5. VATECH, Taiwan Situation Analysis
5.4. Value Chain Analysis of VATECH Taiwan
5.4.2. Inbound and Outbound Logistics
The sales support team is also in charge of logistics function which offers services in handling the receiving and shipping of goods to and from VATECH Taiwan.
The team provides assistance in the management of inventory, which includes receiving, storage, distribution, and security of inventory parts. Outbound logistics also handles returned products for service repairs and obsolete stock disposal handling.
Products being handled by the team are office supplies, its products, and components for product packages. ERP system is used to track the bill of materials to be ordered, shipment status, and inventory status.
64 5.4.3. Operation
Operation in VATECH Taiwan is referred to product installation, since other functions are not available in house, but in its parent company.
Upon receipt of a purchase order, logistics picks up the product purchased and delivers it to the customer. Before that, an install team is formed, with its first task being to prepare a customized site preparation document that details the size of the clinic or hospital, training requirements and timelines. The install team includes personnel from engineering department, and is coordinated by an assigned staff in the department. The goal of the install team is to ensure a smooth implementation, and to train users.
While site preparations in a customer’s clinic or hospital, are underway, the customized products is being adjusted, according to the specifications detailed in the contract, by a dedicated team. The system of the company is loaded with specific options and software, and then extensively tested before it is delivered to the customer.
When the product passes final quality checks, it is delivered and is installed.
65 5.4.4. Marketing and Sales
The marketing department at VATECH Taiwan is responsible for a variety of programs and communication designed to elevate brand awareness, increase customer satisfaction, and fuel sales. For examples, the marketing staffs are responsible for holding related exhibitions/conventions in Taiwan and Hong Kong, and creating marketing promotions like “888”, and ”Buy-out your old machine” campaigns last year.
Also they are in charge of product positioning, promoting new product launches, and managing company website as well as its new website, “dentalct.org”.
VATECH Taiwan’s sales distribution is organized into four regions: Taipei, Taichung, Kaoxiong, and Hong Kong. VATECH Taiwan predominantly employs a direct sales force. It consists of salespersons allocated to each of these three regions.
Commissions are based on the discount off the list price of the products as a percentage of the maximum discount allowable for that product. The maximum discount, set by the CEO of VATECH Taiwan, depends on the margins for the product. Salespersons are responsible for selling products for their regions, visiting potential customers and giving sales presentations, and drafting quotations.
This direct sale poses advantages in that VATECH Taiwan can own the relationship with the customers. Gathering potential buyer information is critical to further success in the market.
66 5.4.5. Customer Service
The customer service department at VATECH Taiwan is responsible for providing technical support and product update for all the customers in Taiwan and Hong Kong. VATECH Taiwan is a market pioneer amongst digital X-ray providers in Taiwan for the delivery of qualified service support. Since the company has customer service staff in all the four regions and quick customer service is available only in this company. Besides its fast response for the service support, the service department is also responsible for applying software upgrades, dealing with customer service issues, and resolving service contract issues.
VATECH Taiwan’s customer gives the company with the competitive strengths with several reasons. First, the company has information of customer issues first hand, and available at the earliest possible time. Second, the VATECH Taiwan’s approach of employing a dedicated support team to a service zone is unique in this market. The effort does not go unnoticed. The company’s commitment to customer service is definitely a key differentiator among competitors in Taiwan market.
5.5. Competitive Advantage and
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dvantage and Internal Organizational AAssessment
Figure 5.1. VATECH Taiwan’s Value Chain
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Above value chain analysis provides us a systematic technique for scanning VATECH Taiwan’s internal organizations. By focusing on competitively relevant strengths and weakness, the company can better see the potential of these resources and capabilities for adding or subtracting value to its processes. This understanding can then lead to generic strategies that will most likely lead to sustained competitive advantage.
In this section, I use the methodology presented by Duncan, Ginter and Swayne (1998) for systematically analyzing VATECH Taiwan’s internal situation which would best clarify relevant competitive strengths and weaknesses. The methodology involves four distinct steps: surveying potential strengths and weaknesses, categorizing organizational differences, investigating the source of competitive advantage, and lastly, evaluating competitive advantage.
