SOLUTION SET END TERM EXAMINATION May 2010 GLOBAL COMPETITIVENESS AND STRATEGIC ALLIANCES Q.1.

. Write notes on any four of the following:(a) Joint ventures V/S Management Contracts (b) G-20 countries V/S G-8 countries (c) Industrial Clusters (d) What is competitiveness- its dimensions? (e) Porters Approach to Nations competitiveness Q.2. Discuss the Macro economic factors of competitiveness using 12 pillars framework of determining competitiveness as discussed by World Economic Forum (WEF)? Q.3. How Strategic Alliances help in making an organization competitive? What are the various types of Alliances and how they help in value addition to any organization. Discuss. Q.4. What strategic options are available for any industry for building competitiveness? How Indian organizations have achieved competitiveness in the world? Explain it by taking an example of any successful Indian global company you have come across. Q.5. What is Integrative Process Management? How is it achieved? Give a framework for the same. How through IPM one can achieve productivity and thereby become competitive globally. Q.6. Quality Capability determines global competitiveness. Explain various models to improve quality and illustrate your answer with the help of examples in the Indian context. Q.7. Discuss the Technology policy of Govt. of India? How it has helped to increase the competitiveness of Indian Industry? Q.8. Discuss the Role of Information Systems in Building Competitiveness. Illustrate your answer with examples in Indian and global context.

(a) Joint ventures V/S Management Contracts A JV on a continuing basis is the normal business undertaking. It is similar to a business partnership with two differences: the first, a partnership generally involves an ongoing, long-term business relationship, whereas an equity-based JV comprises a single business activity. Second, all the partners have to agree to dissolve the partnership whereas a finite time has to lapse before it comes to an end (or is closed by the Court due to a dispute). The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, a limited liability enterprise, a partnership or other legal structure, depending on a number of considerations such as tax and tort liability. JVs are normally formed both inside one's own country and between firms belonging to different countries. Within one, JVs usually combine different strengths in a field or are formed because of legal restrictions within a country; for example an insurance company cannot market its policies through a banking company. Some JVs are also formed because the law of a country allows dispute settlement, should it occur, in a third country. They are also formed to minimize business,tax and political risks. The JV is an alternative to the parent-subsidiary business partnership in emerging countries, discouraged, on account of (a) ignoring national objectives (b) slow-growth (c) parental control of funds and (d) disallowing competition. JVs can be in the manufacture of goods, services, travel space, banking, insurance, webhosting business, etc. Today, the term 'JV' applies to more occasions than the choice of JV partners; for example, an individual normally cannot legally carry out business without finding a national partner to form a JV as in many Arab countries where it is mentioned that there are over 500 JVs in Saudi Arabia with Indians alone. Also, the JV may be an easier firststep to franchising, as McDonald's and other fast foods, found out in China in the early difficult stage of development. Management contract A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involve actually doing them. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training. In Asia, many hotels operate under management contract arrangements, as they can more easily obtain economies of scale, a global reservation systems, brand recognition etc. It is

not unusual for contracts to be signed for 25 years, and having a fee as high as 3.5% of total revenues and 6-10% of gross operating profit. The Marriott International Corporation operates solely on management contracts. Management contracts have been used to a wide extent in the airline industry, and when foreign government action restricts other entry methods. Management contracts are often formed where there is a lack of local skills to run a project. It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company. The first recorded management contract was initiated by Qantas and Mr Duncan Upton in 1978. (b) G-20 countries V/S G-8 countries Is there any point to the continued existence of G8? As this week's summit looks increasingly irrelevant, should we care if the power shifts away to the G20? President Lula of Brazil has declared that G8 "doesn't have any reason to exist". Next year's hosts, Canada, are being urged by their own commentariat to turn their G8 into a G20. Meanwhile this year's hosts, Italy, are trying to bring more countries into the G8 tent, to reduce the glaring gap between the two. In doing so, they are basically accepting the logic that it's the wrong group of countries to have in the room to address the problems of the world. Despite the attractions of inclusivity, I have fears that the transfer of power from G8 to G20 might prove more style than substance. G20 leaders need to show they are more willing than G8 have been to take actions that matter for the world's poorest. The G8's scope seems to be narrowing, with substantive issues increasingly kept for the G20. The big question for the L'Aquila summit is who is keeping the promises they made at Gleneagles in 2005 (not Italy, despite Berlusconi being the only leader in this year's crop who was actually there). And in the meantime, the shiny new G20 is waiting in the wings. The second meeting of G20 leaders in September to discuss the global financial crisis will be presided over by the world's favourite man, Barack Obama, and will quite likely be able to bask in the glory of success, if the tentative signs of recovery continue to be felt. At the very least the current situation seems a little inefficient. Two summit dinners. Two rounds of official entertainment laid on for the long-suffering group of G8 spouses. Two huge logistical nightmares for the organising country. And all to pursue what is essentially one agenda of trying to unravel the mess of global governance and the outrage of global poverty by squaring the circle of what poor countries want and what rich countries are prepared to give up. So why bother? Just read the last rites, declare the show over for the G8, and let the G20 take its rightful place as the photo opportunity of choice for world leaders.

Of course, there would be more competition for the prized spot on Obama's righthand side in the group photocall. But think of the kudos, in these austerity-obsessed times, that G8 leaders could get by cutting out a whole swathe of expensive and increasingly pointless diplomacy no more stories about what they had for dinner or how much the whole thing cost. Instead, a mature and sensible decision to give up their privileged and exclusive position for the good of global democracy. That's not quite the end of the matter. The G20 might be, numerically speaking, two and a half times as democratic as the G8, and many hopes for a better world are resting on that fact. But it's still not exactly a bastion of democracy. The majority of the world's countries are still out of the club. And having got in, many of the newly anointed global leaders don't seem willing to widen the net further. Exclusivity can look pretty good from the inside. From the point of view of the countries outside the room, the difference between the G8 and the G20 might seem a little academic. What they need is a group that will keep its promises. Whether on aid or on climate change or on tax havens, what the poorest countries need is for the richest countries however they organise themselves to make the right choices and then stick to them. If the bigger size of the G20 means better decisions, because more different points of view are represented and, most crucially, because leaders are more likely to force one another to keep their promises, that's when the shift from eight to 20 will start to make an actual difference to the world. Basically, it's about rich countries being persuaded to give up a bit more money and power for the greater good. Can China and Brazil, for example, force the US to cough up more than the paltry $1bn it recently announced to help the poorest countries cope with the impact of climate change? Would South Africa be any more successful than the UK in making Italy keep its promises on foreign aid? Will the combined weight of India, China, Brazil and South Africa be enough to force the US to give up its position as the world's banker by backing a new reserve currency? Unless the answer to any of these questions is yes, the supposed big shift in global power embodied in the new-look G20 will be more hype than hope. (c) Industrial Clusters A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban study, the term agglomeration is use. It is also a very important aspect of business strategies. This term industry cluster, also known as a business cluster, competitive cluster, or Porterian cluster, was introduced and the term cluster popularized by Michael Porter in The Competitive Advantage of Nations (1990). The importance of economic geography,

or more correctly geographical economics, was also brought to attention by Paul Krugman in Geography and Trade (1991). Cluster development has since become a focus for many government programs. The underlying concept, which economists have referred to as agglomeration economies, dates back to 1890, and the work of Alfred Marshall. Following development of the concept of interorganizational networks in Germany and practical development of clusters in the United Kingdom; many perceive there to be four methods by which a cluster can be identified:

