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Porter's Strategies & COVID-19: Organizational Adaptation & Digitalization, Apuntes de Logística

Universidad Complutense de Madrid (UCM)Logística

How organizations have responded to the dynamic business environment caused by the COVID-19 crisis through the application of Porter's Generic Strategies and the implementation of digitalization. various strategies, such as market penetration, product development, and new business models, and provides examples of companies that have successfully adapted. The document also emphasizes the importance of adaptability, design, and digital transformation in creating new value and revenue opportunities.

Tipo: Apuntes

2021/2022

Subido el 05/04/2022

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T2. Crisis Management & Organizational Learning
-The recent Covid-19 crisis has radically revolutionized and transformed the business environment. This ranges
from:
o the way organizations react to this suddenly needed transformation by shortcutting the way they provide
their products and services,
o how they can transform their supply chain infrastructures to adapt their products,
o how they enhance and extend their service and performance capacity according to disruptive market
demands
- Overall, these developments have led organizations in the industry to fundamentally change the ways they “do
business”, in particular the ways they organize and conduct activities across the firm and the industry with customers,
vendors, partners and other stakeholders.
-In this very dynamic context, it becomes an imperative for organizations to reinvent themselves by often introducing
innovative products or novel business models and by utilizing their existing resources and capabilities as well as
combining them with new ones.
The Competitive Strategy Formulation
Resources
- Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few
competitors can acquire easily. The following are some examples of such resources:
1 Patents and trademarks
2 Proprietary know-how
3 Customer base
4 Reputation of the firm
5 Brand equity
Capabilities
• Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability
to bring a product to market faster than competitors (i.e. lead time).
• Such capabilities are embedded in the routines of the organization and are not easily documented as procedures
and thus are difficult for competitors to replicate.
Lead Time
Competencies
-The firm's resources and capabilities together form its distinctive competencies. These competencies enable
1 innovation
2 efficiency
3 quality
4 customer responsiveness,
-all of which can be leveraged to create a cost advantage or a differentiation advantage.
Available competitive strategies
• Cost Advantage and Differentiation Advantage
• Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a
differentiated product.
• A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central
component of the firm's competitive strategy.
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T2. Crisis Management & Organizational Learning

  • The recent Covid-19 crisis has radically revolutionized and transformed the business environment. This ranges from: o the way organizations react to this suddenly needed transformation by shortcutting the way they provide their products and services, o how they can transform their supply chain infrastructures to adapt their products, o how they enhance and extend their service and performance capacity according to disruptive market demands
  • Overall, these developments have led organizations in the industry to fundamentally change the ways they “do business”, in particular the ways they organize and conduct activities across the firm and the industry with customers, vendors, partners and other stakeholders.
  • In this very dynamic context, it becomes an imperative for organizations to reinvent themselves by often introducing innovative products or novel business models and by utilizing their existing resources and capabilities as well as combining them with new ones. The Competitive Strategy Formulation Resources - Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. The following are some examples of such resources: 1 Patents and trademarks 2 Proprietary know-how 3 Customer base 4 Reputation of the firm 5 Brand equity Capabilities - Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors (i.e. lead time).
  • Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate. Lead Time Competencies
    • The firm's resources and capabilities together form its distinctive competencies. These competencies enable 1 innovation 2 efficiency 3 quality 4 customer responsiveness,
  • all of which can be leveraged to create a cost advantage or a differentiation advantage. Available competitive strategies
    • Cost Advantage and Differentiation Advantage
  • Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product.
  • A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central component of the firm's competitive strategy.
  • Another important decision is how broad or narrow a market segment to target.
  • Porter formed a matrix using cost advantage, differentiation advantage, and a broad or narrow focus to identify a set of 3 generic strategies that the firm can pursue to create and sustain a competitive advantage. Porter's Generic Strategies - These three approaches are examples of "generic strategies," because they can be applied to products or services in all industries, and to organizations of all sizes.
  • Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market).
  • He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." T he Cost Leadership Strategy
    • Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors.
  • There are two main ways of achieving this within a Cost Leadership strategy: 1 Increasing profits by reducing costs, while charging industry-average prices. 2 Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.
  • Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue The Differentiation Strategy
    • Differentiation involves making your products or services different from and more attractive than those of your competitors.
  • How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value.
  • To make a success of a Differentiation strategy, organizations need: 1 Good research, development and innovation. 2 The ability to deliver high-quality products or services. 3 Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.
  • Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes.
  • Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments. The Focus Strategy
  • Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market.
  • Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.
  • As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.
  • But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche.
  • The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs). Ansoff Matrix
    • During the pandemic, many businesses are developing COVID-19 diversification strategies.
  • These can be simply emergency tactics for the short term, or more fundamental strategic changes for the medium term.
  • Some businesses will later return to ‘normal’ (or the ‘new normal’) whilst others will be completely transformed, emerging with a new business model (or business formula).
