Strategies For The New Economy And Dynamic Competitive Environment

The so-called “New Economy” has expanded market competition to a world scale — no longer is it local or regional. Thus, decisions which are made or events that occur in one part of the planet can have repercussions for the rest of the world. In addition, the interrelationships between companies can involve actors who are very far away from each other. Information Technology (IT) is seen as the factor that has made this worldwide integration possible, along with the creation of new business strategies, new organizational structures, and new modes of relationship among companies and between business and consumers (Laurindoet al., 2003; Laurindo et al., 2001). The Internet is the IT application with highest visibility, since it provides the infrastructure for developing strategic IT applications, of which e-business and e-commerce are the most outstanding (Evans & Wuster, 1997; Frontini, 1999). This has given rise to virtual organizations, the companies whose activities are exclusively on the Internet, while simultaneously, traditional businesses have become active on the web. New forms of association and relationships in business have also come into being. IT makes a new form of integration viable: virtual integration, which has become a strong alternative to vertical integration, which is losing its potential as a source of competitive advantage, according to Venkatraman and Henderson (1998). After the initial period during which many innovative initiatives appeared and then disappeared, the need for a well-defined strategy became clear. Early interest in business to consumer (B2C) shifted to an interest in business-to-business (B2B), where large companies explored the features of this new and powerful tool. In Porter’s (2001) opinion, while the Internet is the best IT platform developed to date to reinforce a distinctive strategy, businesses have committed many errors in utilizing it, because they lack a strategic vision. Further, he argues that the founding principles of traditional strategy are necessary to the success of companies that use the Internet. He does not believe in a “New Economy” or the revolutionary nature of the Internet. In turn, other authors such as Tapscott (2001) see in the Internet an agent that ruptures economic activities, to the point that strategy must be revised totally. With this scenario in mind, it is important to understand these concepts and paths for strategy in the midst of this turbulent environment and in virtual space, so that the entire potential of the Interest can yield new organizational forms, both intra and extra-company.

Alignment Of Organizational Strategy With Information Technology Strategy

Digital computers came into being after the Second World War. After a period of use solely in scientific and military areas, business perceived that this technological innovation could be very useful. The large, expensive equipment was very limited in terms of the information it could process and store, in addition to the restricted number of users who could access them simultaneously or from remote locations. Both the training and vision of professionals in the area of what was then called “data processing” was eminently technical. Thus, the early applications were developed to resolve well-structured problems, i.e., those whose stages and sequences were well-defined, such as payroll, stock control, and accounts due and received. Technology evolved and by the end of the 1970s, there were a number of alternative uses for computers and basic applications had been installed in the large companies. At that point, specialists began discussing a way to use Information Technology (IT), a term that came into use in the 1980s, better to make businesses more competitive. From that time on, many theories, models, and techniques have been studied and developed so that information technology can be used in tune with business strategies and operations. IT progressively came to play an important role in the strategy of the leading companies in competitive markets. Presently there are great expectations that IT applications will make possible new strategy alternatives for business and new opportunities for companies; as in the case of e-commerce and e-business (Porter, 2001; Evans & Wurster, 1999). However, there is also an extensive debate about the real gains derived from investments in IT. Focusing solely on the efficiency of IT applications will not provide a response to such questions. To evaluate the impact of IT on business strategy and operations, a focus on its effectiveness is needed. One must examine the results of IT applications in relation to the objectives, goals, and needs of an organization. Effectiveness should be maintained in the long run, and for this to happen, the concept of Strategic Alignment between IT and the business is fundamental.

Concepts And History Of Strategy In Organizations

The concept of strategy was born in military campaigns whose results, whether good or bad, were largely the product of the minds of strategists. From ancient times, much has been said about great military commanders and their strategies. The word strategic comes from the Greek stratego, which literally means general. In the classic division of war into operational, tactical, and strategic aspects, strategy is linked to planning, to the broader environment and the longest time frame. Even though its meaning has changed over time, since the Napoleonic wars it has encompassed military, political and economic dimensions.

The Role Of Simulation And Modern Business Games

“Probability or stochastic process” is a name used to designate mathematical models that represent the behavior of phenomena described by probability theory, ranging from a simple game of coin tossing up to more complex phenomenon like “Brownian motion theory”, “investment analysis”, etc. Stochastic process uses mathematical models to represent phenomena ruled by the probabilistic variation of some variable over time. Simulation methods, also known as Monte Carlo methods, are stochastic processes that use mathematical models that have similar behavior of real problems, feeding these models with random values generated according to some probability distribution. The term Monte Carlo is used as a synonym for simulation since in some problems the generation of probabilistic values was historically linked to the use of the roulette wheel. In this chapter we show how simulation method can be used to evaluate complex decision problems involving uncertainty. This kind of problem involves knowledge of probability distribution (such as uniform, Poisson, or Normal distribution) used to represent the probabilistic process and the value of respective parameters (such as the average value and the standard deviation). Simulation is the most appropriate tool for visualizing, testing, and evaluating the parameters and the dynamic behavior of a probabilistic process. Simulation uses algorithms that generate a population of probabilistic events which makes possible the estimation of the values of parameters of the problem. The results of a simulation can be proven to be valid approximations of the values of the real phenomenon which they simulate.

