1. Chapter 9 Value Chain Management: Functional Strategies for Competitive Advantage
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2. 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 understand the challenges facing managers and organizations that seek to implement total quality management.
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3. Learning Objectives
Explain why achieving superior efficiency is so important and the different kinds of techniques that need to be employed to increase efficiency.
Differentiate between two forms of innovation, and explain why innovation and product development are crucial components of the search for competitive advantage.
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4. 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 .)
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5. 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
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6. Functional Strategies and Value-Chain Management
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.
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7. 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.
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8. 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
Good value-chain management requires marketing managers to focus on defining the company business in terms of customer needs
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9. 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
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10. 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
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11. 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
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12. Functional Strategies and Value-Chain Management
Sales function
plays a crucial role in locating customers and then informing and persuading them to buy the company’s products
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13. 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
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14. 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.
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15. 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
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16. 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.
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17. 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
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18. 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
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19. Steps to Successful TQM Implementation (cont.)
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.
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20. 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.
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21. Example – Tyler, Texas
In 2009, facing reduced revenues from sales taxes and sluggish property values, the city hired a Six Sigma Master Black Belt and began training city employees in Lean Six Sigma
By 2014, when it was announced that Lean Six Sigma programs had saved more than $5 million for the city, almost 27 percent of city employees had been trained in Lean Six Sigma and worked on Lean Six Sigma projects as part of their regular workloads.
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22. 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.
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23. 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.
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24. 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
product goes to whichever workstation is needed to perform the next operation to complete the product
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25. Facilities Layout Fixed-Position Layout
the product stays in a fixed position and components produced at remote stations are brought the product for to final assembly
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26. 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
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27. 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
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28. 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
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29. 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.
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30. Two Kinds of Innovation
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.
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31. Two Kinds of Innovation
Incremental product innovation
The gradual improvement and refinement of existing products that occur over time as existing technologies are perfected.
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32. 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
Involve both customers and suppliers
Establish a stage-gate development funnel
Establish cross-functional teams
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33. Strategies to Promote Innovation and Speed Product Development
Involve both customers and suppliers
Establish a stage-gate development funnel
Establish cross-functional teams
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34. 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.
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35. 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
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36. A Stage-Gate Development Funnel
Product development plan
A plan that specifies all of the relevant information that managers need in order to decide whether to proceed with a full-blown product development effort.
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37. A Stage-Gate Development Funnel
Contract book
A written agreement that details product development factors such as responsibilities, resource commitments, budgets, time lines, and development milestones.
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38. Establish Cross-Functional Teams
Core members
members of a team who bear primary responsibility for the success of a project and who stay with a project from inception to completion.
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39. Members of a Cross-Functional Product Development Team
A smooth-running cross-functional
team also seems to be a critical component of successful product development, as the experience
of Thermos suggests. Marketing, engineering, and manufacturing personnel are
core members of a successful product development team—the people who have primary
responsibility for the product development effort. Other people besides core members work
on the project when the need arises, but the core members (generally from three to six individuals)
stay with the project from inception to completion of the development effort (see
Figure 9.6 ).
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40. Video: Goodwill
What role does the customer service function play at Goodwill?
Describe the value chain for Goodwill?
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