  • Some creative entrepreneurs will take the opportunity to re- design their creative businesses, to adapt to new realities and achieve even greater success.
  • Crisis management involves dealing with threats before, during, and after they have occurred.
  • Within the broader context of management consisting of skills and techniques required to 1 identify, 2 assess, 3 understand, 4 cope with a serious situation,
  • especially from the moment it first occurs to the point that recovery procedures start.
    • Crisis management is a situation-based management system that includes clear roles and responsibilities and process related organisational requirements company-wide.
  • The response shall include action in the following areas: 1 Crisis prevention, 2 crisis assessment, 3 crisis handling 4 crisis termination.
  • The aim of crisis management is to be well prepared for crisis, ensure a rapid and adequate response to the crisis, maintaining clear lines of reporting and communication in the event of crisis and agreeing rules for crisis termination.
  • Crisis management consists of different aspects including: 1 Methods used to respond to both the reality and perception of crisis (a crisis-management plan). 2 Establishing metrics to define what scenarios constitute a crisis and should consequently trigger the necessary response mechanisms. 3 Communication that occurs within the response phase of emergency-management scenarios
    • A crises mindset requires the ability to think of the worst-case scenario while simultaneously suggesting numerous solutions. It is necessary to maintain a list of contingency plans and to be always on alert.
  • The credibility and reputation of organizations is heavily influenced by the perception of their responses during crisis situations.
  • The organization and communication involved in responding to a crisis in a timely fashion makes for a challenge in businesses.
  • There must be open and consistent communication throughout the hierarchy to contribute to a successful crisis- communication process.
  • Emergency management and business continuity management focus respectively on the prompt but short lived "first aid" type of response (e.g. putting the fire out) and the longer-term recovery and restoration phases (e.g. moving operations to another site). Crises Classification
    1. Natural disaster
  1. Technological crisis
  2. Confrontation (boycotts, and other types are picketing, sit- ins, ultimatums to those in authority, blockade or occupation of buildings, and resisting or disobeying police)
  3. Malevolence (product tampering, kidnapping, malicious rumors, terrorism, cybercrime and espionage)
  4. Organizational Misdeeds (crises of skewed management values, crises of deception, and crises of management misconduct)
  5. Workplace Violence
  6. Rumours
  7. Terrorist attacks/man-made disasters Business Recovery
    • When crisis hits, organizations must be able to carry on with their business in the midst of the crisis while simultaneously planning for how they will recover from the damage the crisis caused (Ambidexterity).
  • Crisis handlers not only engage in continuity planning (determining the people, financial, and technology resources needed to keep the organization running), but will also actively pursue organizational resilience.
    • Within the crisis process, Bundy et al. (2016)’s literature review highlights three core stages: 1 pre-crisis prevention, 2 crisis management and 3 post-crisis outcomes stages
  • Overlapping the crisis management and organizational learning stages, and focusing on the within-organization dynamics of managing risk and complexity, James et al. (2011) and Lampel et al. (2009) highlighted the role of top management to react to crises and either frame them as threats, thus being more limited in their efforts, or as opportunities to be more open and flexible towards change in an emergency situation, learning from it and developing organizational capabilities.
  • Here, the authors stressed the importance of moving beyond the status quo to generate new competitive advantage hence learning from a crisis situation (Hunt el al., 1999; Bundy et al., 2016).
  • Organizational learning is considered an important element of crisis handling (Pearson and Clair, 1998). Crisis = Learning Opportunity
    • In the wake of a crisis, organizational decision makers adopt a learning orientation and use prior experience to develop new routines and behaviors that ultimately change the way the organization operates.
  • The best leaders recognize this and are purposeful and skillful in finding the learning opportunities inherent in every crisis situation. Organizational Learning
    • An organization’s ability to change behaviour in response to an experience or changes (e.g. a crisis) is defined adaptive organizational learning.
  • Ulmer et al. (2011) discourse of renewal theory also emphasizes the “potential for opportunity, renewal, and growth” as an outcome of crisis management.
    • As James et al. (2011) stressed, there is a need to investigate organizational extraordinary performance and positive change and opportunities for organizations to flourish following a crisis.
  • A considerable part of the literature on strategic management has highlighted that incumbents often fail due to their dominant position, market share, and established way of operating which lead to avoiding risk, instead of focusing on innovation (Tellis, 2013; Christensen, 2015).
    • the organizational learning literature defines competitive inertia as the level of activity that an organization exhibits when altering its competitive stance in areas such as 1 new product 2 Pricing 3 Advertising 4 Service introductions 5 Market scope.
  • The theory highlights drivers to inertia, claimed that good past performance contributes to competitive inertia leading to stagnation in products, policies and methods that often underlies inadequate adaptation to a changing environment.
  • Crisis is thought to play a key role in initiating change.
