Value based marketing: a new perspective.

David, Walters ; Halliday, Michael

NEW ECONOMY: NEW EXPECTATIONS

The International Herald Tribune recently (20 December 2000) asked a number of CEOs of "new economy" companies for their visions of the future. Geoffrey Baehr, chief network officer for Sun Microsystems offered:

"I can't wait for the day when there are tools to sift, analyze and adapt the data to my job, my function, my life ... ... when there is a relevancy test on the data I get. I think 5 percent of the data floating around the world is valuable, and the rest is junk"

Judy Neuman, chief operating partner of Maveron LLC, a venture capital firm commented:

"I can't wait for the day when have one device that is fully voice-enabled so I never have to look at a phone number to make a call--a machine that could provide real-time e-mail, wireless access to the Web, be a cell phone and come with all the accoutrements of a Palm Pilot or Blackberry. Clearly, people are trying to get there. But in the meantime, my purse--and my life--is complicated because I have all these technology accoutrements."

Cyrus Harmon, general manager of Affymetrix, a genomics company contributed:

"I am waiting for the day when we recognize as a society what a destructive force traffic is and build a transportation system that deals with it."

And, Jonathan Rothberg, chairman and chief executive of CuraGen, another genomics company said that he could not wait for the development of drugs that would wipe out a number of deadly diseases.

Four visions with three underlying forces driving these and other changes that have occurred in the 1990s. There has been considerable social, economic and technological change in recent years such that old structures have been challenged, concepts revisited and revised. New concepts such as smokeless factories, screwdriver assembly plants and corporations without tangible assets have become realities. Knowledge management, technology management and relationship management are three concepts, or disciplines underlying theses changes.

The segmentation of markets in the 1970s and 1980s was followed by fragmentation during the 1990s. It was fragmentation that required a flexible response if customer expectations were to be met. There have been two responses. One has been an increase in alliances and partnerships and the other has been from manufacturing technology which offers the ability to meet customer expectations for variety without the accompanying increases in product cost.

These arguments suggest alternative organisational structures with which to take full advantage of the market place opportunities should develop. At the beginning of the 1990s, Davidow and Malone (1992) suggested:

"The complex product-markets of the twenty first century will demand the ability to deliver, quickly and globally a high variety of customised products. These products will be differentiated not only by form and function, but also by the services provided with the product, including the ability for the customer to be involved in the design of the product.... a manufacturing company, will not; be an isolated facility in production, but rather a node , in the complex network of suppliers, customers; engineering and other 'service' functions".

"..... profound changes are expected for the company's distribution system and its internal organisation, as they, evolve to become more customer driven, and customer managed. On the upstream side of the firm, supplier networks will have to be integrated with those of customers often to the point where the customer will share its equipment, designs, trade secrets and confidences with those suppliers. Obviously, suppliers will become very dependent upon their downstream customers; but by the same token customers will be, equally trapped by their suppliers. In the end, unlike its contemporary predecessors, the virtual corporation will appear, less a discrete enterprise and more an ever-varying cluster of common activities in the midst of a vast fabric of relationships".

"The challenge posed by this business revolution argues that, corporations that expect to remain competitive must achieve mastery of both, information and relationships".

And Byrne and Brandt (1992) identified the characteristics of the "new corporate model":

"Today's joint ventures and strategic alliances may be an early glimpse of the business organisation of the future: the Virtual Corporation. It's a temporary network of companies that come together quickly to exploit fast-changing opportunities. In a Virtual Corporation, companies can share costs, skills, and access to global markets, with each partner contributing what it is best at ....the key attributes of such an organisation (include): EXCELLENCE ....each partner brings its core competence to the effort ....TECHNOLOGY...informational networks....partnerships based on electronic contracts ....to speed the linkups....OPPORTUNISM....partnerships will be less permanent, less formal and more opportunistic ....to meet a specific market opportunity ....TRUST....these relationships make companies far more reliant on each other and require far more trust than ever before ....NO BORDERS ....this new corporate model redefines the traditional boundaries of the company. More cooperation among competitors, suppliers, and customers makes it harder to determine where one company ends and another begins".

