Value Chain Management: Functional Strategies for Competitive Advantage

McGraw-Hill/IrwinContemporary Management, 5/e

Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter nine

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Learning Objectives

• Explain the role of functional strategy and value-chain management in achieving superior quality, efficiency, innovation, and responsiveness to customers

• Describe what customers want, and explain why it is so important for managers to be responsive to their needs

• Explain why achieving superior quality is so important and the challenges facing managers and organizations that seek to implement total quality management

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Learning Objectives

• Explain why achieving superior efficiency is so important and the different kinds of techniques that need to be employed to increase it

• Differentiate between two forms of innovation, and explain why innovation and product development is a crucial component of the search for competitive advantage

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Four Ways to Create a Competitive Advantage

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Toyota’s Product Lineup

Figure 9.2

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Functional Strategies and Value-Chain Management

• Functional-level strategy – plan of action to improve the ability of each

of an organization’s departments to performs its task-specific activities in ways that add value to an organization’s goods and services

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Question?

What is coordinated sequence of functional activities necessary to transform inputs into finished goods?

A. Input chain

B. Transformation series

C. Value chain

D. Value string

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Functional Strategies and Value-Chain Management

• Value chain – coordinated series or sequence of functional

activities necessary to transform inputs into finished goods or services customers value and want to buy

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Functional Activities and the Value Chain

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Functional Strategies and Value-Chain Management

• Value-chain management – development of a set of functional-level

strategies that support a company’s business-level strategy and strengthen its competitive advantage

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Functional Strategies and Value-Chain Management

• Product development – engineering and scientific research activities

involved in innovating new or improved products that add value to a product

• Marketing function’s task is to persuade customers a product meets their needs and convince them to buy it

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Functional Strategies and Value-Chain Management

• Materials management function – controls the movement of physical materials

from the procurement of inputs through production and into distribution and delivery to the customer

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Question?

Which function provides after sales service and support?

A. Production function

B. Sales function

C. Customer service function

D. Call center function

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Functional Strategies and Value-Chain Management

• Production function – responsible for the creation, assembly or

provision of a good or service, for transforming inputs into outputs

• Sales function – plays a crucial role in locating customers

and then informing and persuading them to buy the company’s products

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Functional Strategies and Value-Chain Management

• Customer service function – provides after sales service and support– Can create a perception of superior value

by solving customer problems and supporting customers

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Improving Responsiveness to Customers

• Good value-chain management requires marketing managers to focus on defining the company business in terms of customer needs

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What Do Customers Want?

1. A lower price to a higher price

2. High-quality products

3. Quick service and good after-sales service

4. Products with many useful or valuable features

5. Products that are tailored to their unique needs

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Customer Relationship Management

• Customer relationship management – technique that uses IT to develop an

ongoing relationship with customers to maximize the value an organization can deliver to them over time

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Impact of Increased Quality on Organizational Performance

Figure 9.4

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Improving Quality

• An organization able to provide, for the same price, a product of higher quality than a competitor’s product is serving customers better

• Higher product quality can increase efficiency

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Total Quality Management

• Total quality management (TQM) – focuses on improving the quality of an

organization’s products and stresses that all of an organization’s value-chain activities should be directed toward this goal

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Steps to Successful TQM Implementation

1. Build organizational commitment to quality

2. Focus on the customer

3. Find ways to measure quality

4. Set goals and create incentives

5. Solicit input from employees

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Steps to Successful TQM Implementation

6. Identify defects and trace to source.

7. Introduce just-in-time (JIT) inventory systems.

8. Work closely with suppliers.

9. Design for ease of production.

10.Break down barriers between functions.

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Focus on the Customer

1. Identify what customers want from the good or service that the company provides

2. Identify what the company actually provides to customers

3. Identify the gap that exists between what the customers want and what they get (quality gap)

4. Formulate a plan for closing the quality gap

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Facilities Layout, Flexible Manufacturing, and Efficiency

• Facilities Layout – strategy of designing the machine-worker

interface to increase production system efficiency

• Flexible Manufacturing – strategy based on the use of IT to reduce

the setup costs associated with a product assembly process

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Three Facilities Layouts

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Discussion Question?

Which facilities layout is the best to use?

A. Product layout

B. Process layout

C. Fixed position layout

D. Contingency layout

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Facilities Layout

• Product layout – machines are organized so that each

operation is performed at work stations arranged in a fixed sequence

• Process Layout – self contained work stations not organized

in a fixed sequence

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Facilities Layout

• Fixed-Position Layout – the product stays in a fixed spot and

components produced at remote stations are brought the product for to final assembly

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Changing a Facilities Layout

Figure 9.6

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Flexible Manufacturing

• Aims to reduce time required to set up production equipment

• By redesigning the process setup times and costs can be drastically reduced

• Able to produce many more varieties of a product than before in the same amount of time

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Just-in-Time Inventory and Efficiency

• Just-in-time (JIT) inventory system gets components to the assembly line just as they are needed to drive down costs

• Major cost savings can result from increasing inventory turnover and reducing inventory holding costs

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Self-Managed Work Teams and Efficiency

• Self-managed work teams produce an entire product instead of just parts of it

• Team members learn all tasks and move from job to job

• Can increase productivity and efficiency

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Process Reengineering and Efficiency

• Process Reengineering – fundamental rethinking and radical redesign

of the business process to achieve dramatic improvement in critical measures of performance

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Two Kinds of Innovation

• Quantum product innovation – results in the development of radically

different kinds of goods and services because of fundamental shifts in technology brought about by pioneering discoveries

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Two Kinds of Innovation

• Incremental product innovation – results in gradual improvements and

refinements to existing products over time as existing technologies are perfected, and functional managers learn how to perform value-chain activities in better ways

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Strategies to Promote Innovation and Speed Product Development

• Product development – management of

the value-chain activities involved in bringing new or improved kinds of goods and services to the market

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Strategies to Promote Innovation and Speed Product Development

• Involve both customers and suppliers

• Establish a stage-gate development funnel

• Establish cross-functional teams

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Strategies to Promote Innovation and Speed Product Development

• Stage-Gate Development Funnel – technique that forces managers to make

choices among competing projects so that functional resources are not spread thinly over too many projects

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A Stage-Gate Development Funnel

Figure 9.7

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A Stage-Gate Development Funnel

• Product development plan – specifies all of the relevant information that

managers need to make a decision about whether to go ahead with a full-blown product development effort

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Members of a Cross-Functional Product Development Team

Figure 9.8

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Managing the Value-Chain: Some Remaining Issues

• It is manager’s job to collect relevant information about the competitive environment

1. Future intentions of competitors

2. Identity of new customers

3. Identity of new suppliers

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Boundary-Spanning Roles

• Boundary-Spanning roles – Interacting with individuals and groups

outside the organization to obtain valuable information from the environment

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The Nature of Boundary-Spanning Roles

Figure 9.9

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Movie Example: You’ve Got Mail

How well do the workers respond to customers in the Fox Bookstore?