  • The notion of inertia therefore provides a valuable lens where organizational responses in dealing with crises can determine success and future crises. Zoom - In the first half of 2020, worldwide lockdowns caused by the COVID-19 pandemic brought explosive growth to the Zoom Video Communications platform, as people replaced in-person work and social events with videoconferencing.
  • Months into the pandemic, CEO Eric Yuan reflects on his company's newly central role in society, and considers how to leverage the platform's broad adoption into sustainable future growth.
  • The case also discusses Zoom's internal culture -- which prioritized employee and customer happiness -- as well how both the company and its customers faced the transition to remote work. Slack
    • Slack was launched in 2014, went public in 2019, and is now a global operation with more than 2,000 employees and 100,000-plus customers. But it hasn't lost its start- up mentality.
  • And never did it move with more speed and clarity of focus than in March 2020, when the Covid-19 crisis brought on two challenges: 1 dramatically increasing customer demand 2 An extremely abrupt transition to working remotely.
  • The company's customer success and experience teams delivered nearly round-the-clock support free, both to existing customers and to newcomers who needed help getting set up with the product.
    • Interviews with job candidates and the employee onboarding process were moved online.
  • Marketing developed a public service ad for television, committing to help any groups that were working on a Covid-19 response.
  • Slack's engineers ensured that its systems were operational 99.9% of the time in a period of soaring demand.
  • Customers with 1,000 or 10,000 Slack users suddenly wanted to expand to 50,000.
  • Organizations of all kinds had to transform the way they worked, all at once.
  • This crisis, Butterfield writes, "has created an opportunity for us and others to become more agile, to take on changes that once seemed daunting, to reimagine organizational culture...and to reposition for future growth." OmniLabs
    • This was the case of OmniLabs that was able to fill the lack of supplying parts due to exceptional circumstances and meet the requested market volumes by integration of 3D-printing procedures in their production processes.
  • The CEO of OmniLabs stated that “Implementing flexible additive 3D-manufacturing into the Covid-crisis, we have been able to provide our telepresence robots at higher volumes, allowing relatives to communicate with infected patients or elderly people in hospitals or nursing homes”.
  • Ambidexterity literally means the ability to use both hands with equal ease
  • Overall, ambidexterity is related to the ability to pursue two contrasting objectives, which inherently leads to a tension that must be reconciled or accommodated
  • Organisation’s ability to do two seemingly paradoxical things such as routine and innovation, simultaneously
    • Routine performance is based on the exploitation of knowledge, skills, and abilities that emphasize quality and efficiency criteria,
  • Innovation requires exploratory action and creative thinking.
  • People and teams who need to be creative and innovative must be fond of newness and be curious
  • People and teams who are supposed to produce efficiently must be able to close their minds to new ideas that just hinder the further development of routines Why it’s gaining traction
    • The business context has become more and more complex in recent years.
  • Today’s ambiguous environments yield contradictory information and thus compound managerial decision- making.
  • Dynamic decision making and simultaneous ambidexterity are required by individuals in organizations.
  • In a stable context individuals can neatly compartmentalize whether to explore or exploit.
  • This is unlikely to be the case in dynamic environments such as those of today, as individuals attempt to manage task related dynamism through simultaneous ambidextrous behavior. Dynamic Capabilities Dynamic capability is “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece, Pisano, and Shuen). The Competitive Strategy Formulatio n
  • Dynamic capabilities can be distinguished from operational capabilities, which pertain to the current operations of an organization.
  • Dynamic capabilities, by contrast, refer to “the capacity of an organization to purposefully create, extend, or modify its resource base”.
  • The basic assumption of the dynamic capabilities framework is that core competencies should be used to modify short-term competitive positions that can be used to build longer- term competitive advantage. Outsider perspective
    • David Teece highlights the importance of having an outsider perspective when dealing with deep uncertainty in the markets. Sensing
    • Many people can gather information. Few know how to interpret it well, which involves correctly framing the problem.
  • David Teece discusses using sensing, a core component of the Dynamic Capabilities framework, to help leaders identify the right problem and think about the right issues at the right time. Globalization
    • The competitive landscape has changed dramatically during the last 30 years, primarily as a result of globalization.
  • How do you compete in this new world?
  • David Teece talks about doing the right things, instead of doing things right. Process
    • Three dynamic capabilities are necessary in order to meet new challenges. 1 Organizations and their employees need the capability to learn quickly and to build strategic assets. 2 New strategic assets such as capability, technology, and customer feedback have to be integrated within the company. 3 Existing strategic assets have to be transformed or reconfigured.
  • Teece’s concept of dynamic capabilities essentially says that what matters for business is corporate agility - the capacity to (1) sense and shape opportunities and threats, (2) seize opportunities, (3) maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets. Learning
    • Learning requires common codes of communication and coordinated search procedures.
