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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

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functional level strategies
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
achieving superior efficiency
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
achieving superior efficiency cont d
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 d7
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
economies of scale experience
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 d11
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
achieving superior efficiency cont d13
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
exercise
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 d16
Achieving Superior Efficiency (cont’d)
  • Marketing
    • Marketing strategy: pricing, promotion, advertising, product design, distribution
    • Reducing customer defection rates and building customer loyalty
achieving superior efficiency cont d18
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 d19
Achieving Superior Efficiency (cont’d)
  • R&D strategy
    • Designing products that are easy to manufacture
    • Process innovations
achieving superior efficiency cont d20
Achieving Superior Efficiency (cont’d)
  • Human resource strategy: employee productivity
    • Hiring
    • Training
    • Self-Managing Teams
    • Pay for Performance
achieving superior efficiency cont d21
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
achieving superior quality
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
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
implementing reliability improvement methodologies
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
achieving superior quality cont d
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
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
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
Achieving Superior Innovation (cont’d)
  • Building Competencies in Innovation
    • Building skills in basic and applied research
    • Project selection and management
achieving superior innovation cont d33
Achieving Superior Innovation (cont’d)
  • Building Competencies in Innovation (cont’d)
    • Cross-functional integration
    • Product development teams
    • Partly parallel development processes
achieving superior responsiveness to customers
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
The Primary Role of Different Functions in Achieving Superior Responsiveness to Customers