The New Face of Competition: an Exploratory Study of Event Planning Companies Autoria: Marcos Roberto Piscopo, Felipe Mendes Borini, Moacir de Miranda Oliveira Junior ABSTRACT The purpose of this article was to demonstrate that in the 21st century, companies that compete within dynamic industries do not employ just a single strategy. Instead, they pursue a bundle of strategies focused on the value net rather than on the value chain. We carried out a survey with 47 event planning firms based in the City of Sao Paulo. We found out two distinct groups of firms pursuing different strategies. Our findings support our hypothesis for the searched companies and also show how Delta Model by Hax and Wilde II (2001) is useful to explain companies’ strategic configuration. Particularly within the event industry, we have observed that companies are migrating to strategies based upon the value net. Contributions of this study to the management in the 21st century are related to the event firm’s challenge of learning how to employ different strategic positions based upon both the value net and the value chain in order to conquer and to sustain competitive advantages in dynamic markets. INTRODUCTION Transformations that occur constantly in the business environment directly affect companies’ performance, and require them more effective ways for gaining and sustaining advantages over their competitors which are numerous and eager to win. The strategic orientation of the firm becomes a surviving factor in the current economy, once it relates to the way the company will compete in the marketplace. Therefore, event organizing companies need an adequate strategic positioning in order to add more value to its customers. The Brazilian event industry has been growing significantly and nowadays it plays an important role for the country’s economics. In 2001, a research conducted by Forum Brasileiro de Convention & Visitors Bureau (FBC&VB), Servico Brasileiro de Apoio as Micro e Pequenas Empresas (SEBRAE), and Consultoria Turistica Integrada (CTI) discovered that this industry counts for 3.1% of Brazil’s Gross National Product (GNP) which corresponds to R$37 billion. Other relevant finds were: (1) event industry provided 80 million job offerings, and (2) it contributed with the amount of R$4.2 billion for taxes. According to SEBRAE’s president, the world event market is responsible for over US$4.000 billion annually revenues, and it employs nearly 255 million people, besides the fact that it can still absorb other 100 million. The event promotion leverages tourism flows and it also helps the development of correlated industries that grows as the business tourism grows. As a result, it is possible to observe the following increasing businesses: fairs, congresses, product launching events, sportive events, expositions, business meetings, etc. Zanella (2003) pointed out that 40% of the tourism flows represent business travels while 60% are related to leisure travels. Following World Tourism Organization, tourism industry counts for 10.9% of world’s Gross National Product. Moreover, globalization reduces distances between markets, and besides putting people closer, it allows cultural interchanges. This can be translated into business opportunities, and landscapes are favorable for both event and tourism industries. Lofgren (1999) asks if we live in an age of obsession for great experiences. Then, one day becomes different from another and events represent an effective way of providing experiences. As Pine and Gilmore (1999) observed, businesses and other organizations increase the moment’s experience through events. According to Goldblatt (2000), the growth of event industry is affected by changes in the following dimensions: age, technology, income, and time. 1
The development of the event industry leverages the development of other correlated industries, which act in a strategic way to add value to the products and services bought from event organizing companies. To survive and prosper, companies involved in this value chain depend on the success of the event producing firms, which is a result of its strategies effectiveness. The need for knowing the strategic direction of the event organizing companies drives the desire of investigation of the strategies employed by these companies, besides the knowledge of the business environment in which these companies are competing. The 20th century traditional models for strategic management usually follow Porter’s (1980) studies. The 21st century presents new challenges for companies once their strategies should not be based only upon the value chain and they are not independent from other system’s participants. The new competitive environment requires both competition and cooperation, which means that companies’ strategies shall be based on the value net. Therefore, firms must develop their strategies through partnership and relationship with customers, suppliers, support companies, and even competitors. As a result, we seek to explore the hypothesis stated below by analyzing the strategies employed by event organizing companies located in the City of Sao Paulo. Based upon the forms of strategic positioning we propose: Central Hypothesis: In order to outperform competitors in the 21st century, event companies need to pursue different strategies, especially strategies based upon the value net rather than strategies based upon the value chain. We start by presenting the need for alternative strategic options concerning the current competitive environment. We present some perspectives of strategy definition and the cost versus differentiation dilemma. The theoretical background also covers the strategic thinking evolution by explaining some typologies of strategy. We then proceed to describe our methodological aspects of data collection and analyses. Finally, we present our general theoretical and practical conclusions. THEORETICAL BACKGROUND AND HYPOTHESIS Several academics and executives of the field of business administration have presented definitions for strategy. However, no definition is universally accepted. Despite this fact, these definitions are the results of many researches conducted by specialists. It is also necessary to highlight that strategy is different from the need of having strategy (Ansoff, 1965). The literature of strategic management demonstrates that definitions of strategy are built in two ways. The first one seeks to define strategy by considering just one dimension. It