  • The organizational knowledge generated resides in new patterns of activity, in “routines,” or a new logic of organization.
  • Routines are patterns of interactions tha trepresent successful solutions to particular problems.
  • These patterns of interaction are resident in group behavior, and certain sub-routines may be resident in individual behavior.
  • Collaborations and partnerships can be a source for new organizational learning, which helps firms to recognize dysfunctional routines and prevent strategic blind spots.
  • Similar to learning, building strategic assets is another dynamic capability.
  • For example, alliance and acquisition routines can enable firms to bring new strategic assets into the firm from external sources. New assets
  • The effective and efficient internal coordination or integration of strategic assets may also determine a firm’s performance.
  • Quality performance is driven by special organizational routines for 1 gathering and processing information, 2 linking customer experiences with engineering design choices, 3 and coordinating factories and component suppliers.
  • Increasingly, competitive advantage also requires the integration of external activities and technologies: for example, in the form of alliances and the virtual corporation. Transformation of existing assets
    • Fast-changing markets require the ability to reconfigure the firm’s asset structure and accomplish the necessary internal and external transformation.
  • Change is costly, and so firms must develop processes to find high-payoff changes at low costs.
  • The capability to change depends on the ability to scan the environment, evaluate markets, and quickly accomplish reconfiguration and transformation ahead of the competition.
  • This can be supported by decentralization, local autonomy, and strategic alliances. Co-specialization
    • Over time, a firm’s assets may become co- specialized, meaning that they are uniquely valuable in combination.
  • An example is where the physical assets (e.g., plants), human resources (e.g., researchers), and intellectual property (e.g., patents and tacit knowledge) of a company provide a synergistic combination of complementary assets.
  • Such co-specialized assets are therefore more valuable in combination than in isolation.
  • The combination gives a firm a more sustainable competitive advantage. Asset orchestration
    • If capabilities are dependent on co-specialized assets, it makes the coordination task of management particularly difficult.
  • Managerial decisions should take the optimal configuration of assets into account.
  • Asset orchestration refers to the managerial search, selection, and configuration of resources and capabilities.
  • The term intends to convey that, in an optimal configuration of assets, the whole is more valuable than the sum of the parts. Evolutionary Economics
    • One of the major contributions to the emerging field of evolutionary economics has been the publication of An Evolutionary Theory of Economic Change by Richard Nelson and Sidney G. Winter.
  • These authors have focused mostly on the issue of changes in technology and routines, suggesting a framework for their analysis.
  • If the change occurs constantly in the economy, then some kind of evolutionary process must be in action, and there has been a proposal that this process is Darwinian in nature.
  • Then, mechanisms that provide 1 selection 2 generate variation 3 establish self-replication
  • must be identified Organizational ecology
    • Organizational ecology is a theoretical and empirical approach in the social sciences that is considered a sub-field of organizational studies.
  • Organizational ecology utilizes insights from biology, economics,and sociology, and employs statistical analysis to try to understand the conditions under which organizations emerge, grow, and die
  • Market/Sector = Ecosystem 1 The Role of the State

Fashion Production Pollution

  • Washing clothes, meanwhile, releases 500,000 tons of microfibers into the ocean each year — the equivalent of 50 billion plastic bottles.
  • Many of those fibers are polyester, a plastic found in an estimated 60% of garments.
  • Producing polyester releases two to three times more carbon emissions than cotton, and polyester does not break down in the ocean.
  • A 2017 report estimated that 35% of all microplastics — very small pieces of plastic that never biodegrade — in the ocean came from the laundering of synthetic textiles like polyester.
  • Overall, microplastics are estimated to compose up to 31% of plastic pollution in the ocean.
  • The fashion industry is responsible for 10% of humanity's carbon emissions. That's more emissions than all international flights and maritime shipping combined.
  • If the fashion sector continues on its current trajectory, that share of the carbon budget could jump to 26% by 2050, according to a 2017 report from the Ellen MacArthur Foundation. Water consumption
  • The fashion industry is also the second-largest consumer of water worldwide.
  • It takes about 2700 liters of water to produce one cotton shirt. That's enough water for one person to drink at least eight cups per day for three-and-a-half years.
  • It takes about 7,600 liters of water to produce a pair of jeans. That's more than enough for one person to drink eight cups per day for 10 years.
  • That's because both the jeans and the shirt are made from a highly water-intensive plant: cotton.
  • In Uzbekistan, for example, cotton farming used up so much water from the Aral Sea that it dried up after about 50 years.
  • Once one of the world's four largest lakes, the Aral Sea is now little more than desert and a few small ponds. Water Pollution
  • Fashion causes water-pollution problems, too. Textile dyeing is the world's second-largest polluter of water, since the water leftover from the dyeing process is often dumped into ditches, streams, or rivers.
  • The dyeing process uses enough water to fill 2 million Olympic-sized swimming pools each year.
