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FUNCTIONAL LEVEL STRATEGIES - CHPT 4

FUNCTIONAL LEVEL STRATEGIES - CHPT 4. BUS 189 FEB. 21, 2012 DR. MARK FRUIN. FUNCTIONAL LEVEL STRATEGIES. SUPERIOR EFFICIENCY ANYWHERE IN THE ORGANIZATION NOT JUST THE PRODUCTION LINE SUPERIOR QUALITY ANYWHERE IN THE ORGANIZATION QUALITY AS RELIABILITY; QUALITY AS EXCELLENCE

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FUNCTIONAL LEVEL STRATEGIES - CHPT 4

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  1. FUNCTIONAL LEVEL STRATEGIES - CHPT 4 BUS 189 FEB. 21, 2012 DR. MARK FRUIN

  2. FUNCTIONAL LEVEL STRATEGIES • SUPERIOR EFFICIENCY • ANYWHERE IN THE ORGANIZATION • NOT JUST THE PRODUCTION LINE • SUPERIOR QUALITY • ANYWHERE IN THE ORGANIZATION • QUALITY AS RELIABILITY; QUALITY AS EXCELLENCE • SUPERIOR CUSTOMER RESPONSIVENESS • ANYWHERE IN THE ORGANIZATION • CUSTOMERS ARE NOT JUST “OUT THERE” • SUPERIOR INNOVATION • ANYWHERE IN THE ORGANIZATION

  3. EFFICIENCY • TWO FACTORS DETERMINE A FIRM’S PROFIT RATE/PROFITABILITY • 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

  4. SUPERIOR VALUE CREATION • EITHER ENJOY THE LOWEST COST STRUCTURE IN THE INDUSRY (PORTER’S COST LEADERSHIP) • 2Ss: SCALE & SCOPE • 2 MORE Ss: SPECIALIZATION & SPEED • OTHER COST ADVANTAGES? • OR CREATE THE MOST VALUABLE PRODUCT IN EYES OF CUSTOMERS (PORTER’S DIFFERENTIATION) • THE GAP BETWEEN PERCEIVED VALUE AND COSTS OF PRODUCTION • ALLOWS A HIGH PRICE = DIFFERENTIATION STRATEGY

  5. SUPERIOR EFFICIENCY • TEXT DISCUSSES ECONOMIES & DISECONOMIES OF SCALE ON PP 108- • 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 111- • BOOK: MORE COMPLEX TASKS HAVE POTENTIAL FOR GREATER LEARNING EFFECTS (MAYBE); MORE COMPLEXITY = GREATER LIKELIHOOD OF ERROR • AT SOME TIME, LEARNING MAY DIMINISH • FLEXIBLE/LEAN PRODUCTION ON PP 115- (BUT, NOT SAME AS ECONOMIES OF SCOPE) • REDUCE SETUP TIMES, BETTER SCHEDULING • U-SHAPED LINES; FLEXIBLE MACHINE CELLS

  6. EFFICIENCY & PROFITABILITY • FLEXIBLE MANUFACTURING CAN SAVE ON MANPOWER, EQUIPMENT COSTS, CAPACITY UTILIZATION & 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

  7. MATERIALS MANAGEMENT • JIT PRODUCTION AND DISTRIBUTION REQUIRES MATERIALS MNGMNT • KANBAN = CHIT TO MANAGE MATERIALS FLOW • TYPICAL MFG FIRM • MATERIALS & TRANSPORT COSTS = 50-70% OF REVENUES • FOR FIRM WITH $1 MILLION IN REVENUES • INCREASING TOTAL PROFITS BY $150,000 WOULD TAKE EITHER 30% INCREASE IN SALES OR 3% REDUCTION IN MATERIAL COSTS • WHICH WOULD BE EASIER TO DO? PRETTY OBVIOUS

  8. QUALITY • QUALITY = RELIABILITY = EXCELLENCE • QUALITY CAN MEAN EITHER AND/OR BOTH • 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

  9. STRATEGY IN ACTION: SIX SIGMA PROGRAMS • SIX SIGMA: PRODUCTION PROCESSES THAT ARE 99.99966 % ACCURATE • WITH 3.4 DEFECTS PER ONE MILLION PARTS • ALMOST IMPOSSIBLE TO ACHIEVE, BUT GE, MOTOROLA & ALLIED SIGNAL HAVE DONE SO • ALMOST IMPOSSIBLE TO ACHIEVE? • STORY OF JAPANESE SUPPLIER AND OVERSEAS ORDER SPECIFYING PPM DEFECTS • SPECIFY 3-4 DEFECTIVE PARTS PER MILLION • SUPPLIER COMPLIED

  10. BUILDING COMMITMENT TO QUALITY • ORGANIZATIONAL, NOT INDIVIDUAL, COMMITMENT TO QUALITY • LEADERS NEED TO PUSH QUALITY & EXEMPLIFY QUALITY IN THEIR ACTIONS • THAT IS, BOTTOM UP WON’T WORK W/O TOP DOWN PUSH • FOCUS ON CUSTOMER NEEDS • IDENTIFY PROCESSES & SOURCES OF DEFECTS • PRECISE TOOLS & TECHNIQUES TO MAP SOURCES OF DEFECTS AND FIX THEM • WHO DOES INVESTIGATION & REMEDIATION OF DEFECTS? HAS POWERFUL EFFECT ON QUALITY • “EVERYONE A MANAGER”; EDUCATED & MOTIVATED WRKRS

