Lecture Nine: Outline

1. Lecture Nine: Outline • The Productivity Frontier • Value Based Differentiation: Organisational Implications • Product Platforms • Value Positioning in an Organisational Context • Competitive Advantage • Kay’s Added Value • Basic Process Decisions Based on Volume and Variety • Adding “Value Strategy” Options to the Process/ Choice Decision • Introducing the Notion of Distributed Assets to “Value Led” Operations Strategy Decisions • Process Management Extends Beyond Departments Within Organisations to Include External Organisations • Generic Value Chain Processes

2. The Productivity Frontier Porter’s Productivity Frontier (the sum of all practices at any given time that enable an organisation to meet specific value/cost requirements) is a useful approach if we wish to identify specific value based opportunities and to make effective responses. A firm can improve its value proposition by increasing the non-price value delivered for relativel lower cost. Conversely, its value proposition will decrease if the non-price value delivered is lowered and costs increased. Source: Porter (1985)

3. Value Based Differentiation: Organisational Implications • Marketing • Customised products • Strong corporate branding • Extensive/ relationship based activities • Operations • Customer directed R & D • Dedicated manufacturing • Dedicated customer services with agreed performance/ cost objectives Customer Expectations ‘Customised’ Value Delivery • Marketing • Strong category branding • Selected customisation/ own brand products • Relationship activities with target customer groups • Operations • Customer influenced R & D • Flexible and responsive customer service operations BUT cost effectiveness is essential ‘Mass Customisation’ Value Delivery Value Based Differentiation Strategies • Marketing • Standard products based upon core product capabilities and capacities • High volume/ price sensitive customers • Operations • Limited R & D • Standard products and components • Qualifying customer-service offer ‘Commodity’ Based Value Delivery Competitive Activities Source: Walters (2002)

4. Product Platforms

5. Value Positioning in an Organisational Context Source: Walters (2002)

6. Competitive Advantage

7. Kay’s Added Value • Kay calculates added value by subtracting from the market value of an organisation’s output the cost of its inputs:

8. Kay’s Added Value (cont’d) • Revenues - (Wages + Salaries + Materials + Capital Costs) = Added Value

9. Basic Process Decisions Based on Volume and Variety

10. Adding “Value Strategy” Options to the Process/ Choice Decision Source: Walters (2002)

11. Introducing the Notion of Distributed Assets to “Value Led” Operations Strategy Decisions

12. Process Management Extends Beyond Departments Within Organisations to Include External Organisations Source: Adapted from Walters (2002)

13. Generic Value Chain Processes

14. Discussion Questions • How do market conditions affect the value chain in terms of operational characteristics? • Describe the notion of product platforms and illustrate how such a concept can be used to maximise operational efficiency as well as profitability. • Describe the differences between operational methodology at each stage of the value chain.