Autumn, 2011

Course Title: STRATEGIC MANAGEMENT

Course Code: MGT--490

Submitted To- MOSLEH UDDIN KHALED

Submitted By[

Smita Dutta ID: 0831028

Iffat Mahmuda ID: 0821041

Akter Jahan Chisty ID: 0821022

Md. Shadlee Zahed Chy ID: 0931106

Date of Submission: 26th November, 2011

What is functional level strategy?

Functional-level strategy aimed at improving the effectiveness of a company’s operations

and thus its ability to attain superior efficiency, quality, innovation and customer

responsiveness.

It is important to keep in mind the relationship among functional strategies, distinctive

competencies, differentiation, low cost, value creation, and profitability. The distinctive

competencies shape the functional level strategies, that a company can pursue and that

managers, through their choices with regard to functional level strategies, can build

resources and capabilities that enhance a company’s distinctive competencies. (Charles W.

L. Hill and Gareth R. Jones, Page-110)

Achieving superior efficiency:

In here we review the steps that companies can take at the functional level to increase

their efficiency and thereby lower their cost structure. Such as---

Production and efficiency.

Marketing and efficiency.

Materials management, jit, and efficiency.

R & D strategy and efficiency.

Achieving superior innovation

Achieving superior customer responsiveness. (Charles W. L. Hill and Gareth R. Jones,

Page-111)

Production of efficiency:

Under production of efficiency it has steps, which is given billow—

Economies of scale: Economies of scale are unit cost reduction associated with a

large scale of output .It is very important for managers to understand how the

cost structure of their enterprise varies with output because this understanding

should help to drive strategy.

Example- If unit will fall significantly as output is expand that is, if there are significant

economies of scale a company may benefit by keeping price down and increasing

volume. (Charles W. L. Hill and Gareth R. Jones, Page-111)

Learning effects: Are the cost savings that comes from learning by doing. Labor,

for example leans by repetition how best to carry out a task. Therefore, labor

productivity increase over time, and unit costs fall as individuals learn the most

efficient way to perform a particular task. Equally important, management in

facilities typically learns over time how best to the new operation. Hence,

production costs decline because of increasing labor productivity and

management efficiency. Japanese companies like Toyota are noted for making

learning a central part of their operating philosophy. (Charles W. L. Hill and Gareth R.

Jones,, Page-113)

The experience curve: It refers to the systematic lowering of the cost structure,

and consequent unit cost reduction, that have been observed to occur over the life

of a product. According to the experience curve concept, unit manufacturing

costs for a product typically decline by some characteristic amount each time

accumulated output of the product is doubled. (Charles W. L. Hill and Gareth R. Jones,,

Page-114)

Flexible manufacturing technology: It is sometime called –covers a range of

manufacturing technologies designed to reduce setup times for complex

equipment, increase the use of individual machines through better scheduling,

and improve quality control all stages of manufacturing process. Flexible

manufacturing technology allow the company to produce a wider of end product

at a that at one time could be achieved only mass production of a standardized

output. (Charles W. L. Hill and Gareth R. Jones,, Page-117)

Mass customization: It has been coined to describe the ability of companies to

use flexible manufacturing technology to reconcile two goals that were once

thought to be incompatible: low cost and differentiation through product

customization. Flexibility manufacturing technologies vary in their sophistication

and complexity. (Charles W. L. Hill and Gareth R. Jones,, Page-117)

Flexible machine cells: Flexible machine cells are another common flexible

manufacturing technology. A flexible machine cell is a grouping of various types

of machinery, a common materials handler, and a centralized cell normally

contains four to six machines capable of performing variety of operations that but

dedicated to producing a family of parts or products. The settings on the

machines are computer controlled, which allows each cell to switch quickly

between the production of different parts or products. (Charles W. L. Hill and Gareth

R. Jones,, Page-118)

Marketing and efficiency:

It refers to the position that a company takes with regard to

pricing, promotion, advertising, distribution. Some of the steps leading to greater

efficiency are fairly obvious. It has some strategy such as—

Product design

Advertising

Promotion

Pricing

Distribution.

Example: Riding down the experience curve to achieve a lower cost structure can be

facilitated by aggressive pricing, promotion, and advertising all of which are task of the

marketing function. (Charles W. L. Hill and Gareth R. Jones,, Page-119)

Materials management, JIT, and efficiency:

The contribution of materials management to boosting the

efficiency of a company can be just as dramatic as the contribution of production and

marketing.

Material management :

It encompasses the activities necessary to get inputs and

components to a production facility, through the production process, and out through a

distribution to the end-user. Because there are so many sources of cost in this process, the

potential for reducing costs through more efficient material management strategies is

enormous. (Charles W. L. Hill and Gareth R. Jones, Page-121)

Just-in-time:

It is an inventory system, designed to economize on

inventory holding costs by having components arrive at a manufacturing plant just in

time to enter the production process or to have goods arrive at a retail store only when

stock is almost depleted. The major cost saving comes from increasing inventory

turnover, which reduces inventory holding costs, such as warehousing and storage costs,

and the company’s need for working capital. (Charles W. L. Hill and Gareth R. Jones, Page--121)

R & D Strategy and Efficiency:

The role of research and development(R & D) in helping a company achieve a greater

efficiency and a lower cost structure is twofold. First, the R & D function can boost

efficiency by designing products that are easy to manufacture. Such as

1) By cutting down on the number of parts that make up a product

2) R & D can dramatically decrease the required assembly time

3) Design for manufacturing requires close coordination between the production

and R & D function of the company.