In other words an integrated and coordinated approach towards knowledge, technology and relationship management is becoming essential. Indeed Byrne and Brandt are suggesting that one of the key success factors for all businesses is the ability to identify one's own core competencies, decide where in the value chain these are to be most cost effectively deployed, and to complement these with partnership opportunities.

The basic elements of knowledge, technology and relationship management have been identified as being the building blocks for these new economy organisations. However to reinforce their impact the role of marketing, and how its contribution may be measured is an interesting issue and which, when addressed, may make the entire value creation system both more effective (a strategic concern) and more efficient (an operational concern). There is another important consideration to be made. Given that both market expectations and market responses are changing frequently the interface areas offer the opportunity to form alliances which are more responsive, more rapidly. If managed responsibly (and responsively) they can help avoid the high levels of investment, which often occur in vertically integrated organisations. They can also encourage ongoing customer focused R and D throughout the value chain because of the interdepecies that develop. Furthermore as product-applications and end-user profiles shift the structure of the value offer, can be adjusted by agreeing changes in the tasks of the value chain members, or changing the structure of the value chain.

There can be very little doubt the world is becoming a very different place. However, it is worthwhile to pause and ask some questions concerning both the rate and direction of change but perhaps more importantly to question the building blocks for the launch pad. The proliferatin of "e-commerce solutions" may be leading business towards "mass seduction" rather than towards mass customisation (Pines cause). It would be more sensible to consider "e-commerce" as a facilitator-or a means by which we can add flexibility, reduce operating times, increase accuracy, relevance and control to, our business--rather than be the 'end' in itself. In other words how will the building blocks; knowledge management, technology management and relationship management influence the role of marketing in the "new economy".

A basic requirement is for an organisation structure, or model, capable of identifying the relevant components of the knowledge management, technology management, relationship management characteristics of the 'market' and to understand the potential power in each. It follows that a different emphasis may be required if the model is to operate across all sectors and dominance may need to be given to one of the components to ensure that a dominant competitive position results.

Knowledge management has been variously defined but the following is a synthesis of the many located:

The organisational capability which identifies, locates, (creates or acquires), transfers, converts and distributes knowledge into competitive advantage.

For example, knowledge management influences strategy through R and D investment, and the application of experience based knowledge to become a learning organisation.

Knowledge management continues to experience rapid development. To capitalise on this current growth, organisations should adopt a 'make or buy' approach towards investment in knowledge resources. The basic criteria to be used by any organisation for any investment in resources is: what are the aspects of knowledge that will make decision making more effective, and what are the most cost effective means of acquiring them? To do this requires an audit of the 'decision making/knowledge available' relationship within an organisation (and here the term "organisation" is used to include the whole value production/delivery system). Such an audit will assist in developing clear requirements for qualitative and quantitative knowledge inputs. An audit should establish stocks and flows of knowledge in order that a knowledge-based infrastructure can be built. Given that an organisation can establish what it is it knows, and what it is it should know, the next step is to build a 'learning organisation' based upon the identified requirements.

The second 'underlying force', or building block, is technology management. Technology management is a much broader concept than manufacturing/operations strategy but clearly has a close connection. Noon (1990) uses the definition derived by the Task Force on Management of Technology sponsored by the National Research Council:

"Management of (new) technology links engineering, science and management disciplines to address the planning, development and implementation of technological capabilities to shape and accomplish the strategic and operational objectives of an organisation."

A more succinct definition can be offered:

The integration of process and product technology to address the planning, development and implementation of technological capabilities and capacities to meet the strategic and operational objectives of an organisation and its partners.

