Theme 5 Strategic Choice Functional Level Strategies PDF

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Complete Summary of theme 5 incorporating outside readings...

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Theme 5: Strategic Choice - Functional Level Strategy

Introduction -

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Functional level strategies are aimed at improving the effectiveness of a company’s operations and its ability to attain superior efficiency, quality, innovation and customer responsiveness. Distinctive competencies shape the functional level strategies that a company can pursue < firm specific strengths that allow a company to differentiate its products from those offered by rivals

Efficiency

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The simplest measurement for efficiency is to measure the quantity of inputs that it takes to produce a given output (Efficiency = outputs/inputs) Efficiency and Economies of scale One source of economies of scales is the ability to spread fixed costs over a large production volume. Another source is the ability to produce large volumes to achieve a greater division of labor and specialisation A company can also experience diseconomies of scale (unit cost increases associated with a large scale of output). They regularly occur because of managerial inefficiencies, managers must be able to assess when this is occuring. Learning effects (learning by doing) are another source of economies of scale. E.g management learning over time in a manufacturing plant. Another source = Experience curve refers to the systematic lowering of cost structure and unit costs observed over the life cycle of a product. Risks associated with managers relying on efficiency based cost advantages: Learning effect nor economies of scale will last forever Cost advantages from experience curve can become obsolete by development of new tech Producing high volume of output doesn’t always result in a lower cost structure. Marketing and Efficiency Marketing strategy refers to the position that a company takes with regard the 4p’s Customer defection rate = % of customers who defect each year. The longer a customer stays the more fixed costs can be acquired to repeat purchases Economic benefit - long term customer loyalty result in customer advocacy < Free advertising A key way to decrease defection raise is to pin-point why customers are leaving Materials management, JIT and Efficiency So many costs in production process, therefore, reducing costs through more efficient materials management strategies is enourmous. JIT inventory system was designed to economize on inventory holding costs < think Zara. Human resources and Efficiency Hiring strategy: Some company's put a lot of time into their hiring process to ensure efficient and productive employees are employed Employee training: Employees who are highly skilled can perform more efficiently Pay for performance: Some of the most efficient company's link pay to group or team performance. Infrastructure and Efficiency A company’s infrastructure (Culture, office etc) determines the context within which all other value creation activities take place Efficiency company wide require organisational buy in and close cooperation Top management, through leadership, play a significant role in this process

Quality -

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Advantages for having superior quality: Allows company to differentiate its products from those offered by rivals, thus creating more utility for customers Eliminating defects or errors from production process reduces waste, increase efficiency, lowers the cost structure and ultimately improves profits. Methods to implement reliability improving methods 1. Senior managers must agree a quality improvement program and communicate it 2. Individuals must be identified to lead the program 3. Leaders must preach for it, identify defects in processes and make corrections 4. Create metrics to ensure improvement 5. Set a challenging quality goal and incentives in achieving it 6. Include all subordinates in idea generation for program 7. Work with major suppliers to have improve the quality of the parts they supply 8. Design product with fewer parts 9. Require organisation wide support

Innovation -

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Only 10% - 20% of major R&D projects give rise to commercial products. Why?? Demand is uncertain until launched Tech is poorly commercialised Poor position strategy Marketing tech when there is no demand Products are slowly marketed To reduce this failure rate there should be a tight integration between R&D, production and marketing. This will ensure: 1. Product dev projects are developed by customer needs 2. New products are designed for ease of manufacture 3) Development costs are reduced 4) The time it takes to develop a product and bring it to market is minimised 5) Close integration between R&D and marketing is achieved Important attributes for an R&D team to function effectively: 1) Have a heavyweight project manager 2) Team should have a least one member of each key function e.g marketing 3) Team members should be physically co-located to facilitate comms. 4) Managers should proactively learn from their experiences with product development

Customer Responsiveness -

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To achieve this: A company must give customer what they want, when they want it, and at a price they are willing to pay, so long as the company’s long term profitability is not compromised. Customer responsiveness is an important differentiating attribute that can help build brand loyalty. Strong product differentiation and brand loyalty give a company more pricing options A company must listen to its customers to determine their needs It must find better ways to satisfy those needs The entire company needs to be motivated to focus on the customer How? --> Focus begins at the top, employees see the customer as their focus and are rewarded for engaging successfully Satisfying customer needs Once customer focus is an integral part the next requirement is to satisfy needs This is done by: Differentiating the product by customising it, where possible, to the requirements of the customer Reducing the time it takes to respond or satisfy to customers needs....