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

9-3

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
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Four Ways to Create a Competitive

Advantage

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Toyotas Product Lineup

Figure 9.2
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Functional Strategies and Value-Chain

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

9-7

Functional Strategies and Value-Chain

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

9-8

Functional Activities and

the Value Chain

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Functional Strategies and Value-Chain

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

9-10

Functional Strategies and Value-Chain

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

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Functional Strategies and Value-Chain

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

9-12

Functional Strategies and Value-Chain

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

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Functional Strategies and Value-Chain

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

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

9-15

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
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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

9-17

Impact of Increased Quality on

Organizational Performance

Figure 9.4
9-18

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

9-19

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

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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

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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.

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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
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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

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Three
Facilities
Layouts
Figure 9.5

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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

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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

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Changing a Facilities Layout

Figure 9.6
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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

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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

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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

9-31

Process Reengineering and Efficiency

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

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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

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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

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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
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Strategies to Promote Innovation and

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

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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

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A Stage-Gate Development Funnel

Figure 9.7
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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

9-39

Members of a Cross-Functional Product

Development Team

Figure 9.8
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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

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

9-42

The Nature of Boundary-Spanning

Roles

Figure 9.9
9-43