The geographical cluster - as stated above Sectoral clusters (a cluster of businesses operating together from within the same commercial sector e.g. marine (south east England; Cowes and now Solent) and photonics (Aston Science Park, Birmingham)) Horizontal cluster (interconnections between businesses at a sharing of resources level e.g. knowledge management) Vertical cluster (i.e. a supply chain cluster)

It is also expected - particularly in the German model of organizational networks - that interconnected businesses must interact and have firm actions within at least two separate levels of the organizations concerned. d) What is competitiveness- its dimensions? Ans: Competitiveness has relevance at different levels and achieving global competitiveness at any level often requires synergistic linkages with other levels. For instance, remarkable competitive success of Japan can be attributed to globally competitive steel, shipping, automobile and electronics industries progressively over last few decades. Conversely, macroeconomics environments at the industry and country levels play crucial role in shaping competitiveness of firms and industries. Understanding linkages among different levels is essential for enhancing competitiveness at any level. An essential first step to define competitiveness at each level. Competitiveness can be defined at three levels: nations, industry and company. Country Competitiveness: extent to which a national environment is conducive or detrimental to business. Industry Competitiveness: extent to which an industry or a business sector offers potential for growth and attractive return on investment. The concept can also be defined as the collective ability of firms in the sector to compete internationally. Company Competitiveness: ability to design, produce and or make products or services superior to those offered by competitors, considering the price and non-price qualities.

e) Porters Approach to Nations competitiveness The competitiveness of a nation is determined by the superior and sustainable advantages it has in the long run. These advantages are not like that of classical economics; these are superior skilled and trained man-power, superior organizational structures, and an entrepreneurial spirit in the people involving organizational capacity to innovate (Porter, 1990). Porter combines these national values in a framework of diamond consisting of four nation-specific factors.

Q.2. Discuss the Macro economic factors of competitiveness using 12 pillars framework of determining competitiveness as discussed by World Economic Forum (WEF)? We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. In other words, morecompetitive economies tend to be able to roduce higher levels of income for their citizens.The productivity level also determines the rates of return obtained by investments in an economy. Because the rates of return are the fundamental drivers of the growth rates of the economy, a more-competitive economy is one that is likely to grow faster in the medium to long run. The concept of competitiveness thus involves static and dynamic

components: although the productivity of a country clearly determines its ability to sustain its level of income, it is also one of the central determinants of the returns to investment, which is one of the key factors explaining an economys growth potential. The 12 pillars of competitiveness The determinants of competitiveness are many and complex. Economists have long tried to understand what determines the wealth of nations.This attempt has ranged from Adam Smiths focus on specialization and the division of labor to neoclassical economists emphasis on investment in physical capital and infrastructure and, more recently, to interest in other mechanisms such as education and training, technological progress (whether created within the country or adopted from abroad),2 macroeconomic stability, good governance, the rule of law, transparent and wellfunctioning institutions, firm sophistication, demand conditions, market size, and many others. Each of these conjectures rests on solid theoretical foundations.The central point, however, is that they are not mutually exclusivetwo or more of them could be true at the same time. Hundreds of econometric studies show that many of these conjectures are, in fact, simultaneously true.3 This also can partly explain why, despite the present global economic crisis, we do not necessarily see large swings in comp-etitiveness rankings, particularly among countries that have already put into place many of the elements driving productivity. The GCI captures this open-ended dimension by providing a weighted average of many different components, each of which reflects one aspect of the complex concept that we call competitiveness. We group all these components into 12 pillars of competitiveness: First pillar: Institutions The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate income and wealth in the economy. The importance of a solid institutional environment has become even more apparent during the current crisis, given the increasingly direct role played by the state in the economy of many countries. The quality of institutions has a strong bearing on competitiveness and growth.4 It influences investment decisions and the organization of production and plays a central role in the ways in which societies distribute the benefits and bear the costs of development strategies and policies. For example, owners of land, corporate shares, or intellectual property are unwilling to invest in the improvement and upkeep of their property if their rights as owners are insecure.5 The role of institutions goes beyond the legal framework. Government attitudes toward markets and freedoms, and the efficiency of its operations, are also very important: excessive bureaucracy and red tape, overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, and the political dependence of the judicial system impose significant economic costs to businesses and slow the process of economic development.7 Proper management of the public finances is also critical to ensuring trust in the national business environment.We include indicators capturing the quality of government management of the public finances to complement the measures of macroeconomic stability captured by pillar 3 below. Although the economic literature has mainly focused on public institutions, private institutions are also an important element in the process of wealth creation. The recent

global financial crisis, along with numerous corporate scandals, has highlighted the relevance of accounting and reporting standards and transparency for preventing fraud and mismanagement, ensuring good governance, and maintaining investor and consumer confidence.An economy is well served by businesses that are run honestly, where managers abide by strong ethical practices in their dealings with the government, other firms, and the public.8 Private-sector transparency is indispensable to business, and can be brought about through the use of standards as well as auditing and accounting practices that ensure access to information in a timely manner. Second pillar: Infrastructure Extensive and efficient infrastructure is an essential driver of competitiveness. It is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular economy. Well-developed infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it at low cost to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and reduce income inequalities and poverty in a variety of ways. In this regard, a welldeveloped transport and communications infrastructure network is a prerequisite for the ability of less-developed communities to connect to core economic activities and basic services. Effective modes of transport for goods, people, and servicessuch as quality roads, railroads, ports, and air transportenable entrepreneurs to get their goods and services to market in a secure and timely manner, and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free of interruptions and shortages so that businesses and factories can work unimpeded. Finally, a solid and extensive telecommunications network allows for a rapid and free flow of information, which increases overall economic efficiency by helping to ensure that businesses can communicate, and that decisions made by economic factors take into account all available relevant information. This is an area where the crisis may prove to have positive longer-term effects, given the central role of infrastructure development in many of the national stimulus packages in countries such as the United States and China. Third pillar: Macroeconomic stability The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country.11 Although it is certainly true that macroeconomic stability alone cannot increase the productivity of a nation, it is also recognized that macroeconomic disarray harms the economy. The government cannot provide services efficiently if it has to make high-interest payments on its past debts. Running fiscal deficits limits the governments future ability to react to business cycles. Firms cannot operate efficiently when inflation rates are out of hand. In sum, the economy cannot grow in a sustainable manner unless the macro environment is stable. It is important to note that this pillar focuses only on macroeconomic stability, so it does not directly take into account the way in which public

