FUNCTIONAL LEVEL STRATEGIES - CHPT 4

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 • BUT DISTINCTIVE COMPETENCIES DO NOT LEAD TO FUNCTIONAL STRATEGIES • ALTHOUGH THEY MAY CHANNEL WHERE FURTHER INVESTMENT & EFFORT MAKE SENSE

FUNCTIONAL LEVEL STRATEGIES • SUPERIOR EFFICIENCY • SUPERIOR QUALITY • SUPERIOR CUSTOMER RESPONSIVENESS • SUPERIOR INNOVATION

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 • 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 • 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 • 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 • 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 • 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 = 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 • 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 • 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 • 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 • 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 • INFRASTRUCTURE • PRODUCTION • MARKETING • MATERIALS MANAGEMENT • R&D • INFORMATION SYSTEMS • HUMAN RESOURCES

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 • PRODUCT INNOVATION VS PROCESS INNOVATION • INNOVATION MAY BE TECHNICALLY AND/OR MARKETING-RELATED • INCREMENTAL INNOVATION • RADICAL INNOVATION • DISCONTINUOUS INNOVATION

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 • 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 • 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

FUNCTIONAL LEVEL STRATEGIES - CHPT 4