chapter nine Value Chain Management: Functional Strategies for Competitive Advantage McGraw-Hill/Irwin Contemporary Management, 5/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Explain the role of functional strategy and value-chain management in achieving superior quality, efficiency, innovation, and responsiveness to customers Describe what customers want, and explain why it is so important for managers to be responsive to their needs Explain why achieving superior quality is so important and the challenges facing managers and organizations that seek to implement total quality management

Learning Objectives Explain why achieving superior efficiency is so important and the different kinds of techniques that need to be employed to increase it Differentiate between two forms of innovation, and explain why innovation and product development is a crucial component of the search for competitive advantage

Four Ways to Create a Competitive Advantage

Toyota’s Product Lineup Figure 9.2

Functional Strategies and Value-Chain Management Functional-level strategy plan of action to improve the ability of each of an organization’s departments to performs its task-specific activities in ways that add value to an organization’s goods and services

Question? What is coordinated sequence of functional activities necessary to transform inputs into finished goods? A. Input chain B. Transformation series C. Value chain D. Value string The correct answer is “C” – value chain. See next slide

Functional Strategies and Value-Chain Management coordinated series or sequence of functional activities necessary to transform inputs into finished goods or services customers value and want to buy

Functional Activities and the Value Chain

Functional Strategies and Value-Chain Management development of a set of functional-level strategies that support a company’s business-level strategy and strengthen its competitive advantage

Functional Strategies and Value-Chain Management Product development engineering and scientific research activities involved in innovating new or improved products that add value to a product Marketing function’s task is to persuade customers a product meets their needs and convince them to buy it

Functional Strategies and Value-Chain Management Materials management function controls the movement of physical materials from the procurement of inputs through production and into distribution and delivery to the customer

Question? Which function provides after sales service and support? Production function Sales function Customer service function Call center function The correct answer is “C” – customer service function. See slide 9-16.

Functional Strategies and Value-Chain Management Production function responsible for the creation, assembly or provision of a good or service, for transforming inputs into outputs Sales function plays a crucial role in locating customers and then informing and persuading them to buy the company’s products

Functional Strategies and Value-Chain Management Customer service function provides after sales service and support Can create a perception of superior value by solving customer problems and supporting customers

Improving Responsiveness to Customers Good value-chain management requires marketing managers to focus on defining the company business in terms of customer needs

What Do Customers Want? A lower price to a higher price High-quality products Quick service and good after-sales service Products with many useful or valuable features Products that are tailored to their unique needs

Customer Relationship Management technique that uses IT to develop an ongoing relationship with customers to maximize the value an organization can deliver to them over time

Impact of Increased Quality on Organizational Performance Figure 9.4

Improving Quality An organization able to provide, for the same price, a product of higher quality than a competitor’s product is serving customers better Higher product quality can increase efficiency

Total Quality Management Total quality management (TQM) focuses on improving the quality of an organization’s products and stresses that all of an organization’s value-chain activities should be directed toward this goal

Steps to Successful TQM Implementation Build organizational commitment to quality Focus on the customer Find ways to measure quality Set goals and create incentives Solicit input from employees

Steps to Successful TQM Implementation Identify defects and trace to source. Introduce just-in-time (JIT) inventory systems. Work closely with suppliers. Design for ease of production. Break down barriers between functions.

Focus on the Customer Identify what customers want from the good or service that the company provides Identify what the company actually provides to customers Identify the gap that exists between what the customers want and what they get (quality gap) Formulate a plan for closing the quality gap

Facilities Layout, Flexible Manufacturing, and Efficiency strategy of designing the machine-worker interface to increase production system efficiency Flexible Manufacturing strategy based on the use of IT to reduce the setup costs associated with a product assembly process

Three Facilities Layouts Figure 9.5

Discussion Question? Which facilities layout is the best to use? Product layout Process layout Fixed position layout Contingency layout The correct answer is - “it depends”. Students should be able to discuss the different situations it’s appropriate to use each layout.

Facilities Layout Product layout Process Layout machines are organized so that each operation is performed at work stations arranged in a fixed sequence Process Layout self contained work stations not organized in a fixed sequence

Facilities Layout Fixed-Position Layout the product stays in a fixed spot and components produced at remote stations are brought the product for to final assembly

Changing a Facilities Layout Figure 9.6

Flexible Manufacturing Aims to reduce time required to set up production equipment By redesigning the process setup times and costs can be drastically reduced Able to produce many more varieties of a product than before in the same amount of time

Just-in-Time Inventory and Efficiency Just-in-time (JIT) inventory system gets components to the assembly line just as they are needed to drive down costs Major cost savings can result from increasing inventory turnover and reducing inventory holding costs

Self-Managed Work Teams and Efficiency Self-managed work teams produce an entire product instead of just parts of it Team members learn all tasks and move from job to job Can increase productivity and efficiency

Process Reengineering and Efficiency fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance

Two Kinds of Innovation Quantum product innovation results in the development of radically different kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries

Two Kinds of Innovation Incremental product innovation results in gradual improvements and refinements to existing products over time as existing technologies are perfected, and functional managers learn how to perform value-chain activities in better ways

Strategies to Promote Innovation and Speed Product Development management of the value-chain activities involved in bringing new or improved kinds of goods and services to the market

Strategies to Promote Innovation and Speed Product Development Involve both customers and suppliers Establish a stage-gate development funnel Establish cross-functional teams

Strategies to Promote Innovation and Speed Product Development Stage-Gate Development Funnel technique that forces managers to make choices among competing projects so that functional resources are not spread thinly over too many projects

A Stage-Gate Development Funnel Figure 9.7

A Stage-Gate Development Funnel Product development plan specifies all of the relevant information that managers need to make a decision about whether to go ahead with a full-blown product development effort

Members of a Cross-Functional Product Development Team Figure 9.8

Managing the Value-Chain: Some Remaining Issues It is manager’s job to collect relevant information about the competitive environment Future intentions of competitors Identity of new customers Identity of new suppliers

Boundary-Spanning Roles Interacting with individuals and groups outside the organization to obtain valuable information from the environment

The Nature of Boundary-Spanning Roles Figure 9.9

Movie Example: You’ve Got Mail How well do the workers respond to customers in the Fox Bookstore? Leonard Maltin describes “You’ve Got Mail” as “a long, but entertaining remake of THE SHOP AROUND THE CORNER, with Meg Ryan as the proud proprietor of a neighborhood bookstore, and Tom Hanks as the head of a superstore chain poised to put her out of business.” In Ch 24, Customer Service, Kathleen is sitting in the Fox Bookstore when a customer asked an employee for a book. The employee has no idea – Kathleen gives them the author and suggestions for other books