Strategic Management

Course Code: 6277 (PG)

Dr. Majharul Talukder

Faculty of Business and Government

Functional Level Strategy

(Chapter 4)

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The Roots of Competitive Advantage

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Achieving Superior Efficiency

1. Economies of scale
Unit cost reduces with a large scale of output
Spread fixed costs over a large volume

Eg. Microsoft spent $ 5 billion for windows OS. 250 ml CP use it.

2. Diseconomies of scale
Unit cost increases associated with a large scale of output
Increased bureaucracy associated with large-scale enterprises
Resulting managerial inefficiencies

Eg. Nucor made two plants instead of one with 600 employees

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Economies and Diseconomies of Scale

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Efficiency and Learning Effects

Learning Effects are cost savings that come from learning by doing

Labor productivity
Learn by repetition how to best carry out the task

Management efficiency
Learn over time how to best run the operation

Learning effects implies a downward shift of the entire unit cost curve

Eg. Experience doctors make less mortality rate in surgical procedures

Eg. Aircraft industry, each time output doubled, cost declined to 80

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Impact of Learning Effect

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Impact of Experience Curve

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Flexible Production Systems and Mass Customization

Flexible Manufacturing Technology/ Lean Production Technology

1. Reduces setup times for complex equipment

2. Improves scheduling to increase use of individual machines
3. Improves quality control of the manufacturing process
4. Increases efficiency and lowers unit costs

Mass Customization
Ability to use flexible manufacturing technology to reconcile two goals:
1. Low cost
2. Differentiation through product customization

Eg. Lands’ End mass customization.

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Tradeoff between Costs and Product Variety

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Marketing and Efficiency

Marketing strategy refers to the position that a company takes regarding

Pricing
Promotion
Advertising
Product Design
Distribution

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Logistics and Supply Chain

Many sources of cost in this process

Significant opportunities for cost reduction through efficient logistic system

Just-in-Time (JIT) Inventory System

Components arrive to manufacturing just prior to need in production
Finished goods arrive at retail just prior to stock out

Supply Chain Management is the task of managing the flow of inputs,

minimize inventory holding and maximize inventory turnover

Eg. Dell, Toyota production

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R & D Strategy

Research and Development (R&D)

1. Help company achieve greater efficiency and lower cost
2. Boost efficiency by designing products easy to manufacture
3. Reduce the number of parts make up a product, reduces assembly time

Design for manufacturing

1. Requires close coordination with production and R&D
2. Help to have a lower cost structure by pioneering process innovations
3. Reduce process setup times

Eg. Texas Instruments designed Infrared Sighting Mechanism for Pentagon

from 47 parts to 12, assembly from 129 min to 20 min

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Human Resource Strategy

Hiring strategy
Hires people with attributes that match the strategic objectives

Employee training
Upgrades employee skills to perform tasks faster and more accurately

Self-managing teams
Members coordinate their own activities
Eg. GE increased 250% productivity

Pay for performance

Linking pay to individual and team performance

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Information System and Efficiency

1. Web-based information systems

Eg. Cisco need only 300, otherwise it would requires 900 emp, saving 20
million a year. Additional would need 75 mil.

2. Automates interactions between

Company and customers
Company and suppliers

Eg: Bank cost normally $1.07 per transaction, but with online it cost
only $0.01

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Infrastructure and Efficiency

A company’s structure, culture, leadership, and control system

1. Determines the value creation activities

2. Important in building a companywide commitment to efficiency

3. Articulates a vision for all functions and coordinate across functions

4. Achieving superior performance requires an firm-wide commitment

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Achieving Superior Quality

Quality can be thought of in terms of two dimensions:

1. Quality as reliability
They do the jobs they were designed for and do it well
2. Quality as excellence
Perceived by customers to have superior attributes

A strong reputation for quality allows a company to differentiate its products

Eliminating defects or errors reduces waste, increases efficiency, lower cost

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Improving Quality

A product is a bundle of attributes and can be differentiated by attributes

Developing Superior Attributes-

1. Learn which attributes are most important to customers

2. Design products and services to embody the important attributes
3. Decide which attributes to promote and how best to position them
4. Continual improvement in attributes and development of new-product

Eg. Volvo consistently emphasize safety and durability

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Achieving Superior Innovation

Innovation is the most important source of competitive advantage

Innovation can:
1. Result in new products that better satisfy customer needs
2. Improve the quality of existing products
3. Reduce costs

Innovation can be imitated by others, so it must be continuous

Successful new product launches are major drivers of superior profitability.

Eg. Sony- Walkman, CD, PlayStation; Nokia; Intel

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High Failure Rate of Innovation

Only 10 to 20% of major R&D projects give rise to a commercially viable

Most common explanations for failure:

1. Uncertainty
Radical innovation with higher risk
Incremental innovation. Eg. Intel
2. Poor commercialization
Definite demand for product but not well adapted to need. Eg Early PC
3. Poor positioning strategy
Good product but poorly positioned in the marketplace
4. Technological myopia
Technological “wizardry” vs. meeting market requirements. NeXT
5. Being slow to market.
Eg. GM product dev cycle 5 years, Honda, Toyota, Mazda 3, Ford 4

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Building Competencies in Innovation

Take a number of steps to build competencies in innovation

1. Building skills in basic and applied research

2. Project selection and management

Using the product development funnel
» Idea generation» Project refinement» Project execution

3. Achieving cross-functional integration

Close integration between R&D, marketing and others

4. Using product development teams

5. Partly-parallel development process

6. Learning from experience

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Superior Responsiveness to Customers

Giving customers what they want, when they want it, and at a price they
are willing to pay - as long as keeps company’s profitability

Focusing on the customer

Demonstrate leadership- Eg. Domino’s Piza
Shaping employee attitude
Bringing customers into the company

Satisfying customer needs

Customization- Eg. Lands’ End

Response time- increased speed

Eg. Caterpillar compare to Komatsu of Japan

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7
Thank You

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