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FUNCTIONAL LEVEL STRATEGIES - CHPT 4. BUSINESS 189 Spring 2007 DR. MARK FRUIN. FUNCTIONAL-LEVEL STRATEGIES. PP 110-111, THE BOOK CONTINUES TO CONFUSE FUNCTIONAL STRATEGIES AND DISTINCTIVE COMPETENCIES WELL DONE FUNCTIONAL STRATEGIES CAN RESULT IN DISTINCTIVE COMPETENCIES

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FUNCTIONAL LEVEL STRATEGIES - CHPT 4

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Functional level strategies chpt 4

FUNCTIONAL LEVEL STRATEGIES - CHPT 4

BUSINESS 189

Spring 2007

DR. MARK FRUIN


Functional level strategies

FUNCTIONAL-LEVEL STRATEGIES

  • PP 110-111, THE BOOK CONTINUES TO CONFUSE FUNCTIONAL STRATEGIES AND DISTINCTIVE COMPETENCIES

    • WELL DONE FUNCTIONAL STRATEGIES CAN RESULT IN DISTINCTIVE COMPETENCIES

    • BUT DISTINCTIVE COMPETENCIES DO NOT LEAD TO FUNCTIONAL STRATEGIES

      • ALTHOUGH THEY MAY CHANNEL WHERE FURTHER INVESTMENT & EFFORT MAKE SENSE


Functional level strategies1

FUNCTIONAL LEVEL STRATEGIES

  • SUPERIOR EFFICIENCY

  • SUPERIOR QUALITY

  • SUPERIOR CUSTOMER RESPONSIVENESS

  • SUPERIOR INNOVATION


Efficiency

EFFICIENCY

  • TWO FACTORS DETERMINE A FIRM’S PROFIT RATE

    • THE VALUE CUSTOMERS PLACE ON FIRM OFFERING

    • THE COSTS OF PRODUCING & DELIVERING THOSE OFFERINGS

      • DIFFERENCE BETWEEN COSTS OF INPUTS AND VALUE OF OUTPUT

      • PRODUCTIVITY MEASURES OUTPUT PER EMPLOYEE


Superior value creation

SUPERIOR VALUE CREATION

  • EITHER ENJOY THE LOWEST COST STRUCTURE IN THE INDUSRY

    • 4Ss: SCALE, SCOPE, SPECIALIZATION, & SPEED

    • OTHER ADVANTAGES?

  • OR CREATE THE MOST VALUABLE PRODUCT IN EYES OF CUSTOMERS

    • THE GAP BETWEEN PERCEIVED VALUE AND COSTS OF PRODUCTION

    • ALLOWING A HIGH PRICE/DIFFERENTIATION STRATEGY


Superior efficiency

SUPERIOR EFFICIENCY

  • TEXT DISCUSSES ECONOMIES & DISECONOMIES OF SCALE ON PP 111-12

    • AT SOME POINT INCREASING SCALE MAY NOT YIELD LOWER COSTS PER UNIT

    • GENERALLY, SCALE RELATED INVESTMENTS ARE LUMPY; NOTION OF MES

      • MINIMUM EFFICIENT SCALE VARIES BY INDUSTRY

  • LEARNING EFFECTS ON PP 113-14

    • BOOK SAYS MORE COMPLEX TASKS HAVE POTENTIAL FOR GREATER LEARNING EFFECTS

    • AT SOME TIME, LEARNING MAY DIMINISH

  • FLEXIBLE/LEAN PRODUCTION (BUT NOT ECONOMIES OF SCOPE ON PP 117-18)

    • REDUCE SETUP TIMES, BETTER SCHEDULING

    • U-SHAPED LINES; FLEXIBLE MACHINE CELL


Efficiency profitability

EFFICIENCY & PROFITABILITY

  • FLEXIBLE MANUFACTURING CAN SAVE ON MANPOWER, EQUIPMENT COSTS, CAPACITY UTILIZATION, AND AMOUNT OF REWORK = BIG SAVINGS = PROFITS

  • IN MARKETING TOO, MORE EFFICIENT PRICING, PROMOTION, DESIGN, ETC. = MORE PROFITS WITH HIGHER CUSTOMER RETENTION RATES

    • FEWER RECALLS

    • MORE RESALES

    • HIGHER CUSTOMER LOYALTY


Materials management

MATERIALS MANAGEMENT

  • JIT PRODUCTION AND DISTRIBUTION REQUIRES MATERIALS MNGMNT

  • TYPICAL MFG FIRM

    • MATERIALS & TRANSPORT = 50-70% OF REVENUES

    • FOR FIRM WITH $1 MILLION IN REVENUES

    • INCREASING TOTAL PROFITS BY $15,000 WOULD TAKE EITHER 30% INCREASE IN SALES OR 3% REDUCTION IN MATERIAL COSTS

    • WHICH WOULD BE EASIER TO DO?


Other examples of efficiency

OTHER EXAMPLES OF EFFICIENCY

  • R&D

  • HR HIRING, TRAINING, COMPENSATION & MANAGEMENT (SELF-MNGING TEAMS)

  • PAY FOR PERFORMANCE

  • INFRASTRUCTURE AND EFFICIENCY

    • HOW DO COMPANY STRUCTURE, SYSTEMS, STYLE, & CULTURE CONTRIB TO EFFICIENCY?


