1. FUNCTIONAL LEVEL STRATEGIES - CHPT 4 BUSINESS 189 Spring 2007 DR. MARK FRUIN

2. FUNCTIONAL-LEVEL STRATEGIES PP 110-111, THE BOOK CONTINUES TO CONFUSE FUNCTIONAL STRATEGIES AND DISTINCTIVE COMPETENCIES –WELL DONE FUNCTIONAL STRATEGIES CAN RESULT IN DISTINCTIVE COMPETENCIES –BUT DISTINCTIVE COMPETENCIES DO NOT LEAD TO FUNCTIONAL STRATEGIES ALTHOUGH THEY MAY CHANNEL WHERE FURTHER INVESTMENT & EFFORT MAKE SENSE

3. FUNCTIONAL LEVEL STRATEGIES SUPERIOR EFFICIENCY SUPERIOR QUALITY SUPERIOR CUSTOMER RESPONSIVENESS SUPERIOR INNOVATION

4. EFFICIENCY TWO FACTORS DETERMINE A FIRM’S PROFIT RATE –THE VALUE CUSTOMERS PLACE ON FIRM OFFERING –THE COSTS OF PRODUCING & DELIVERING THOSE OFFERINGS DIFFERENCE BETWEEN COSTS OF INPUTS AND VALUE OF OUTPUT PRODUCTIVITY MEASURES OUTPUT PER EMPLOYEE

5. SUPERIOR VALUE CREATION EITHER ENJOY THE LOWEST COST STRUCTURE IN THE INDUSRY –4Ss: SCALE, SCOPE, SPECIALIZATION, & SPEED –OTHER ADVANTAGES? OR CREATE THE MOST VALUABLE PRODUCT IN EYES OF CUSTOMERS –THE GAP BETWEEN PERCEIVED VALUE AND COSTS OF PRODUCTION –ALLOWING A HIGH PRICE/DIFFERENTIATION STRATEGY

6. SUPERIOR EFFICIENCY TEXT DISCUSSES ECONOMIES & DISECONOMIES OF SCALE ON PP 111-12 –AT SOME POINT INCREASING SCALE MAY NOT YIELD LOWER COSTS PER UNIT –GENERALLY, SCALE RELATED INVESTMENTS ARE LUMPY; NOTION OF MES MINIMUM EFFICIENT SCALE VARIES BY INDUSTRY LEARNING EFFECTS ON PP 113-14 –BOOK SAYS MORE COMPLEX TASKS HAVE POTENTIAL FOR GREATER LEARNING EFFECTS –AT SOME TIME, LEARNING MAY DIMINISH FLEXIBLE/LEAN PRODUCTION (BUT NOT ECONOMIES OF SCOPE ON PP 117-18) –REDUCE SETUP TIMES, BETTER SCHEDULING –U-SHAPED LINES; FLEXIBLE MACHINE CELL

7. EFFICIENCY & PROFITABILITY FLEXIBLE MANUFACTURING CAN SAVE ON MANPOWER, EQUIPMENT COSTS, CAPACITY UTILIZATION, AND AMOUNT OF REWORK = BIG SAVINGS = PROFITS IN MARKETING TOO, MORE EFFICIENT PRICING, PROMOTION, DESIGN, ETC. = MORE PROFITS WITH HIGHER CUSTOMER RETENTION RATES –FEWER RECALLS –MORE RESALES –HIGHER CUSTOMER LOYALTY

8. MATERIALS MANAGEMENT JIT PRODUCTION AND DISTRIBUTION REQUIRES MATERIALS MNGMNT TYPICAL MFG FIRM –MATERIALS & TRANSPORT = 50-70% OF REVENUES –FOR FIRM WITH $1 MILLION IN REVENUES –INCREASING TOTAL PROFITS BY $15,000 WOULD TAKE EITHER 30% INCREASE IN SALES OR 3% REDUCTION IN MATERIAL COSTS –WHICH WOULD BE EASIER TO DO?

9. OTHER EXAMPLES OF EFFICIENCY R&D HR HIRING, TRAINING, COMPENSATION & MANAGEMENT (SELF-MNGING TEAMS) PAY FOR PERFORMANCE INFRASTRUCTURE AND EFFICIENCY –HOW DO COMPANY STRUCTURE, SYSTEMS, STYLE, & CULTURE CONTRIB TO EFFICIENCY?