accounts are managed by the government. This qualitative dimension is captured in the public institutions subpillar described above. Fourth pillar: Health and primary education A healthy workforce is vital to a countrys competitiveness and productivity. Workers who are ill cannot function to their potential and will be less productive. Poor health leads to significant costs to business, as sick workers are often absent or operate at lower levels of efficiency. Investment in the provision of health services is thus critical for clear economic, as well as moral, considerations. In addition to health, this pillar takes into account the quantity and quality of basic education received by the population, which is increasingly important in todays economy. Basic education increases the efficiency of each individual worker. Moreover, workers who have received little formal education can carry out only simple manual work and find it much more difficult to adapt to more advanced production processes and techniques. Lack of basic education can therefore become a constraint on business development, with firms finding it difficult to move up the value chain by producing more-sophisticated or value-intensive products. For the longer term, it will be essential to avoid significant reductions in resource allocation to these critical areas, given that government budgets in many countries will need to be cut to reduce public debt brought about by the present stimulus spending. Fifth pillar: Higher education and training Quality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. In particular, todays globalizing economy requires economies to nurture pools of well-educated workers who are able to adapt rapidly to their changing environment. This pillarmeasures secondary and tertiary enrollment rates as well as the quality of education as assessed by the business community. The extent of staff training is also taken into consideration because of the importance of vocational and continuous on-the-job trainingwhich is neglected in many economiesfor ensuring a constant upgrading of workers skills to the changing needs of the evolving economy. Sixth pillar: Goods market efficiency Countries with efficient goods markets are well positioned to produce the right mix of products and services given supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. Healthy market competition, both domestic and foreign, is important in driving market efficiency and thus business productivity, by ensuring that the most efficient firms, producing goods demanded by the market, are those that thrive.The best possible environment for the exchange of goods requires a minimum of impediments to business activity through government intervention. For example, competitiveness is hindered by distortionary or burdensome taxes and by restrictive and discriminatory rules on foreign direct investment (FDI) limiting foreign ownershipas well as on international trade. The economic slowdown, with the consequent drop in trade and rise in unemployment, has increased the pressure on governments to adopt measures to protect domestic firms and jobs.Yet limiting global

trade would not only amplify the current downturn, but in the longer term it would also reduce growthin particular in developing countries. Market efficiency also depends on demand conditions such as customer orientation and buyer sophistication. For cultural reasons, customers in some countries may be more demanding than in others. This can create an important competitive advantage, as it forces companies to be more innovative and customer oriented and thus imposes the discipline necessary for efficiency to be achieved in the market. Seventh pillar: Labor market efficiency The efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most efficient use in the economy and provided with incentives to give their best effort in their jobs. Labor markets must therefore have the flexibility to shift workers from one economic activity to another rapidly and at low cost, and to allow for wage fluctuations without much social disruption. Efficient labor markets must also ensure a clear relationship between worker incentives and their efforts, as well as the best use of available talentwhich includes equity in the business environment between women and men. Eighth pillar: Financial market sophistication The present economic crisis has highlighted the central role of a sound and wellfunctioning financial sector for economic activity. An efficient financial sector allocates the resources saved by a nations citizens as well as those entering the economy from abroad to their most productive uses. It channels resources to those entrepreneurial or investment projects with the highest expected rates of return, rather than to the politically connected. A thorough and proper assessment of risk is therefore a key ingredient. Business investment is critical to productivity. Therefore economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financial products. This has been once again underscored by the liquidity crunch experienced by businesses and the public sector in developing and developed countries in recent times. In order to fulfill all those functions, the banking sector needs to be trustworthy and transparent, andas has been made so clear recently financial markets need appropriate regulation to protect investors and other factors in the economy at large. Ninth pillar: Technological readiness This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries.16 In todays globalized world, technology has increasingly become an important element for firms to compete and prosper. In particular, information and communication technologies (ICT) have evolved into the general purpose technology of our time, given the critical spillovers to the other economic sectors and their role as efficient infrastructure for commercial transactions.Therefore ICT access (including the presence of an ICT-friendly regulatory

framework) and usage are included in the pillar as essential components of economies overall level of technological readiness. In this context, whether the technology used has or has not been developed within national borders is irrelevant for its effect on competitiveness. The central point is that the firms operating in the country have access to advanced products and blueprints and the ability to use them. Among the main sources of foreign technology, FDI often plays a key role. In this respect, it is particularly worrisome that, after four years of solid growth resulting in a record global FDI stock of US$1.9 trillion in 2007, FDI has declined by an estimated 15 percent in 2008 with further deterioration expected for 2009, especially for developing countries. This development is due to shortages in finance and a more riskaverse attitude of businesses. It is important to note that, in this context, the level of technology available to firms in a country needs to be distinguished from the countrys ability to innovate and expand the frontiers of knowledge. That is why we separate technological readiness from innovation, which is captured in the 12th pillar below. Tenth pillar: Market size The size of the market affects productivity because large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by national borders. In the era of globalization, international markets have become a substitute for domestic markets, especially for small countries. There is vast empirical evidence showing that trade openness is positively associated with growth. Even if some recent research casts doubts on the robustness of this relationship, the general sense is that trade has a positive effect on growth, especially for countries with small domestic markets. Thus, exports can be thought of as a substitute for domestic demand in determining the size of the market for the firms of a country. In todays highly interdependent world, recovery from the present downturn will require that countries increase the amount of goods that they purchase from each other, thus spurring demand. Further lowering barriers to trade would support this process. By including both domestic and foreign markets in our measure of market size, we give credit to exportdriven economies and geographic areas (such as the European Union) that are broken into many countries but have one common market. Eleventh pillar: Business sophistication Business sophistication is conducive to higher efficiency in the production of goods and services.This leads, in turn, to increased productivity, thus enhancing a nations competitiveness. Business sophistication concerns the quality of a countrys overall business networks as well as the quality of individual firms operations and strategies. It is particularly important for countries at an advanced stage of development, when the more basic sources of productivity improvements have been exhausted to a large extent.The quality of a countrys business networks and supporting industries, which we capture by using indicators of the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons. When companies and suppliers from a particular sector are interconnected in geographically proximate groups