Technology management can influence the value delivered by planning manufacturing responses that match market volume and product characteristics with costs and plant utilisation; it may also be used to meet identified customer problems and resolve them through product design and manufacturing processes. Technology management has become more embracing in its application, one that marketing must understand. Accordingly it requires a technology management philosophy. To be effective technology management should identify the most cost-effective role that can be achieved through developing ongoing relationships with marketing, R and D and manufacturing/operations management using the notion of 'leveraged assets'. Michael Dell has been widely quoted for his conviction in minimal ownership of assets and maximising the utilisation of suppliers' dedicated capabilities and capacities. This is the first step in developing an R and D strategy that will take its direction towards favouring product or process technology, the role of customers and of suppliers in the R and D process from the technology management philosophy. The economies of integration are important in this respect. Noori (1990) commented:

"The challenge is to devise an "organisational structure" to match the flexibility and complexity of the new technology, a structure that meshes all the necessary technical and non-technical elements and blends the functional expertise as needed ..."

Relationship management is the third building block. A working definition is proposed:

Identify, establish, maintain and reinforce economic relationships with customers, suppliers and other partners with complimentary (and supplementary) capabilities and capacities so that the objectives of the organisation and those of all other partners may be met by agreeing and implementing mutually acceptable strategies.

In other words relationship management can influence positioning and strategy by identifying, developing and maintaining partnerships which ensure that product service objectives to meet customer expectations are met. Relationship management prescribes the organisation structure within which the firm operates. Payne's (1995) description of the 'market' environment in which a firm operates determines the role of relationship management that extends the scope of relationship marketing into one in which a broad range of processes can be coordinated. Relationship management includes 'co-production' (the 'transfer' of production processes both upstream and downstream) and in which 'managed' co-destiny becomes essential for success. Effective relationship management requires management to adopt the view that collaboration, not conflict, or necessarily competition, is an essential feature of the "new economy. There are a number of issues to contributing towards success.

That knowledge, technology and relationship management was, and remain, important can be deduced from a quotation from Piore and Sabel (1984) concerning flexible specialisation that they consider to be a:

"... to those favouring innovation: accommodation to ceaseless change, rather than an effort to control it. This strategy is based on flexible-multi use-equipment [technology management]; skilled workers [knowledge management]; and the creation, through politics of an industrial community that restricts the forms of competition to those favouring innovation [relationship management]. For these reasons the spread of flexible specialisation amounts to a revival of craft forms of production." Comments in brackets are the authors'.

What is emerging is a basic structure of the virtual organisation. The expectations of marketing clearly are shifting and are likely to become more qualitative and to incorporate far more inter-organisational measures. Figure one proposes a basic structure. There are a number of issues for marketing to consider in terms of role and performance structures.

To explore this proposition further figure two suggests some of the fundamental changes taking place. The new business model is one that is built around time and flexibility responses as the primary utility functions that are expected to offer competitive advantage. There are clear implications for marketing contribution and the way in which this may be valued. A shift from a product-market stance towards a market product stance suggests that the current perspective of marketing based upon product-led target marketing is being replaced by what Day (1999) calls market orientation or what we might label as a market led strategy and which Pine (1993) proposed as mass customisation.

Day (1999) identifies five "transitions" that are having (or will have) disruptive effects. These include more supply and less differentiation (or excess capacity for commodity type products) resulting in product-service imitation. Day cites the athletic shoe market as an example for which imitation reaches well beyond products and into delivery methods. The 'net' based shopping offers of the major UK food retailers are another example. Globalisation, more global and less local trends are another important transition. Globalisation is being fuelled by the convergence, or homogenisation, of customer needs, trade liberalisation and the opportunities offered by international trends in deregulation. Day refers to the move from a "marketplace" to a "marketspace" perspective (a concept introduced by Rayport and Sviokla). Day suggests this is a new emphasis not only on marketing communications, but also on product-service characteristics and transaction payment systems. The marketspace removes the need for dominant location; "... customers can shop across the globe or country, dramatically cutting the advantage of local presence that is the mainstay of many retailers." More competition and more collaboration imply a shift away from self-damaging behaviour (such as that inflicted by price competition) towards a more collaborative approach to customer satisfaction. Day identifies an arrangement between Sony and Phillips who are working together to develop common optical media standards and supplying components for one another. Collaboration in the European automotive industry has resulted in shared diesel engine developments. As Day comments: " There are many markets in which a firm can be a customer, supplier and rival at the same time."