is possible to see this by analyzing those definitions in which strategy is understood as the plans a company make to achieve its objectives and carry out its mission. Some authors defended this position, such as: Chandler (1962), Ansoff (1965), Andrews (1971), and Wright et al. (1992). The second way is an attempt to define strategy by analyzing several dimensions. This perspective is a deeper view and it contains aspects that are crucial to both formulating and implementing the business level strategy. This point of view is defended by Hax and Majluf (1996) and Mintzberg et al. (2000). Other significant contributions were made by Drucker (1954), Rumelt (1974), and Miles and Snow (1978). The Cost versus Differentiation Dilemma Porter (1980) was not the first and he will not be the last researcher to study strategy, however his approach has leveraged this field of study. The development of the generic competitive strategies revolutionized the strategic management, and since 1980 it was possible to notice increasing interest for strategy. Therefore, some researches have defended Porter’s ideas but others have criticized them. It probably happened because Porter (1980: 41) stated that “a firm that is stuck in the middle is in an extremely poor strategic situation”. Hence, it is absolutely necessary that the 2
firm define its strategic positioning either relating to low cost or differentiation strategic options. According to Porter (1996: 68) “a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible”. Therefore, more of one thing means less of another. In addition, trade-offs can create the need of choosing and protect the company against repositioners and straddlers. Porter (1996) proposed that trade-offs arise for the following reasons: (1) inconsistencies in image or reputation, (2) activities themselves, and (3) limits on internal coordination and control. Due to the large dissemination of Porter’s ideas (1980, 1985, 1996) and its importance for the field of strategy several comments aroused from many authors. For instance, Hill (1988: 401) declared that Porter’s (1980) Generic Strategies is flawed in two aspects: “(1) differentiation can be a means for firms to achieve an overall low cost position, and (2) there are many situations in which establishing a sustained competitive advantage requires the firm to simultaneously pursue both low cost and differentiation strategies because in many industries there is no unique low cost position”. Similarly, other researches made significant contributions, such as: Hall (1980), Marques, Lisboa, Zimmerer and Yasin (2000), Jones and Butler (1988), Dess and Davis (1984), Murray (1988), Kim and Lim (1988), Hambrick (1983), White (1986), and Hitt, Ireland and Hoskisson (2001). These studies refer to Porter’s (1980) Competitive Strategies and their findings are relevant to the cost versus differentiation dilemma. Among previously listed contributions we would like to highlight that some authors believe that it is possible to pursue simultaneously both the low cost position and differentiated position, such as: Hill (1988), Murray (1988), and Hitt, Ireland, and Hoskisson (2001). Due to the wide diversity of opinions related to business strategy, we suggest that strategy typologies should be classified into two categories (Figure 1): (1) value chain oriented approaches, and (2) value net oriented approaches. FIGURE 1 Strategy Typologies Value Chain Oriented Strategies Value Net Oriented Strategies Generic Competitive Strategies – Porter (1980) Defining the Business – Abell (1980) Value Disciplines – Treacy & Wieserma (1995) Value Migration – Slywotzky (1996)
Strategic Triangle – Ohmae (1982) Co-opetition – Brandenburger & Nalebuff (1996) Business Landscape – Ghemawat (2000) Delta Model – Hax & Wilde II (2001)
Source: authors. Generic Competitive Strategies Porter (1980) built an outstanding reputation in the field of strategy. His ideas were introduced to business world when management problems started requiring innovative solutions. Therefore, his initial work, which concerned about industrial analysis, gained notoriety and conquered the world in 1980. He defended the competition does not depend exclusively upon the behavior of current competitors but on the five basic competitive forces that he named “forces driving industry competition”: rivalry among existing firms, threat of new entrants, threat of substitute products or services, bargaining power of suppliers, and bargaining power of buyers. Besides determine the degree of competition in industries, these five forces leverage the return on investment made by companies and they are also important for the strategy formulation process. The competitive forces influence and are influenced by the companies of the industry. As a result, a company that can identify the sources of competitive forces will have better chances to find a position within the industry where it can defend itself against these competitive forces or influence them in its favor. There are three consistent generic strategies for creating sustainable position and 3
outperform competitors within an industry: overall cost leadership, differentiation, and focus (Porter, 1980). Defining the Business Abell (1980) proposed that the two dimensional concept product/market of strategy is not appropriate to define the business. Instead, it should be replaced with a three dimensional concept of customer groups, customer functions, and technologies. Business also can be defined in terms of three distinct measures (Abell, 1980: 17): “(1) scope, (2) differentiation of the company’s offerings, one from another, across segments, and (3) differentiation of the company’s offerings from those of competitors”. Therefore, scope and differentiation should be understood in terms of: (1) customer groups served, (2) customer functions served, and (3) technologies utilized. As scope and differentiation are related, there are three possibilities for defining the business: (1) focused strategy, (2) differentiated strategy, and (3) undifferentiated strategy. Once the options focused, differentiated, and undifferentiated exist in customer group, customer function, and technology dimensions, choices can be classified into 27 (3 X 3 X 3) distinct positions, as following: (1) focused, differentiated, or undifferentiated across customer groups, (2) focused, differentiated, or undifferentiated across customer functions, and (3) focused, differentiated, or undifferentiated