  • All in all, the fashion industry is responsible for 20% of all industrial water pollution worldwide. NGOs Response
  • Some apparel companies are starting to buck these trends by joining initiatives to cut back on textile pollution and grow cotton more sustainably.
  • In March 2019, the UN launched the Alliance for Sustainable Fashion, which will coordinate efforts across agencies to make the industry less harmful.
  • Fashion Revolution Network 1 Transparency #whomademyclothes 2 Sustainability 3 Ethics Fashion Revolution
  • On 24 April 2013, the Rana Plaza building in Bangladesh collapsed.
  • 1,138 people died and another 2,500 were injured, making it the fourth largest industrial disaster in history **The Circular Economy
  1. Resources**
  • go for low impact materials
  • choose recycled or recyclable fibres
  • reuse and redesign waste
  • learn from nature
  • think through every aspect of your product Elvis & Kresse
  • The two Dutchmen behind the e-shop Elvis & Kresse want to reduce waste by designing fashionable accessories.
  • The duo gives discarded fire hoses, jute and parachute silk new lives as bags, belts, wallets, iPhone cases, cufflinks, and much more.
  • And the story continues, because even items like Elvis & Kresse’s tags, shipping carton and address labels are made from reclaimed material.
  • Finally, a substantial part of their profits is donated to various charities. Elvis & Kresse RESOURCES
  • Reuse and redesign waste DESIGN
  • Design to minimize waste RETAIL
  • Think about the impact of your marketing END OF LIFE
  • Create new life through redesign and upcycling SYSTEMS THINKING 2. Design
    • design to last
  • design to rebirth
  • design to minimize waste
  • design to reduce to need for rapid consumption design with new technologies in mind MUD Jeans
    • A few years ago, as a response to the heavily polluting denim industry, Dutch entrepreneur Bert van Son launched the lease concept of MUD Jeans.
  • The consumer can choose between buying or leasing MUD jeans: each month he pays a small fee, and after a year he/she can decide to either keep his jeans or to exchange his rental pair for another one.
  • MUD’s efforts for a circular fashion industry extend into every part of a jeans’ life: Design:
  • First of all, MUD takes recycling into account from the very design. This means for instance attaching no leather labels to the back of the pants; rather, the label is printed on the inside of each pair, which facilitates the recycling process. Retail:
  • Clients can either buy or lease their pants. In the second case they pay a one-time membership fee of €25, and then €7,50 each month for a year. At the end of the year, the client can decide to keep his pair or to exchange it for a new one. End of life:
  • All the pants that are returned are recycled or upcycled to vintage items. This is MUD’s way of avoiding waste and closing the loop. Resources:
  • MUD retains ownership of the cotton, encouraging customers to return their worn out jeans. Bottomline: the customers own the pants they wear, but MUD owns their resources. Consumption:
  • In addition, MUD offers a free Repair Service to keep their customers’ jeans in perfect shape. 3. Production
    • mind your environment
  • try new technologies
  • produce locally
  • match supply and demand avoid waste and surplus
  • go for long life and durability Fjällräven
    • Inspired by Mother Nature, the brand is always on the lookout for innovative methods to create products that will survive any adventure.
  • One of the company’s most important goals is to reduce their environmental impact
  • The company only collaborates with reliable manufacturers that respect Fjällräven’s code of conduct.
  • In 2013 Fjällräven entered into a partnership with the Fair Labor Association to make sure all its employees would get fair wages and comfortable working conditions.
  • In addition, the brand regularly organizes training sessions to keep its staff informed about sustainability.
    • Fjällräven developed the tool TheFjällrävenWayt o guide consumers through the company’s sustainable vision. DESIGN Design to last PRODUCTION Mind your environment RETAIL Go for a more service-oriented business SYSTEMS THINKING
  • In this scenario, many of the manual processes can be improved through a variety of solutions for efficient task development and automation.
  • Organizations engaging in digitalization consequently improve their performance compared to competitors.
  • Organizations become more flexible and open to change by noticing other processes improvements, thereby facilitating future transitional moments that typically compromise business performance. Expected Benefits - Companies can use the available technology to improve product delivery in terms of user experience and even in terms of product concept
  • Can add value to the business boosting its management’s decision-making capability
  • Predicting demand with more accuracy
  • Reduce costs and eliminate waste
  • The benefit of digitalizing the processes - “costs can be cut by up to 90 percent and turnaround times improved by several orders of magnitude
  • A general definition of digitalization describes the use of digital technologies to change a business model and provide new revenue and value-producing opportunities and can include 1 any changes in a company’s organization 2 and its business model due to their rising use of digital technologies to enhance both the performance and the scope of the business.
  • Digitalization will be used to refer to operational processes that have been altered by particular applications of recent technologies, resulting in a contemporary business model. Shallow vs Deep
  • With growing numbers of online businesses and online buyers and manufacturing costs growing, differentiation from competitors and innovation of internal operational processes is a growing concern among companies, receiving significant attention and investments.
