2. 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.

3. 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

4. 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

5. Four Ways to Create a Competitive Advantage

6. Toyota’s Product Lineup
Figure 9.2

7. 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

8. 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

9. 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

10. Functional Activities and the Value Chain

11. 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

12. 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

13. 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

14. 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.

15. 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

16. 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

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

18. 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

19. 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

20. Impact of Increased Quality on Organizational Performance
Figure 9.4

21. 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

22. 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

23. 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

24. 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.

25. 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

26. 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

27. Three Facilities Layouts
Figure 9.5

28. 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.

29. 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

30. 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

31. Changing a Facilities Layout
Figure 9.6

32. 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

33. 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

34. 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

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

36. 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

37. 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

38. 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

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

40. 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

41. A Stage-Gate Development Funnel
Figure 9.7

42. 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

43. Members of a Cross-Functional Product Development Team
Figure 9.8

44. 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

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

46. The Nature of Boundary-Spanning Roles
Figure 9.9

47. 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