1. Chapter 3
Performance Excellence, Competitive Advantage, and Strategic Management

2. Competitive Advantage
Competitive advantage: a firm’s ability to achieve market superiority over its competitors.
Characteristics:
Is driven by customer wants and needs
Makes significant contribution to business success
Matches organization’s unique resources with opportunities
Is durable and lasting
Provides basis for further improvement
Provides direction and motivation

3. Product Quality and Business Performance - PIMS Studies
Product quality is the most important determinant of business profitability.
Businesses offering premium quality products and services usually have large market shares and were early entrants into their markets.
Quality is positively and significantly related to a higher return on investment for almost all kinds of products and market situations.
A strategy of quality improvement usually leads to increased market share but at a cost in terms of reduced short-run profitability.
High-quality producers can usually charge premium prices.

4. Quality and Profitability
Improved quality of design
Improved quality of conformance
Higher perceived value
Higher prices
Lower manufacturing and service costs
Increased market share
Increased revenues
Higher profitability

5. Quality and Business Results Studies
General Accounting Office study of Baldrige Award applicants
Hendricks and Singhal study of quality award winners
Performance results of Baldrige Award winners

6. GAO Study Model

7. Sources of Competitive Advantage
Cost Leadership
Differentiation
People

8. Quality and Differentiation Strategies
Superior product and service design
Outstanding service
High agility
Continuous innovation
Rapid response

9. Quality and Product Design
Understanding customer needs and expectations
Systematic processes for design and product improvement
Tools and techniques
Concurrent engineering
Value analysis
Design reviews
Experimental design

10. Quality and Outstanding Service
Key components of service quality: employees and information technology
Dimensions of service quality
Reliability – ability to provide what was promised
Assurance – knowledge and courtesy of employees and ability to convey trust
Tangibles – physical facilities and appearance of personnel
Empathy – degree of caring and individual attention
Responsiveness – willingness to help customers and provide prompt service

11. Quality and Agility
Agility – capacity for flexibility and rapid change
Continual monitoring and sensing of changing customer needs and expectations
Fast design changes
Rapid roll out of new products and processes
Cross-functional cooperation and coordination
Good supplier relations

12. Quality and Innovation
Innovation is vital to competing in today’s world
Innovation creates new customer needs and expectations and leads to higher levels of performance
Creativity and breakthrough thinking are encouraged

13. Quality and Time
Cycle time – the time it takes to accomplish one cycle of a process
Success in today’s markets requires increasingly shorter cycle times
Major improvements in response time often require work organizations, processes, and paths to be simplified and shortened. Simplified processes reduce opportunities for errors, leading to improved quality.
Improvements in response time often result from increased understanding of internal customer-supplier relationships and teamwork.

14. Information and Knowledge for Competitive Advantage
A supply of consistent, accurate, and timely data across all functional areas of business provides real-time information for the evaluation, control, and improvement of processes, products, and services to meet both business objectives and rapidly changing customer needs.

15. Need for Performance Measurement
To lead the entire organization in a particular direction; that is, to drive strategies and organizational change;
to manage the resources needed to travel in this direction by evaluating the effectiveness of action plans; and
to operate the processes that make the organization work and continuously improve

16. Balanced Scorecard Financial perspective Internal perspective
Customer perspective
Innovation and learning perspective
Leading measures Lagging measures

17. Baldrige Classification of Performance Measures
Product and service outcomes
Customer-focused outcomes
Financial and market outcomes
Human resource outcomes
Organizational effectiveness outcomes
Leadership and social responsibility outcomes

18. Strategic Planning
Strategy – the pattern of decisions that determines and reveals a company’s goals, policies, and plans to meet the needs of its stakeholders
Strategic planning – the process by which members of an organization envision its future and develop the necessary procedures and operations to carry out that vision

19. Goals of Strategic Planning
Plan for the long term, and understand the key influences, risks, challenges, and other requirements that might affect the organization’s future opportunities and directions.
Project the future competitive environment to help detect and reduce competitive threats, shorten reaction time, and identify opportunities.
Develop action plans and deploy resources—particularly human resources—to achieve alignment and consistency, and provide a basis for setting and communicating priorities for ongoing improvement activities.
Ensure that deployment will be effective—that a measurement system enables tracking of action plan achievement in all areas.

20. Strategic Planning Process

21. Mission
Definition of products and services, markets, customer needs, and distinctive competencies
Example - Procter & Gamble: “We will provide products of superior quality and value that improve the lives of world consumers.”

22. Vision Where the organization is headed and what it intends to be
Brief and memorable - grab attention
Inspiring and challenging - creates excitement
Descriptive of an ideal state - provides guidance
Appealing to all stakeholders - employees can identify with
Example – Solectron: “Be the best and continuously improve”

23. Values (Guiding Principles)
Define attitudes and policies for all employees, which are reinforced through conscious and subconscious behavior at all levels of the organization.
Example – Federal express: “We will be helpful, courteous, and professional to each other an the public. We will strive to have a completely satisfied customer at the end of each transaction.”

24. Environmental Assessment
Customer and market requirements, expectations, and opportunities
Technological and other innovations
Organizational strengths and weaknesses
Financial, societal, ethical, regulatory and other potential risks
Changes in global or national economy
Factors unique to the organization, such as partner and supply chain needs

25. Strategies and Action Plans
Strategies are broad statements that set the direction for the organization to take in realizing its mission and vision.
Strategic objectives are what an organization must change or improve to remain or become competitive.
Action plans are things that an organization must do to achieve its strategic objectives.

26. Strategy Implementation
Developing detailed action plans, defining resource requirements and performance measures, and aligning work unit, supplier, or partner plans with overall strategic objectives.

27. Policy Deployment (Hoshin Kanri)
Top management vision leading to long-term objectives
Deployment through annual objectives and action plans
Negotiation for short-term objectives and resources (catchball)
Periodic reviews

28. Hoshin Planning

29. Linking Human Resource Plans and Business Strategy
Changes in strategy often require changes in HR plans
Examples
Redesign of the work organization to increase empowerment or teamwork
Changes in labor/management partnerships
Directed training and education
Improved processes for knowledge sharing

30. Illustrative Example

31. Requirements for Effective Strategic Planning
A definable approach for developing company strategy.
A clear company strategy with action plans derived from it, and human resource plans related to the action plans.
An approach for implementing action plans.
An approach for monitoring company performance relative to the strategic plan.
Projections of strategy-related changes in key indicators of company performance.

32. Case Studies Bronson Methodist Hospital Branch-Smith Printing Division
Solectron

33. TQ and Strategic Management Theory
Classic strategy formulation addresses the market environment, competitive environment, and company capabilities
Other TQ-related factors – financial and societal risk, human resource capabilities, and supplier/partner capabilities – are addressed only indirectly in the literature