  • New ways of differentiation are emerging within the digital environment, especially through a focus on marketing and sales, which are considered as shallow digitalization, aiming at a better and improved customer interaction process.
  • However, the trend of process digitalization being observed nowadays is deep digitalization, meaning as the practices unfolding in radical changes in operations areas of an organization, such as production, supply chain, logistics and product design.
  • In addition to improving companies’ profitability, competitive advantage and differentiating their products and business model, these changes impact the way those processes are conducted aiming also at satisfying their customers and becoming more sustainable. The fourth industrial revolution
  • We are facing the fourth industrial revolution, characterized by a new wave of technology integration channeled into the production environment.
  • This translates into the processes consolidation of physical production with communication and information, integrating systems’ technologies and devices, capable of intercommunication.
  • On one hand, this is contributing greatly to substantial gains in terms of productivity and flexibility,
  • On the other, it is changing the way people are consuming products and, consequently, their purchasing expectations. The First Industrial Revolution
  • The First Industrial Revolution was marked by a transition from hand production methods to machines through the use of steam power and water power.
  • The implementation of new technologies took a long time, so the period which this refers to it is between 1760 and 1820, or 1840 in Europe and the United States.
  • Its effects had consequences on textile manufacturing, which was first to adopt such changes, as well as iron industry, agriculture, and mining although it also had societal effects with an ever stronger middle class. The Second Industrial Revolution
  • The Second Industrial Revolution, also known as the Technological Revolution, is the period between 1871 and 1914 that resulted from installations of extensive railroad and telegraph networks, which allowed for faster transfer of people and ideas, as well as electricity.
  • Increasing electrification allowed for factories to develop the modern production line.
  • It was a period of great economic growth, with an increase in productivity, which also caused a surge in unemployment since many factory workers were replaced by machines The Third Industrial Revolution
  • The Third Industrial Revolution, also known as the Digital Revolution, occurred in the late 20th century, after the end of the two world wars, resulting from a slowdown with industrialization and technological advancement compared to previous periods.
  • The global financial crisis in 1929, followed by the Great Depression, affected many industrialized countries, following the first two revolutions.
  • The production of the Z1 computer was the beginning of more advanced digital developments.
  • This continued with the next significant progress in the development of communication technologies with the supercomputer.
  • In this process, where there was extensive use of computer and communication technologies in the production process.
  • Machinery began to abrogate the need for human power Industry 4.
  • The Fourth Industrial Revolution is the ongoing automation of traditional manufacturing and industrial practices, using modern smart technology.
  • Large-scale machine-to-machine communication (M2M) and the internet of things (IoT) are integrated for increased automation, improved communication and self-monitoring, and production of smart machines that can analyze and diagnose issues without the need for human intervention. 4.0 Design principles
    • There are four design principles identified as integral to industry 4.0:
  1. Interconnection — the ability of machines, devices, sensors, and people to connect and communicate with each other via the Internet of things, or the internet of people (IoP)
  2. Information transparency — the transparency afforded by Industry 4.0 technology provides operators with comprehensive information to inform decisions. Inter-connectivity allows operators to collect immense amounts of data and information from all points in the manufacturing process, identify key areas that can benefit from improvement to increase functionality
  3. Technical assistance — the technological facility of systems to assist humans in decision-making and problem- solving, and the ability to help humans with difficult or unsafe tasks
  4. Decentralized decisions — the ability of cyber physical systems to make decisions on their own and to perform their tasks as autonomously as possible. Only in the case of exceptions, interference, or conflicting goals, are tasks delegated to a higher level 4.0 Components
    • The Fourth Industrial Revolution consists of many components when looking closely into our society and current digital trends.
  • Mobile devices
  • Internet of things (IoT) platforms
  • Location detection technologies
  • Advanced human-machine interfaces
  • Authentication and fraud detection
  • 3D printing
  • Smart sensors
  • Big analytics and advanced processes
  • Multilevel customer interaction and customer profiling
  • Augmented reality/ wearables
  • On-demand availability of computer system resources Data
    • The combination of IoT smart device systems data and the large information streams collected can be analyzed online with advanced cloud- working tools at transmission speed.
  • The information generated can then be stored in distributed cloud systems and silos for future analysis, optimizing operations and providing information to increase productivity, efficiency and reduce operating costs.
  • It is also relatively environmentally friendly.
  • In low-volume production, it can also decrease lead times and total production costs.
  • It can increase flexibility, reduce warehousing costs and help the company towards the adoption of a mass customization business strategy.
  • In addition, 3D printing can be very useful for printing spare parts and installing it locally, therefore reducing supplier dependence and reducing the supply lead time. 4. Smart Sensors
    • Sensors and instrumentation drive the central forces of innovation, not only for Industry 4.0, but also for other “smart ” megatrends, such as smart production, smart mobility, smart homes, smart cities and smart factories.