(clusters), efficiency is heightened, greater opportunities for innovation are created, and barriers to entry for new firms are reduced. Individual firms operations and strategies (branding, marketing, the presence of a value chain, and the production of unique and sophisticated products) all lead to sophisticated and modern business processes. Twelfth pillar: Innovation The final pillar of competitiveness is innovation.Although substantial gains can be obtained by improving institutions, building infrastructure, reducing macroeconomic instability, or improving human capital, all these factors eventually seem to run into diminishing returns. The same is true for the efficiency of the labor, financial, and goods markets. In the long run, standards of living can be expanded only with innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tends to disappear. Although less-advanced countries can still improve their productivity by adopting existing technologies or making incremental improvements in other areas, for those that have reached the innovation-driven stage of development, this is no longer sufficient to increase productivity. Firms in these countries must design and develop cutting-edge products and processes to maintaina competitive edge.This requires an environment that is conducive to innovative activity, supported by both the public and the private sectors. In particular, this means sufficient investment in research and development (R&D) especially by the private sector, the presence of high-quality scientific research institutions, extensive collaboration in research between universities and industry, and the protection of intellectual property. In this time of crisis, it will be important to resist pressures to cut back on the R&D spending both at the private and public levels that will be so critical for sustainable growth going into the future. Q.3. How Strategic Alliances help in making an organization competitive? What are the various types of Alliances and how they help in value addition to any organization. Discuss. Ans: One of the fastest growing trends for business today is the increasing number of strategic alliances. According to Booz-Allen & Hamilton, strategic alliances are sweeping through nearly every industry and are becoming an essential driver of superior growth. Alliances range in scope from an informal business relationship based on a simple contract to a joint venture agreement in which for legal and tax purposes either a corporation or partnership is set up to manage the alliance. For small businesses, strategic alliances are a way to work together with others towards a common goal while not losing their individuality. Alliances are a way of reaping the rewards of team effort - and the gains from forming strategic alliances appear to be substantial. Companies participating in alliances report that at much as 18 percent of their revenues comes from their alliances.

But it isn't just profit that is motivating this increase in alliances. Other factors include an increasing intensity of competition, a growing need to operate on a global scale, a fast changing marketplace, and industry convergence in many markets (for example, in the financial services industry, banks, investment firms, and insurance companies are overlapping more and more in the products they supply). Especially in a time when growing international marketing is becoming the norm, these partnerships can leverage your growth through alliances with international partners. Rather than take on the risk and expense that international expansion can demand, one can enter international markets by finding an appropriate alliance with a business operating in the marketplace you desire to enter. A strategic alliance is essentially a partnership in which you combine efforts in projects ranging from getting a better price for supplies by buying in bulk together to building a product together with each of you providing part of its production. The goal of alliances is to minimize risk while maximizing your leverage and profit. Alliances are often confused with mergers, acquisitions, and outsourcing. While there are similarities in the circumstances in which a business might consider one these solutions, they are far from the same. Mergers and acquisitions are permanent, structural changes in how the company exists. Outsourcing is simply a way of purchasing a functional service for the company. An alliance is simply a business-to-business collaboration. Another term that is frequently used in conjunction with alliances is establishing a business network. Alliances are formed for joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing, and research and development. Relationships can be vertical between a vendor and a customer, horizontal between vendors, local, or global. Alliances often are established formally in a joint venture or partnership. Businesses use strategic alliances to:

achieve advantages of scale, scope and speed increase market penetration enhance competitiveness in domestic and/or global markets enhance product development develop new business opportunities through new products and services expand market development increase exports diversify create new businesses reduce costs.

Strategic alliances are becoming a more and more common tool for expanding the reach of your company without committing yourself to expensive internal expansions beyond your core business.

There are four types of strategic alliances: joint venture, equity strategic alliance, nonequity strategic alliance, and global strategic alliances.

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Nonequity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments.

Advantages A business strategic alliance is also a means to an end, not just an end in itself. Strategic alliances often take place between firms of different industries and of varied sizes, for vertical or horizontal links, consolidation of positions or any of the following: 1) Gain a means of Distribution in International market It may beneficial for an exporter to ally with local partner, to understand the functioning and the local market network. 2) Overcome legal or Regulatory barriers In some countries it is mandatory to have local partner in order to conduct business. Thus, alliances offer suitable options. 3) Diversification It may be advantageous to enter into an alliance, as a business guide to minimize pitfalls in a new business territory. 4) Avoiding competition An alliance may be entered into with a market leader or a major competitor to avoid competition. 5) Focus on New Products and Restructuring An alliance in the form of a research and development alliance may focus at the development of new products. Apart from this, an alliance may also enable the firm to adapt to a more effective organisational structure. Q.4. What strategic options are available for any industry for building competitiveness? How Indian organizations have achieved competitiveness in the world? Explain it by taking an example of any successful Indian global company you have come across. Ans:

1. 1.1

Competitiveness and Building Consensus: Strategic Options for IDB Operations Objective of this Discussion Paper The IDB Group has established the topic of competitiveness as one of its priorities and its portfolio includes numerous projects related to the improvement of the business climate, support for firms, and direct lending and investment to firms in the region. Where these programs address macro- policy issues, such as economic stabilization, financial soundness, education, infrastructure provision, and regulatory issues, IDB Group has a broad set of tools. These activities are the focus of the Banks Competitiveness Strategy, which is currently under preparation. Although this document refers to some of these macro-policy issues, it focuses largely on the strategic options that address the micro- policy barriers to competitiveness. This paper also focuses on the appropriate institutional mechanisms and relevant Bank operational instruments to promote competitiveness. Background on Competitiveness and Growth Over the past decades economic reforms in Latin America and the Caribbean sought to improve growth and distributional outcomes. These efforts aimed to improve the efficiency of markets by opening economies to international competition through lower trade barriers, increasing flows of international capital, shifting ownership of assets to the private sector, and stabilizing economies. Nonetheless, the results in terms of growth and poverty reduction have been disappointing. These lackluster outcomes have weakened faith in piecemeal approaches, leading to a search for a more integrated policy framework for growth. The need for a new framework has been made more urgent by increasing competition in global markets and fast-paced technological change. These global market trends mean that emerging economies face an ever steeper learning curve as they try to make the transition from lower income to middle income economies (or from middle income to upper income). In the past, some countries bridged the income gap with natural resourcebased growth strategies combined with increases in physical and human capital investment as prescribed by the accepted tenets of economic theory (Easterly, 2002). 3 Experience now indicates that the accumulation of productive factors is not sufficient. The quality of productive factors, the institutional arrangements that

