FUNCTIONAL LEVEL STRATEGIES - CHPT 4FUNCTIONAL LEVEL STRATEGIESEFFICIENCYSUPERIOR VALUE CREATIONSUPERIOR EFFICIENCYEFFICIENCY & PROFITABILITYMATERIALS MANAGEMENTQUALITYSTRATEGY IN ACTION: SIX SIGMA PROGRAMSBUILDING COMMITMENT TO QUALITYCOMMITMENT TO QUALITY IISUPERIOR CUSTOMER RESPONSIVENESSTABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER RESPONSIVENESSTYPES OF INNOVATIONAREAS FOR IMPROVING LIKELIHOOD OF INNOVATIONDURABILITY OF COMPETITIVE ADVANTAGESCAN ONE SUCCEED ON F-L STRATEGIES ALONE?IN-CLASS EXAM PRACTICE QUESTIONS: ANSWER 1 OF THE FOLLOWING 2IN CLASS PRACTICE EXAM QUESTIONS: ANSWER 1 OF THE FOLLOWING 2FUNCTIONAL LEVEL STRATEGIES - CHPT 4BUS 189FEB. 21, 2012DR. MARK FRUINFUNCTIONAL LEVEL STRATEGIES•SUPERIOR EFFICIENCY–ANYWHERE IN THE ORGANIZATION–NOT JUST THE PRODUCTION LINE•SUPERIOR QUALITY–ANYWHERE IN THE ORGANIZATION–QUALITY AS RELIABILITY; QUALITY AS EXCELLENCE•SUPERIOR CUSTOMER RESPONSIVENESS–ANYWHERE IN THE ORGANIZATION–CUSTOMERS ARE NOT JUST “OUT THERE”•SUPERIOR INNOVATION–ANYWHERE IN THE ORGANIZATIONEFFICIENCY•TWO FACTORS DETERMINE A FIRM’S PROFIT RATE/PROFITABILITY–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 EMPLOYEESUPERIOR VALUE CREATION•EITHER ENJOY THE LOWEST COST STRUCTURE IN THE INDUSRY (PORTER’S COST LEADERSHIP)–2Ss: SCALE & SCOPE –2 MORE Ss: SPECIALIZATION & SPEED–OTHER COST ADVANTAGES?•OR CREATE THE MOST VALUABLE PRODUCT IN EYES OF CUSTOMERS (PORTER’S DIFFERENTIATION)–THE GAP BETWEEN PERCEIVED VALUE AND COSTS OF PRODUCTION–ALLOWS A HIGH PRICE = DIFFERENTIATION STRATEGYSUPERIOR EFFICIENCY•TEXT DISCUSSES ECONOMIES & DISECONOMIES OF SCALE ON PP 108-–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 111-–BOOK: MORE COMPLEX TASKS HAVE POTENTIAL FOR GREATER LEARNING EFFECTS (MAYBE); MORE COMPLEXITY = GREATER LIKELIHOOD OF ERROR–AT SOME TIME, LEARNING MAY DIMINISH•FLEXIBLE/LEAN PRODUCTION ON PP 115- (BUT, NOT SAME AS ECONOMIES OF SCOPE)–REDUCE SETUP TIMES, BETTER SCHEDULING–U-SHAPED LINES; FLEXIBLE MACHINE CELLSEFFICIENCY & PROFITABILITY•FLEXIBLE MANUFACTURING CAN SAVE ON MANPOWER, EQUIPMENT COSTS, CAPACITY UTILIZATION & 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 LOYALTYMATERIALS MANAGEMENT•JIT PRODUCTION AND DISTRIBUTION REQUIRES MATERIALS MNGMNT–KANBAN = CHIT TO MANAGE MATERIALS FLOW•TYPICAL MFG FIRM–MATERIALS & TRANSPORT COSTS = 50-70% OF REVENUES–FOR FIRM WITH $1 MILLION IN REVENUES–INCREASING TOTAL PROFITS BY $150,000 WOULD TAKE EITHER 30% INCREASE IN SALES OR 3% REDUCTION IN MATERIAL COSTS–WHICH WOULD BE EASIER TO DO? PRETTY OBVIOUSQUALITY•QUALITY = RELIABILITY = EXCELLENCE–QUALITY CAN MEAN EITHER AND/OR BOTH•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 USESTRATEGY IN ACTION: SIX SIGMA PROGRAMS•SIX SIGMA: PRODUCTION PROCESSES THAT ARE 99.99966 % ACCURATE•WITH 3.4 DEFECTS PER ONE MILLION PARTS•ALMOST IMPOSSIBLE TO ACHIEVE, BUT GE, MOTOROLA & ALLIED SIGNAL HAVE DONE SO–ALMOST IMPOSSIBLE TO ACHIEVE?