  • Smart sensors are devices, which generate the data and allow further functionality from self- monitoring and self- configuration to condition monitoring of complex processes.
  • With the capability of wireless communication, they reduce installation effort to a great extent and help realize a dense array of sensors.
  • However, there are few issues, such as time synchronization error, data loss, and dealing with large amounts of harvested data, which all limit the implementation of full- fledged systems.
  • Additional limits on these functionalities represents the battery power.
  • One example of the integration of smart sensors in the electronic devices, is the case of smart watches, where sensors receive the data from the movement of the user, process the data and as a result, provide the user with the information about how many steps they have walked in a day and also converts the data into calories burned.
  • Agriculture and food industry - Smart sensors in these two fields are still in the testing stage. 5. Block Chain Technology
    • A blockchain is a growing list of records, called blocks, that are linked using cryptography
  • Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data
  • By design, a blockchain is resistant to modification of the data.
  • It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way".
  • Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority.
  • Although blockchain records are not unalterable, blockchains may be considered secure by design Uses
    • Cryptocurrencies
  • Smart contracts
  • Financial services
  • Video games
  • Energy trading
  • Supply chain
  • Domain Names
  • Other uses Mining
    • Blockchain technology allows wholesalers, retailers, and customers to track the origins of gems stones and other precious commodities.
  • In 2016, The Wall Street Journal reported that the blockchain technology company, Everledger was partnering with IBM's blockchain-based tracking service to trace the origin of diamonds to insure that they were ethically mined.
  • DTC, the Diamond Trading Company has been involved in building a diamond trading supply chain product called Tracr. Trends
    1. Smart Factories
  1. Predictive Maintanance
  2. 3D Printing
  3. Smart Sensors
  4. Block Chain Technology
  5. 5G
  6. Virtual and Augmented Reality
  7. AI 5. Block Chain Technology
    • A blockchain is a growing list of records, called blocks, that are linked using cryptography
  • Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data
  • By design, a blockchain is resistant to modification of the data.
  • It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way".
  • Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority.
  • Although blockchain records are not unalterable, blockchains may be considered secure by design

Uses

  • Cryptocurrencies
  • Smart contracts
  • Financial services
  • Video games
  • Energy trading
  • Supply chain
  • Domain Names
  • Other uses Mining
  • Blockchain technology allows wholesalers, retailers, and customers to track the origins of gems stones and other precious commodities.
  • In 2016, The Wall Street Journal reported that the blockchain technology company, Everledger was partnering with IBM's blockchain-based tracking service to trace the origin of diamonds to insure that they were ethically mined.
  • DTC, the Diamond Trading Company has been involved in building a diamond trading supply chain product called Tracr. Food Supply
  • Blockchain technology is being used to allow retailers and consumers to track the provenance of meat and other food products from their origins to stores and restaurants.
  • Walmart and IBM are running a trial to us ea blockchain-backed system for supply chain monitoring for lettuce and spinach — all nodes of the blockchain are administered by Walmart and are located on the IBM cloud.
  • One cited benefit is that the system will enable rapid tracing of contaminated produce.
  • FogodeChao,aBrazilian themed restaurant chain that features grilled meats, announced a partnership with HerdX, a blockchain- tech company focused on the food industry, that will enable suppliers, wholesalers, and diners to trace the beef served in Fogo de Chao restaurants back to the farm where it was raised. Shipping
  • Walmart Canada uses a blockchain-based system developed by DLT Labs, a blockchain SaaS provider, that allows the retailer to track shipments and deliveries handled by dozens of third-party trucking companies.
  • One reported benefit is that the blockchain-based system enables automated invoicing that reduces disputed billing, which in turn reduces delays in Walmart paying the freight transport companies 6. 5G
  • 5G Communication Band
  • Fifth generation technology standard for broadband cellular networks, which cellular phone companies began deploying worldwide in 2019, and is the planned successor to the 4G networks which provide connectivity to cellphones.
  • The main advantage of the new networks is that they will have greater bandwidth, giving higher download speeds, eventually up to 10 gigabits per second.
  • It will make possible new applications in internet of things (IoT) and machine to machine (M2M) areas. 7. Virtual and Augmented Reality (VR/AR)
  • Augmented reality is an interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer- generated perceptual information, sometimes across multiple sensory modalities, including visual, auditory, haptic, somatosensory and olfactory
  • AR can be defined as a system that fulfills three basic features: 1 a combination of real and virtual worlds 2 real-time interaction 3 accurate 3D registration of virtual and real objects. Possible applications
  • Archaeology
  • Architecture
  • Urban design & planning
  • Education
  • Industrial manufacturing
  • Commerce
  • Literature
  • Visual art
  • Remote Collaboration Industrial Manufacturing
  • In industrial environments, augmented reality is proving to have a substantial impact with more and more use cases emerging across all aspect of the product lifecycle, starting from product design and new product introduction (NPI) to manufacturing to service and maintenance, to material handling and distribution.