Quality

QUALITY

  • QUALITY = RELIABILITY = EXCELLENCE

  • QUALITY PRODUCTS ARE GOODS & SERVICES THAT ARE RELIABLE

  • DO WELL WHAT THEY’RE DESIGNED TO DO

  • QUALITY CAN RESULT IN GREATER EFFICIENCY & PRODUCTIVITY & BRAND-NAME VALUE & CUSTOMER LOYALTY

    • LESS REWORK

    • EASIER TO MAKE, EASIER TO USE


Strategy in action six sigma programs

STRATEGY IN ACTION: SIX SIGMA PROGRAMS

  • SIX SIGMA: PRODUCTION PROCESSES THAT ARE 99.99966 % ACCURATE

  • WITH HUST 3.4 DEFECTS PER ONE MILLION PARTS

  • ALMOST IMPOSSIBLE TO ACHIEVE, BUT GE, MOTOROLA & ALLIED SIGNAL HAVE

    • ALMOST IMPOSSIBLE TO ACHIEVE?

    • STORY OF JAPANESE SUPPLIER AND OVERSEAS ORDER SPECIFYING PPM DEFECTS


Building commitment to quality

BUILDING COMMITMENT TO QUALITY

  • ORGANIZATIONAL, NOT INDIVIDUAL, COMMITMENT TO QUALITY

  • LEADERS NEED TO PUSH QUALITY & EXEMPLIFY QUALITY IN THEIR ACTIONS

  • FOCUS ON CUSTOMER

  • IDENTIFY PROCESSES & SOURCES OF DEFECTS


Commitment to quality ii

COMMITMENT TO QUALITY II

  • FIND WAYS TO MEASURE QUALITY

  • SET GOALS AND INCENTIVES

  • SOLICIT EMPLOYEE INPUTS

  • LONG TERM RELATIONSHIPS WITH SUPPLIERS

  • QUALITY AS MORE THAN RELIABILITY; QUALITY AS EXCELLENCE

  • MOVE FROM CAPABILITIES-COMPETENCIES TO DISTINCTIVE COMPETENCIES


Superior customer responsiveness

SUPERIOR CUSTOMER RESPONSIVENESS

  • QUALITY OF FIRM OFFERINGS PLUS SUPERIOR CUSTOMER RESPONSE TIME

  • ABILITY TO DEVELOP NEW OFFERINGS

  • ABILITY TO CUSTOMIZE EXISTING OFFERINGS TO EVER SMALLER SEGMENTS (WHILE MAINTAINING EFFICIENCY & QUALITY)

    • CUSTOMIZATION

    • MAKE CUSTOMERS FEEL THAT YOU’RE FOCUSING ON ONLY THEM


Table 4 5 diff functions in customer responsiveness

TABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER RESPONSIVENESS

  • INFRASTRUCTURE

  • PRODUCTION

  • MARKETING

  • MATERIALS MANAGEMENT

  • R&D

  • INFORMATION SYSTEMS

  • HUMAN RESOURCES


Innovation

INNOVATION

  • ANYTHING NEW AND NOVEL IN THE WAY COMPANIES OPERATE

  • PRODUCT & PROCESS INNOVATIONS

  • ADVANCES IN PRODUCT DESIGN, FORM FACTOR, MFG, DISTRIB & MKTG PROCESSES, MANAGEMENT SYSTEMS, ORGANIZATIONAL STRUCTURES


Types of innovation

TYPES OF INNOVATION

  • PRODUCT INNOVATION VS PROCESS INNOVATION

  • INNOVATION MAY BE TECHNICALLY AND/OR MARKETING-RELATED

  • INCREMENTAL INNOVATION

  • RADICAL INNOVATION

  • DISCONTINUOUS INNOVATION


Areas for improvement

AREAS FOR IMPROVEMENT

  • PROJECT SELECTION & MANAGEMENT

  • BUILDING CROSS-FUNCTIONAL INTEGRATION

  • PRODUCT DEVELOPMENT STRATEGIES

    • SEQUENTIAL

    • PARTLY PARALLEL

    • FULLY PARALLEL - STRONG PRODUCT DEVELOPMENT TEAMS & MNGRS (SHUSA)

      • JAPANESE FIRMS DESIGN & DEVELOP NEW CARS IN 4 YEARS ON AVERAGE

      • AM & EUROPEAN FIRMS 5-6 YEARS ON AVERAGE


Durability of competitive advantages

DURABILITY OF COMPETITIVE ADVANTAGES

  • EXTENT TO WHICH SUPERIOR EFFICIENCY, QUALITY, CUSTOMER SATISFACTION & INNOVATION MAY BE COPIED AND DUPLICATED

  • BARRIERS TO IMITATION

  • CAPABILITY TO IMITATE

    • ABSORPTIVE CAPACITY

  • INDUSTRY DYNAMISM


Competitive advantage in functions

COMPETITIVE ADVANTAGE IN FUNCTIONS

  • FOUNDATION OF STRATEGIC SUCCESS

    • REMEMBER STRATEGY STACK

  • ARE ORGANIZATIONAL

    • BASED ON CAPABILITIES & COMPETENCIES

  • USUALLY DEPEND ON CONTINUOUS IMPROVEMENT & LEARNING

  • ORGANIZATIONAL FLEXIBILITY & ADAPTABILITY ARE KEY TO LONGTERM SUCCESS

    • NOT ANY OLD CAPABILITIES, BUT DYNAMIC CAPABILITES


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