In Step One, a comprehensive list of strengths and weaknesses is compiled, regardless of relevance to competitive advantage. Step Two involves categorizing these attributes into either resources or capabilities, and evaluating each on the basis of relevance to competitive advantage. The criteria used to judge an attribute’s relevance to sustainable competitive advantage involves evaluating each on the basis of its value to the firm, its rarity in the industry, the ease with which it is imitated, and its sustainability. Step three involves determining the source of competitive advantage, such as through cost leadership or differentiation, and finally, Step Four evaluates the firm’s competitive advantages in terms of possible strategies.
Organizational Structure
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S1: Better capacity to support financial resources
S2: Innovative management, Well-experienced CEO
W1: Concentrated leadership
W2: Lack of recognized and respected trademarks and brand image
Human Resource Management
S3: Highly trained engineers
W3: Absence of well-trained middle-level managers
W4: Absence of professional human resource manager
W5: Weak communication and organizational system
Marketing and Sales
S4: Ability to offer excellent marketing promotions
S5: Dentalct.org, new resource to develop and use social capital
S6: Dental CT Academy Center, ability to find potential customers, and offer customers product experience
Services
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S7: Expertise in technical education and technical support
S8: Ability to offer customers continuous education
With all of the company’s strengths and weaknesses identified, I can apply the following assessment model to systematically categorize the activities and judge their competitive relevance by applying the four criteria: valuable, rare, costly to imitate, and sustainable.
Only those strengths that are valuable, rare, costly to imitate and sustainable contribute to a firm’s competitive advantage. Following Table 5.7. illustrates those strengths that meet all four of these criteria. To classify as a weakness, activities cannot meet all four criteria, which would render those attributes competitively irrelevant.
71 Power of the Strength or Weakness
Resource /Capabilities
Strengths Value Rareness Imitability Sustainability
S1 Competitive Distinctive Potential Potential Resource
S2 Distinctive Distinctive Competitive Competitive Resource
S3 Distinctive Distinctive Competitive Competitive Resource
S4 Competitive Potential Potential Potential Resource
S5 Competitive Competitive Potential Competitive Resource
S6 Competitive Competitive Potential Competitive Capabilities
S7 Competitive Potential Potential Potential Resource
S8 Competitive Competitive Competitive Competitive Capabilities
Weaknesses
W1 Unattractive Unattractive Inadequate Unattractive Resource
W2 Uncompetitive Uncompetitive Uncompetitive Unattractive Resource
W3 Unattractive Unattractive Inadequate Unattractive Resource
W4 Uncompetitive Unattractive Inadequate Unattractive Resource
W5 Uncompetitive Unattractive Inadequate Unattractive Resource
Table 5.7. Assessment of Internal Factors for Strategic Advantage (ASSIST)
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Through the above ASSIST process, strategic strengths and weaknesses have been translated into terms of resources and capabilities. Once the potential for creating competitive advantages is accomplished through the systematic categorization, it is important to investigate deeper relationships and determine how and where these factors actually add value.
In the case of VATECH Taiwan, each competitively relevant resource and capability is evaluated below in terms of its ability to contribute to competitive advantage either as a cost or uniqueness driver. In the below Table 5.8., only those strengths and weaknesses that were identified as competitively relevant are subjected to more probing investigation. This deeper investigation is conducted to determine where the strength or weakness adds or subtracts value and if the strategic implication lies in its ability to enable cost leadership or develop perceived uniqueness. The investigation is shown in Table 5.8.
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Table 5.8. Strengths and Weakness as Potential Sources of Competitive Advantage and Disadvantage
Strength/Weakness Description Potential Source of Competitive
Advantage/ Disadvantage
Location on Modified Value Chain
S1 Resource Capacity to rapidly develop financial resources
with high growth rate and high margin Uniqueness Driver Organizational Infrastructure
S2 Resource
CEO with experience in number of industries relevant to company’s business development. CEO also has substantial international business experience and MBA degree too.