across technologies (Abell, 1980). Value Disciplines Treacy and Wieserma (1995) developed a strategic typology based upon adding value to customers. These authors observe that company’s success comes from selling to customers exactly what they want to buy by enhancing an excellence level for a specific component, which cannot be replicated by competitors. These components are: price, time, differentiated support, and quality. According to the components a company decide to emphasize, it will focus its efforts on one of the market disciplines, as following: operational efficiency, product leadership, and customer intimacy. Operational efficiency is a strategic option that focuses on the market segment that is seeking for the highest value for the total cost of ownership. Product leadership concentrates on the market segment that needs or simply wants the most updated product and service and that can pay for it. Customer intimacy is a strategic position that aims to focus on the segment of customers who need customized solutions to their specific needs. Businesses that do not specialize do not conquer any customers segments because they lose out to the companies that have a precise focus. Value Migration Value migration is an outside-in approach to business strategy that starts with customers and ends with the company itself. It requires focused thinking on the environment so that the firm can develop capacities and establish which direction it will go. The concept of value migration allows the company to identify where the value is and where it will move later. The comprehension of the value migration process helps company to discover what customers will need in the future, how to deliver it ahead of its competitors, and how to identify future most important competitors. The value migration can affect a division of a firm, an entire firm, or even a whole industry as customers make decisions about what business designs better satisfy their needs. The business design is an overview of how a company selects its customers, defines and differentiates its offerings from its competitor’s offerings, establishes which activities a company will execute itself and those that it prefers to outsource, configures its resources, goes to the marketplace, creates utilities for its customers, and captures profit (Slywotzky, 1996). Strategic Triangle Ohmae (1982) proposed that successful business strategies do not come from rigorous analysis but from a particular state of mind. Even though the strategy formulation process depends on 4
technical expertise, it arises from insights that are beyond the conscious analysis. The construction of business strategy must consider the following players: the company itself, the customer, and the competition. Each of these three “C’s” is a distinct organization with specific interests and objectives. Putting them together, we have the Strategic Triangle. Following the strategic triangle, strategy can be defined as the way in which a company tries to differentiate its offering from those of its competitors through its strengths in order to satisfy customer needs. However, strategy development and implementation depend on how a company can handle with the three key players. According to the strategic triangle, there are three distinct strategic positions, as following: customer-based strategies, corporate-based strategies, and competitorbased strategies. Customer-based strategies rely on the premise that the firm cannot serve all customers with equal effectiveness; therefore it is essential to separate different customer groups. Corporate-based strategies are focused on maximizing the firm’s strengths, especially those that are crucial for succeeding in the industry. Competitor-based strategies’ primary objective is to identify sources of differentiation in functions ranging from purchasing, design, and engineering to sales and support (Ohmae, 1982). Co-opetition Considering business as a game, it is necessary to know who the players are and what roles they perform. Traditionally, doing business involve customers and suppliers. However, there is one more important player that is often forgotten: the complementor. This relevant part usually provides complementary offerings instead of competing products and services. Therefore, complementors can drives companies to success and failure. Complementors can be seen as a different way of thinking about business. They also represent a way of making the market bigger rather than competing for share of a fixed market. The main question is to find out how to expand the market through the development of new complementors or turn current complementors more affordable. Hence, it is crucial to explore the roles of customers, suppliers, competitors, and complementors, besides the interdependence among them. This is what the value net is for (Brandenburger & Nalebuff, 1996). Business Landscape Traditional structures for industry analysis involve the concept of supply x demand and forces driving industry competition. Despite the importance of industry analysis, the concept of business landscape aims to explore how it affects company’s most complex relationship. The business landscape maps different business models and their related profitability. Therefore, the main challenge is to lead a company to the best return landscape. Mapping landscapes does not seek to identify whether or not a company has above average returns, but it represents a way of discovering the reasons these variances occur, and as result take advantage of them (Ghemawat, 2000). The Delta Model The Delta Model by Hax and Wilde II (2001) is a new approach to business strategy development and it is specially addressed to the networked economy. It represents a structure developed to face the most complex economic forces that arise from the competitive environment. The Delta Model central issue is the strategy, both for the old and for the new economy. However, instead of formulating strategies considering only the competition, the Delta Model emphasizes the bonding that can be achieved among customers, suppliers, competitors, substitutes, and complementors (firms that can deliver products and services which can potentially enhance company’s offerings). The Delta Model considers three distinct options of strategic positioning, which are displayed through a triangle (Figure 2): Best Product (BP), Total Customer Solutions 5