2. 2.1

2.2

guide their use, as well as knowledge and technology have important explanatory roles in growth outcomes. 4 Today, it 3. 3.1 The Elusive Quest for a Definition of Competitiveness Competitiveness, like economic growth and poverty reduction, is an objective which depends on multiple, interrelated variables. Moreover, there is overlap among the set of variables that are related to competitiveness and growth outcomes. These common variables include: 1) a stable macroeconomic environment, 2) mobilization of domestic and international capital, 3) availability and quality of labor, 4) the quality and availability of infrastructure (roads, ports, telecommunications, energy), 5) access to and dissemination of knowledge and technological know-how, 6) the quality and effectiveness of public institutions and the rule of law, and 7) sustainability in the use of natural resources, among others. Given that the final objective of competitiveness is to encourage growth and, thereby, reduce poverty, it is apparent that a competitiveness strategy is a subset of broader growth and poverty reduction strategies. is certain that the keys to a successful economic transition are not so simple and deterministic, and it is also recognized that the costs of inaction are increasing.5 2.3 The concept of competitiveness has emerged as a new paradigm for economic development. Competitiveness captures the awareness of both the limitations and challenges posed by global competition, at a time when effective government action is constrained by budgetary constraints and the private sector faces significant barriers to competing in domestic and international markets. Observers of economic development recognize that there are multiple factors that impede achieving better growth outcomes. Among these limiting factor is the absence of coordination mechanisms that facilitate taking advantage of competitive opportunities that require the combined action of many economic agents.6 Part of the new competitiveness paradigm, is an emphasis on the institutional framework that encourages both coordination and ownership of policy reforms by government, civil society and the private sector as a means to ensure sustainability and effectiveness. As stated in the Millennium Summit Declaration: Goals cannot be imposedthey must be embraced. Each country must identify

2.4

2.5

its own particular goals, its own path to development, and make its own commitment through dialogue with its citizens. (IDB, January 2002.) In some countries in the region, a consensusbased approach has led to the formulation of national strategies that spell out a competitiveness agenda for policy change. At the same time, new institutional arrangements are being employed to take advantage of the comparative strengths of public and private actors.

Growth, Poverty Reduction and Competitiveness Strategies 3.2 Without a clear definition of what is meant by competitiveness it is easy to lose track of its operational relevance as a goal for policy and investment decision-making. Competitiveness can be defined as: the ability of an economy to face challenges in the global economy through improving its productivity in a manner that improves the welfare of its people. As a definition, this leaves unanswered the relevant policy questions of: how to measure competitiveness; what economic and institutional environment promotes competitiveness; and how are these institutions achieved. On the measurement issue, productivity provides a useful benchmark for competitiveness, however, it is not without limitations. For example, productivity gains by a firm only relate to improvements in the ratio of physical output to inputs, and do not indicate if the product is competitive in price, quality, time of delivery (or other relevant metrics) or if it even has a market.7

3.3

3.4 Even more intriguing are the institutional aspects of the competitiveness. Based on international experience, the institutional environment that most favors competitiveness is one that encourages efficient markets and outward-oriented policies. As well, competitiveness is encouraged where the private sector has a leading role, entrepreneurial networks and social capital are built, and there is consensus-building through joint decision-making by public and private actors. At the most basic level, the independent, atomistic decisions of entrepreneurs regarding are the direct determinants of competitiveness. Nevertheless, there are important network effects to be considered. Empirical observation confirms that resources (capital, labor, technology) and talent tend to concentrate geographically (Easterly and Levine 2002). This result reflects the fact that firms are embedded in inter-firm relationships with networks of suppliers, buyers and even competitors that help them to gain competitive advantages in the sale of its products and services. While arms-length market relationships do provide these benefits, at times there are externalities that arise from linkages among firms in a geographic area or in a specific industry (textiles, leather goods, silicon chips) that cannot be captured or fostered by markets alone. The process of clusterization, the creation of value chains, or industrial districts are models that highlight the advantages of networks.

3.5

At a more fundamental level, competitiveness is about public choice and social decision making (Rodrik 2002). For that reason, the process of becoming competitive relies on institutions that aggregate local-knowledge (bottom-up) and promote a consensus on the goals and capabilities of society. This process of consensus building establishes the social capital that binds together the actors; creates and sustains a common vision; and ensures effective policy implementation. Whether at the level of a project, program or national agenda the importance of social capital is critical to achieving the desired outcome.

3.6 There are two important corollaries of this approach. First, there is no unique, reproducible process to achieve competitiveness that can be applied in all cases -- region, country, industry or firm. Each solution must be tailor-made to the institutions, actors and markets which define the initial conditions. Second, the potential to affect change through public interventions is circumscribed to the provision of public goods, promoting positive externalities, overcoming market failures, and developing social capital. The decisions at the firm-level are, and should be, beyond the purview and control of the public sector. As a result, traditional public sector policy instruments and international lending programs (directed to the public sector) have a more limited, indirect impact on improving productivity and competitiveness. Q.5. What is Integrative Process Management? How is it achieved? Give a framework for the same. How through IPM one can achieve productivity and thereby become competitive globally INTEGRATED PROCESS MANAGEMENT IPM is a six-step methodology that helps create the elements of a sound management system. Companies identify customer needs, the variables which impact the specifications, decide on control strategies and means to assess and improve the system. Deasy & Associates' President, Tom Deasy and Vice President of Employee Development, John Childers are two of the original developers of IPM. They have assisted organizations in various industries throughout North America to successfully implement Integrated Process Management.

IPM implementation depends on the commitment of top management and the participation of the entire organization. It is a balance of technical and behavioral skills. Extensive training is required to create the correct environment, build an understanding of basic statistics and process monitoring, impart advanced statistical techniques to key personnel for process analysis and create solid problem solving habits. IPM is for organizations who are finding that their problem solving methodology is no longer "working." Some companies try methodology after methodology - one has 5 steps, one has 7 and the latest has 12. The root cause of the problem is usually not the methodology, but a lack of process control or the discipline to maintain it. Often, there is so much variation in the process that solutions thought to be "sure bets" or "easy fixes" continue to produce bad product or only fix the problem for a short time. After a little statistical education, organizations may find that their process is not able to make product consistently within customer specs. Processes can be out of control for many reasons: inconsistent testing practices, variation between operators, inconsistent quality of supplies, use of an incorrect or inaccurate measuring device or failure to follow existing procedures. Deasy & Associates, Inc., can put its years of IPM implementation experience toward helping your organization make the shift to a more empowered workforce that runs processes more efficiently. INTEGRATED PROCESS MANAGEMENT

Keys to Success As with any change to organizational culture or systems, top management must drive IPM implementation in order for it to succeed. Leaders must learn and use the behaviors and tools and reward employees who utilize them. Culture Shift Every organization is different, so IPM implementation will progress at varying pace throughout a company. That being said, Deasy & Associates has identified three major, non-technical areas that are critical to IPM success regardless of the initial corporate environment. Creating and using a sound strategic plan, interactive communication and an empowered workforce are three keys to IPM implementation. Often, new clients believe their corporation employs the three keys mentioned above, but upon further investigation they find that the strategic plan is not communicated or in times of trouble, decisions are usurped from the workforce. We work with top managers to front line supervisors to help create a viable, long-term strategic plan that is communicated and supported by plant, department and production line goals. Employees not only receive training regarding interactive communication, IPM philosophy requires that it become part of the fabric of operational systems. All levels of the organization gain instruction and coaching to help transition to an empowered workforce. If the company designs a clear strategic plan whose goals link through the organization, communicate the goals and roles required to succeed (and receive feedback to improve the goals and roles) and free supervisors to conduct process improvement activity by empowering the workforce to run the day-to-day operation, IPM implementation and maintenance will occur more smoothly. Q.6. Quality Capability determines global competitiveness. Explain various models to improve quality and illustrate your answer with the help of examples in the Indian context.

