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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

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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