Chapter Nine

Value Chain Management:

Functional Strategies for
Competitive Advantage

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Four Ways to Create a Competitive
Advantage

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Toyota’s Product Lineup

Figure
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Functional Strategies and Value-Chain
Management

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

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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

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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 company’s business-
level strategy and strengthen its competitive
advantage

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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 function’s 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

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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
company’s 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

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 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

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Impact of Increased Quality on
Organizational Performance

Figure 9.4

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 Improving Quality

 An organization able to provide, for the

same price, a product of higher quality
than a competitor’s product is serving
customers better
 Higher product quality can increase
efficiency

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 Total Quality Management

 Total quality management (TQM)

≈ focuses on improving the quality of an
organization’s products and stresses that all of
an organization’s
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 9-22 9-22
 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

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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

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Members of a Cross-Functional Product
Development Team

Figure 9.8

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 Managing the Value-Chain: Some
Remaining Issues

 It is manager’s 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

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The Nature of Boundary-Spanning Roles

Figure 9.9
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