see the product that has

been bought as separate from the interactions. In fact, for the customer, perceptions of

service are often taken from the delivery of the service, both at the time of sale at all of

the points of contact during the relationship, that is, after sale. For this is what any service

organisation is selling - not glasses or contact lenses or insurance policies but millions and

millions of transactions. These are the moments of truth when ideas and plans are bought

or rejected. These moments of truth, where the customer experience is gained are not

once-off events but part of an ongoing process in which such moments occur again and

again.

32

2.3.5 Competitive Advantage through People

The success that comes from managing people effectively is often not as visible or

transparent as to its source. Cutting and fitting an optical lens into a spectacle frame is

visible. The culture and practices that enable an optometry practice to achieve its success

are less obvious. It is difficult to really understand culture, how people are managed, and

the effects of this on their behaviour and skills are sometimes seen as the "soft" side of

business.

Even when culture is not dismissed, it is often hard to comprehend the dynamics of a

particular organisation and how it operates because the way people are managed often fits

together in a system. It is easy to copy one thing but much more difficult to copy

numerous things or the complex concept of culture. Through seeing the work force as a

source of strategic advantage, not just as a cost to be minimised or avoided, organisations

are often able to successfully out-manoeuvre and outperform their rivals.

At the heart of viewing people as a source of competitive advantage is the recognition that

in a service business, achieving objectives or creating change can only be met through

people (Irons, 1997:60). Horovitz (2000:93) also states that the quality of service

delivered by an organisation depends, at least partly, on how staff interacts with

customers and therefor the impact of good people management can be tremendous.

This shift has profound consequences for any service business. The customers want to be

treated as individuals. Employees provide an opportunity to create a commercial

advantage from service; but the corollary of this is that the very people who have to

perform the service also want to be treated as individuals. Unless this is clearly

understood, then the seeds of destruction of change are sown at the same time as the seeds

of creation.

In his book Competitive Advantage Through People, Henry Pfeffer describes sixteen

practices for managing people that will lead to competitive advantage (1994:30). Pfeffer

emphasises the importance to recognise that the practices are interrelated and it is difficult

to do one thing by itself with much positive results.

33

Employment Security - This signals a long-standing commitment by the

organisation to its work force.

Selectivity in Recruiting - Security in employment and reliance on the work force

for competitive success mean that the organisation must be careful to choose the

right people, in the right way.

High Wages - If the organisation wants to recruit outstanding people, and want

them to stay with the organisation, paying more is helpful, although not absolutely

necessary. High wages not only tend to attract more applicants, permitting

organisation to be more selective in its hiring but also send a clear message that

the organisation values its people.

Incentive Pay - Fairness and justice virtually dictate that if people are responsible

for enhanced levels of performance and profitability, they want to share in the

benefits. It is possible and desirable to reward performance, on an individual level

as well on the basis of performance by groups, sub-units or the entire organisation.

A comprehensive review of the literature on profit sharing, which includes gain

sharing, concludes that profit sharing and productivity are positively related

(Wietzman and Kruse, 1990:139).

Employee Ownership - Employees who have ownership interests in the

organisations for which they work have less conflict between capital and labour

to some degree they are both capital and labour. Employee ownership, effectively

implemented, can align the interests of employees with those of shareholders by

making employees shareholders too (Pfeffer, 1994: 38).

Information Sharing - The adoption of some form of gain sharing requires

information sharing. Disclosure is integral to profit sharing because employees

need, at the very least, to be informed as to what profit is. If people are to be a

source of competitive advantage, they must have the information necessary to do

what is required to be successful (Ogden, 1992: 237).

Participation and Empowerment - Sharing information is a necessary precondition

to encouraging the decentralisation of decision making and broader worker

participation and empowerment of the employees to control their own work

process. Autonomy is achieved through moving from a system of hierarchical

control and co-ordination of activity to one in which lower-level employees, who

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may have more or better information, are permitted to do things to enhance

performance (Pfeffer, 1994: 43).

Teams and Job Redesign - The alternative to the traditional organisational

hierarchy is the use of teams. Because most people are inherently social creatures

deriving pleasure from social interaction, groups exert a powerful influence on

individuals. Groups enforce conformity pressures, and these include norms about

appropriate work quantity and quality.

Training and Skill Development - Worker autonomy, self-managed teams, and

even a high-wage strategy depend on having people who not only are empowered

to make changes and improvements in products and processes but also have the

necessary skills to do so. Consequently, an integral part of most new work systems

is a greater commitment to training and skill development. (pfeffer, 1994: 45).

Cross-Utilisation and Cross-Training - According to Pfeffer (1994: 47), having

people do multiple jobs has a number of potential benefits, including more work

satisfaction through variety, the potential for newcomers to a job to see things that

can be improved. Pay incentives, along with the prospect of a more varied and

interesting workday proves to be valuable lures in recruiting (Alster, 1989:62).

Symbolic Egalitarianism - One important barrier to decentralising decision

making, using self managed work teams, and eliciting employee commitment and

co-operation is symbols that separate people from each other. It is thus important

that organisations that need to have some forms of symbolic egalitarianism - ways

of signalling to both insiders and outsiders that there is comparative equality and it

is not the case that some think and others do not. Egalitarian symbols come in

many forms, including dress code and physical space. Whatever these symbols

may be it seems difficult to eliminate them.

Wage Compression - Teamwork is fostered by common fate, and common fate is

enhanced to the extent that people in an organisation fare comparably in terms of

the rewards received. Although issues of wage compression are most often

considered in terms of hierarchical compression, and particularly Chief Executive

Officer (CEO) pay relative to others, there is a horizontal aspect to wage

compression as well. It can have a number of efficiency-enhancing properties for

organisations. In a strong-culture organisation, one will tend to find more

compressed pay because pay dispersion lessens the sense of community and

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common fate that strong-culture organisations seek to build as a source of

competitive success (Pfeffer, 1994:53).

Promotion from within - Promotion from within is a useful adjunct to many of the

practices described. It not only encourages training, skill development and

provides a sense of fairness justice in the work place but also facilitates

decentralisation, participation, and communication because it helps promote trust

across hierarchical levels.

Long-Term Perspective - Achieving competitive advantage through the work force

inevitably takes time to accomplish. Once achieved though, competitive advantage

through employment practices is likely to be substantially more enduring and

more difficult to duplicate.

Measurement of the Practices - Measurement is a critical component in any

management process, and this is true for the process of managing the work force

of the organisation. Measurement serves to provide feedback as to how well the

organisation is implementing various policies as well as ensuring that what is

measured will be noticed. Organisations committing seriously to achieving

competitive advantage through people need to make measurement of their efforts a

critical component of the overall process (Pfeffer, 1994:55).

Overarching Philosophy - Possibly the most important, is having an overarching

philosophy of management. It provides a way of connecting the various individual

practices into a coherent whole and also enables people in the organisation to

persist and experiment when things do not work out immediately. The survival of

the separate practices that appear to generate success is somewhat dependent on

the bond that the system of values and beliefs of how to manage people create

among it.

The underlying philosophy of Pfeffer (1994:65) is that once competitive advantage

through employment practices is obtained, it is likely to be substantially more enduring

and more difficult to duplicate. Nevertheless, the time required for implementing these

practices and start seeing results will mean that a long-term perspective is needed. The

specific implementation of the practices, and the form they may take, are obviously

contingent not only on strategy but also on other contextual factors such as location,

nature and interdependence of the work. Pfeffer (1994:65) emphasises that there are many

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other sources of competitive success. However, particularly because many of the other

bases of success are more readily

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