[FIGURE 1 OMITTED]

The preference among most organisations for long term customer relationships rather than expanding the "new customer base" is identified by Day as; more relating and less transacting reflecting the move towards customer retention and points to the organisational changes occurring in many companies whereby they organise around customers rather than products or sales districts. The adoption of customer profitability and retention are becoming important as performance measures. Day's final "transition" concerns response to customer requirements. Again this considers both strategic and operational aspects. More sense-and-respond and less make-and-sell suggests an increasing application of computer aided design and manufacturing systems and a departure from traditional make-to-forecast manufacturing and response based logistics systems based upon economies of scale and vertical control structures. Economies of integration, the coordination of capacities and capabilities on an inter-organisational basis are rapidly replacing economies of scale in manufacturing strategy.

[FIGURE 2 OMITTED]

Day offers market orientation (or being market driven) as a means of dealing with market turbulence and propose a model in which there are "three elements of successful market driven organisations." These are:

* An externally oriented culture with dominant beliefs, values and behaviour emphasising superior customer value and a continual quest for new sources of advantage. (Porter (1996) has suggested that this often results in operational/short term benefits which are soon imitated by competitors). The external orientation includes the ability to be able to participate in strategy decisions, not only to dominate them.

* Distinctive capabilities in market sensing, market relating and anticipatory strategic thinking. In other words market driven organisations are better educated about their markets and better able to form close relationships with valued customers. Clear strategic thinking enables them to devise proactive marketing strategies that involve suppliers and customers, thereby increasing the value obtained by all participants in the value creation, production and delivery process.

* A configuration that enables the entire organisation to anticipate and respond to changing customer requirements and market conditions. This includes all the other capabilities for delivering customer value-from product design to order fulfillment, plus an adaptive organisation design together with a supporting infrastructure. All of these aspects of the configuration are aligned with the development of a superior value proposition and a corporate culture/philosophy that accepts the role of other more cost-effective and cost-efficient structures.

There are a number of interesting responses reported by companies to these demand and structural changes identified by these and other authors. However, before reviewing these we should explore one aspect of the changes in more detail, the characteristics of customer value expectations. Traditionally we have considered form, possession, and time and place utilities as drivers of consumer utility satisfaction. Form utility has been provided by a company's production function. This was centralised and finished product reaches the market through a distribution process which provides possession utility created by marketing activities, creating awareness of a product or service and facilitating transactions. Logistics creates time and place utilities. However, as Rayport and Sviokla (1996) suggest the move towards digital products changes the entire value creation, production, communication, and delivery and service process. Furthermore, customer expectations themselves have created new aspects of utility such as convenience, choice, information, communication and "experience". In a recent comment on the Tomorrow Project, a view of the future of relationships in the UK, Worsley (2000) identifies another dimension of value, that of fit. Worsley argues that if the consumer can now purchase clothes to meet an individual specification, can buy CDs with "individualised" tracks, there is good reason to believe that the view: "It must fit me exactly" will become the defining outlook and expectation of the next few decades." Evidence already exists to this effect. Tofer (1980) coined the term prosumer to identify consumer involvement in product design and manufacture and, if we consider the IKEA approach, we can include logistics. Nike offers customers the facility to design their own shoes using the Nike website. Customers in the US can choose between a cross trainer or a runner, select their shoe size, desired colour combinations and add personalised identification. The customer can view their 'creation' in three dimensions and when satisfied consummate the transaction by providing credit card details. A fee of US$10 is charged for this customised service, together with a delivery charge, both of which are added to the retail price. Delivery takes two to three weeks and if they are not satisfactory can be returned to a Nike store. (BRW, 1999). Levi-Strauss (Day op cit.) offers a similar service.

