5-1

Chapter 5: Building Competitive

Advantage Through Functional
Level Strategy
Text by
Charles W. L. Hill
Gareth R. Jones

Multimedia Slides by
Milton M. Pressley
Univ. of New Orleans

Copyright © 1998 by Houghton Mifflin Company. All rights reserved.

 5-2

Preview

Achieving Superior Efficiency

Achieving Superior Quality
Achieving Superior Innovation
Achieving Superior Customer
Responsiveness

Copyright © 1998 by Houghton Mifflin Company. All rights reserved.

 5-3
Table 5.1: Primary Roles of Different Value
Creation Functions in Achieving Superior
Efficiency
Value Creation Primary
PrimaryRoles
Roles
Function
Infrastructure • Provide company wide commitment to efficiency.
• Facilitate cooperation between functions
• Where appropriate, pursue experience curve based
Production cost economies
• Implement flexible manufacturing systems
• Where appropriate, adopt aggressive marketing to
Marketing ride down the experience curve
• Limit customer defections by building brand loyalty
Material • Implement JIT systems
Management
• Design products for ease of manufacture
R&D
• Seek process innovations
Human • Institute training programs to build skills
• Implement self-managing teams
Relations
• Implement pay for performance
Copyright © 1998 by Houghton Mifflin Company. All rights reserved.
 5-4

Production and Efficiency:

Economies of Scale
Figure 5.1: A Typical Long Run Unit Cost Curve

Unit Costs

Minimum Efficient
Scale

Volume
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 5-5
Production and Efficiency:
Learning Effects
Fig. 5.2: Economies of Scale and Learning Effects
Unit Costs

.A Economies
of Scale

.
B

Average Costs

Output/time
Copyright © 1998 by Houghton Mifflin Company. All rights reserved.
 5-6
Production and Efficiency:
Learning Effects
Fig. 5.2: Economies of Scale and Learning Effects
Unit Costs

.A Economies
of Scale

.
B

Average Costs
.
C
Learning
Effects
Average Costs

Output/time
Copyright © 1998 by Houghton Mifflin Company. All rights reserved.
 5-7
Production and Efficiency: The
Experience Curve
Figure 5.3: A Typical Experience Curve
Unit Costs

. B

.A

Accumulated
Output
Copyright © 1998 by Houghton Mifflin Company. All rights reserved.
 5-8
Production and Efficiency:
Flexible Manufacturing
Fig. 5.5: The Tradeoff Between Costs and Product Variety
Unit Costs

Unit Costs
5.5a: Traditional 5.5b: Flexible
Manufacturing Manufacturing

Total

Variety
Related Total
Volume
Volume Related
Related Variety
Related
Low High Low High
Production Volume Production Volume
Production Variety Production Variety

Copyright © 1998 by Houghton Mifflin Company. All rights reserved.

 5-9
Marketing and Efficiency (Continued)
Figure 5.6: The Relationship Between Average Unit
Costs and Customer Defection Rates
High
Average Unit Costs

Customer
Low

Defection Rates
Low High

Copyright © 1998 by Houghton Mifflin Company. All rights reserved.

 5-10

Marketing and Efficiency (Continued)

Figure 5.7: The Relationship Between Customer
Loyalty and Profit Per Customer
Profit per Customer
(+)

Length of Time
O Customer Has Been
With Company

(-)
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 5-11
Table 5.3: The Role Played by Different
Functions in Achieving Superior Quality
Value Creation Primary Roles
Function
1. Provide leadership and commitment to quality.
2. Find ways to measure quality.
Infrastructure
3. Set goals and create incentives.
(Leadership) 4. Solicit input from employees.
5. Encourage cooperation between functions.
1. Shorten production runs.
Production
2. Trace defects back to source.
1. Focus on the customer.
Marketing 2. Provide customer feedback on quality.
1. Rationalize suppliers.
Material
2. Help suppliers implement TQM.
Management 3. Trace defects back to suppliers.
1. Design products so that they are easy to
R&D
manufacture.
Human 1. Institute TQM training programs.
Relations 2. Organize employees into quality teams.
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 5-12

Achieving Superior Quality

(Continued)
• Implementing TQM
– Build Organizational
Commitment to Quality
– Focus on the Customer
– Find Ways to Measure Quality
– Set Goals and Create Incentives

Copyright © 1998 by Houghton Mifflin Company. All rights reserved.

 5-13

Achieving Superior Quality

(Continued)
• Implementing TQM
– Solicit Input from Employees
– Identify Defects and Trace Them to
Source
– Supplier Relations
– Design for Ease of Manufacture
– Break Down Barriers Between
Functions
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Table 5.4: The Role Played by Various
Functions in Achieving Superior Innovation
Value Creation Primary Roles
Function
1. Overall project management (i.e. managing the
Infrastructure development function)
2. Facilitating cross-functional cooperation
1. Cooperate with R&D on designing products that are
Production easy to manufacture.
2. Work with R&D on developing process innovations.
1. Provide market information to R&D. Work with R&D
Marketing on developing new products.
Material No Primary
Management Responsibility
1. Develop new products and processes
2. Cooperate with other functions, particularly
R&D
marketing and manufacturing, in the development
process.
Human 1. Hire talented scientists and engineers.
Relations
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 5-15
Table 5.5: The Primary Role of Different Functions in
Achieving Superior Customer Responsiveness
Value Creation Primary Roles
Function
1. Through leadership by example, build a company
Infrastructure
wide commitment to customer responsiveness.
1. Achieve customization through implementation of
flexible manufacturing.
Production
2. Achieve rapid response through flexible
manufacturing.
1. Know the customer.
Marketing 2. Communicate customer feedback.
functions.
Material 1. Develop logistics systems capable of responding
Management quickly to unanticipated customer demands.
1. Bring customers into the product development
R& process.
D
Huma 1. Develop training programs that get employees to
Relations
n think of themselves as
customers.
Copyright © 1998 by Houghton Mifflin Company. All rights reserved.