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4. Building Competitive Advantage Through Functional-Level Strategy

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Advertising. Promotion. Pricing. Distribution. Customer retention. 13 ... Eliminate slogans, exhortations, and targets for the work force asking for zero ... – PowerPoint PPT presentation

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Title: 4. Building Competitive Advantage Through Functional-Level Strategy


1
4. Building Competitive Advantage Through
Functional-Level Strategy
2
Value Chain Perspective
3
Achieving Superior Efficiency
  • Economies of scale
  • Unit cost reductions associated with a large
    scale of output
  • Ability to spread fixed costs over a large
    production volume
  • Ability of companies producing in large volumes
    to achieve a greater division of labor and
    specialization
  • Diseconomies of scale
  • Unit cost increases associated with a large scale
    of output

4
Production and Efficiency
  • A typical long-run unit-cost curve

5
Diseconomies
Why do diseconomies of scale occur?
6
Production and Efficiency Learning Effects
7
Production and Efficiency The Experience Curve
8
Experience Curve
  • Dangers of complacency with the experience curve
  • It will bottom out
  • New technologies can make experience effects
    obsolete
  • Some technologies may not produce lower costs
    with higher volumes of output
  • Flexible manufacturing technologies may allow
    small manufacturers to product at low unit costs

9
Production and Efficiency High Volume? Cost
Advantage
10
Manufacturing and Mass Customization
  • Flexible manufacturing technology (lean
    production)
  • Reduced setup times
  • Increased machine utilization
  • Improved quality control
  • Lower inventory levels
  • Mass customization
  • Low cost and product customization

11
Production and Efficiency Flexible Manufacturing
12
Marketing and Efficiency
  • Marketing strategy
  • Product design
  • Advertising
  • Promotion
  • Pricing
  • Distribution
  • Customer retention

13
The Relationship Between Average Unit Costs and
Customer Defection Rates
14
The Relationship Between Customer Loyalty and
Profit per Customer
15
Materials Management, JIT, and Efficiency
  • Materials management
  • Getting materials into and through the
    production process and out through the
    distribution system to the end user.
  • Just-In-Time (JIT)
  • Reduce inventory holding costs by having
    materials arrive JIT to enter the production
    process.
  • JIT risk There are no buffer stocks for
    nondelivery or unanticipated increases in demand.

16
RD Strategy and Efficiency
  • Design easy-to-manufacture products
  • Reduce numbers of parts per unit.
  • Reduce assembly time.
  • Closely coordinate RD and production
    activities.
  • Pioneer process innovations
  • Innovations create competitive advantage through
    gains in process efficiencies.

17
Human Resource Strategy and Efficiency
  • Ways to increase employee productivity and lower
    unit costs
  • Provide training that upgrades employee skills.
  • Establish self-managing teams to gain a more
    flexible work force and increase productivity.
  • Use pay-for-performance incentives for teams to
    encourage meeting productivity and quality
    goals.

18
Information Systems, the Internet, and Efficiency
  • Benefits of moving operations to the Internet
  • Cost savings in ordering and customer service.
  • Reduced human resource requirements.
  • Lowered internal and back-office costs.
  • Increased employee productivity.
  • For example, Cisco and Dell

19
Infrastructure (Leadership) and Efficiency
  • Achieving superior efficiency requires a
    company-wide commitment built through top
    management leadership in
  • Articulating the vision.
  • Facilitating cross- functional cooperation.

20
Summary
21
Achieving Superior Quality
  • Total Quality Management (TQM)
  • All company operations focused on improving
    product and service quality.
  • Demings Five-Step Chain Reaction
  • Improved quality reduces costs.
  • Improved productivity.
  • Higher market share.
  • Increased profitability.
  • More jobs created.

22
Demings Revolutionary Ideas on Quality
  • Eliminate slogans, exhortations, and targets for
    the work force asking for zero defects and new
    levels of productivity. Such exhortations only
    create adversarial relationships. The bulk of the
    causes of low quality and productivity belong to
    the system and thus lie beyond the power of the
    work force.
  • Drive out fear, so that everyone may work
    effectively for the company
  • Cease dependence on inspection to achieve
    quality. Eliminate the need for inspection on a
    mass basis by building quality into the product
    in the first place.
  • End the practice of of awarding business on the
    basis of price tag. Instead, minimize total cost.
  • Improve constantly and forever the system of
    production and service, to improve quality and
    productivity, and thus constantly reduce costs.
  • Break down barriers between departments.
  • Put everybody in the company to work to
    accomplish the transformation. The transformation
    is everybodys job. Institute training on the job
    to provide tools.
  • Six sigma TQM without the philosophy?

23
Textbook ideas on implementing TQM
  • Build organizational commitment to quality
  • Focus on the customer
  • Find ways to measure quality
  • Set goals and create incentives???
  • Solicit input from employees
  • Identify defects and trace them to source
  • Improve supplier relations
  • Design for ease of manufacture
  • Break down barriers between functions

24
Attributes Associated with a Product Offering
25
Achieving Superior Quality (contd)
  • Developing Superior Attributes
  • Learn which attributes are most important to
    customers
  • Design products and associate services to embody
    the important attributes
  • Decide which attributes to promote and how best
    to position them in consumers minds
  • Monitor competition for improvement in attributes
    and development of new attributes

26
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
  • Successful new product launches are major drivers
    of superior profitability

27
Failure to Innovate
  • Uncertainty
  • Quantum innovation
  • Incremental innovation
  • Poor commercialization
  • Poor positioning strategy
  • Technological myopia
  • Slow to market

28
The Development Funnel
29
Achieving Superior Innovation
  • Building competencies in innovation
  • Building skills in basic and applied research
  • Project selection and management
  • Cross-functional integration
  • Product development teams
  • Partly parallel development process

30
Sequential and Partly Parallel Development
Processes
31
Achieving Superior Customer Responsiveness
  • Developing a customer focus
  • Top leadership commitment to customers.
  • Employee attitudes toward customers.
  • Bringing customers into the company.
  • Satisfying customer needs
  • Customization of the features of products and
    services to meet the unique need of groups and
    individual customers.

32
Responsiveness ctd.
33
Exercise
  • You are the management of a startup that produces
    disk drives in an industry with short life
    cycles, intense price competition, high fixed
    costs, and substantial economies of scale. OEMs
    put a lot of pressure on you to deliver products
    on time
  • What functional competencies are the most
    important to build?
  • How will you design your internal processes that
    ensure those competencies are built?

34
Closing Case
  • Reinventing Levis
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