Personal Pair is a service in which jeans for women are made to their exact specifications. Day also cites Custom Foot, who offer to make shoes to order from a choice of 10,000 variations for women and 7800 for men. Dell Computer's build-to-order approach is well documented and requires no detailed comment but does offer a customised product with short delivery time. Service products are included. Communications products are available in a range of 'lifestyle' formats to meet specific needs. The traditional 'carriers' are finding difficulties in matching niche offers by competitors in international tele-communications and their responses to the mobile operators often lag well behind in flexibility and cost. Financial services have also met the need for flexibility. Banking has embraced technology and offers a range of alternatives to traditional services. In addition the range of home financing options and retirement planning products is now extensive and is aimed at meeting an expanding number of market segments.

A NEW ROLE FOR MARKETING: A NEW PERSPECTIVE OF ADDED VALUE

With such dramatic and rapid change occurring it is not surprising that traditional structures are slow to respond. The role of marketing in the age of the virtual organisation is not difficult to derive. Day and Pine both infer the need for collaboration and cooperation (even competition) in the new economy market place. If marketing is to play a major role in the strategic direction of the organisation it should consider where best the company can maximise its returns. The first is to understand the key characteristics of relationships within an industry, market or market segment. A useful method for achieving this is to identify the profit pools within the value creation system and then to explore the characteristics of the 'actors and the processes' involved. Gadiesh and Gilbert (1998) offer a model based upon the notion that: "Successful companies understand that profit share is more important than market share". A profit pool is defined as the total profits earned in an industry at all points along the industry's value chain. The pool may be 'deeper' in some segments of the value chain, than in others and variations may be due to customer, product, and distribution channel differences, or perhaps there may be geographical reasons. Often the pattern of profit concentration differs markedly from revenue concentration. Gadiesh and Gilbert use the US automotive industry to demonstrate the variations of revenue and profit distribution. They use it to provide an approach to mapping profit pools.

Kay (1993) introduces the concept of added value as "the key measure of corporate success" and defines this as:

"Added value is the difference between the (comprehensively accounted) value of a firm's output and the (comprehensively accounted) cost of the firm's inputs. In this specific sense, adding value is both proper motivation of corporate activity and the measurement of its achievement".

Kay calculates added value by subtracting from the market value of an organisation's output the cost of its inputs:

Revenues

Less (wages and salaries, materials, capital costs)

Equals

Added Value

He suggests that added value is a measure of the loss that would result to national income and to the international economy if the organisation ceased to exist:

"Adding value in this sense, is the central purpose of business activity. A commercial organisation which adds no value--whose output is worth no more than the value of its inputs in alternative uses--has no long-term rationale for its existence".

[FIGURE 3 OMITTED]

Figure three illustrates the concept. In figure 3a input costs exceed output costs and no added value is generated. By contrast in figure 3b, output revenues exceed the input costs and added value is generated.

Added value in this context includes depreciation of capital assets and also provides for a 'reasonable' return on invested capital. Calculated this way added value is less than operating profit, the difference between the value of the output and the value of materials and labour inputs and capital costs. It also differs from the net output of the firm: the difference between the value of its sales and material costs (not labour or capital costs). Kay's measure of competitive advantage is the ratio of added value to the organisation's gross or net output:

Competitive Advantage = Revenues--(Wages + Salaries + Materials + Capital Costs) Wages + Salaries + Materials + Capital Costs

Kay uses the model to explore corporate strategy issues on the basis that

"Corporate success derives from a competitive advantage which is based on distinctive capabilities, which is most often derived from the unique character of a firm's relationships. with its suppliers; customers; or employees and which is precisely identified and applied to relevant markets."

He asks:

"Did it make sense for Benetton.... to move into retailing, and was it right to decide to franchise most of its shops to individual franchises? ... What segment of the motor car market was most appropriate for BMW?"