Uniqueness Driver Organizational Infrastructure
S3 Resource Well trained engineers that receive training through
the company’s training system Uniqueness Driver Human resources
S4 Resource Ability to offer special marketing promotions Not competitively relevant Sales and marketing
S5 Resource
Dentalct.org. It works as a new resource to develop and use social capital. Through this website, the company can get a list of potential customers and educate them with the advantages of its products
Uniqueness Driver Sales and Marketing
S6 Capability
Through Dental CT Academy Center, the company easily finds potential customers, and offer customers product experience
Uniqueness Driver Sales and Marketing
S7 Resource Expertise in technical education and technical
support Not competitively relevant Service
S8 Capability Ability to offer customers continuous education of
its products and software programs Uniqueness Driver Service
W1 Resource Concentrated leadership. The company’s
dependency on CEO for every decision and plan Uniqueness Driver Organizational Infrastructure
W2 Resource
Company doesn’t possess a trademarks and brand image that are visible and respected throughout the island
Uniqueness Driver Organizational Infrastructure
W3 Resource Absence of well-trained middle-level managers Not competitively relevant Human Resources
W4 Resource
Absence of professional human resource manager, so there is a lack of professional knowledge on recruiting, training, and communication
Uniqueness Driver Human Resources
W5 Resource
Weak communication and organizational system, lack of clear and effective written procedures to perform certain activities like budgeting/planning, inventory control, and purchasing activities
Uniqueness Driver Human Resources
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The above evaluation suggests that VATECH Taiwan possesses potential competitive advantages because of uniqueness drivers located throughout the value chain-Organizational Infrastructure, Human resource, sales and marketing, and customer service. This evaluation indicates that differentiation strategies are the company’s most promising means to competitive advantage. On the other hand, although VATECH Taiwan has many uniqueness drivers, it also has competitive disadvantages regard to organization structure and human resources.
The strategic issues for the company do not end with the evaluation of strategically relevant strengths and weaknesses. As a matter of fact, those competitive advantages and disadvantages provide us with the ideas of where to start. From the next chapter, several strategic challenges the company faces currently will be identified, and strategic actions for each challenges will be suggested.
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6. Strategic Issues and Suggestions
The aim of this chapter is to provide recommendations regarding the issues that the company is facing currently. First, strategic issues with suggestions for VATECH Taiwan are identified. Second, some recommendations are made for the long-term success of the parent company, VATECH.
6.1. Strategic Issues and Suggestions for VATECH Taiwan
The success that VATECH Taiwan enjoys today in Taiwan is due mainly to the strategic fit achieved between its strategies, organizational capabilities, core competence, and fast growth of the dental digital X-ray industry. As we can see in the last chapter, VATECH Taiwan has adopted a differentiation strategy throughout the value chain - Organizational Infrastructure, Human resource, sales and marketing, and customer service. Over the years, VATECH Taiwan has been building on its brand and, together with its excellent customer service and education, has gained a competitive advantage over many of its competitors in Taiwan. However, as the dental digital X-ray market changes and as the company faces rapid growth, VATECH Taiwan faces a number of issues it must overcome. There are five strategic issues with suggestions as followed. The objective of this section is to address these strategic issues with suggestions for VATECH Taiwan.
• Create New Strategic Vision
• Focus on Cost Effective Offerings
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• Decentralizing Leadership
• Hire Human Resource Manager
• Reconfiguring the Value Chain and Organization
6.1.1. Create New Strategic Vision
VATECH Taiwan now suffers from a lack of a clear vision and strategic objectives for the future, because the company has grown rapidly and the landscape of the industry has changes significantly over the past few years. Currently, VATECH Taiwan is stuck in limbo, between being just an implementer of the parent company in the local market, and strategic leader serving as a partner of headquarters in developing and implementing important strategy (Barlett and Ghoshal, 1986). Therefore there is a strong need to create a new strategic vision to reach further. VATECH Taiwan has been executing its differentiation strategy, which has led it to be the market leader in Taiwan. However, the company cannot make the assumption that current strategies and business activities will continue to give itself a competitive edge in the market. It cannot afford to fail in making the most of new opportunities because it is still doing its best as a foot soldier for the parent company. For VATECH Taiwan’s business to continue growing and becoming a strategic leader as a subsidiary, it needs to create new strategic vision to focus its resource on new activities where congruence with the parent company is achieved. The implication of creating a new strategic vision is that a company would have to tailor its value chain to provide new activities and products to
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the selected market segments by its own efforts, and therefore would be a strategic leader to develop and implement a series of strategies shared with the parent company.
VATECH Taiwan has to decide whether it will adopt a low cost provider strategy or continue in its differentiation strategy. If a firm selects a costs leadership strategy, it sets out to become the single low cost leader in Taiwan market. This strategy can be appropriate for a firm addressing a market that can be segmented into groups, some of which are price conscious, and others which have a need for product features that necessitate a higher price. On the other hand, if a firm selects a differentiation strategy, it attempts to be unique in the market by providing value in some aspect of its products or services that competitors do not provide. In this case, there must be a market segment that must demand the extra value being provided by the differentiated supplier, and be prepared to pay a premium price for this value.