(TCS), and System Lock-In (SLI). These strategic choices define how the company competes and serves customers in its marketplace. The Best Product Strategic Option The best product strategic option is based upon the traditional forms of competition and it concerns only low cost and differentiation dimensions. These dimensions were already introduced by Porter (1980) and they refer exclusively to one of the Delta Model strategic positions. In this case, the most important economic drivers are focused on the value chain of the product or service. Firms that pursue this strategic positioning usually want to improve the efficiency of their own supply chain, and their products tend to be standardized. Customers can be considered faceless once they are generic and served through mass distribution channels. Innovation is focused on internal product development and its primary objective is to renew the product line. The best product arises as a strategic option from the industrial era and it is the strategy employed for the majority of firms nowadays. It is important to notice that businesses that compete through best product strategy attract their customers by the intrinsic characteristics of their products, and as result, the degree of customer bonding is very small. Therefore, the customer leaves as soon as he finds a new superior product in the marketplace (Hax & Wilde II, 2001). FIGURE 2 Business Model: three distinct strategic options Competition based upon system economics: Complementor lock-in, competitor lock-out, and proprietary standard
System Lock-In
Total Customer Solutions
Competition based upon customer economics: Reducing customer costs or increasing their profits
Best Product
Competition based upon product economics: Low cost or Differentiation
Source: Hax, Arnoldo C. & Wilde II, Dean L. The Delta Project: discovering new sources of profitability in a networked economy. New York: Palgrave, 2001, p. 10
The Total Customer Solution Strategic Option The Total Customer Solution strategic option is based upon establishing a strong bond with the customer. Instead of serving customers through mass distribution channels, total customer solutions players seek to learn as much as possible about their customers in order to provide customized solutions. Rather than focus on product economics, they are based upon customer economics. Instead of providing single products, they offer a bundle of products and services to meet the majority of customer needs. Relating to the supply chain management, Total Customer 6
Solution players focus their efforts to combine their competencies with that of their customers. The internet plays an important role to connect the company with its customers and its suppliers. Rather than only renew their product lines, they focus on making product development in cooperation with their target customers. This close relationship with customers leads to mutual learning where the customer learns more about the offer and the company learns more about customers business. This kind of relationship usually brings additional parties that complement the product bundle. Hence, customization and mutual learning drive to bonding which is not easy to be copied by competitors. The adoption of the Total Customer Solutions strategic option requires an appropriate segmentation of the customer base, including a clear set of priorities in order to identify the importance of each potential customer. It is also necessary a deep and close knowledge of the client’s business and an understanding of how it relates to your own business. This strategic position requires an individual value proposition which is tailor-made for every single customer. Moreover, the measure of performance is customer market share (share of wallet) instead of market share that is used for the Best Product players. There are three different ways to reach the Total Customer Solutions position: (1) Redefining Customer Experience, (2) Horizontal Breadth, and (3) Customer Integration (Hax & Wilde II, 2001). The Redefining Customer Experience approach to Total Customer Solutions is based upon changing the relationship with the customer from the moment of acquisition to the complete lifetime of ownership. It requires an understanding of how customers interact with the product and redefine their experience in order to increase their own benefits. Experiences only can be learned and evaluated once the customer has purchased the product. Therefore, the company must build a relationship with the customer which cannot be limited to the transaction. The bonding allows the customer to learn more about the company and it helps him believe in the promised results (Hax & Wilde II, 2001). The Horizontal Breadth approach to Total Customer Solutions is focused on providing a complete set of products and services to better satisfy customer needs. The goal of the horizontal breadth is to maximize customer economics and fortify customer bonding through the integration and customization of a wide scope of related products and services. A bundle of products is very important and it can create bonding opportunities. However, horizontal breadth goes beyond bundling, because when bundling alone leads to volume discounts, horizontal breadth optimizes service by customizing and integrating a related set of products in order to better meet customer needs than in the case he buys and uses a product separately. Hence, bundling can create bonding opportunities (Hax & Wilde II, 2001). The Customer Integration way to achieve Total Customer Solutions aims to outsource or facilitate activities usually executed by the customer. Players acting like this assume some activities customers are used to perform. Firms following the Customer Integration perform these activities more efficiently or effectively than the customer in order to increase customer economics through more added value or cost advantage. Therefore, it can create a custom between the company and the customer which is much more than operational efficiency and that cannot easily be copied by the competitors. Investments are made in time and resources by the business and the customer in order to tailor a product and the ways it can be used and processed by the customer. This generates switching cost, and the more the customer uses the product the more switching cost increases. Hence, customer integration is different from outsourcing once an outsourcing player does not achieve competitive advantage through bonding and it does not create switching cost either (Hax & Wilde II, 2001).
