Building Competitive Advantage through Functional Level Strategy Chapter 4.
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Transcript of Building Competitive Advantage through Functional Level Strategy Chapter 4.
Building Competitive Advantage through Functional Level Strategy
Chapter 4
Functional-Level Strategies
• Should flow from Business-Level Strategy
• Strategies aimed at improving the effectiveness of a company’s operations
• Improving a company’s ability to attain superior efficiency, quality, innovation, and customer responsiveness
The Roots of Competitive Advantage
Achieving Superior Efficiency
• Economies of scale– Unit cost reductions associated with a large
scale of output• Ability to spread fixed costs over a large production
volume• Ability of companies producing in large volumes to
achieve a greater division of labor and specialization
• Diseconomies of scale– Unit cost increases associated with a large
scale of output
Economies and Diseconomies of Scale
Achieving Superior Efficiency (cont’d)
• Learning effects– Cost savings that come from learning by
doing• Labor productivity• Management efficiency
• When changes occur in a company’s production system, learning has to begin again
Achieving Superior Efficiency (cont’d)
• The experience curve– The systematic lowering of the cost structure
and consequent unit cost reductions that occur over the life of a product
• Economies of scale and learning effects underlie the experience curve
The Experience Curve
The Impact of Learning and Scale Economies on Unit Costs
Economies of ScaleExperience
• Old rule of thumb: Unit cost of production goes down 20% as volume doubles.
• Companies have set price to achieve a level of volume and desired unit cost of production; some with success.
Achieving Superior Efficiency (cont’d)
• Dangers of complacency with the experience curve– It will bottom out– New technologies can make experience effects
obsolete– Some technologies may not produce lower
costs with higher volumes of output– Flexible manufacturing technologies may allow
small manufacturers to product at low unit costs
Unit Production Costs in an Integrated Mill and Mini-Mill
Achieving Superior Efficiency (cont’d)
• Flexible manufacturing (lean production)– Technology that reduces setup times for
complex equipment, improves scheduling to increase use of individual machines, and improves quality control
– Increases efficiency and lowers unit costs– Mass customization reconciles two goals: low
cost and differentiation through product customization
Tradeoff Between Costs and Product Variety
Exercise
• Strategy in Action 4.1: Explain what went wrong in Texas Instrument and its reliance on the experience curve.
• Strategy in Action 4.2: Explain how Toyota’s lean production system illustrates Figure 4.6.
Achieving Superior Efficiency (cont’d)
• Marketing– Marketing strategy: pricing, promotion,
advertising, product design, distribution– Reducing customer defection rates and
building customer loyalty
The Relationship Between Customer Loyalty and Profit per
Customer
Achieving Superior Efficiency (cont’d)
• Materials management– Getting inputs and components to a
production facility, through the production process, and out through a distribution system to the end user
– Just-in-time (JIT) inventory system– Supply chain management
Achieving Superior Efficiency (cont’d)
• R&D strategy– Designing products that are easy to
manufacture– Process innovations
Achieving Superior Efficiency (cont’d)
• Human resource strategy: employee productivity– Hiring– Training– Self-Managing Teams– Pay for Performance
Achieving Superior Efficiency (cont’d)
• Information systems and the Internet– Automating interactions between
• Company and customers• Company and suppliers
• Infrastructure– Company structure, culture, style of strategic
leadership, and control system determine context of all value creation activities
Primary Roles of Value Creation Functions in Achieving Superior
Efficiency
Achieving Superior Quality
• Attaining superior reliability– Total quality management (TQM)
• Improved quality means that costs decrease• As a result, productivity improves• Better quality leads to higher market share and
allows increased prices• This increases profitability• More jobs are created
Steps in a TQM Program
• Have a clear business model• Mistakes and defects should be unacceptable• Supervision should be improved• Employees should not be fearful of reporting
problem or making suggestions• Work standards should include quality• Employees should be trained in new skills• Better quality requires company-wide
commitment
The Role Played by Different Functions in Implementing TQM
Implementing Reliability Improvement Methodologies
• Build organizational commitment to quality• Focus on the customer• Find ways to measure quality• Set goals and create incentives• Solicit input from employees• Identify defects and trace them to source• Work with suppliers• Design for ease of manufacture• Break down barriers among functions
Attributes Associated with a Product Offering
Achieving Superior Quality (cont’d)
• Developing Superior Attributes– Learn which attributes are most important to
customers– Design products and associate services to
embody the important attributes– Decide which attributes to promote and how
best to position them in consumers’ minds– Monitor competition for improvement in
attributes and development of new attributes
Achieving Superior Innovation
• Innovation can– Result in new products that better satisfy
customer needs– Improve the quality of existing products– Reduce costs
• Innovation can be imitated so it must be continuous
• Successful new product launches are major drivers of superior profitability
The High Failure Rate of Innovation
• Uncertainty– Quantum innovation vs. incremental
innovation
• Poor commercialization
• Poor positioning strategy
• Technological Myopia
• Slow to Market
Achieving Superior Innovation (cont’d)
• Building Competencies in Innovation– Building skills in basic and applied research– Project selection and management
The Development Funnel
Achieving Superior Innovation (cont’d)
• Building Competencies in Innovation (cont’d)– Cross-functional integration– Product development teams– Partly parallel development processes
Sequential and Partly Parallel Development Processes
Function Roles for Achieving Superior Innovation
Achieving Superior Responsiveness to Customers
• Customer focus– Leadership– Employee attitudes– Bringing customers into the company
• Satisfying customer needs– Customization– Response time
The Primary Role of Different Functions in Achieving Superior Responsiveness
to Customers