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Functional Level Strategy and Competitive Advantage

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How Functional-level Strategies Contribute to Competitive ... Technological myopia. Does not provide value to customer. Slowness to market. Competitors catch up ... – PowerPoint PPT presentation

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Title: Functional Level Strategy and Competitive Advantage


1
Chapter 5
  • Functional Level Strategy and Competitive
    Advantage

2
How Functional-level Strategies Contribute to
Competitive Advantage
  • Building Blocks of Competitive Advantage
  • Efficiency
  • Quality
  • Innovation
  • Customer responsiveness
  • Productive functions of the firms must support
    building blocks

3
Functions in the Value Chain
  • Primary
  • Research and Development
  • Production
  • Marketing and Distribution
  • Support
  • Materials Management
  • Human Resources
  • Infrastructure and Leadership

4
Efficiency
  • Efficiency amount of output produced by given
    amount of input
  • Two ways to increase efficiency
  • Increase output with given input
  • Maintain output with lower level of inputs
  • Production and efficiency
  • Operating where economies of scale are best for
    company
  • MES Minimum efficient scale
  • Differs for each company

5
Minimum Efficient Scale
6
Production and Efficiency
  • Learning effects
  • Learning by doing
  • Get better the more product produced
  • Move down experience curve
  • Contribution to competitive advantage
  • Produce at most efficient level
  • Learn an improve production to get more from same
    inputs

7
Learning Effects
8
Trends in Efficiency
  • Materials Management
  • JIT Just in Time Inventory Management
  • Flexible Manufacturing and Mass Customization
  • Cheaper to produce smaller production runs
  • Cheaper to shift production between runs
  • Information Systems have facilitated better
    inventory and production management

9
Marketing and Efficiency
  • Build and maintain customer base for MES level of
    production
  • Avoid over or under production
  • Efficient distribution systems
  • Must match product and customer base
  • Build customer loyalty
  • Reduce customer defection rates
  • Increases profit from each customer

10
Customer Loyalty and Profit
11
RD and Efficiency
  • Process innovations
  • Improve production processes and systems
  • Improve distribution systems
  • Product innovations
  • Design easy to manufacture products
  • Less parts per product
  • Products to suit customer needs

12
Human Resources and Efficiency
  • Training and hiring practices that encourage
    learning and skill development
  • Faster learning effects
  • Move down experience curve
  • Self-managed teams and empowerment
  • Encourage and reward employees for efficiency
    gains
  • Motivate personnel to search for ways to improve
    efficiency

13
Quality and Competitive Advantage
  • Increases price customers will pay by adding
    value
  • Sets the product or service apart from others
  • Reduced customer complaints leads to higher
    customer loyalty
  • Higher profits and lower costs

14
Quality and Competitive Advantage
  • All levels and functions must stress improvement
    of quality
  • For example, TQM, Six Sigma, etc.
  • Role of production
  • Limit and eliminate defects
  • Trace defects to source
  • Marketing and Distribution
  • Seek feedback from customers and pass to other
    functions
  • RD
  • Develop easy to produce products
  • Implement systems to find defects

15
Innovation and Competitive Advantage
  • Investment to foster innovation is continually
    needed to sustain a competitive advantage BUT
  • More does not necessarily lead to more
    innovation high failure rate
  • Types of innovation
  • Incremental small improvements on current
    product or service
  • Quantum significant change in product or
    service OR totally new product or service

16
Innovation and Competitive Advantage
  • Causes of the high failure rate of innovation
  • Uncertainty
  • Poor commercialization
  • Poor quality
  • Poor positioning
  • Wrong market
  • Technological myopia
  • Does not provide value to customer
  • Slowness to market
  • Competitors catch up

17
Innovation and Competitive Advantage
  • Fostering innovation
  • Basic and applied research skills
  • Tap outside research groups
  • Selection and management of RD projects
  • Cross functional integration
  • All primary and support functions involved in
    supporting projects

18
Innovation and Competitive Advantage
Marketing
19
Innovation and Competitive Advantage
  • Share information across primary functions
  • Human Resources
  • Recruit and hire talented researchers
  • Leadership
  • Select and manage projects with potential
  • Encourage communication
  • Allow mistakes

20
Customer Responsiveness and Competitive Advantage
  • Developing a customer focus
  • Human Resources developing a customer focused
    culture and focus
  • Reward good customer service
  • Satisfying customer needs
  • Marketing and distribution make sure other
    functions know customer needs

21
Customer Responsiveness and Competitive Advantage
  • Production
  • Flexible manufacturing systems
  • Allow quick response to changing customer needs
  • Mass customization larger quantities of
    differentiated products
  • Shorter production runs to limit costs of mass
    customization

22
Customer Responsiveness and Competitive Advantage
  • RD
  • Systems to get customer feedback and work
    customer needs into product
  • Support flexible manufacturing process
    innovation
  • Information systems
  • Support communication systems between customer,
    marketing, and manufacturing

23
Role of Top Managers
  • Competitive advantage depends on all functions
    operating to support building blocks
  • Managers must
  • Articulate and instill a vision to organization
  • Facilitate cross-functional communication and
    cooperation
  • Employ systems to support building blocks of
    competitive advantage
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