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The System Lock-In Strategic Option The System Lock-In strategic option is based upon the overall architecture of the system and as a result it must consider the extended enterprise to create economic value which includes: the business, its customers, its suppliers, and its complementors. This position is the strongest way of bonding and one part deserves special attention: the complementor. According to Brandenburger and Nalebuff (1996: 18) “a player is your complementor if customers value your product more when they have the other player’s product than when they have your product alone”. Similarly Hax and Wilde II (2001: 81) stated “a complementor is not a competitor, or necessarily a supplier; it is a provider of products and services that enhance, directly or indirectly, our own offering”. System Lock-In businesses aim to attract, satisfy, and retain customers through the attraction, satisfaction, and retention of complementors. The value of the system grows as the participation of its elements become more intense. This drives participants to an economic zone of increasing profitability. However, creating the Lock-In position requires the system to meet two essential conditions: (1) the existence of increasing marginal returns, and (2) external network effects. Increasing marginal returns demonstrate the way the value of the product or service grows with the increasing number of users and the rate of usage. Network externalities reflect that attractiveness of the product does not depend on the intrinsic characteristics of the product itself, but on the investment made by other participants, specially customers and complementors. There are three distinct forms to achieve the System Lock-In strategic option: (1) Proprietary Standard, (2) Dominant Exchange, and (3) Restricted Access (Hax & Wilde II, 2001). The Proprietary Standard approach to System Lock-In strategic option is based in the wide range of complementors that is built to work with its product. Therefore, if customers want to use these complementors, customers must use the Proprietary Standard. Achieving a Proprietary Standard requires the firm to satisfy two conditions. The first is to become a natural locus and interface in an open system. The second task, which is more difficult, relies in getting the full proprietary ownership of the standard, and as a result, take the biggest share of value the system will create (Hax & Wilde II, 2001). The Dominant Exchange way to System Lock-In is focused on providing an interface between buyers and sellers, or between participants which intend to exchange information or products. Once a player has achieved this position it is very difficult to beat it. This interface becomes more valuable with the increasing number of people who go there to seek, buy, or even exchange items. The value of the interface grows with use, and likely the leading exchange will dominate the market (Hax & Wilde II, 2001). The Restricted Access to System Lock-In strategic option seeks to deprive competitors from accessing the customer once the channels do not have capacity to handle with several vendors. Following Hax and Wilde II (2001) proprietary standards and dominant exchange leads to bonding through customer lock-in and also competitor lock-out, which are at the extreme of the bonding continuum. However, the competitor lock-out generally comes through constrained distribution and supply chains. METHODOLOGY Data Collection The exploratory study was chosen because of the lack of research within the field of event management, especially about strategic options. Our sample consisted of people involved in strategic management activities of event planning companies based in the City of Sao Paulo. Research participants were business owners, executives and event producer managers. We justify the participation of event producer managers because they perform crucial tasks to the strategic positioning of the firm, such as: event planning and execution. Due to the recent organization of 8
the Brazilian event industry, no association, institute or union has a complete list of event planning companies. There is no full list or ranking of these firms either. Therefore, we combined the data bases of the most important associations, institutes, and unions that list event planning companies based in the City of Sao Paulo as follows: (1) Associação Brasileira de Empresas de Eventos (ABEOC), (2) Associação Brasileira dos Centros de Convenções, Exposições e Feiras (ABRACCEF), (3) Fórum Brasileiro dos Convention & Visitors Bureaux (FBC&VB), (4) União Brasileira dos Promotores de Feiras (UBRAFE), (5) Associação de Marketing Promocional (AMPRO), and (6) Guia dos Fornecedores da Comunicação Meio & Mensagem. After appropriate corrections the final list had 329 event planning companies. The research was carried out through the application of a structured questionnaire with multiple choice questions which were presented to the participants always in the same sequence. We mailed questionnaires by the end of May 2004 and respondents had 45 days to answer the questions. Phone calls were made in order to track the return of questionnaires. Even though we have used trusted mailings, 51 questionnaires did not reach the potential participants because of several reasons according to Empresa Brasileira de Correios e Telégrafos, such as: changed address, unknown