The second way in which the R & D function can help a company achieve a lower cost

structure is by pioneering innovation. A process innovation is an innovation in the way

production processes operate that improves their efficiency. (Charles W. L. Hill and Gareth R.

Jones, Page- 123)

Achieving Superior Innovation:

In many ways building distinctive competencies that result in innovation is the most

important sources of the competitive advantage. Thus, the ability to develop innovative

new products or processes gives a company a major competitive advantage that allows it

to (1) differentiate its products and charge a premium price and/or (2) lower its structure

below that of its rivals. (Charles W. L. Hill and Gareth R. Jones, Page-135)

The High Failure Rate of Innovation:

While many reasons have been advance to explain why so many new products fail to

generate an economic return, five explanations for failure appear on most lists-

a) Uncertainty: New –product development is an inherently risky process. The

failure rate is higher for quantum product innovations than for incremental

innovation. A quantum innovation represents a radical departure from

existing technology- the introduction of something that is new to the world.

Incremental innovation refers to an extension of existing technology. (Charles

W. L. Hill and Gareth R. Jones, Page- 136)

b) Poor Commercialization: A second reason frequently cited to explain the

higher failure rate of new products introductions is poor commercialization-

something that occurs when there is definite customer demand for new

product, but the product is not well adapted to customer needs because of

factors such as poor design and poor quality. (Charles W. L. Hill and Gareth R.

Jones, Page-136)

c) Poor Positioning Strategy: Poor positioning strategy arises when a introduces

a potentially new products, but fail to materialize because it is poorly

positioned in the market place. (Charles W. L. Hill and Gareth R. Jones, Page-137)

d) Technological Myopia: Technological myopia occurs when a company gets

blinded by the wizardry of a new technology and fails to examine whether

there is customer demand for the product. (Charles W. L. Hill and Gareth R. Jones,

Page-137)

e) Being Slow to Market: Finally companies fail when they are slow to get their

products to market. The more time that elapses between initial development

and final marketing- that is, the slower the “cycle line”- the more likely it is

that someone else will beat the company to market and gain first mover

advantage. (Charles W. L. Hill and Gareth R. Jones, Page-137)

Achieving Superior Customer Responsiveness:

To achieve superior responsiveness to customer, a company must give customer what

they want, when they want it, and at a price they are willing to pay- so long as the

company’s long term profitability is not compromised in the process.

Focusing to customer: Thus, the step to building superior responsiveness to

customer is to motivate the whole company to focus on the customer. (Charles W. L.

Hill and Gareth R. Jones, Page-142)

i) Demonstrating Leadership: Customer focus must start at the top of the

organization. A commitment to superior responsiveness to customers

brings attitudinal changes throughout a company that ultimately can be

built only through strong leadership. (Charles W. L. Hill and Gareth R. Jones,

Page-142)

ii) Shaping Employee Attitudes: Leadership alone is not enough to attain a

superior customer focus. All employees must see the customer as the focus

of their activity and be trained to focus on the customer, whether their

function is marketing, manufacturing, R&D, or accounting. The objective

should be to make employee think of themselves and customer- to put

themselves in customers’ shoes. At that point, employees will be better

able to identify ways to improve the quality of a customer’s experience

with the company. (Charles W. L. Hill and Gareth R. Jones, Page-143)

iii) Bring Customers into the Company: “Know thy customer” one of the keys

to achieving superior responsiveness to customer. Knowing the customer

not only the requires that employees think like customers themselves; it

also demand that they listen to what their customers have to say, as much

as possible bring them into the company. Although this may not involve

physically bringing customers into the company, it does mean bringing in

customers’ opinions by solicitor feedback from customers on the

company’s goods and services and by building information system that

communicate the feedback to the relevant people. (Charles W. L. Hill and

Gareth R. Jones, Page-143)

Satisfying Customer Needs: Once a focus on the customer is an integral part of

the company, the next requires is to satisfy the customer needs that have been

identified. Companies can provide a higher level of satisfaction if they

differentiate their products by (1) customizing them, where possible, to the

requirements of individual customer and (2) reducing the time it takes to respond

to or satisfy customer needs. (Charles W. L. Hill and Gareth R. Jones, Page-144)

i) Customization: Customization is varying the features of a good or service

to tailor it to the unique needs or tastes of groups customers or; in the

extreme case, individual customers. Although extensive customization can

rise cost, the development of flexible manufacturing technologies has

made it possible to customize products to a much greater extent than was

feasible ten to fifteen years ago without experiencing a prohibitive rise in

cost structure. (Charles W. L. Hill and Gareth R. Jones, Page-144)

ii) Response Time: Giving customers what they want when they want it

requires speed of response to customer demands. To gain a competitive

advantage, a company must often respond to customer demands very

quickly. (Charles W. L. Hill and Gareth R. Jones, Page-144)

References:

Book name & Author: Strategic Management, Charles W. L. Hill and Gareth R. Jones, 2007 (7th edition)

City of Publication: Boston New York,

Publisher Name: Jeorge T. Hofman.