Hill and Jones Chapter 4 Slides

8/2/2019 Hill and Jones Chapter 4 Slides

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Chapter

Four

Building

CompetitiveAdvantageThrough

Functional-Level Strategy



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Functional-Level Strategies

Functional-level strategies are strategies aimedat improving the effectiveness of a company’soperations.

Functional-level strategies aim to give a firm superior:

• Efficiency

• Quality

• Innovation

• Customer responsiveness

This leads to a competitive advantageand superior profitability and profit growth.




Achieving Superior Efficiency

Economies of scaleUnit cost reductions associated with a large scale of output

• Ability to spread fixed costs over a large productionvolume

• Ability of companies producing in large volumes toachieve a greater division of labor and specialization

• Specialization has favorable impact on productivity byenabling employees to become very skilled at performinga particular task

Diseconomies of scaleUnit cost increases associated with a large scale of output

• Increased bureaucracy associated with large-scaleenterprises

• Resulting managerial inefficiencies




Economies and Diseconomiesof Scale

Figure 4.2




Learning Effects

Learning Effects are cost savings that comefrom learning by doing.

• Labor productivityLearn by repetition how to best carry out the task

• Management efficiencyLearn over time how to best run the operation

• Realization of learning effects implies adownward shift of the entire unit cost

curveAs labor and management become more efficient over time at every level of output




The Impact of Learning andScale Economies on Unit Costs

Figure 4.3


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The Experience Curve

The Experience Curve is the systematic loweringof the cost structure and consequent unit costreductions that occur over the life of a product

Strategic significance of the experience curve:Increasing a company’s product volume and

market share will lower its cost structure

relative to its rivals.



The Experience Curve

Figure 4.4



Flexible Manufacturingand Mass Customization

Flexible Manufacturing Technology“Lean Production” technology that:

• Reduces setup times for complexequipment

• Improves scheduling to increaseuse of individual machines• Improves quality control at all

stages of the manufacturing process• Increases efficiency and lowers unit costs

Mass CustomizationAbility to use flexible manufacturing technology to reconcile two goals that were once thought incompatible :

• Low cost and

• Differentiation through product customization



Tradeoff Between Costsand Product Variety

Figure 4.5



Marketing

• Marketing strategy refers to the position that acompany takes regarding: • Pricing

• Promotion

• Advertising

• Product Design

• Distribution

• Marketing strategy can reduce costs by loweringcustomer defection rates and increasing loyalty



The Relationship Between CustomerLoyalty and Profit per Customer

The longer a company holds on to a customer the greaterthe volume of customer-generated unit sales that offset fixed

marketing costs and lowers the average cost of each sale.

Figure 4.6



Materials Management encompasses the activitiesnecessary to get inputs and components to a productionfacility, through the production process, and through thedistribution system to the end-user• Many sources of cost in this process

• Significant opportunities for cost reduction through moreefficient materials management

• Just-in-Time (JIT) Inventory System to economize holding costs:

» Have components arrive to manufacturing just prior to need inproduction process

» Have finished goods arrive at retail just prior to stock out Supply Chain Management is the task of managing the

flow of inputs to a company’s processes to minimizeinventory holding and maximize inventory turnover

Materials Management andSupply Chain



Research and Development (R&D)Roles of R&D in helping a company achieve greater efficiency and lower cost structure:

1. Boost efficiency by designing products that

are easy to manufacture• Reduce the number of parts that make up a product –reduces assembly time

• Design for manufacturing – requires close coordinationwith production and R&D

2. Help a company have a lower cost structure bypioneering process innovations• Reduce process setup times

• Flexible manufacturing

• An important source of competitive advantage

R&D Strategy



Human Resource Strategy

Hiring strategyAssures that the people a company hires have the attributes that match the strategic objectives of the company

Employee trainingUpgrades employee skills to perform tasks faster and more accurately

Self-managing teams

Members coordinate their own activities and make their own hiring, training, work, and reward decisions

Pay for performanceLinking pay to individual and team performance can help to increase employee productivity

Goal: to improve employee productivity.