He questions the measurement of success arid performance, suggesting size, a firm's sales, its market share, and its value on the stock market as options typically used together with rate of return. This can be measured as return on equity, on investment or on sales. Other measures commonly used include growth, productivity, increased earnings per share or the price earnings ratio. Kay argues that while these measures are aspects of successful performance the key measure of corporate performance is added value, i.e.; the difference between the (comprehensively accounted) value of a firm's output and the (comprehensively accounted) cost of the firm's inputs.

Business relationships are crucial and Kay argues that the added value statement is not simply a means of looking at financial consequences. It describes the set of relationships which constitute the firm. In the virtual organisation model its role can be extended beyond relationship management to include both knowledge management and technology management. The flexibility of the model enables any options to be considered. In particular a model of the industry, or the sector, that explores these components from the perspective of alternative formats can result in identifying the preferable location of the firm within the industry or sector value chain. The analysis, suggests Kay, is based upon

"... a careful appreciation of the strengths of the firm and the economic environment it faces"

Kay uses the added value model to explore the added value perspectives of stages in the value chain. Primary (extraction) industries have materials and capital costs as dominant inputs. Secondary organisations (those engaged in consumer durable manufacturing) are suggested to have a predominance of materials and wages and salaries as input costs. Tertiary businesses are typically dominated by materials costs, some labour costs, and depending upon management's view of infrastructure ownership (typically retail outlets and distribution networks) capital inputs may, or may not, be significant.

The scope of marketing within the context of the new economy and the virtual organisation is of particular interest. As many organisations question their future structure and begin to review competencies within the context of the virtual operations model there is a vital need for the organisation to map the input/output profiles of its value chain partners and to engage at a point where its strengths and weaknesses can be matched with opportunities and threats such that stakeholder value (i.e; the value accruing to shareholders, customers, suppliers, employees and the community) is optimised. Increasingly as the virtual organisation model is experimented with and expanded it becomes increasingly likely that marketing offers the means by which answers to many of the emerging questions concerning the available options may be obtained. Increasingly the analytical, communication and conduit characteristics of marketing are becoming important.

[FIGURE 4 OMITTED]

Kay's model, modified a little to explore the concept within the context of marketing, is illustrated as figure five.

Figure five explores the role of marketing in exploring the response options to Added Value Drivers. For example, a number of questions should be raised concerning the procurement and or manufacture of materials and components. The ownership structure of materials or component manufacturing may be concentrated in which case the ability to differentiate a product by incorporating an outsourced component will be limited. Marketing, by maintaining an ongoing 'dialogue' with customers, is in a position to identify the costs and benefits of outsourcing or insourcing the item and the impact on added value. From this analysis it follows that alternatives may be sought and evaluated.

A similar argument may be made with regard to wages and salaries. Here the concern is that knowledge (management expertise and specialist labour skills) may not be available 'in-house'. The reality is that with a virtual organisation it is of no consequence because the virtual organisation structure encourages the leverage of both management expertise and specialist labour. The concept of the economics of integration is one that utilises knowledge management to identify the precise combination of technology that will provide, competitive advantage, together with the necessary relationship management expertise to coordinate the extensive cooperation and co-productivity among value organisation partnerships. Distance is no longer a constraint. The example given by Li and Fung, who act for major brand owners from their Hong Kong base providing a range of service processes for their global principals, is one of an increasing number of such partnerships. Li and Fung provide an extensive range of processes, from developing product prototypes from their principal's specifications to managing the logistics of delivering specific consignments to designated locations throughout the world. Meanwhile the brand owner continues with what they are particularly good at--managing the marketing of their brand portfolio. But the basic issue is one of understanding the market place, of understanding customer expectations and deriving specifications of the product and service that will deliver the customer value specifications.

In a time in which almost any manufacturing advantage can be imitated quickly, and at low cost, it often falls to the use of customised service packages to provide the differentiation sought in the marketplace. Once again the decision issue concerns the extent to which insourced services are preferable to outsourced service providers. Marketing is well placed to extend the customer dialogue to ascertain the importance of service to the customer and to interpret this into cost and benefit implications for the organisation.