Ans: USING TQM FOR A COMPETITIVE ADVANTAGE IN BUSINESS The Total Quality Management (TQM) philosophy of doing business emphasizes lowering costs by reducing waste, helping suppliers provide quality products and satisfying the customer with quality goods and services. Companies that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. Implementing TQM can help a company gain a competitive advantage in their business. Questions you may have include:

How can a company reduce costs? What does helping suppliers and workers do? How does customer satisfaction give an advantage?

This lesson will answer those questions. There is a mini-quiz near the end of the lesson. REDUCING COSTS Achieving lower costs for getting or making products gives a company a great competitive advantage over their competition. GETTING PRODUCTS - CASE STUDY Wal-Mart has formed alliances with their suppliers, such that they are able to purchase goods at a discount that their competitors cannot achieve. The result is that Wal-Mart is able to offer products at such low prices that have actually driven many competitors out of business. MAKING PRODUCTS - CASE STUDY Japanese automobile manufacturers Toyota and Honda have greatly lower worker pension and healthcare costs than the "Big-3" American manufacturers, General Motors (GM), Ford and Chrysler. This is true even for the Toyota and Honda facilities in the United States. The cost per car for worker benefits paid by is $1360 for GM, $735 for Ford and $630 for Chrysler. Meanwhile, it costs Toyota $180 and Honda $106 per car. This results in much higher profits or lower prices for the Japanese autos. Also, the Big-3 each have about 18,000 in "excess workers" that drive up their costs. The Japanese auto manufacturers are winning the competition in terms of reduced costs.

MANUFACTURING COST REDUCTION Companies want to reduce the cost of getting or making their products. A major portion of the cost of goods involves wasteful practices that result in scrapped parts and returned goods from dissatisfied customers. By continually improving the processes involved in making the product or delivering the service, a company can be more effective in reducing losses due to waste. This will allow the business to deliver products at lower prices while still achieving a good profit. Competitors may not be able to meet those prices. Eliminating errors is a major goal. An extension of TQM is the Six-Sigma approach that seeks to eliminate errors to 6 parts in a million (six sigma deviation). Getting lower cost, quality good from suppliers will also reduce costs. HELPING SUPPLIERS A company's workers and suppliers provide the input that determined the cost and quality of the products being made. The company that empowers its workers and suppliers and helps them achieve these goals will have a competitive advantage over the company that browbeats its workers or suppliers. This is a concept that was developed for the U.S. Air Force and is explained in the Three Phase Approach to TQM in the Air Force's SDI Programs. QUALITY SUPPLIES The first part of providing the customers with quality goods involves purchasing those products from suppliers or getting quality parts to make your own product. An important aspect of Kurtusian TQM is to help the supplier provide quality to your company. Often companies browbeat their suppliers into providing goods at low costs. Wal-Mart has been known to be very tough on suppliers, even driving some out of business if they did not bend to Wal-Mart's demands. Other companies have also used such negative tactics. By working closely with suppliers, you can provide a partnership where you get the quality supplies needed to gain your competitive advantage. QUALITY WORKERS Your workers proved services that allow you to make quality products. Others deal with the customers and provide quality service to those customers. Courteous sales representatives can make for a pleasant buying experience for the customers.

Some companies demand much from their workers and even if they pay them well, they do not have a truly motivated staff. Some companies even demand that the sales people smile and act friendly, even if they don't feel like it. Making the workers part of the team and helping them provide quality work can give you a good competitive advantage on competition that may have an unhappy workforce. CUSTOMER SATISFACTION A customer that is satisfied or even pleased with the products and services received, sees them as value-added. They will be glad to return to the company to purchase other items. They will refer others to the company. This is not only true in sales to individuals, but it is also vital in corporate sales. In selling product or providing supplies to another company, you need to make sure the material is to specification and gives them the assurance that they can count on your company to provide such quality good in the future. Customer satisfaction is the ultimate advantage a company can have over their competitors. SUMMARY A company that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. The Total Quality Management (TQM) business philosophy of satisfying the customer with quality goods and services, reducing waste and empowering workers and suppliers is a method to achieve those goals. Q.7. Discuss the Technology policy of Govt. of India? How it has helped to increase the competitiveness of Indian Industry? Ans: Recognizing the changing context of the scientific enterprise, and to meet present national needs in the new era of globalization, Government enunciates the following objectives of its Science and Technology Policy:

To ensure that the message of science reaches every citizen of India, man and woman, young and old, so that we advance scientific temper, emerge as a progressive and enlightened society, and make it possible for all our people to participate fully in the development of science and technology and its application for human welfare. Indeed, science and technology will be fully integrated with all spheres of national activity. To ensure food, agricultural, nutritional, environmental, water, health and energy security of the people on a sustainable basis.

To mount a direct and sustained effort on the alleviation of poverty, enhancing livelihood security, removal of hunger and malnutrition, reduction of drudgery and regional imbalances, both rural and urban, and generation of employment, by using scientific and technological capabilities along with our traditional knowledge pool. This will call for the generation and screening of all relevant technologies, their widespread dissemination through networking and support for the vast unorganized sector of our economy. To vigorously foster scientific research in universities and other academic, scientific and engineering institutions; and attract the brightest young persons to careers in science and technology, by conveying a sense of excitement concerning the advancing frontiers, and by creating suitable employment opportunities for them. Also to build and maintain centres of excellence, which will raise the level of work in selected areas to the highest international standards. To promote the empowerment of women in all science and technology activities and ensure their full and equal participation. To provide necessary autonomy and freedom of functioning for all academic and R&D institutions so that an ambience for truly creative work is encouraged, while ensuring at the same time that the science and technology enterprise in the country is fully committed to its social responsibilities and commitments. To use the full potential of modern science and technology to protect, preserve, evaluate, update, add value to, and utilize the extensive knowledge acquired over the long civilizational experience of India. To accomplish national strategic and security-related objectives, by using the latest advances in science and technology. To encourage research and innovation in areas of relevance for the economy and society, particularly by promoting close and productive interaction between private and public institutions in science and technology. Sectors such as agriculture (particularly soil and water management, human and animal nutrition, fisheries), water, health, education, industry, energy including renewable energy, communication and transportation would be accorded highest priority. Key leverage technologies such as information technology, biotechnology and materials science and technology would be given special importance. To substantially strengthen enabling mechanisms that relate to technology development, evaluation, absorption and upgradation from concept to utilization.