The majority of the market segment lies with digital panorama X-ray devices segment where price is a major issue in any procurement. Therefore, the lowest cost compliant provider is likely to win the vast majority of sales in Taiwan. These sales will generate small profit margins. It is difficult for a business as small as VATECH Taiwan to achieve any further growth in a low margin market. The only way for a small company to grow in a low profit market is with radical organizational and cultural changes. For VATECH Taiwan, reducing its costs to a point where it can compete as the industry’s low cost provider in all segments of the market through its value chain is simply impossible.
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It is unwise for any company to select a strategy unless there is a fit between this strategy and the rest of organization. VATECH Taiwan’s business has been founded on the strategy of being a differentiated suppler by means of its innovative products and excellent customer oriented service and support in the dental digital X-ray industry. Culturally, the company is well positioned to execute this strategy. Strategic fit is when strategy, organizational capabilities, competitive advantages, and markets are in synch. When this is so, competitive advantage is achieved.
Rather than focusing its limited business resources on reducing the cost along with the value chain, VATECH Taiwan would be wise to deploy its integrated software programs to leverage the company’s differentiation strategy. Those software programs have given competitive edges to the company, since there has been a strong demand for digitalized dental clinic aligned with purchasing the dental digital X-ray. The parent company already has a series of software programs which integrates a function of image analysis, diagnosis, communication with patients, and management of a hospital and VATECH Taiwan has used them in the local market. However, with the support of the parent company, VATECH Taiwan can localize those existing software programs, or develop and acquire new software program for Taiwan market and even for Greater China market including Taiwan, Singapore, Hong Kong and China.
Gaining employee support and commitment upfront is vital. When setting a strategy direction, the first thing that VATECH Taiwan must do is clarify its vision and communicate that vision to all employees. It is insufficient to simply present the strategic vision at a session that all employees are unlikely to be able to attend, or to write the vision in a plan that few people read. Instead, it must be communicated
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consistently and frequently, using a wide variety of media so that it becomes ingrained into the culture of the organization.
6.1.2. Focus on Cost Effective Offerings
Executing differentiation strategy does not necessarily mean there are higher profit margins if costs are not controlled. Under fierce competition with other companies in the island, there is pressure to provide cheaper price value of the products.
As a result, to remain competitive and maintain the leading position in Taiwan, it is critical that the costs incurred in its value chain be reduced. VATECH Taiwan needs to make decisions to reduce the overall costs. Hospitals and dental clinics are facing pressures to reduce costs mainly because of global economy recession and increase efficiencies while delivering safer and higher-quality care. Therefore, customers are making purchasing decisions based on how cost effective dental digital X-ray offered by different companies are. There are several areas that VATECH Taiwan needs to address to achieve this.
6.1.2.1. Reduce Operational Costs
One of the areas that operational costs should be reduced is the model of providing support for installed programs and systems. It involves time and effort, and therefore costs, to upgrade software and install patches for customers. Another reason to reduce the time and effort spent upgrading installed programs are the fact that the
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customers are intolerant of downtimes. When their workflow is interrupted because of downtime, revenue and time impacts are significant.
Planned downtime for software and/or hardware upgrades can be minimized by utilizing Web-based technologies where applications self-install or perform automatic upgrades with minimal user intervention. Therefore, VATECH Taiwan should invest its resource so as to speed up the development of Web technologies. To avoid unscheduled downtime due to program and system irregularities, its effort should be placed on improving reliability by continually working towards better quality inspection. The self-install solutions through web, mentioned above are a key step to cut down on operation costs. In this way, the company will only need to install the software programs in the
Planned downtime for software and/or hardware upgrades can be minimized by utilizing Web-based technologies where applications self-install or perform automatic upgrades with minimal user intervention. Therefore, VATECH Taiwan should invest its resource so as to speed up the development of Web technologies. To avoid unscheduled downtime due to program and system irregularities, its effort should be placed on improving reliability by continually working towards better quality inspection. The self-install solutions through web, mentioned above are a key step to cut down on operation costs. In this way, the company will only need to install the software programs in the