addressee, insufficient address, number does not exist, incorrect zip code, and refused address. Hence, the number of potential participants dropped to 278. We have received 48 questionnaires totally answered and the overall response rate to the survey was nearly 17 percent. Companies’ Profile The profile analysis of the sample researched demonstrated that 89.4% companies performed event organizing and executing activities. A total of 78.7% firms performed project management and event planning tasks. Outsourcing activities tasks were executed by 68.1% event businesses. Only 19.1% event companies focused on selling products, and 25.5% performed other activities, such as: workmanship outsourcing, promotional actions, result oriented marketing, prize promotions, event consulting, and congress management. A total of 44.7% searched companies served customers around the country, and 23.4% of them competed internationally. We found that 21.3% of event firms served many provinces, and 19.1% had customers in several cities. We discovered that 89.4% of searched firms produced business events and 57.4% of them organized educational events. Segments of social events and special events were served respectively by 34.0% and 31.9% of event organizing companies. A total of 29.8% searched firms served the show business segment, while 25.5% of them produced other kind of events such as: sportive events, private and public leisure events, agricultural events, etc. Only 8.5% of event planning businesses organized political events. Family members run a total of 59.6% searched firms and 21.3% of them had mixed management (professional executives join family members). We also found out that only 17.0% of searched companies had professional management. Variables First of all, we carried out a theory review in order to select a set of strategic variables that could allow us to identify clusters. Moreover, it would help us to relate current event business strategies to Hax and Wilde II (2001) typology. A previous version of the questionnaire was mailed to 7 individuals who have the same characteristics of the target-respondent group in order to improve the instrument for data collection and make its application more efficient. We attached a letter to the questionnaire and its primary objective was both thank respondents and ask them about some questionnaire’s aspects, such as: (1) time spent to answer the questions, (2) the existence of hard understanding 9
questions, (3) the existence of repetitive questions, (3) the length of the questionnaire, (4) the layout of the questionnaire, and (5) other comments. The study of the strategies employed by searched companies involved the analysis of variables that drive the business to a strategic positioning according either to the value chain or to the value net. These variables are: outperform competitors through superior products and services; understand customer needs and establish a relationship with them; identify, attract, and retain complementors; internal manufacturing of product and services; involvement of the firm, customer, suppliers, and customer teams; involvement of the firm, suppliers, customers, and complementors teams; standardized products and services; complete and exclusive solutions; more complete set of products and services; sell superior products and services; know more about customers and learn with them; satisfy customer through the firm, suppliers, customers, and complementors; internal development based upon common platform; customers join innovation; firm, suppliers, customers, and complementors join innovation; IT is used only for internal control; IT is used to support relationship with customers and suppliers; IT is used to support relationship with customers, suppliers, and complementors; discover cost drivers; provide better results through a complete solution; benefit all participants; multiple channels to reach customers; sell more products and services to same customers; discover which complementors aggregate more value to customers. RESULTS Factorial Analysis The reduction of the geographic space has the main objective of selecting which factors can explain the variance of the sample in a more synthetic way than if we treat each variable in separate. Due to the sample’s size, which was limited to 47 firms, we just considered those factors that had communality greater than 0,50 and variables whose charge factor was greater than 0,75 (Hair et alli, 1998). It was possible to extract 7 factors that jointly explained 77 percent of the variance for the total sample. The power of explanation for all factors as whole and for each factor separately can be observed in table 1. TABLE 1: TOTAL VARIANCE EXPLAINED Total Variance Explained Initial Eigenvalues
Extraction Sums of Squared LoadRotation Sums of Squared Loadings
% of VarianCumulative Total
Componen Total
% of VarianCumulative Total
% of VarianCumulative %
1
4.141
25.88
25.88
4.141
25.88
25.88
2.49
15.561
15.561
2
1.777
11.107
36.987
1.777
11.107
36.987
2.05
12.812
28.373
3
1.619
10.118
47.105
1.619
10.118
47.105
2.02
12.625
40.998
4
1.503
9.393
56.498
1.503
9.393
56.498
1.604
10.022
51.021
5
1.203
7.52
64.019
1.203
7.52
64.019
1.509
9.433
60.454
6
1.163
7.266
71.285
1.163
7.266
71.285
1.442
9.014
69.468
7
1.008
6.301
77.586
1.008
6.301
77.586
1.299
8.117
77.586
Source: authors Table 2 presents the matrix factors for the reduced geographic space after varimax axis orthogonal rotation.