Information Systems

Information systems’impact on productivity iswide-ranging:

Web-based informationsystems can automate manyactivities

Automates interactions

between• Company and customers

• Company and suppliers



A company’s structure, culture, style of strategic leadership, and control system: • Determines the context within which all other value

creation activities take place

• Is especially important in building a companywidecommitment to efficiency

• Articulates a vision for all functions and coordinateacross functions

Achieving superior performance requires anorganization-wide commitment.

Top management plays a major role in this process.

Infrastructure



Primary Roles ofValue Creation Functions

Table 4.1




Achieving Superior Quality

1. Quality as reliabilityThey do the jobs they were designed for and do it well

2. Quality as excellencePerceived by customers to have superior attributes

A strong reputation for quality allows acompany to differentiate its products.

Eliminating defects or errors reduces waste,increases efficiency, and lowers the coststructure – increasing profitability.

Quality can be thought of in terms of twodimensions:




Improving Quality as Reliability

TQM is based on the following five-step chain

reaction: 1. Improved quality means that costs

decrease.2. As a result, productivity also improves.

3. Better quality leads to higher marketshare and allows increased prices.4. This increases a company’s profitability. 5. Thus the company creates more jobs.

Six Sigma methodology: the principal toolnow used to increase reliability, which is a directdescendant of Total Quality Management (TQM)




Deming’s Steps in aQuality Improvement Program

1. A company should have a clear business model.2. Management should embrace philosophy that

mistakes, defects, and poor quality are notacceptable.

3. Quality of supervision should be improved.4. Management should create an environment in

which employees will not be fearful of reportingproblems or making suggestions.

5. Work standards should include some notion ofquality to promote defect-free output.

6. Employees should be trained in new skills.

7. Better quality requires the commitment ofeveryone in the workplace.




Roles Played in Implementing ReliabilityImprovement Methodologies

Table 4.2




Implementing Reliability ImprovementMethodologies

Build organizational commitment to quality

Create quality leaders

Focus on the customer Identify processes and the source of defects

Find ways to measure quality

Set goals and create incentives

Solicit input from employees Build long-term relationships with suppliers

Design for ease of manufacture

Break down barriers among functions

Imperatives that stand out among companies that have successfully adopted quality improvement methods:




Improving Quality as Excellence

Developing Superior Attributes:

• Learn which attributes are most important tocustomers

• Design products and associate services toembody the important attributes

• Decide which attributes to promote and howbest to position them in consumers’ minds

• Continual improvement in attributes anddevelopment of new-product attributes

A product is a bundle of attributes and can bedifferentiated by attributes that collectively defineproduct excellence.




Attributes Associated with aProduct Offering

Table 4.3




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

Building distinctive competencies that result in innovation is the most important source of competitive advantage.

Successful new product launches aremajor drivers of superior profitability.




The High Failure Rateof Innovation

Most common explanations for failure: Uncertainty

• Quantum innovation – radical departure with higher risk • Incremental innovation – extension of existing technology

Poor commercialization • Definite demand for product• Product not well adapted to customer needs

Poor positioning strategy• Good product but poorly positioned in the marketplace

Technological myopia• Technological “wizardry” vs. meeting market requirements

Being slow to market

Failure rate of innovative new products is high with evidence suggesting that only 10 to 20% of major R&D projects give rise to a commercially viable product.




Building Competencies inInnovation

1. Building skills in basic and applied research

2. Project selection and management

Using the product development funnel » Idea generation » Project refinement » Project execution

3. Achieving cross-functional integration1. Driven by customer needs 2. Design for manufacturing

3. Track development costs 4. Minimize time-to-market

5. Close integration between R&D and marketing

4. Using product development teams5. Partly-parallel development process

To compress development time & time-to-market

Companies can take a number of steps to build competencies in innovation and reduce failures:




The Development Funnel

Figure 4.7




Sequential and Partly ParallelDevelopment Processes

Figure 4.8

Reduceddevelopment time& time-to-market




Achieving SuperiorResponsiveness to Customers

Focusing on the customer• Satisfying customer needs

» Customization (Tailor tounique needs of groups

of customers)» Response time (increasedspeed; premium pricing)

Customer responsiveness: giving customers what they want, when they want it, and at a price they are willing to pay - as long as the company’s long -term profitability is not compromised.



Primary Roles of Functions in AchievingSuperior Responsiveness to Customers

Table 4.5

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