Chapter 5

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  • Chapter 5

    1. 1. Business-Level Strategy Chapter Five© 2006 by Nelson, a division of Thomson Canada Limited. 5-1
    2. 2. Chapter 3 Strategic External The Strategic Inputs . Environment Strat . Intent Chapter 4 Strat . Mission Management . Internal Environment Process Strategy Formulation Strategy ImplementationStrategic Actions Chapter 55 Chapter Chapter 6 Chapter 7 Chapter 11 Chapter 12 Bus. – - Level Bus. Level Competitive Corp. - Level Corporate Structure Strategy Strategy Dynamics Strategy Governance & Control Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14 Acquisitions & International Cooperative Strategic Entrepreneurship Restructuring Strategy Strategies Leadership & Innovation Outcomes Strategic Chapter 2 Chapter 1 Feedback Above Average Strategic Returns Competitiveness © 2006 by Nelson, a division of Thomson Canada Limited. 5-2
    3. 3. Strategic Management Competitiveness and GlobalizationKnowledge Objectives:2. Define business-level strategies.3. Discuss the relationship between customers & business-level strategies in terms of who, what and how.4. Explain the differences among business-level strategies.5. Use the five forces of competition model to explain how above average returns can be earned through each business-level strategy.6. Describe the risks of using each of the business-level strategies. © 2006 by Nelson, a division of Thomson Canada Limited. 5-3
    4. 4. Core Competency, Strategy and Business Level StrategyCore The resources and capabilities that areCompetency determined to be a source of competitive advantage for a firm over its rivals. An integrated & coordinated set of actions Strategy taken to exploit core competencies & gain a competitive advantage.Business Actions taken to provide customers valueLevel and gain a competitive advantage byStrategy exploiting core competencies in specific, individual product markets. © 2006 by Nelson, a division of Thomson Canada Limited. 5-4
    5. 5. Key Issues of Business-level Strategy• What good or service to offer customers.• How to manufacture or create the good or service.• How to distribute the good or service in the marketplace. © 2006 by Nelson, a division of Thomson Canada Limited. 5-5
    6. 6. The Central Role of CustomersIn selecting a business-level strategy, the firmdetermines 1. Who it will serve. 2. What needs those target customers have that it will satisfy. 3. How those needs will be satisfied. © 2006 by Nelson, a division of Thomson Canada Limited. 5-6
    7. 7. Basis for Customer Segmentation Consumer Markets1. Demographic factors (age, income, gender, etc.)2. Socioeconomic factors (social class, stage in the family life cycle)3. Geographic factors (culture, region or country differences)4. Psychological factors (lifestyle, personality traits)5. Consumption patterns (heavy, moderate, and light users)6. Perceptual factors (benefit segmentation, perceptual mapping)7. Brand loyalty patterns © 2006 by Nelson, a division of Thomson Canada Limited. 5-7
    8. 8. Basis for Customer SegmentationIndustrial Markets1. End use segments (identified by NAIC code)2. Product segments (based on technological differences or production economics)3. Geographic segments (defined by boundaries between countries or by regional differences within them)4. Common buying factor segments (cut across product/market and geographic segments)5. Customer size segments © 2006 by Nelson, a division of Thomson Canada Limited. 5-8
    9. 9. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad Cost Differentiation Target Market Leadership Breadth ofCompetitive Focused Focused Scope Narrow Differentiation Target Cost Market Leadership © 2006 by Nelson, a division of Thomson Canada Limited. 5-9
    10. 10. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Cost Broad Target Leadership Market Breadth ofCompetitive Scope Narrow Target Market © 2006 by Nelson, a division of Thomson Canada Limited. 5-10
    11. 11. Value Creating Activities Common to a Cost Leadership Business Level Strategy Firm InfrastructureActivities MSupport Human Resource Management A R Technological Development G IN Procurement Service Operations Outbound Marketing Logistics Logistics Inbound & Sales IN G R A M Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-11
    12. 12. Value Creating Activities common to a Inbound Cost Leadership Business Level Strategy Logistics Simplified Planning Relatively Few Cost Effective MIS Systems Firm Infrastructure Practices to Reduce Planning Costs Management Layers to Reduce OverheadActivities Activities Human ResourceImprove Worker Efficiency and MA Highly efficient Programs to SupportSupport Effective Training Consistent Pol. to Reduce Management systems to link Turnover Costs Effectiveness R Easy-to-Use Manufacturing suppliers’ prod.s Technological Developmentwith Investments in Technology in order G Technologies to Reduce Costs Associated IN with the firm’s Processes Systems and Procedures to find Manufacturing Frequent Evaluation Processes Procurement the Lowest Cost Products to production Suppliers’ Purchase Raw Materials Operations to Monitor Performances processes Small, Highly Effective Product Outbound Highly Efficient Efficient Plant Delivery Service Logistics Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Marketing Logistics Inbound Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce Inbound & Sales IN ucts with the ing Costs Frequency and Firm’s Produc- Selection of Low Products Priced Severity RG tion Processes Timing of Asset Cost Transport to Generate of Recalls Purchases Carriers Sales Volume A Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-12
