1. Value Chain Management: Functional Strategies for Competitive Advantage
Chapter 9

2. Four Ways to Create a Competitive Advantage
The four specific ways in which managers
can lower costs and/or increase differentiation to obtain a competitive
advantage were mentioned in Chapter 1 and are reviewed here; how organizations seek to
achieve them is the topic of this chapter. (See Figure 9.1 .)

3. Functional Strategies and Value-Chain Management
Functional-level strategy: A 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
Value chain: The coordinated series or sequence of functional activities necessary to transform inputs such as new product concepts, raw materials, component parts, or professional skills into the finished goods or services customers value and want to buy.

4. Functional Activities and the Value Chain
A company’s value chain is the coordinated series or sequence of functional activities necessary
to transform inputs such as new product concepts, raw materials, component parts,
or professional skills into the finished goods or services customers value and want to buy
(see Figure 9.2 ). Each functional activity along the chain adds value to the product when it
lowers costs or gives the product differentiated qualities that increase the price a company
can charge for it.

5. Functional Strategies and Value-Chain Management
Value-chain management: The development of a set of functional-level strategies that support a company’s business- level strategy and strengthen its competitive advantage
Marketing function’s task is to persuade customers a product meets their needs and convince them to buy it

6. 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
Although specifying exactly what customers want is not possible because their needs
vary from product to product, it is possible to identify some general product
attributes or qualities that most customers prefer:
1. A lower price to a higher price.
2. High-quality products to low-quality products.
3. Quick service and good after-sales service to slow service and poor after sales
support.
4. Products with many useful or valuable features to products with few
features.
5. Products that are, as far as possible, customized or tailored to their
unique needs.

7. Impact of Increased Quality on Organizational Performance
Why do managers
seek to control and improve the quality of their organizations’ products? 33 There are two reasons
(see Figure 9.3 ). First, customers usually prefer a higher-quality product to a lower-quality product. The second reason for trying to boost product quality is that higher product quality can
increase efficiency and thereby lower operating costs and boost profits. 7

8. 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
“Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”
“It is not enough to do your best; you must know what to do, then do your best.” 8

9. 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
Identify defects and trace to source.
Introduce just-in-time inventory systems.
Work closely with suppliers.
Design for ease of production.
Break down barriers between functions.

10. Six Sigma
Six Sigma
A technique used to improve quality by systematically improving how value chain activities are performed and then using statistical methods to measure the improvement.
The goal of Six Sigma is to improve a company’s quality to only three defects per million by systematically altering the way all the processes involved in value chain activities are performed, and then carefully measuring how much improvement has been made using statistical methods. Six Sigma shares with TQM its focus on improving value chain processes to increase quality; but it differs because TQM emphasizes top-down organization-wide employee involvement, whereas the Six Sigma approach is to create teams of expert change agents, known
as “green belts and black belts,” to take control of the problem-finding and problem-solving process and then to train other employees in implementing solutions.

11. Facilities Layout, Flexible Manufacturing, and Efficiency
strategy of designing the machine-worker interface to increase operating system efficiency
Flexible Manufacturing
The set of techniques that attempt to reduce the costs associated with the product assembly process or the way services are delivered to customers.

12. Three Facilities Layouts
The way in which machines, robots, and people are grouped
together affects how productive they can be. Figure 9.4 shows three basic ways of arranging
workstations: product layout, process layout, and fixed-position layout.

13. 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

14. 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

15. 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

16. Process Reengineering and Efficiency
The fundamental rethinking and radical redesign of business processes to achieve dramatic improvement in critical measures of performance such as cost, quality, service, and speed.

17. Two Kinds of Innovation
Incremental product innovation
The gradual improvement and refinement of existing products that occur over time as existing technologies are perfected.
Quantum product innovation
The development of new, often radically different, kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries.

18. The Cow Path m

19. Strategies to Promote Innovation and Speed Product Development
Stage-Gate Development Funnel
A planning model that forces managers to choose among competing projects so organizational resources are not spread thinly over too many projects.
Contract book
A written agreement that details product development factors such as responsibilities, resource commitments, budgets, time lines, and development milestones.

20. A 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 20

21. How Are Corporate Strategies Managed?
Strategic Business Unit (SBU) - the single independent businesses of an organization that formulate their own competitive strategies.
BCG matrix - a strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs.

22. BCG Matrix
The first portfolio matrix—the BCG matrix—was developed by the Boston Consulting Group and introduced the idea that an organization’s various businesses could be evaluated and plotted using a 2 * 2 matrix to identify which ones offered high potential and which were a drain on organizational resources.

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