An Overview Of The Decision-Making Process In Organizations

Organizations frequently find themselves faced with serious decision-making problems. An individual can analyze the problem and choose the better alternative in an entirely informal manner. In an organization, the problems are much broader and more complex, involving risk and uncertainty. They require the opinion and participation of many people at different levels of hierarchy. The decision-making process in a business or organization should be structured and resolved in a formal, detailed, consistent, and transparent manner. Political events such as the end of the Soviet Empire and the consequent fall of the Berlin Wall, the Petroleum War, the invasion of Iraq, conflicts in various countries, terrorism, etc., immediately affect the destiny and behavior of nations or organizations. As everyone knows, Japan, which had been demolished by the Second World War, became a world economic power in just a few decades, thanks to massive economic aid from the West in the postwar period, social reconstruction, and the joint efforts of its government and people. Nevertheless, beginning in 1989, the year called the “turning point” of the Japanese economy, there were abrupt changes in politics and the economy that resulted in the fall of the Japanese economic index (Dow Nikkey) from 39,000 yen to 14,000 yen. The Japanese economy underwent a contraction that included the phenomenon known as the bursting of the “bubble”, and the country’s economy still has not fully recovered from its devastating effects. Countries and organizations constantly have to face problems due to changes in governmental regimes (communist, socialist or capitalist) and economic stability. World financial crises provoked by financial speculators have made it clear that the practical and theoretical knowledge in economy or finance are only the starting background to confront the market of financial speculation. What has proved necessary has been the experience and level of expertise of someone familiar with the financial trading tables in order to make choices in dealing with the alternatives in day-to-day or moment-to-moment financial operations, and many other factors (see the Case Study - LTCM, presented at the end of this chapter). Other problems such as the globalization of the world economy, the need to manage the environment, combat poverty, etc., affect an organization’s choice of strategy.

An Overview Of Value Chains, Supply Chains And Strategic Alliances Issues

In the competitive scenario unfolding at the beginning of the 21st century, characterized by the fast pace of technologic changes and opening and volatilization of global markets, an understanding of global value chains is of critical importance to outlining strategy. As shown in Chapter II, in the most complex production chains, assessing bargaining power in relation to customers and suppliers may not be enough to understand the power relationships in the global competitive market. Imagine a semiconductors industry, whose clients may be the PC industry, but also be in telecommunications, electronics end users, and new areas such as smart cards. How can one discuss bargaining power based only on the elements introduced on Chapter II? On the other hand, the process of decentralizing production activities, very often marked by globally-based outsourcing and by the streamlining of yesterday’s large corporate structures, created the so-called “network-companies.” According to Chesnais (1996), large companies operating on a global basis gave priority to some functions considered strategic, leading a global chain of suppliers and distributors, performing activities previously performed by verticalized companies. This process of “de-verticalization” presents some risks. However, when a company takes over value activities, it is possible to enforce its interests over other chain links by using its economic power. For small companies, which are part of these large chains, the understanding of power dynamics and relations is decisive for their survival and development, and to outline defensive strategies enabling them to increase their relative power in the chain by means of partnerships and networks of cooperation. The issues discussed are vital for strategy definition, since they bring a more detailed understanding of the game rules of the global value chains and of how to take advantage of its configuration, using networks and partnerships, or making use of location. This chapter intends to present a more in-depth discussion of the supply chain, introducing issues such as location, networks of cooperation, and the study of governance, both of local and global scope. The concept of value chains, both in product-based and in service-based industries, are addressed.

Aligning Strategy With Organizational Structures And Project Deployment

Companies have undergone a process of transformation, organizing themselves to be able to make effective and agile responses to environmental problems and, especially, those having to do with competition and positioning in the market. These responses constitute a set of actions or activities that reflect the company’s competence in taking advantage of opportunities, and their capacity for rapid action, respecting time and cost limits and specifications (Rabechini & Carvalho, 2003). To do so, constructing project-oriented organizations and investing in management design tools and techniques is fundamental, and this has become a growing concern of companies. Handy (1995) points out that organizations in the postindustrial era will be configured like “condominiums”, with groups of projects housed together, since what adds the most value to products and services are intelligent, rather than routine, activities (Fleury & Fleury, 2000). According to Frame (1999), project management practices have consolidated since the 1990s, and several researchers cite this as an obligatory subject matter for companies that seek to develop and maintain competitive advantages. A good indicator of this growth is the presence of the PMI (Project Management Institute) in over 100 countries; it has certified around 25,000 project managers since the beginning of 2002 (Rabechini and Carvalho, 2003). However, studies based in Brazilian companies show that few have formalized development of a management model for the process of innovation and projects (Rabechini et al., 2002). The main concepts related to project management and the ways that a company can structure itself to reach maturity in its projects will be discussed in this chapter. The alignment between strategy and project management structure is also addressed.