The point that flexibility is an issue in developing competitive advantage was made earlier. When the advantages of specialisation are added, the emphasis on managing capability and capacity through leveraged assets rather than ownership, become a significant decision issue. The success of the computer company Dell is an excellent example of managing through leveraging suppliers' assets. Michael Dell made very clear the decision that faced his organisation from the very beginning: there can be little or no advantage to anyone in the sector if large capital sums are competing with each other. The perceptive solution is one that identifies where the maximum advantage can be obtained; the investment that offers greatest return. This raises the issue of tangible and intangible assets and their role in creating competitive advantage. The examples set by Dell, Nike Coca-Cola and others suggest that investment in intangible assets such as R and D and the brand and developing management is capable of realising major returns on capital costs.

If the purpose of the analysis is to identify and to evaluate the alternative structures by which added value may be generated, then some constraints should be established. The virtual organisation implies that any added value generated is likely to be an optimum value rather than a maximum value based upon the objectives of any one individual company. It follows that some additional topics of risk should be explored. One such topic concerns the distribution of assets and the risk of reduced access that any concentrated distribution of assets introduces. It also follows that disproportionate risk requires adequate compensation and therefore margins or returns be structured to recognise the risk being undertaken. There is a task here that possibly can only be undertaken by marketing, involving the identification of roles and tasks being undertaken within the value chain and structuring the returns accordingly. The channel management literature deals with this concern in its value based compensation models. There are other aspects of risk. For example barriers to entry and to exit may be such that entry into the sector is relatively easy but once established the capital commitment makes exit difficult. Furthermore in a dynamic market the rate of change within processes may be accompanied with major write off problems. The pharmaceutical and high technology based industries are examples of such problems. The disciplines of marketing are such that a major role can be played in exploring the likely scenarios that will optimise competitive advantage.

[FIGURE 6 OMITTED]

PUTTING THE MODEL TO WORK

The 'new economy' and the 'virtual approaches' it has spawned suggests that process management, rather than functional management is an essential feature of the 'new competition '... Figure six expands the virtual organisation model and offers examples of a number of processes.

[FIGURE 7 OMITTED]

These assume integrated activities if processes are to be successful in creating mutual competitive advantage for the virtual organisation. Beech (1998) argues that the departmental silos built into the traditional functional business organisation structure only serve to inhibit customer satisfaction and, therefore, added value. He discusses planning process within the context of demand and supply chains. Demand chain processes include product development, "trade marketing" selling, 'customer services' management, category management and "consumer marketing". Supply chain processes include raw materials procurement and management, manufacturing, "logistics", finished goods procurement and "retail operations". Note the parentheses suggest the extent to which these processes have become influenced by e-business applications and are the views of the authors not Beech. In Beech's model demand chain and supply chain are integrated, the result is an optimised value chain delivery model.. (For a detailed review of the development of value chain management see Walters, detail below) Figure six addresses the same issues but starts with the three foundation concepts i.e., knowledge, technology and relationship management and uses these to establish 'benchmarks' for the structure of a virtual organisation. From the benchrnarks emerge a number of interface relationships between each of the foundation concepts. Figure six's treatment of these is, of necessity, generic, but an example (based upon ongoing in-company research) for a relationship management led virtual organisation is shown as figure seven.

It is intuitively obvious that if sustainable competitive advantage is sought, then the structure of the virtual organisation should reflect the dominant competitive feature of the sector. The involvement of marketing in creating competitive advantage becomes quite clear. The relationship management interface requires robust strategic marketing partnerships with a range of characteristics that will ensure their effectiveness.

Relationship/technology management requires direct marketing involvement if IT driven product development and management and product support systems are to be developed and possibly a large involvement in the development of joint procurement and logistics programs. To a similar extent the marketing influence can be seen in the knowledge/technology management interface where product development processes are an important feature.