10. QUALITY QUALITY = RELIABILITY = EXCELLENCE QUALITY PRODUCTS ARE GOODS & SERVICES THAT ARE RELIABLE DO WELL WHAT THEY’RE DESIGNED TO DO QUALITY CAN RESULT IN GREATER EFFICIENCY & PRODUCTIVITY & BRAND- NAME VALUE & CUSTOMER LOYALTY –LESS REWORK –EASIER TO MAKE, EASIER TO USE

11. STRATEGY IN ACTION: SIX SIGMA PROGRAMS SIX SIGMA: PRODUCTION PROCESSES THAT ARE 99.99966 % ACCURATE WITH HUST 3.4 DEFECTS PER ONE MILLION PARTS ALMOST IMPOSSIBLE TO ACHIEVE, BUT GE, MOTOROLA & ALLIED SIGNAL HAVE –ALMOST IMPOSSIBLE TO ACHIEVE? –STORY OF JAPANESE SUPPLIER AND OVERSEAS ORDER SPECIFYING PPM DEFECTS

12. BUILDING COMMITMENT TO QUALITY ORGANIZATIONAL, NOT INDIVIDUAL, COMMITMENT TO QUALITY LEADERS NEED TO PUSH QUALITY & EXEMPLIFY QUALITY IN THEIR ACTIONS FOCUS ON CUSTOMER IDENTIFY PROCESSES & SOURCES OF DEFECTS

13. COMMITMENT TO QUALITY II FIND WAYS TO MEASURE QUALITY SET GOALS AND INCENTIVES SOLICIT EMPLOYEE INPUTS LONG TERM RELATIONSHIPS WITH SUPPLIERS QUALITY AS MORE THAN RELIABILITY; QUALITY AS EXCELLENCE MOVE FROM CAPABILITIES-COMPETENCIES TO DISTINCTIVE COMPETENCIES

14. SUPERIOR CUSTOMER RESPONSIVENESS QUALITY OF FIRM OFFERINGS PLUS SUPERIOR CUSTOMER RESPONSE TIME ABILITY TO DEVELOP NEW OFFERINGS ABILITY TO CUSTOMIZE EXISTING OFFERINGS TO EVER SMALLER SEGMENTS (WHILE MAINTAINING EFFICIENCY & QUALITY) –CUSTOMIZATION –MAKE CUSTOMERS FEEL THAT YOU’RE FOCUSING ON ONLY THEM

15. TABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER RESPONSIVENESS INFRASTRUCTURE PRODUCTION MARKETING MATERIALS MANAGEMENT R&D INFORMATION SYSTEMS HUMAN RESOURCES

16. INNOVATION ANYTHING NEW AND NOVEL IN THE WAY COMPANIES OPERATE PRODUCT & PROCESS INNOVATIONS ADVANCES IN PRODUCT DESIGN, FORM FACTOR, MFG, DISTRIB & MKTG PROCESSES, MANAGEMENT SYSTEMS, ORGANIZATIONAL STRUCTURES

17. TYPES OF INNOVATION PRODUCT INNOVATION VS PROCESS INNOVATION INNOVATION MAY BE TECHNICALLY AND/OR MARKETING-RELATED INCREMENTAL INNOVATION RADICAL INNOVATION DISCONTINUOUS INNOVATION

18. AREAS FOR IMPROVEMENT PROJECT SELECTION & MANAGEMENT BUILDING CROSS-FUNCTIONAL INTEGRATION PRODUCT DEVELOPMENT STRATEGIES –SEQUENTIAL –PARTLY PARALLEL –FULLY PARALLEL - STRONG PRODUCT DEVELOPMENT TEAMS & MNGRS (SHUSA) JAPANESE FIRMS DESIGN & DEVELOP NEW CARS IN 4 YEARS ON AVERAGE AM & EUROPEAN FIRMS 5-6 YEARS ON AVERAGE

19. DURABILITY OF COMPETITIVE ADVANTAGES EXTENT TO WHICH SUPERIOR EFFICIENCY, QUALITY, CUSTOMER SATISFACTION & INNOVATION MAY BE COPIED AND DUPLICATED BARRIERS TO IMITATION CAPABILITY TO IMITATE –ABSORPTIVE CAPACITY INDUSTRY DYNAMISM

20. COMPETITIVE ADVANTAGE IN FUNCTIONS FOUNDATION OF STRATEGIC SUCCESS –REMEMBER STRATEGY STACK ARE ORGANIZATIONAL –BASED ON CAPABILITIES & COMPETENCIES USUALLY DEPEND ON CONTINUOUS IMPROVEMENT & LEARNING ORGANIZATIONAL FLEXIBILITY & ADAPTABILITY ARE KEY TO LONGTERM SUCCESS –NOT ANY OLD CAPABILITIES, BUT DYNAMIC CAPABILITES