To establish an Intellectual Property Rights (IPR) regime which maximises the incentives for the generation and protection of intellectual property by all types of inventors. The regime would also provide a strong, supportive and comprehensive policy environment for speedy and effective domestic commercialisation of such inventions so as to be maximal in the public interest. To ensure, in an era in which information is key to the development of science and technology, that all efforts are made to have high-speed access to information, both in quality and quantity, at affordable costs; and also create digitized, valid and usable content of Indian origin. To encourage research and application for forecasting, prevention and mitigation of natural hazards, particularly, floods, cyclones, earthquakes, drought and landslides. To promote international science and technology cooperation towards achieving the goals of national development and security, and make it a key element of our international relations. To integrate scientific knowledge with insights from other disciplines, and ensure fullest involvement of scientists and technologists in national governance so that the spirit and methods of scientific enquiry permeate deeply into all areas of public policy making.

It is recognized that these objectives will be best realized by a dynamic and flexible Science and Technology Policy, which can readily adapt to the rapidly changing world order. This Policy, reiterates Indias commitment to participate as an equal and vigorous global player in generating and harnessing advances in science and technology for the benefit of all humankind. Q.8. Discuss the Role of Information Systems in Building Competitiveness. Illustrate your answer with examples in Indian and global context. Ans: INTRODUCTION As a consumer, you have instant access to millions of pieces of data. With a few clicks of the mouse button, you can find anything from current stock prices and video clips of current movies. You can get product descriptions, pictures, and prices from thousands of companies across India and around the world. Trying to sell services and products? You can purchase demographic, economic, consumer buying pattern, and market-analysis data. Your firm will have internal financial, marketing, production, and employee data for past years. This tremendous amount of data provides opportunities to managers and consumers who know how to obtain it and analyze it to make better decisions.

Today information systems are everywhere; from supermarkets to airline reservations, libraries and banking operations they have become part of our daily lives. The first step in learning how to apply information technology to solve problems is to get a broader picture of what is meant by the term information system. Computers are only one component of an information system. A computer information system (CIS) consists of related components like hardware, software, people, procedures, and collections of data. The goal of Information System is to enable managers to make better decisions by providing quality information. The systems are just tools to create, store, exchange, search, and/or manipulate information. Information systems are everywhere at the BART station, behind the ATM, on the Web, in your online banking, behind your favorite search engine, enabling your social networking site to manage content for millions of users, etc. You likely use information systems every day of your life. Information systems are built using computers (e.g. mobile devices), communications (e.g. Wi-Fi, Internet), software (e.g. instant messaging, browsers, multimedia tools), data (e.g. user profiles), business rules (e.g. how work really gets done inside the organization), and people (e.g. you). This strategic role of IS engages the use of information technology (IT) to expand its products, services, and overall capabilities which provide the company major advantages over the competitive forces it faces in the marketplace. The strategic information system (SIS) is information that supports or shapes the competitive position and strategies of a business activity. Therefore, a strategic IS can be any kind of information system that uses IT to assist an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives. What are the basic concepts that define the role of strategic information systems? A company can survive and ultimately succeed over the long term only if it has successfully developed strategies to confront five competitive forces. These forces shape the composition of competition in your industry.

These five competitive forces can be countered, however, by successfully implementing five competitive strategies: 1. Cost leadership 2. Differentiation 3. Innovation 4. Growth 5. Alliance BASIC STRATEGIES FOR IT USAGE Lower Costs (Cost Leadership) * Use IT to substantially reduce cost of business processes. * Use IT to lower the cost of customers or suppliers. Differentiate * Develop new IT features to differentiate products and services. * Use IT features to reduce the differentiation advantages of competitors. * Use IT features to focus products and services at selected market niches.

Innovate * Create new products and services that include IT components. * Develop unique new markets or market niches with the assistance of IT * Make radical changes to business processes with IT that dramatically cut costs, improve quality, efficiency, or customer service, or shorten time to market. Promote Growth * Use IT to manage regional and global business expansion. * Use IT to diversify and integrate into other products and services. Develop Alliances * Use IT to create virtual organizations of business partners. * Develop inter-enterprise information systems linked by Internet and extranet that support strategic business relationships with customers, suppliers, subcontractors and others. The Business Value Chain Model Highlights specific activities in a business where competitive strategies can best be applied and where information systems are likely to have a strategic impact Primary activities Support activities Benchmarking Best practices

Extending the Value Chain: The Value Web A firms value chain is linked to the value chains of its suppliers, distributors, and customers A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product collectively Value webs are flexible and adapt to changes in supply and demand

What Is Quality? For the producer: conformance to specifications and absence of variation from specs For the customer: physical quality, quality of service, psychological quality How Information Systems Improve Quality? Simplify the product and the production process Benchmarking Use customer demand to improve products and services Reduce cycle time Improve design quality and precision Improve production precision and tighten production tolerances Examples of Strategic Information Systems American Airlines Fed Ex Citibank Wal-Mart Abitibi Consolidated Simonton Windows (SBR) USA Today Benetton

Sheetz PNC Corporation PriceWaterhouse Coopers Baxter Healthcare

Gaining Competitive Advantage with Computerized Decision Support Many companies have isolated decision support capabilities that are hard to use or hard to access. For example, a data mart may have been built for accessing customer data, a project management system may exist for tracking large-scale projects, or Excel analyses may be routinely used in a specific business decision process. In general, managers are experiencing information overload and are having difficulty finding the right information when it is needed. Potentially, innovative decision support systems (DSSs) can yield competitive advantage for an organization or at least maintain an organizations competitive position. Evidence indicates managers can now use sophisticated data-driven and document-driven DSSs to obtain information that was buried for many years in filing cabinets or archived on computer storage systems. Model-driven DSSs can reduce waste in production operations and improve inventory management. Knowledge-driven DSSs can help managers evaluate employees or help technical staff diagnose problems. Communications-driven DSSs can support teams working all over the world. Interorganizational DSSs can support a companys suppliers and customers. Real-time decision support systems are now possible for tactical decision support. A decision support system creates a competitive advantage if three criteria are met. First, once the DSS is implemented, it must be used and it must become a major or significant strength or capability of the organization. Second, the DSS must be unique and proprietary to the organization. Third, the advantage provided by the DSS must be sustainable until an adequate payback is received, usually at least three years. Managers who are searching for strategic investments in information technology need to keep these three criteria in mind. Just because a vendor says a product will create a competitive advantage doesnt make the claim true. A competitive advantage means an organization does something important much better than its competitors. The widespread use of computer technology has changed the way companies do business. Information technology has altered relationships between companies and their suppliers, customers and rivals. Porter and Millar (1985) discuss two specific ways that information technology can affect competition: by altering industry structures and by supporting cost and/or differentiation strategies. A common approach used to identify opportunities to change the structure and profitability of an industry is to examine five competitive forces. Michael Porter (1979) argued that the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitute products and the rivalry among existing competitors determines the profitability of an industry. How a company uses information technology can affect each of the five competitive forces and can create the need and opportunity for change. For example, information technology has altered the bargaining

