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chapter nine

Value Chain Management: Functional Strategies for Competitive Advantage

McGraw-Hill/Irwin Contemporary Management, 5/e

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

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

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

Four Ways to Create a Competitive Advantage


Toyotas Product Lineup

Figure 9.2

Functional Strategies and ValueChain Management

Functional-level strategy
plan of action to improve the ability of each of an organizations departments to performs its task-specific activities in ways that add value to an organizations goods and services


Functional Strategies and ValueChain 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


Functional Activities and the Value Chain


Functional Strategies and ValueChain Management

Value-chain management
development of a set of functional-level strategies that support a companys business-level strategy and strengthen its competitive advantage


Functional Strategies and ValueChain Management

Product development
engineering and scientific research activities involved in innovating new or improved products that add value to a product

Marketing functions task is to persuade customers a product meets their needs and convince them to buy it


Functional Strategies and ValueChain 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


Functional Strategies and ValueChain 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 companys products


Functional Strategies and ValueChain Management

Customer service function
provides after sales service and support Can create a perception of superior value by solving customer problems and supporting customers


Improving Responsiveness to Customers

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


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

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


Impact of Increased Quality on Organizational Performance

Figure 9.4

Improving Quality
An organization able to provide, for the same price, a product of higher quality than a competitors product is serving customers better Higher product quality can increase efficiency


Total Quality Management

Total quality management (TQM)
focuses on improving the quality of an organizations products and stresses that all of an organizations value-chain activities should be directed toward this goal


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


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.


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

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


Three Facilities Layouts

Figure 9.5

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


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


Changing a Facilities Layout

Figure 9.6

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


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


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


Process Reengineering and Efficiency

Process Reengineering
fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical measures of performance


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


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


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


Strategies to Promote Innovation and Speed Product Development

Involve both customers and suppliers Establish a stage-gate development funnel Establish cross-functional teams


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


A Stage-Gate Development Funnel

Figure 9.7

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


Members of a Cross-Functional Product Development Team

Figure 9.8

Managing the Value-Chain: Some Remaining Issues

It is managers job to collect relevant information about the competitive environment 1. Future intentions of competitors 2. Identity of new customers 3. Identity of new suppliers


Boundary-Spanning Roles
Boundary-Spanning roles
Interacting with individuals and groups outside the organization to obtain valuable information from the environment


The Nature of Boundary-Spanning Roles

Figure 9.9