The contribution made to enhance added value and competitive advantage by marketing can be illustrated by the model presented in figure eight.

The added value chain components viz, materials, wages and salaries, services and capital costs (together with added value and competitive advantage) are shown as bold items. The virtual organisation characteristics are shown in italics, for example, process management is an aspect of technology management and possibly relationship management, while review and restructure 'supplier' partnerships pertains to relationship management (and in this context 'suppliers' includes owners of other inputs such as employees). Knowledge management has an influence through the improvement and dissemination of 'market' knowledge: bold lines represent decision influences and broken lines are linkages between the 'added value' components and suggest the potential for performance improvement through trade-off opportunities. For example, capital investment decisions should be made by first identifying and considering between alternative combinations of process management, materials, wages and salaries and services. Such an approach will evaluate the cost/benefit characteristics of insourcing and outsourcing processes (including the possible, combinations of fixed and variable cost operations), of product designs that eliminate frequent maintenance intervals but are accompanied by higher acquisition (purchase) costs for customers; versus lower priced products with higher maintenance costs due to more frequent downtime. The issue for management is to evaluate the options for delivering and maintaining that value effectively (the strategy/structure design), and efficiently (the operations decision). Numerous other decision situations will emerge. By identifying the major features and processes of the added value model, an optimal solution can be found. A consideration that can be explored is that between added value (comprising quantitative objectives) versus competitive advantage (comprising qualitative objectives such as market leadership benefits, etc). Marketing acts as an information/decision making conduit. By identifying the linkages and the options and by coordinating their evaluation marketing will be making a vital contribution to added value.

[FIGURE 8 OMITTED]

SUMMARY

The marketplace has moved towards a market space concept in which the 'informational' aspects of product-services become more important (Rayport & Sviokla, op. cit.). It is arguable that marketing, as it is conventionally construed, can play a major role in the prosperity of the organisation. Indeed the concept of the organisation itself is debatable as the number of intra-organisational alliances and partnerships expand. A moments reflection within any industry will identify numerous networks and intra-related organisations. It follows that the roles of traditional functions (in this instance marketing) should be critically reviewed and questions asked concerning the viability of departments and functions that continue to operate individually rather than being integrated and operating across a coordinated business structure. It is equally clear that no one function can operate in isolation and that intra, inter and extra organisational cooperation is essential.

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David Walters, Macquarie University, Australia

Michael Halliday Macquarie University, Australia

Figure 5: Added Value Drivers and their Marketing Considerations

 Added Value 'Drivers' Marketing Considerations

 Materials Ownership of materials Identify customer product
 and and structure of sector applications and derive
Components Cost and quality of price/ performance
 materials expectations
 Availability Provide design with
 Distance costs competitive comparisons
 Impact of quality on Identify alternative
 finished product procurement, manufac-
 turing and logistics
 alternatives and their
 cost/benefit implica-
 tions using alternate
 materials and manufac-
 turing and customer
 locations
 Establish impact/issues
 Wages Importance of labor analysis using customer
 and skills as element of cost expectations and price/
 Salaries Availability and performance/cost
 location of labor profiles
 Control issues Explore options/implica-
 tions with selected
 customers

 Services Importance of services Establish customer
 in value delivery product-service
 Services required: expectations
 insource or outsource Evaluate implications on
 manufacturing options
 Explore availability of
 insource/outsource
 options
 Explore implications for
 customer response

 Capital Capability and capacity Identify suppliers and
 Costs requirements competitors
 Extent of specialisation Explore competitive
 Cost of investment scenarios
 Currency/depreciation With finance explore
 factor risk/return profiles
 Availability of existing of capital ownership
 capital: utilization? options

 Added Value of added value: Project alternative
 Value ROI, ROCE, continuity, market scenarios
 risk Project gross input/gross
 Barriers to entry output profiles for
 Barriers to exit each scenario using
 Change expected customer
 responses and capital
 and operating costs
 Project profitability/
 productivity and cash
 flow options