relationships between companies and their suppliers, channels and buyers. Today it is easy for information systems to cross company boundaries. These inter-organizational systems have become common and, in some instances, they have changed the boundaries of the participating industries. Decision support systems can reduce the power of buyers and suppliers. Decision support systems can erect new barriers that reduce the threat of entrants. Decision support systems can help differentiate products and services and reduce the threat from substitutes. Also, decision support systems can help managers reduce the cost of rivalry actions and, in some cases, reduce the need for competitive actions and reactions. Decision support systems can potentially help a firm create a cost advantage. Decision support systems can provide many benefits including improving personal efficiency and reducing staff needs, expediting problem solving and increasing organizational control. Managers who want to create a cost advantage should search for situations where decision processes seem slow or tedious and where problems reoccur or solutions are delayed or unsatisfactory. In some cases, DSSs can reduce costs where decision makers have high turnover and training is slow and cumbersome, and in situations where activities, departments and projects are poorly controlled. Also, DSSs can create a major cost advantage by increasing efficiency or eliminating value chain activities. For example, a bank or mortgage loan firm may reduce costs by using a new DSS to consolidate the number of steps and minimize the number of staff hours needed to approve loans. Technology breakthroughs can sometimes continue to lower process costs, and rivals who imitate an innovative DSS may nullify or remove any advantage. Decision support systems can potentially create a differentiation advantage. Providing a DSS to customers can differentiate a product and possibly provide a new service. Differentiation increases profitability when the price premium charged is greater than any added costs associated with achieving the differentiation. Successful differentiation means a firm can charge a premium price, and/or sell more units, and/or increase buyer loyalty for service or repeat purchases. In some situations, competitors can rapidly imitate the differentiation, and then all competitors incur increased costs for implementing the DSS. Finally, decision support systems can be used to help a company better focus on a specific customer segment and hence gain an advantage in meeting that segments needs. Management information systems and decision support systems can help track customers, and DSSs can make it easier to serve a specialized customer group with special services. Some customers wont pay a premium for targeted service, and larger competitors also target specialized niches using their own DSSs. It is important to recognize that some firms have no competitive advantage. Firms can achieve a competitive advantage by making strategic changes, and firms can lose a competitive advantage when competitors make strategic changes. Implementing

computerized decision support does not necessarily create a competitive advantage. In fact, most decision support does not have such a broad enterprise-wide impact. Decision support systems can be important and useful and very necessary, and yet not provide a competitive advantage. Many consulting firms and vendors focus on gaining competitive advantage from a data warehouse or a business intelligence system, and that can happen. Many DSS projects do not, however, deliver such results and the projects probably were not intended to create competitive advantage. A now classic study (Kettinger et al 1994) identified a number of companies that had gained an advantage from information systems. Some of those systems were decision support systems, but most were transaction processing systems. The following DSS examples are from their paper: Air Products, a vehicle scheduling system; Cigna, a risk assessment system; IBM, a marketing management system; Owens-Corning, a materials selection system; and Procter & Gamble, a customer response system. Most companies wisely do not provide many details on their success with computerized decision support. Competitive responses and technology have had a negative impact on how some of the aforementioned systems are perceived today. If a company is trying to develop a decision support system that provides a competitive advantage, managers and analysts should ask how the proposed DSS affects company costs, customer and supplier relations, and managerial effectiveness. Managers should also attempt to assess how the proposed strategic system will impact the structure of the industry and the behavior of competitors. Finally, companies must continuously improve their information and decision support technology to gain and maintain any competitive advantage. The Famous Dell Case Dell was founded in 1984 by Michael Dell, the computer industry's longest-tenured chief executive officer, on a simple concept: that by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. This direct business model eliminates retailers that add unnecessary time and cost, or who can diminish Dell's understanding of customer expectations. The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices. Dell also introduces the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels, turning over inventory every three days on average. Headquartered in Round Rock, Texas, Dell is a premiere provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell's climb to market leadership is the result of a persistent focus on delivering the best possible customer experience by directly selling standardsbased computing products and services. Revenue for the last four quarters totaled $41.4 billion and the company employs about 46,000 team members around the globe.

The five tenets of the direct model Dell adopts are: - Most Efficient Path to the Customer - Single Point of Accountability - Build-to-Order - Low-Cost Leader - Standards-Based Technology In its own business, Dell has enhanced and broadened the fundamental competitive advantages of the direct model by applying the efficiencies of the Internet. Dell led commercial migration to the Internet, launching www.dell.com in 1994 and adding ecommerce capability in 1996. The following year, Dell became the first company to record $1 million in daily online sales. Today, Dell operates one of the highest volume Internet commerce sites in the world based on Microsoft Corp.'s Windows operating systems. The company's Web site, which runs entirely on Dell PowerEdge servers, receives more than one billion page requests per quarter at 86 country sites in 28 languages/dialects and 29 currencies. The company realizes Internet-associated efficiencies throughout its business, including procurement, customer support and relationship management. At www.dell.com, customers may review, configure and price systems within Dell's entire product line; order systems online; and track orders from manufacturing through shipping. At valuechain.dell.com, Dell shares information with its suppliers on a range of topics, including product quality and inventory. Dell also uses the Internet to deliver industryleading customer services. For instance, thousands of business and institutional customers worldwide use Dell's Premier Dell.com Web pages to do business with the company online. The name change to Dell Inc. in 2003, reflected the evolution of the company to a diverse supplier of technology products and services. Dell's high return to shareholders has been the result of a focused effort over time to balance growth with profitability and liquidity. Dell has consistently led its largest competitors in each of those categories. This strategic role of IS engages the use of information technology (IT) to expand its products, services, and overall capabilities which provide the company major advantages over the competitive forces it faces in the marketplace. The strategic information system (SIS) is information that supports or shapes the competitive position and strategies of a business activity. Therefore, a strategic IS can be any kind of information system that uses IT to assist an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.