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Data analysis allows us to make important inferences through the information provided by factors charging in order to help the interpretation of these factors formed by 24 strategic variables. Factors are explained according to table 3 and they are used to form strategic groups through the cluster analysis. TABLE 2: FACTORS 1 Discover which complementors aggregate more value to customers 0.846 Discover the cost drivers 0.756 Sell superior product and services Firm, suppliers, customers, and complementors join the innovation Support relationship with customers and suppliers Support relationship with customers, suppliers, and complementors Involvement of the firm, suppliers, customers, and complementors teams Satisfy the customer through the firm, suppliers, customers, and complementors Involvement of the firm, suppliers, and customer teams Complete and exclusive solutions Internal development based upon common platform Standardized products and services More complete set of products and services Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
2
3
4
5
6
7
0.840 0.778 0.913 0.857 0.818 0.783 0.816 0.805 0.841 0.784 0.891
Source: authors TABLE 3: FACTORS IDENTIFICATION 1 2 3 4 5 6 7
Discover which complementor aggregate more value to customers Discover cost drivers Sell superior products and services Firm, suppliers, customers, and complementor join the innovation Support relationship with customers and suppliers Support relationship with customers, suppliers, and complementors Involvement of the firm, suppliers, customers, and complementors teams Satisfy the customer through the firm, suppliers, customers, and complementors Involvement of the firm, suppliers, and customers teams Complete and exclusive solutions Internal development based upon common platform Standardized products and services More complete set of products and services
Supply chain strategy based upon value net Innovation strategy based upon value net Customers strategy based upon value net Partners strategy based upon value net Customers strategy based upon value chain Low cost strategy based upon value chain Differentiation strategy based upon value chain
Source: authors Supply chain strategy based upon value net. This kind of strategy is based upon company’s capacity for managing required insights to develop its offering. Therefore, it is necessary to identify which system’s participants aggregate more value to customers and as a result attract and retain them in order to beneficiate all involved parts (Hax & Wilde II, 2001; Brandenburger & Nalebuff, 1996; Ghemawat, 2000). Innovation strategy based upon value net. Companies employing this kind of strategy aim to provide their customers with superior products and services in order to satisfy their specific 11
needs. Hence, the firm, suppliers, customers, and complementors have to join the innovation process (Hax & Wilde II, 2001; Brandenburger & Nalebuff, 1996; Ghemawat, 2000). Customers strategy based upon value net. Players that intend to achieve this strategic positioning seek to establish and fortify the relationship with their customers. They develop competencies to support the relationship with customers, suppliers, and complementors. Information technology (ERP, CRM, SCM, intranet, extranet, internet, and corporate portals) plays a significant role to help these companies strength the relationship with system’s participants (Hax & Wilde II, 2001; Brandenburger & Nalebuff, 1996; Ghemawat, 2000; Ohmae, 1982). Partners strategy based upon value net. Businesses pursuing this strategy focus their efforts on developing partners which are essential for designing creative and customized solutions. These players usually have vertical organizational structure once their competencies rely on managing the involvement of their partners (Hax & Wilde II, 2001; Brandenburger & Nalebuff, 1996; Ghemawat, 2000). Customers strategy based upon value chain. Companies employing this strategy aim to satisfy customers’ needs through companies’ best efforts in order to provide complete and customized offerings. Once the solution is based upon company’s value chain the solution could be limited to the internal performance which means involving the firm, suppliers, and customers team (Porter, 1980; Treacy & Wieserma, 1995; Slywotzky, 1996; Abell, 1980). Low cost strategy based upon value chain. Players pursuing this strategy focus their competencies to improve their efficiency in order to develop standardized products. It is based upon large scale and internal common platform (Porter, 1980; Treacy & Wieserma, 1995; Abell, 1980). Differentiation strategy based upon value chain. This kind of strategy seeks to provide differentiated solution to customers with low sensitivity to price. The primary objective of this strategy is to develop a more complete set of products and services through the use of company’s competencies without the collaboration of value chain participants (Porter, 1980; Treacy & Wieserma, 1995; Slywotzky, 1996; Abell, 1980). Cluster Analysis In order to identify strategic groups within Sao Paulo event industry, it was carried out the Hierarquical Clusters Analysis by cluster method between-groups linkage measured by interval of squared euclidean distance. The analysis of the homogeneity pattern of the squared distance suggested dividing the sample into two or three clusters. We then carried out the K-means analysis for the reduced geographic space which has been formed by the 7 factors previously cited. As a premise for using this proceeding we assumed that within a cluster there are only businesses pursuing the same kind of strategy. However, they are very different from firms belonging to other groups. We found two clusters as an ideal number for the related sample. Table 4 presents clusters’ centroides and the number of companies in each one of two final clusters.
