Quality Is the Way to Recovery
Italian companies are aware of the benefits accruing from promoting innovation and product quality. So they are relinquishing price competition and are involving all the stakeholders along the supply chain, in order to lay the cornerstones of long-term competitive advantage. But management has not yet implemented all the strategic decisions that are necessary to move in that direction. These are the main findings of the research study conducted by the Bocconi Findustria research center in collaboration with Centromarca (association of major Italian brands) and Fondazione Ernesto Illy.
The study has looked at a sample of Italian firms operating in consumer industries. In particular, it considered the supply chains of coffee, textiles, cosmetics, and employed a detailed questionnaire to investigate the evolving relations of companies with their suppliers and distributors. The study was presented at Bocconi at symposium organized by Corriere della Sera, Italy's largest daily. Among its participants were Diana Bracco, Marco Tronchetti Provera, Santo Versace, Andrea Illy, Edoardo Lombardi, Ferruccio de Bortoli, Camillo De Berardinis, and Giampaolo Fabris.
90% of the companies of the sample list quality as relevant or very relevant for competitive advantage. Companies also give high priority to product innovation (45%), customer orientation (40%) and distinctiveness of the supplied product. Conversely, there is low emphasis on sustainability as a core business strategy (only 25% consider it relevant).
"Research results highlight the propensity of firms to migrate from a supply chain based on price on one based on production innovation and quality," explained Maurizio Dallocchio, Nomura Chair of Corporate Finance at Bocconi.
As the study explains, exclusive emphasis on cuttings costs and competitive pricing only brings modest short-term results. When the negative environmental and social effects of such strategy are factored in, it makes sense to shift toward quality and innovation to contribute to Italy's sustainable development. The essential message of the study was thus summarized by Dallocchio: "Beware of the hidden costs of selling lots for cheap as compared to selling the right amount at the right price."
On the suppliers' front, the tendency toward long-term relations is widespread among firms. As far as distribution is concerned, companies show a strong orientation toward the customer (90% of the sample) and value the importance of strong relations with distributor. However they do not involve either the former of the latter in decision-making.
"Managing the supply chain is an essential prerequisite to compete successfully, but requires dialogue, cooperation and shared learning at all levels," Dallocchio explained. "A company must share its values not only within the firm, but with all its stakeholders, who are crucial actors in ensuring its objectives are met. Managers must develop a managerial culture that is able to encourage such relations, so that a business strategy based on quality and innovation can become the driver for a new competitive model."
Management is aware of the benefits deriving from an attentive management of supply relations. Improving relations betters customer satisfaction and increases brand value. More than 60% of the interviewed firms state that product quality benefits from a strategy focusing on relations with suppliers and other stakeholders.
"Branded products convey intrinsic quality and also immaterial social and environmental values. These constitute a fundamental competitive advantage for our excellence in manufacturing on global markets, which could instead be endangered by price wars," remarked Luigi Bordoni, president of Centromarca.
"This research study is inspired by the passion and the values which my husband Ernesto Illy espoused throughout his life," said Anna Illy, president of the Ernesto Illy Foundation. "When sustainability and improving the quality of life are the objectives of a modern company, business models lead to long-term growth of company value. In order for this to happen, all the components of the supply chain, from raw materials to final consumption, must be inserted in a context of cooperation among stakeholders. These are the elements that are at the basis of both economic growth and sustainability."