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FunctionalLevelStrategies
Functional-level strategies are strategies aimed at improving the effectiveness of a company companys s operations.
Functionallevel strategies aim to give a firm superior:
Efficiency Quality Innovation Customer responsiveness
This leads to a competitive advantage and superior profitability and profit growth.
Building Competitive Advantage Through Functional-Level Strategy 2
AchievingSuperiorEfficiency
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 Specialization has favorable impact on productivity by enabling employees p y to become very y skilled at p performing gap particular task
Diseconomies of scale
Unit cost increases associated with a large scale of output Increased I d bureaucracy b associated i t d with ith large l scale l enterprises t i Resulting managerial inefficiencies
EconomiesandDiseconomiesof Scale l
LearningEffects
Learning Effects are cost savings that come from learning by doing. doing Labor productivity
Learn by repetition how to best carry out the task
Management efficiency
Learn over time how to best run the operation
Realization of learning effects implies downward shift of the entire unit cost curve
As labor A l b and d management t become b more efficient ffi i t over time at every level of output
TheImpactofLearningandScale EconomiesonUnitCosts
TheExperienceCurve
The Experience Curve is the systematic lowering of the cost structure and consequent unit cost reductions that occur over the life of a product. p Strategic significance of the experience curve: Increasing a companys product volume and market share will lower its cost structure relative to its rivals.
TheExperienceCurve
MassCustomization
Abilitytouseflexiblemanufacturingtechnologyto reconciletwogoalsthatwereoncethoughtincompatible:
TradeoffBetweenCostsandProduct Variety
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Marketing
Marketing gstrategy gyreferstothep positionthata companytakesregarding:
Pricing Promotion Advertising ProductDesign Distribution
Marketingstrategycanreducecostsbylowering customerdefectionratesandincreasingloyalty
Building Competitive Advantage Through Functional-Level Strategy 11
The longer a company holds on to a customer the greater the volume of customer-generated unit sales that offset fixed marketing costs and lowers the average cost of each sale.
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efficientmaterialsmanagement
JustinTime(JIT)InventorySystemtoeconomizeholdingcosts: Have Ha ecomponentsarrive arri etomanufacturing man fact ringjust j stpriortoneedin productionprocess Havefinishedgoodsarriveatretailjustpriortostockout
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R&DStrategy
ResearchandDevelopment(R&D)
RolesofR&Dinhelpingacompanyachievegreaterefficiency andlowercoststructure: 1 Boostefficiencybydesigningproductsthatareeasyto 1. manufacture
Reducethenumberofpartsthatmakeupaproductreduces assemblytime Designformanufacturing requiresclosecoordinationwith productionandR&D
2 Helpacompanyhavealowercoststructureby 2. pioneeringprocessinnovations
Reduceprocesssetuptimes Flexiblemanufacturing Animportantsourceofcompetitiveadvantage
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HumanResourceStrategy
Goal: to improve employee productivity.
Hiringstrategy
Assuresthatthepeopleacompanyhireshavetheattributesthatmatch thestrategicobjectivesofthecompany
Employeetraining
Upgradesemployeeskillstoperformtasksfasterandmoreaccurately
Selfmanagingteams
Memberscoordinatetheirownactivitiesandmaketheirownhiring, training,work,andrewarddecisions
Payforperformance
Linkingpaytoindividualandteamperformancecanhelptoincrease employee p y p productivity y
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InformationSystems
Informationsystems systems impact onproductivityiswide ranging:
Webbasedinformationsystemscan automatemanyactivities Automatesinteractionsbetween Company C and dcustomers t Companyandsuppliers
Building Competitive Advantage Through Functional-Level Strategy 16
Infrastructure
Acompanys p y structure, ,culture, ,style y of f strategicleadership,andcontrolsystem:
Determinesthecontextwithinwhichallothervalue creationactivitiestakeplace Isespeciallyimportantinbuildingacompanywide commitmenttoefficiency Articulatesavisionforallfunctionsandcoordinateacross functions
Achievingsuperiorperformancerequiresan organizationwidecommitment.
T management Top tplays l amajor j role l in i this thi process.
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PrimaryRolesofValueCreation Functions
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AchievingSuperiorQuality