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TABLE 4: CLUSTER ANALYSIS Supply chain strategy based upon value net Innovation strategy based upon value net Customers strategy based upon value net Partners strategy based upon value net Customers strategy based upon value chain Low cost strategy based upon value chain Differentiation strategy based upon value chain
1 0,10409 -0,07598 0,40418 0,0856 0,32401 -0,83465 0,41737
2 0,16649 0,20884 -0,50835 0,20613 0,0589 0,75961 -0,03529
Source: authors
Based upon clusters differentiation we have analyzed the behavior of different strategic groups of event planning companies. Results show that cluster 1 is based upon differentiation strategies (Porter, 1980) that intend to better satisfy customers through the value chain similarly to customer intimacy (Treacy & Wieserma, 1995). Results also demonstrate that companies classified within cluster 1 employ strategies focused on the value net associated with customers oriented strategies (Ohmae, 1982) in order to create value (Slywotzky, 1996), and total customer solution strategies (Hax & Wilde II, 2001). Companies in cluster 1 mainly employ customer strategy based upon value net and upon value chain offering differentiated services, what can be understood as a clearly differentiation based on customized services to satisfy customers needs. This suggests that these companies pursue customer intimacy strategy based upon the value chain, and the current competitive environment forced them to be more proactive. Therefore, they assume some activities previously performed by customers in order to perform them more efficiently or effectively than they do, and as a result improve customer’s economics through higher added value. Cluster 2 contains firms employing strategies based upon operational efficiency (Porter, 1980; Treacy & Wieserma, 1995) associated with: (a) partners strategies based upon the value net, (b) vertical partnerships based upon channels distribution (Ohmae, 1982), (c) horizontal partnerships based upon complementors (Brandenburger & Nalebuff, 1996). These partnerships based upon innovations made by system’s participants (Hax & Wilde II, 2001) allow companies to join efficiency and differentiation, and they might explain and overcome the middle-term complex situation (cost versus differentiation dilemma) (Hill, 1988). Cluster 2 comprises companies that focus on keeping low operational costs and standardized activities in order to concentrate their efforts on stimulation, development, and supporting new businesses in order to add more value to their offerings. It is interesting that activities which aggregate high value to firm’s offerings must be performed by external partners. Therefore, the main objective of companies pursuing this strategy is allowing their partners work on innovations. In doing so, these businesses build strong relationships with both its customers and its partners. Hence, these companies assume a central position between its customers and its partners. This strategy is similar to that of pursued by companies that employed the dominant exchange approach to lock-in strategic option of Delta Model.
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FINAL REMARKS The purpose of this article was to demonstrate that in the 21st century companies that compete within dynamic industries do not employ just a single strategy. Instead, they pursue a bundle of strategies focused on the value net rather than on the value chain. Our findings support our hypothesis for the event planning companies based in the City of Sao Paulo. We found out two distinct groups of firms pursuing different strategies. The analysis conducted allows us to understand how event planning companies serve the marketplace and what they do to sustain competitive advantages concerning the dynamic of the competitive environment in the beginning of the 21st century. Although we have classified strategies employed by searched companies we are aware that we only can make assumptions about the evolution of these strategies. Hence, it would be convenient if future researches would consider the typology utilized in this paper to study the evolution of the strategies of the searched firms in a longitudinal way. We shall enhance the contributions of this study to the management in the 21st century. From our understanding we would like to highlight two aspects. First of all, this study did not bring an innovative approach to strategy formulating process once we have got much from other authors who have studied strategic management. However, this paper brought an innovative perspective about how different typologies can be found and organized in dynamic industries, such as the event planning in City of Sao Paulo. We believe that firm’s main challenge in this century is learning how to pursue different strategic positions based upon both the value net and the value chain in order to conquer and to sustain competitive advantages in dynamic markets. The second aspect is related to the emphasis we put on strategies based upon value net, especially the Delta Model. Among many different typologies, Delta Model demonstrates that its strategic options are more appropriate for companies’ strategic management. However, just a few studies have used this approach. Our work, followed by the results that support our hypothesis, shows how Delta Model by Hax and Wilde II (2001) is useful to explain companies’ strategic configuration. We hope this paper stimulate other applications for Delta Model in different industries in order to better understand its characteristics and verify its effectiveness. REFERENCES Abell, Derek F. Defining the business: the starting point of strategic planning. Englewood Cliffs, New Jersey: Prentice-Hall, 1980. Andrews K. R. The concept of corporate strategy. Homewood, IL: Dow Jones-Irwin, 1971. Ansoff, H. Igor. Corporate strategy: an analytic approach to business policy for growth and expansion. New York: McGraw-Hill, 1965. Brandenburger, Adam M., & Nalebuff, Barry J. Co-opetition. New York: Doubleday, 1996. Chandler, A. D. Strategy and structure: chapters in the history of the American Industrial Enterprise. Cambridge, MA: MIT Press, 1962. Dess, G. G., & Davis, P. S. Porter’s (1980) generic strategies as determinants of strategic group membership and organizational performance. Academy of Management Journal, 27, 467488, 1984. Dimensionamento Econômico Da Indústria De Eventos No Brasil, 1. São Paulo: FBC&VB – Forum Brasileiro dos Convention & Visitors Bureaux: SEBRAE – Serviço Brasileiro de Apoio às Micro e Pequenas Empresas: Consultoria Turística Integrada – CTI, nov. 2001. 14
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