  • For example, labels were displayed on parts of a system to clarify operating instructions for a mechanic performing maintenance on a system
  • Assembly lines benefited from the usage of AR. In addition to Boeing, BMW and Volkswagen were known for incorporating this technology into assembly lines for monitoring process improvements
  • One reason the process has become increasingly important is that more consumers are demanding it. - Over the last decade, numerous scandals have inflictedconsiderabledamageonthe reputationsof companies.
    • The fallout has resulted in a raft of new laws pertaining to transparency.
  • These include: 1 the policing of conflict minerals (Dodd-Frank), 2 forced labor (Australian and UK modern slavery acts, and California Transparency in Supply Chains Act), 3 food safety (U.S. Food Safety Modernization Act) 4 further regulation on the horizon in the Netherlands and Switzerland, among others. If transparency is a growing business imperative, why aren’t more companies doing it and why is the transition to transparent supply chains so slow? - If transparency is a growing business imperative, why aren’t more companies doing it and why is the transition to transparent supply chains so slow?
  • One reason is supply chains were not designed to be transparent.
  • Companies and suppliers have feared that divulging too much information would undermine their competitive advantage or expose them to criticism.
  • Another reason is relevant information, such as details of upstream supply chain practices, may not be collected or if it does exist, may be erroneous.
  • Finally, the ROI for investing in transparency does not always satisfy near-term requirements. Measuring Transparency Transparency can be measured along two dimensions: supply chain scope (the depth of interaction in the supply chain) milestones on the path to complete transparency.
  • A well-known Innovator is the apparel company Patagonia. Its Footprint Chronicles map a subset of raw materials, mills, and factories that make Patagonia products and drills down into details about vendors’ operations and staff.
  • VF Corporation (a client of Sourcemap, the company that one of us — Leonardo — founded and heads) and some of its brands also disclose supply chain information down to suppliers of raw materials.
  • Food companies are also emerging as leading-edge Innovators. For example, One Degree Organic Foods cereal products are fully traceable from farm to spoon, and Red’s Best seafood products are traceable to the fishing vessel through QR codes on the company’s packaging.
  • Early adopters such as Nike maps their manufacturing plants and offer insights into individual factories, while UK retail chain Marks & Spencer provides an interactive mapping of its food and apparel manufacturers. Steps to Take
    1. Gauge risks and set goals
  1. Visualize the supply chain
  2. Collect actionable information
  3. Engage
  4. Disclose 1. Gauge risks and set goals - this first step includes a plot of internal and external stakeholder interests called a materiality assessment

2. Visualize the supply chain - Having identified and prioritized the primary risks, companies can visualize the target supply chain.

  • It will gain a deeper understanding of goods flows, map suppliers and processes, and expose existing information gaps. 3. Collect actionable information
  • Having mapped the supply chain, collect information on practices and performance that provides insights about potential risks, opportunities for improvement, and information gaps
  • An example is IKEA’s IWAY code of conduct that every IKEA supplier must comply with.
  • Companies generally ask for this information from their direct suppliers, but as transparency becomes more important, companies are increasingly requiring suppliers deeper in their supply chain to comply with codes of conduct and are vetting the information in some cases. 4. Engage - Armed with actionable information, the company can now choose how to engage in the supply chain. This typically involves a program designed with critical KPI’s in mind.
  • The aim is to address specific issues such as labor-related risks, environmental impacts at supplier sites, or unclear sources of origin.
  • The engagement includes supplier contact and collaboration, monitoring, and support. It may also necessitate third- party partnerships to gain expertise that is not available internally.
  • For instance, Starbucks has long partnered with Conservation International to build its ethical-sourcing program for its coffee that covers a wide spectrum of social and environmental issues.
  • The program began with a code of conduct entitled C.A.F.E. to ensure adoption of the code down to the farmer level. 5. Disclose
  • Finally, companies set the level of disclosure they want to establish.
  • This involves deciding how they will meet relevant regulatory requirements and stakeholder demands, and how they will verify the information disclosed.
  • The level of disclosure can range from sharing a code of conduct to disclosing traceability from the raw materials stage of the supply chain as seen with Patagonia’s Footprint Chronicles. The Role of Digitalization
  • These steps are continuous: supply chains are dynamic, and progress should be ongoing to ensure a better functioning and more sustainable and transparent supply chain.
  • While blockchain and other technologies have been hailed as the solution to supply chain transparency,
  • Any viable solution must include the right mix of people, information, and technology to support outlined objectives — a technology cannot solve this issue in isolation. Benefits - Reduce reputational risk