  11. 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 SIMPLE RELIABILITY; QUALITY AS EXCELLENCE • MOVE FROM CAPABILITIES-COMPETENCIES THAT EVERYONE HAS TO DISTINCTIVE COMPETENCIES BY FOCUSING ON QUALITY

  12. SUPERIOR CUSTOMER RESPONSIVENESS • QUALITY OF FIRM OFFERINGS PLUS SUPERIOR CUSTOMER RESPONSE TIME • ABILITY TO DEVELOP NEW OFFERINGS QUICKLY • ABILITY TO CUSTOMIZE EXISTING OFFERINGS TO EVER SMALLER SEGMENTS (WHILE MAINTAINING EFFICIENCY & QUALITY) • CUSTOMIZATION • MAKE CUSTOMERS FEEL THAT YOU’RE FOCUSING ON ONLY THEM

  13. TABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER RESPONSIVENESS • INFRASTRUCTURE (LEADERSHIP NEEDED; WHAT SYSTEMS REQUIRED TO RESPOND WELL) • COMMUNICATIONS, IT, LOGISTICS • PRODUCTION • MARKETING • MATERIALS MANAGEMENT • R&D • INFORMATION SYSTEMS • HUMAN RESOURCES

  14. TYPES OF INNOVATION • PRODUCT INNOVATION VS PROCESS INNOVATION • INNOVATION MAY BE IN TECHNICAL AND/OR MARKETING-REALMS • 2 X 2 X 3 MATRIX RESULTS = SEGMENTS AS INNOVATION OPPORTUNITIES • INCREMENTAL INNOVATION • RADICAL INNOVATION • DISRUPTIVE/DISCONTINUOUS INNOVATION • OPPORTUNITIES FOR INNOVATION ARE ENDLESS BUT NOT ALL INNOVATIONS ARE EQUALLY VALUABLE • VRIND FOR INNOVATIONS

  15. AREAS FOR IMPROVING LIKELIHOOD OF INNOVATION • PROJECT SELECTION & MANAGEMENT • BUILDING CROSS-FUNCTIONAL INTEGRATION (VIA TEAMS) • PRODUCT DEVELOPMENT STRATEGIES • SEQUENTIAL • PARTLY PARALLEL • FULLY PARALLEL - STRONG PRODUCT DEVELOPMENT TEAMS & MNGRS (SHUSA & HEAVYWEIGHT PRODUCT DEVELOPMENT TEAMS) • JAPANESE FIRMS DESIGN & DEVELOP NEW CARS IN 4 YEARS ON AVERAGE • AM & EUROPEAN FIRMS 5-6 YEARS ON AVERAGE • FORD & GM MOTOR GETTING BETTER - WHY?

  16. DURABILITY OF COMPETITIVE ADVANTAGES • EXTENT TO WHICH SUPERIOR EFFICIENCY, QUALITY, CUSTOMER SATISFACTION & INNOVATION MAY BE COPIED AND DUPLICATED • BARRIERS TO IMITATION • TACIT VS. EXPLICIT • EMBEDDED VS. EMBODIED IN FORMULA • OTHER BARRIERS? • CAPABILITY TO IMITATE • ABSORPTIVE CAPACITY • INDUSTRY DYNAMISM

  17. CAN ONE SUCCEED ON F-L STRATEGIES ALONE? • YES, A TRIED-AND-TRUE STRATEGY • JAPANESE CAR COMPANIES AT THE OUTSET OF NORTH AMERICA/EUROPEAN INVASION • KOREAN CAR COS. NOW (OR UP UNTIL NOW) • LET OTHERS DO THE PRODUCT/MARKET PLANNING & EXPLORATION; OFFER A BETTER PRODUCT AT A CHEAPER PRICE • NO, IMITATION DOES NOT EXIST WITHOUT INNOVATION • CATCH-UP STRATEGIES ALWAYS REQUIRE INNOVATION AND EVEN INVENTION

  18. IN-CLASS EXAM PRACTICE QUESTIONS: ANSWER 1 OF THE FOLLOWING 2 • IS STEVE WYNN A STRATEGIC LEADER, AS DEFINED ON PP. 31-33 IN CHPT. 1? • PLEASE BACK UP YOUR ASSESSMENT WITH EVIDENCE DRAWN FROM THE CASE • DO A FULL BLOWN SWOT ANALYSIS FOR WYNN RESORTS, IDENTIFYING ITS TWO GREATEST STRENGTHS, WEAKNESSES, OPPORTUNITIES & THREATS • WHAT EVIDENCE CAN BE MARSHALLED TO BACK UP YOUR ASSESSMENTS?

  19. IN CLASS PRACTICE EXAM QUESTIONS: ANSWER 1 OF THE FOLLOWING 2 • USING M. PORTER’S GENERIC COMPETITIVE STRATEGIES & FIVE FORCES MODELS, CHARACT-ERIZE WYNN RESORTS’ INDUSTRY STRATEGY • DO A GCS CONTINUUM AND LOCATE WYNN RESORTS ON THE CONTINUUM; WHAT ARE YOUR REASONS FOR LOCATING WYNN RESORTS WHERE YOU DO? • DOES WYNN RESORTS HAVE DISTINCTIVE COMPETENCIES? IF SO, WHAT ARE THEY AND WHY ARE THEY DISTINCTIVE COMPETENCIES? • WHAT ARE DISTINCTIVE COMPETENCIES; WHERE DO THEY COME FROM; AND DOES WYNN RESORTS HAVE ANY OF THEM?

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