FUNCTIONAL LEVEL STRATEGIES CHPT 4

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FUNCTIONAL LEVEL STRATEGIES - CHPT 4

• BUSINESS 189
• Spring 2007
• DR. MARK FRUIN

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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

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FUNCTIONAL LEVEL STRATEGIES

• SUPERIOR EFFICIENCY
• SUPERIOR QUALITY
• SUPERIOR CUSTOMER RESPONSIVENESS
• SUPERIOR INNOVATION

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EFFICIENCY

• TWO FACTORS DETERMINE A FIRMS 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

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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

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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

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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

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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?

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OTHER EXAMPLES OF EFFICIENCY

• RD
• HR HIRING, TRAINING, COMPENSATION MANAGEMENT
  (SELF-MNGING TEAMS)
• PAY FOR PERFORMANCE
• INFRASTRUCTURE AND EFFICIENCY
• HOW DO COMPANY STRUCTURE, SYSTEMS, STYLE,
  CULTURE CONTRIB TO EFFICIENCY?

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QUALITY

• QUALITY RELIABILITY EXCELLENCE
• QUALITY PRODUCTS ARE GOODS SERVICES THAT ARE
  RELIABLE
• DO WELL WHAT THEYRE DESIGNED TO DO
• QUALITY CAN RESULT IN GREATER EFFICIENCY
  PRODUCTIVITY BRAND-NAME VALUE CUSTOMER
  LOYALTY
• LESS REWORK
• EASIER TO MAKE, EASIER TO USE

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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

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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

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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

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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 YOURE FOCUSING ON ONLY
  THEM

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TABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER
RESPONSIVENESS

• INFRASTRUCTURE
• PRODUCTION
• MARKETING
• MATERIALS MANAGEMENT
• RD
• INFORMATION SYSTEMS
• HUMAN RESOURCES

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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

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TYPES OF INNOVATION

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

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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

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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

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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