Building Competitive Advantage through Functional Level Strategy
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Presentation on theme: "Building Competitive Advantage through Functional Level Strategy"— Presentation transcript:
1 Building Competitive Advantage through Functional Level Strategy Chapter 4
2 Functional-Level Strategies Should flow from Business-Level StrategyStrategies aimed at improving the effectiveness of a company’s operationsImproving a company’s ability to attain superior efficiency, quality, innovation, and customer responsiveness
4 Achieving Superior Efficiency Economies of scaleUnit cost reductions associated with a large scale of outputAbility to spread fixed costs over a large production volumeAbility of companies producing in large volumes to achieve a greater division of labor and specializationDiseconomies of scaleUnit cost increases associated with a large scale of output
6 Achieving Superior Efficiency (cont’d) Learning effectsCost savings that come from learning by doingLabor productivityManagement efficiencyWhen changes occur in a company’s production system, learning has to begin again
7 Achieving Superior Efficiency (cont’d) The experience curveThe systematic lowering of the cost structure and consequent unit cost reductions that occur over the life of a productEconomies of scale and learning effects underlie the experience curve
9 The Impact of Learning and Scale Economies on Unit Costs
10 Economies of Scale Experience Old rule of thumb: Unit cost of production goes down 20% as volume doubles.Companies have set price to achieve a level of volume and desired unit cost of production; some with success.
11 Achieving Superior Efficiency (cont’d) Dangers of complacency with the experience curveIt will bottom outNew technologies can make experience effects obsoleteSome technologies may not produce lower costs with higher volumes of outputFlexible manufacturing technologies may allow small manufacturers to product at low unit costs
12 Unit Production Costs in an Integrated Mill and Mini-Mill
13 Achieving Superior Efficiency (cont’d) Flexible manufacturing (lean production)Technology that reduces setup times for complex equipment, improves scheduling to increase use of individual machines, and improves quality controlIncreases efficiency and lowers unit costsMass customization reconciles two goals: low cost and differentiation through product customization
15 ExerciseStrategy in Action 4.1: Explain what went wrong in Texas Instrument and its reliance on the experience curve.Strategy in Action 4.2: Explain how Toyota’s lean production system illustrates Figure 4.6.