1. 4. Building Competitive Advantage Through Functional-Level Strategy

2. Value Chain Perspective

3. Achieving Superior Efficiency
Economies of scale
Unit cost reductions associated with a large scale of output
Ability to spread fixed costs over a large production volume
Ability of companies producing in large volumes to achieve a greater division of labor and specialization
Diseconomies of scale
Unit cost increases associated with a large scale of output

4. Production and Efficiency
A typical long-run unit-cost curve:

5. Diseconomies
Why do diseconomies
of scale occur?

6. Production and Efficiency: Learning Effects

7. Production and Efficiency: The Experience Curve

8. Experience Curve Dangers of complacency with the experience curve
It will bottom out
New technologies can make experience effects obsolete
Some technologies may not produce lower costs with higher volumes of output
Flexible manufacturing technologies may allow small manufacturers to product at low unit costs

9. Production and Efficiency: High Volume≠ Cost Advantage

10. Manufacturing and Mass Customization
Flexible manufacturing technology (lean production)
Reduced setup times
Increased machine utilization
Improved quality control
Lower inventory levels
Mass customization
Low cost and product customization

11. Production and Efficiency: Flexible Manufacturing

12. Marketing and Efficiency
Marketing strategy:
Product design
Advertising
Promotion
Pricing
Distribution
Customer retention

13. The Relationship Between Average Unit Costs and Customer Defection Rates

14. The Relationship Between Customer Loyalty and Profit per Customer

15. Materials Management, JIT, and Efficiency
Getting materials into and through the production process and out through the distribution system to the end user.
Just-In-Time (JIT)
Reduce inventory holding costs by having materials arrive JIT to enter the production process.
JIT risk: There are no buffer stocks for nondelivery or unanticipated increases in demand.

16. R&D Strategy and Efficiency
Design easy-to-manufacture products
Reduce numbers of parts per unit.
Reduce assembly time.
Closely coordinate R&D and production activities.
Pioneer process innovations
Innovations create competitive advantage through gains in process efficiencies.

17. Human Resource Strategy and Efficiency
Ways to increase employee productivity and lower unit costs:
Provide training that upgrades employee skills.
Establish self-managing teams to gain a more flexible work force and increase productivity.
Use pay-for-performance incentives for teams to encourage meeting productivity and quality goals.

18. Information Systems, the Internet, and Efficiency
Benefits of moving operations to the Internet:
Cost savings in ordering and customer service.
Reduced human resource requirements.
Lowered internal and back-office costs.
Increased employee productivity.
For example, Cisco and Dell

19. Infrastructure (Leadership) and Efficiency
Achieving superior efficiency requires a company-wide commitment built through top management leadership in:
Articulating the vision.
Facilitating cross- functional cooperation.

20. Summary

21. Achieving Superior Quality
Total Quality Management (TQM):
All company operations focused on improving product and service quality.
Deming’s Five-Step “Chain Reaction”:
Improved quality reduces costs.
Improved productivity.
Higher market share.
Increased profitability.
More jobs created.

22. Deming’s Revolutionary Ideas on Quality
Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships. The bulk of the causes of low quality and productivity belong to the system and thus lie beyond the power of the work force.
Drive out fear, so that everyone may work effectively for the company
Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
End the practice of of awarding business on the basis of price tag. Instead, minimize total cost.
Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly reduce costs.
Break down barriers between departments.
Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job. Institute training on the job to provide tools.
Six sigma – TQM without the philosophy?

23. Textbook ideas on implementing TQM
Build organizational commitment to quality
Focus on the customer
Find ways to measure quality
Set goals and create incentives???
Solicit input from employees
Identify defects and trace them to source
Improve supplier relations
Design for ease of manufacture
Break down barriers between functions

24. Attributes Associated with a Product Offering

25. Achieving Superior Quality (cont’d)
Developing Superior Attributes
Learn which attributes are most important to customers
Design products and associate services to embody the important attributes
Decide which attributes to promote and how best to position them in consumers’ minds
Monitor competition for improvement in attributes and development of new attributes

26. Achieving Superior Innovation
Innovation can
Result in new products that better satisfy customer needs
Improve the quality of existing products
Reduce costs
Innovation can be imitated so it must be continuous
Successful new product launches are major drivers of superior profitability

27. Failure to Innovate Uncertainty Poor commercialization
Quantum innovation
Incremental innovation
Poor commercialization
Poor positioning strategy
Technological myopia
Slow to market

28. The Development Funnel

29. Achieving Superior Innovation
Building competencies in innovation:
Building skills in basic and applied research
Project selection and management
Cross-functional integration
Product development teams
Partly parallel development process

30. Sequential and Partly Parallel Development Processes

31. Achieving Superior Customer Responsiveness
Developing a customer focus:
Top leadership commitment to customers.
Employee attitudes toward customers.
Bringing customers into the company.
Satisfying customer needs:
Customization of the features of products and services to meet the unique need of groups and individual customers.

32. Responsiveness ctd.

33. Exercise
You are the management of a startup that produces disk drives in an industry with short life cycles, intense price competition, high fixed costs, and substantial economies of scale. OEMs put a lot of pressure on you to deliver products on time
What functional competencies are the most important to build?
How will you design your internal processes that ensure those competencies are built?

34. Closing Case
Reinventing Levi’s