–STORY OF JAPANESE SUPPLIER AND OVERSEAS ORDER SPECIFYING PPM DEFECTS•SPECIFY 3-4 DEFECTIVE PARTS PER MILLION•SUPPLIER COMPLIEDBUILDING COMMITMENT TO QUALITY•ORGANIZATIONAL, NOT INDIVIDUAL, COMMITMENT TO QUALITY•LEADERS NEED TO PUSH QUALITY & EXEMPLIFY QUALITY IN THEIR ACTIONS–THAT IS, BOTTOM UP WON’T WORK W/O TOP DOWN PUSH•FOCUS ON CUSTOMER NEEDS•IDENTIFY PROCESSES & SOURCES OF DEFECTS–PRECISE TOOLS & TECHNIQUES TO MAP SOURCES OF DEFECTS AND FIX THEM–WHO DOES INVESTIGATION & REMEDIATION OF DEFECTS? HAS POWERFUL EFFECT ON QUALITY–“EVERYONE A MANAGER”; EDUCATED & MOTIVATED WRKRSCOMMITMENT TO QUALITY II•FIND WAYS TO MEASURE QUALITY•SET GOALS AND INCENTIVES•SOLICIT EMPLOYEE INPUTS•LONG TERM RELATIONSHIPS WITH SUPPLIERS•QUALITY AS MORE THAN SIMPLE RELIABILITY; QUALITY AS EXCELLENCE•MOVE FROM CAPABILITIES-COMPETENCIES THAT EVERYONE HAS TO DISTINCTIVE COMPETENCIES BY FOCUSING ON QUALITYSUPERIOR CUSTOMER RESPONSIVENESS•QUALITY OF FIRM OFFERINGS PLUS SUPERIOR CUSTOMER RESPONSE TIME•ABILITY TO DEVELOP NEW OFFERINGS QUICKLY•ABILITY TO CUSTOMIZE EXISTING OFFERINGS TO EVER SMALLER SEGMENTS (WHILE MAINTAINING EFFICIENCY & QUALITY)–CUSTOMIZATION–MAKE CUSTOMERS FEEL THAT YOU’RE FOCUSING ON ONLY THEMTABLE 4.5 DIFF. FUNCTIONS IN CUSTOMER RESPONSIVENESS•INFRASTRUCTURE (LEADERSHIP NEEDED; WHAT SYSTEMS REQUIRED TO RESPOND WELL)–COMMUNICATIONS, IT, LOGISTICS •PRODUCTION•MARKETING•MATERIALS MANAGEMENT•R&D•INFORMATION SYSTEMS•HUMAN RESOURCESTYPES OF INNOVATION•PRODUCT INNOVATION VS PROCESS INNOVATION•INNOVATION MAY BE IN TECHNICAL AND/OR MARKETING-REALMS–2 X 2 X 3 MATRIX RESULTS = SEGMENTS AS INNOVATION OPPORTUNITIES•INCREMENTAL INNOVATION•RADICAL INNOVATION•DISRUPTIVE/DISCONTINUOUS INNOVATION•OPPORTUNITIES FOR INNOVATION ARE ENDLESS BUT NOT ALL INNOVATIONS ARE EQUALLY VALUABLE–VRIND FOR INNOVATIONSAREAS FOR IMPROVING LIKELIHOOD OF INNOVATION•PROJECT SELECTION & MANAGEMENT•BUILDING CROSS-FUNCTIONAL INTEGRATION (VIA TEAMS)•PRODUCT DEVELOPMENT STRATEGIES–SEQUENTIAL–PARTLY PARALLEL–FULLY PARALLEL - STRONG PRODUCT DEVELOPMENT TEAMS & MNGRS (SHUSA & HEAVYWEIGHT PRODUCT DEVELOPMENT TEAMS)•JAPANESE FIRMS DESIGN & DEVELOP NEW CARS IN 4 YEARS ON AVERAGE•AM & EUROPEAN FIRMS 5-6 YEARS ON AVERAGE•FORD & GM MOTOR GETTING BETTER - WHY?DURABILITY OF COMPETITIVE ADVANTAGES•EXTENT TO WHICH SUPERIOR EFFICIENCY, QUALITY, CUSTOMER SATISFACTION & INNOVATION MAY BE COPIED AND DUPLICATED•BARRIERS TO IMITATION–TACIT VS. EXPLICIT–EMBEDDED VS. EMBODIED IN FORMULA–OTHER BARRIERS?•CAPABILITY TO IMITATE–ABSORPTIVE CAPACITY•INDUSTRY DYNAMISMCAN ONE SUCCEED ON F-L STRATEGIES ALONE?•YES, A TRIED-AND-TRUE STRATEGY–JAPANESE CAR COMPANIES AT THE OUTSET OF NORTH AMERICA/EUROPEAN INVASION–KOREAN CAR COS. NOW (OR UP UNTIL NOW)–LET OTHERS DO THE PRODUCT/MARKET PLANNING &