Decision Based On Organizational Knowledge, Decision Support Systems, Expert System And Business Intelligence

Organizations are often seeking techniques for improving the actions to structure decision models. However, with the possible exception of routine and well-structured problems, most of the decision problems found in organizations constitute a chaotic and complex family of problems. The principle of bounded rationality proposed by Herbert Simon suggests the use of a decision model based on a simplified model of a firm with a small number of relational concepts, such as: (a) quasi resolution of conflict,( b) uncertainty avoidance or minimization, (c) search directed around the main objective of the problem and, (d) adaptation of organizational goals based on learning. Organizations achieve a better decision-making process by searching different levels of knowledge inside and outside the organization. According to March (1999), the pursuit of organizational knowledge (or intelligence) to structure better decision models is made particularly difficult by three problems. The first problem is the problem of ignorance, because not every thing is known, the future is uncertain, and so on. The second problem is the problem of conflict, because organizations seek goals and objectives in the name of multiple, nested actors over multiple, nested time periods. The third problem is the problem of ambiguity, caused by ill-defined or ill-measured preferences and identities. In order to arrive at good procedures for a decision-making process, organizations adopt some practices leading to intelligent actions. For example, the “rule-based rational action” is considered an intelligent action to estimate the future consequences of possible current actions and choose the one with the highest expected value. Procedures based on “rule-based action,” used together with “organizational learning,” are considered by many authors, as a way to involve assessments of the collective actions and long-term consequences rather than individual action at a particular time. However, neither “rationality” nor “learning” always assures a reasonable final model. In Chapter IX, a list of problems considered to be the hidden traps in decision making — the anchoring trap, the status-quo trap, the sunk-cost trap, the confirming-evidence trap, the framing trap, and estimating and forecasting traps — is presented. According to the authors of this list, complex and important decisions problems are the most prone to distortion because they tend to involve assumptions, estimates, and the inputs from the most people (Davenport & Prusak, 1998; Matheus et al., 1993; March, 1999).

Group Decision And Negotiation In Strategic-Decision-Making

In the previous chapters, decisions models have been modeled based on the economic point of view of the problem expressed mainly through quantitative values and, in some cases by qualitative representation. The economic perspective draws unique coherence from economic assumptions of rational behavior and it draws predictive power from strongly valid rules of influence that employ mathematical or logical operators. Because the decision must be expressed in a way that is compatible with the rules of inference, great simplicity, and structure are required. In strategic decision making problems great effort has been directed toward relaxing the mathematical constraints, while retaining the economic — logic inference. Another important aspect to be considered is that in both theoretical and practical decision-making models, fixed numbers of decision alternatives or prefixed value of parameters have been considered. The major inputs to the analysis of an econometric model of decision-making process are subjective probabilities, utility values, and decision tree structures. Individuals may differ in their subjective value of probabilities, their utilities of outcomes or in their perceptions of the subsequent actions available. Strategic decision problems involve not only one person’s opinion but involve a group of individuals belonging to different classes and levels of interests inside and outside the organization. No longer is the problem concerned with the selection of the preferred alternative of one person. The analysis must be extended for a group of decision-makers, each one exhibiting a certain preference structure, perceiving different consequences, and corresponding to a diverse set of interest and responsibility. In some cases, depending on the number of persons involved as well as on the nature of the decision problem (for instance, promoting or hiring persons or, electing the president) it will be necessary to adopt a voting system. How can different groups of individual affect a decision-making process? In this chapter, we consider some behavioral aspects of individuals and group of individuals that may affect a decision-making process. Behavioral perspectives of competitive decision-making are neither as well articulated nor as complete as those of economic view. In behavioral views cognitive limitations and the use of mental effort are emphasized. In contrast to the rational approach of the economic frame, the behavioral views acknowledge that players may adopt different kind of rationality.

The Nature Of Strategic-Decision-Making Models

In the multiple goal function problems, there is no optimum solution fully satisfying all goals at the same time. The individual goal’s functions are, in general, conflicting and it is not possible to have an optimization method to solve the problem. There is usually a consensus solution satisfying minimal criteria of optimum values for each individual goal function. This consensus is based on the Pareto’s principle presented in chapter nine. The optimal decision making in problems with multiple goals will be analyzed at the end of this chapter (Goicoechea et al., 1982; Keeney & Raiffa, 1976; Dyson, 1990; Saaty, 1980, 1994; Bonabeau, 2003; Charan, 2001; Choo, 1998; Day et al., 1997). In considering restrictions across several scenarios, the problem solution becomes more difficult due to the high number of possible combinations of goal functions and scenarios to be considered.