Functional Strategy

STRATEGIC BUSINESS UNIT

Strategy R&D
FINANCE

Formulation: PRODUCTION INVENTORY

MARKETING
/SALES

Functional Strategy PURCHASING

and Strategic How do we coordinate?

Choice
Professor Robert R. Wiggins MGMT 4710 Functional Strategy
Professor Robert R. Wiggins

Functional Strategy Functional Strategy

Production Manager Product Design STRATEGIC BUSINESS UNIT

Models
Production Run
FINANCE
R&D

Produce to: PRODUCTION INVENTORY

MARKETING
/SALES

PURCHASING

How do we coordinate?
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy Functional Strategy

Functional Strategy Levels of Strategy

Marketing/Sales Manager 1. Functional Strategy
Product Design 2. Business Unit Strategy
Models 3. Corporate Strategy
Production Run 4. Enterprise Strategy
Produce to: 5. Cooperative Strategy
6. Hypercompetitive Strategy

How do we coordinate?
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy Functional Strategy
Sourcing Generic Model of Core Processes and Systems
Activitys Total Value-Added Your Organization
Capital Information Human
Low High Suppliers Resourcing Resourcing Resourcing Customers
Organization Organization
Taper Vertical Full Vertical
High Integration: Integration: PRODUCT DEVELOPMENT PROCESS
Produce Some Produce All
Activitys
Internally Internally
Potential for DEMAND MANAGEMENT PROCESS
Competitive
Outsource Outsource
Advantage ORDER FULFILLMENT PROCESS
Low
Completely: Completely:
Buy on Open Purchase with
Market Long-Term
Contracts Control Systems
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy

The Full Model of Core Processes and Systems Three Levels of Strategy-Operations Fit
Your Organization First-Order Fit:
Capital Information Human STRATEGY/COMPETITIVE ADVANTAGE Processes Consistent
Suppliers Resourcing Resourcing Resourcing Customers with Strategy
Organization Organization P1 P2 P3
PRODUCT DEVELOPMENT PROCESS Operating Processes Second-Order Fit:
PURCHASING PROCESS STRATEGY/COMPETITIVE ADVANTAGE First Order +
Processes
DEMAND MANAGEMENT PROCESS Reinforce Each Other
P1 P2 P3
PRODUCTION PROCESS
Operating Processes
ORDER FULFILLMENT PROCESS STRATEGY/COMPETITIVE ADVANTAGE Third-Order Fit:
Second Order +
Optimization of Effort
Control Systems P1 P2 P3
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Operating Processes Professor Robert R. Wiggins

Mapping the Supply Chain Supply Chain Volatility

Organizational Supply Chain
vs. Product Life Cycle Volatility
Casting Clay
Chrysler Eaton
Supplier Supplier
Technology Supply Chain Customer Retailer Distributor Factory Supplier Equipment
Casting Clay
Engines Valve Lifters
Process Chemistry
Business Capability Chain
Chemical
Plant Management Metal-Machining JIT
Process
Supply Chain Management Plant Management Delivery
Control
Web Site PC Maker Chip Maker Equipment
Developer Maker

MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Principles of Reengineering Reengineering Defined
The mission of a business is to create value for
The fundamental rethinking and
its customers
radical redesign of business
It is a companys processes that create value processes to achieve dramatic
for its customers
improvements in critical,
Business success comes from superior process contemporary measures of
performance performance, such as cost, quality,
Superior process performance is achieved by service, and speed.
having a superior process design, the right
people to perform it, and the right -- Hammer & Champy (1993),
environment for them to work in Reengineering the Corporation
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins

TQM and CPR Emphasize Complementary

TQM versus CPR Elements of Operations Improvement
Anticipation
Incremental Level of Change Radical

Existing Process Starting Point Clean Slate

Level of Improvement

One-Time/Continuous Frequency of Change One-Time

Short Time Required Long

Prevention
Bottom Up Participation Top Down

Narrow, Within Functions Typical Scope Broad, Cross-Functional

Moderate Risk High

Statistical Control Primary Enabler Information Technology

Cultural Type of Change Cultural/Structural Fix as

Fail
Improvement Goal Innovation Steps Tasks Activities Subprocesses Core
Source: Davenport, Thomas (1993), Process Innovation, Harvard Business School Press
Scope of Target Site Processes
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins

Kaizen vs. Reengineering Demings PDCA Cycle

TQM improves Plan
capabilities within each Develop
generation of design structured approach
Process Capabilities

Third-generation to addressing
process design issues
Act
Do
Respond to
Second-generation Carry out
undesired outcomes
process design approach as
by repeating
planned
cycle
First-generation Check
process design CPR replaces one generation of
Evaluate
process design with another
outcomes: are
they desirable?
Time
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Typical Approach to Managing CPR The Crazy Time in CPR
Strategy Formulation
Identifies Competitive Process
Advantage Sought Capabilities

Study Generic Identification of Use Benchmarking

Process Improve- Needed Process to Identify Best Short-term loss
ment Principles for Practices for in process Generation 2
Execution Capability
Possible Adoption Possible Adoption capability Process
associated
Redesign of with changing
Process the system Generation 1
Process
Plan for Transition
to New Generation
of Process Designs Time
The period in which the
Transition to organization is developing
New Generation a new system while
of Process maintaining the old one
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins

Approaches to Innovation Innovation and

Internal Corporate Venturing Competitive Advantage
(Corporate Entrepreneurship) Difficult for competitors to imitate
Contracting for Innovation Provide significant value to customers
Strategic Alliances Timely
Joint Ventures Capable of being exploited commercially
Investing Outside Utilize the firms existing capabilities
(Acquiring Innovation) and core competencies to develop
competitive advantage and achieve
strategic competitiveness
MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy Functional Strategy

Types of Innovative Activity Extracting Value from Innovation

Invention Barriers to Integration
Creating or developing a new product, service Different functional time orientation
(e.g., R&D and production)
or process idea Different functional language and
interpersonal orientation

Innovation

Different goal orientation
Formality of structure
Time to
Market
Creating a commercializable product from an Interfunctional Value
invention Integration --
Cross-Functional
Product
Quality
Appropriation
from
Imitation Design Teams Innovation

The adoption of innovation by a group Facilitators of Integration

Shared values
Creation of
Customer Value
of similar firms, which typically

New product vision provided by

results in standardization of the leadership

Budget allocation to foster

product or process idea integrated design

MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy Functional Strategy
Strategic Alliances R&D Expenditures and Patents
Before and After Acquisitions
Product-Link Alliances
0.032
Knowledge-Link Alliances 0.000 0.030

Advantages

Firm minus Industry

Patent Intenstity
-0.002 0.028

R&D Intenstity
Difficult for a single firm to keep up-to-date -0.004 0.026

Knowledge is increasingly specialized -0.006 0.024

International location advantages -0.008 0.022

Disadvantages
-0.010 0.020

-0.012 0.018
Partners actions increase legal liability -4 -2 0 2 4 -4 -2 0 2 4

Partners diversification may distract them Years Before and Years Before and
May become overly dependent on others After Acquisition After Acquisition

MGMT 4710 Professor Robert R. Wiggins MGMT 4710 Professor Robert R. Wiggins
Functional Strategy Functional Strategy