Module 4

Competitive Advantage Through

Functional-Level Strategies
 Housekeeping Items
• Have you been assigned to a group? If no, connect with your Tutor via
email or in person during the seminar
• Group project update
Learning Objectives
Explain how an enterprise can use functional-level strategies to increase its
efficiency

Explain how an enterprise can use functional-level strategies to increase its quality

Explain how an enterprise can use functional-level strategies to increase its

innovation

Explain how an enterprise can use functional-level strategies to increase its

customer responsiveness

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Levels of Strategic Management

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Functional-level strategies (1 of 2)

Functional-level strategies - Actions that improve the

efficiency and effectiveness of one or more value
creation activities.

Idealy all four should be considered, but they conflicts each other
Used to build valuable resources to attain:
Customer
Efficiency Quality Innovation
Responsiveness
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Functional-level strategies (1 of 2)

Used to build valuable resources to attain:

Customer
Efficiency Quality Innovation
Responsiveness

Sales &
F&B Room Amenities Marketing

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Functional-level Strategies (2 of 2)

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Efficiency and Economies of Scale (1 of 2)

• Efficiency - Measured by the quantity of inputs that it takes to produce

a given output Avoid reducing product quality to unacceptable level

• Economies of scale - Reductions in unit costs attributed to a larger

output
• Ability to spread fixed costs over a large production volume and
produce in large volumes
• To achieve greater division of labor and specialization
• Diseconomies of scale - Unit cost increases associated with a large
scale of output

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Scale Economies Ringelmann
Effect

Higher Fixed
Costs

More Errors

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Learning Effects (1 of 2)

Learning effects - Cost savings that come from learning by doing

More significant when a technologically complex task is repeated, as there is more to

learn

Diminish in importance after a period of time

Triggered by changes in a company’s production system

Productivity and Efficiency from Human Labor in Hospitality and Tourism Industry

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Learning Effects (2 of 2)

Keep well-trained
Employees

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Efficiency and Economies of Scale

• Managers should avoid being complacent about efficiency-based cost

advantages derived from experience effects as:
• Neither learning effects nor economics of scale are sustained forever
• Cost advantages gained from experience effects can be made
obsolete by new technologies

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Marketing and Efficiency
Marketing strategy - Position of a company with regard to
pricing, promotion, advertising, product design, and
distribution Distinctive Brand
Asset
• Impacts efficiency and cost structure

Customer defection - Percentage of a firm’s customers who

defect every year to competitors Increase Switching
Costs

• Lowering customer defection helps achieve a lower cost structure

More important to keep customers loyal
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Deflection–cost Relationship

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Materials Management and Efficiency

• Materials management - Activities necessary to get inputs and

components:
• To a production facility
• Through the production process
• Out through a distribution system to the end-user
• Enormous potential for reducing costs

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Just-in-Time Systems and Efficiency (2 of 2)

• Supply chain management - Managing the flow of inputs and

components from suppliers into the company’s production processes
to:
• Minimize inventory holding
• Maximize inventory turnover
• Research and development:
• Boots efficiency by designing products that are easy to manufacture
• develops process innovation with a new way that the production
process can operate more efficiently

laundry cost fucking high

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Human Resources and Efficiency

• Human Resource Strategy

• Productive employees lower the costs of generating revenues and
increasing return of sales.
• HR does this through:
• Hiring strategy
• Employee training
• Self-managing teams
• Pay for performance

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Information Systems and Infrastructure and Efficiency

• Information systems
• Impact on productivity affects all company activities.
• Cost savings by:
• Moving customer service and ordering online
• Automating customer and supplier interactions
• Reducing staff
• Reducing physical stores
• Infrastructure - Organizational structure, culture, style of leadership,
and control systems
• Strategic leadership is important in building commitment to efficiency

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Value Creation Functions
Value Creation Function Primary Role
Infrastructure (leadership) 1. Provide companywide commitment to efficiency.
2. Facilitate cooperation among functions.
Production 1. Where appropriate, pursue economies of scale and learning economics.
2. Implement flexible manufacturing systems.
Marketing 1. Where appropriate, adopt aggressive marketing to ride down the experience curve.
2. Limit customer defection rates by building brand loyalty.

Materials management 1. Implement JIT systems.

2. Implement supply chain coordination.
R&D 1. Design products for ease of manufacture.
2. Seek process innovations.
Information systems 1. Use information systems to automate processes.
2. Use information systems to reduce costs of coordination.
Human resources 1. Institute training programs to build skills.
2. Implement self-managing teams.
3. Implement pay for performance.

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Achieving Superior Reliability (1 of 2)
TQM

Total quality management - Increasing product reliability

to perform consistently as designed and rarely break
down

Five factors of TQM:

Better quality leads to Higher prices increase
Improved quality means As a result, productivity higher market share, profitability, allowing Enables the company to
that costs decrease improves allowing the company to the company to stay in create more jobs
raise prices business

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Achieving superior reliability (2 of 2)

• Steps in quality improvement programs:

• Management should strive to eliminate mistakes, defects, and poor-
quality
• Supervision quality should be improved
• Employees should not fear reporting problems or suggesting
improvements
• Work standards should stress quality of work
• Employees should be trained in new skills to remain informed of
workplace changes
• Everyone in the company should commit to achieving better quality

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Implementing Reliability Improvement Methodologies
Function Role
Infrastructure (leadership) 1. Provide leadership and commitment to quality.
2. Find ways to measure quality.
3. Set goals and create incentives.
4. Solicit input from employees.
5. Encourage cooperation among functions.
Production 1. Shorten production runs.
2. Trace defects back to the source.
Marketing 1. Focus on the customer.
2. Provide customer feedback on quality.
Materials management 1. Rationalize suppliers.
2. Help suppliers implement quality improvement methodologies.
3. Trace defects back to suppliers.

R&D 1. Design products that are easy to manufacture.

Information systems 1. Use information systems to monitor defect rates.
Human resources 1. Institute quality improvement training programs.
2. Identify and train black belts.
3. Organize employees into quality teams

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Improving Quality as Excellence (1 of 2)

Product Attributes Service Attributes Associated Personnel

Attributes
Form Ordering ease Competence
Features Delivery Courtesy
Performance Installation Credibility
Durability Customer training Reliability
Reliability Customer consulting Responsiveness
Style Maintenance and repair Communication

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Improving Quality as Excellence (2 of 2)

To achieve a perception of high quality of attributes the company should:

• Collect marketing information indicating which attributes are most
important to customers
• Design products so that those attributes are embodied in the product
• Decide significant attributes to promote and how best to position
them in the minds of consumers
• Recognize that competition is not stationary

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Achieving Superior Innovation

• Most important source of competitive advantage

• Innovative products or processes gives a company competitive
advantage that allows it to:
• Differentiate its products and charge a premium price
• Lower its cost structure below that of its rivals
• Successful new-product launches are catalysts of superior profitability
* Service Profit Chain

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Reasons for High Failure Rate of Innovation

• Demand for innovations is essentially uncertain

• Technology is poorly commercialized
• Poor positioning strategy
• Positioning strategy - Specific set of options adopted for a product
based on price, distribution, promotion and advertising, and product
features
• Marketing a technology for which there is inadequate demand
• Slow marketing of products S.T.P.
segmentation, targeting, positioning

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Reducing Innovation Failures

• Tight, cross-functional integration can help a company ensure that:

• Product development projects are driven by customer needs
• New products are designed for ease of manufacture
• Development costs are controlled
• The time it takes to develop a product and bring it to market is
minimized
• Close integration between R&D and marketing is achieved

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Achieving Superior Innovation— Summary
Value Creation Function Primary Role
Infrastructure (leadership) 1. Manage overall project (i.e., manage the development function).
2. Facilitate cross-functional cooperation.

Production 1. Cooperate with R&D on designing products that are easy to manufacture.
2. Work with R&D to develop process innovations.

Marketing 1. Provide market information to R&D.

2. Work with R&D to develop new products.

Materials management No primary responsibility.

R&D 1. Develop new products and processes.

2. Cooperate with other functions, particularly marketing and manufacturing,
in the development process.

Information systems 1. Use information systems to coordinate cross-functional, cross-company product development.

Human resources 1. Hire talented scientists and engineers.

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Achieving Superior Customer Responsiveness (1 of 2)

• Give customers what they want, when they want it, and at a price they
are willing to pay—within company profitability
• Focus on the customer
• Demonstrate leadership
• Shape employee attitudes
• Know customer needs
• Satisfy customer needs

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Achieving Superior Customer Responsiveness (2 of 2)

Value Creation Function Primary Role

Infrastructure (leadership) • Through leadership by example, build a companywide commitment to responsiveness to customers

Production • Achieve customization through implementation of flexible manufacturing

• Achieve rapid response through flexible manufacturing

Marketing • Know the customer

• Communicate customer feedback to appropriate functions

Materials management • Develop logistics systems capable of responding quickly to unanticipated customer demands (JIT)

R&D • Bring customers into the product development process

Information systems • Use web-based information systems to increase responsiveness to customers

Human resources • Develop training programs that get employees to think like customers

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 Discussion:
• How are the four building blocks of competitive advantage related to each
other?
• What role can top management play in helping a company achieve superior
efficiency, quality, innovation, and responsiveness to customers?
• Over time, will the adoption of Six Sigma quality improvement processes
give a company a competitive advantage, or will it be required only to
achieve parity with competitors?
• What is the relationship between innovation and competitive advantage?

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