    13. 13. Value Creating Activities common to aCost Leadership Business Level Strategy Operations Relatively Few Cost Effective Simplified Planning Practices Management Layers MIS Systems Activities Economies of to Reduce Planning Costs to Reduce OverheadActivities SupportSupport scale to reduce M Effective Training Human ResourcePrograms to Improve Consistent Policies to Reduce Turnover Costs Managementproduction costs A Worker Efficiency and Easy-to-Use Manufacturing Effectiveness Technology in Investments in RG Technological Development of Technologies Construction order to Reduce Costs Associated with Manufacturing IN Processes Systems and Procedures to find the Lowest Procurementefficient-scale Frequent Evaluation Processes Cost Products to Purchase Raw Materials to Monitor Suppliers’ Service Operations production Performances Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Logistics Operations Systems to Link Scale to Schedule that facilities Trained Sales Installations to Logistics Logistics Inbound Inbound Suppliers’ Prod- Minimize Reduces Costs Force Reduce ucts with the Manufacturing Selection of Low Products Priced Frequency and IN RG Firm’s Produc- Costs of Asset Timing Severity Cost Transport to Generate tion Processes Purchases of Recalls Carriers Sales Volume A Located in Close Policy Choice of Efficient Order Proximity with Plant TechnologySizes National Scale M Suppliers Advertising Organizational Learning Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-13
    14. 14. Value Creating Activities common to a OutbounCost Leadership Business Level Strategy d Logistics Simplified Planning Relatively Few Firm Infrastructure Cost Effective MIS Systems Delivery Practices to Reduce Management Layers to Reduce Overhead Activities Planning Costs schedule that MActivities SupportSupport Effective Training Programs to Human Resource Consistent Policies to Reduce Turnover Costs Management A reduces costs R Improve Worker Efficiency and Effectiveness G Investments in TechnologySelection of low Easy-to-Use Manufacturing Technological Developmentwith transport Technologies in order cost to Reduce Costs Associated IN Manufacturing Processes Systems and Procedures to Frequent Evaluation Processes carriers Procurement find the Lowest Cost Products Frequent Evaluation Processes to Monitor Suppliers’ to Monitor Suppliers’ Service to Purchase Raw Materials Efficient Service Performances Performances Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product order sizes Operations Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Outbound Marketing Logistics Logistics Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce ucts with the ing Costs Selection of Low Products Priced Frequency and IN RG Firm’s Produc- Timing of Asset Severity Cost Transport to Generate tion Processes Purchases of Recalls Carriers Sales Volume A Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-14
    15. 15. Value Creating Activities common to a Marketing Cost Leadership Business Level Strategy & Sales Simplified Planning Relatively Few MIS Systems Activities Firm Infrastructure Cost Effective Practices to Reduce Management Layers Planning Costs to Reduce Overhead Small, highlyActivities SupportSupport Consistent Pol. to Reduce Effective Training Programs to trained sales M Human Resource Management Turnover Costs Improve Worker Efficiency and Effectiveness A force R Technological Development Easy-to-Use Manufacturing Investments in Technology in order to Reduce Costs Associated with G Technologies Manufacturing Processes IN Products priced Systems and Procedures to find Frequent Evaluation Processes to to generate Procurement the Lowest Cost Products to Monitor Suppliers’ Performances Service Purchase Raw Materials sales volume Service Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Logistics Marketing Operations Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Marketing Logistics & Sales Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce ucts with the ing Costs Selection of Low Products Priced Frequency and IN RG Firm’s Produc- Timing of Asset Cost Transport Severity to Generate tion Processes Purchases of Recalls Carriers Sales Volume A Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-15
    16. 16. Value Creating Activities common to a Cost Leadership Business Level Strategy Firm Infrastructure Cost Effective Service Simplified Planning Practices to Reduce Relatively Few Management Layers MIS Systems Planning Costs Effective product to Reduce Overhead ActivitiesActivities SupportSupport Human ResourceWorker Efficiency and Effectiveness MA to installations Effective Training Programs to Improve Consistent Pol. to Reduce Turnover Costs Management reduce R Investments in Technology in order to Reduce Technological Development Easy-to-Use Manufacturing G Technologies recalls Costs Associated with Manufacturing Processes IN Systems and Procedures to find Frequent Evaluation Processes to Procurement the Lowest Cost Products to Monitor Suppliers’ Performances Service Purchase Raw Materials Service Operations Highly Efficient Efficient Plant Delivery Small, HighlyEffective Product Service Outbound Marketing Logistics Systems to Link Scale to Minim- Schedule that Trained SalesInstallations to Logistics Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce ucts with the ing Costs Selection of Low Products Priced Frequency andIN RG Firm’s Produc- Severity Timing of Asset Cost Transport to Generate tion Processes Carriers Sales Volume of Recalls Purchases A Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-16
    17. 17. Value Creating Activities common to a Cost Leadership Business Level Strategy Simplified Planning Relatively Few MIS Systems Activities Firm Infrastructure Cost Effective Practices to Reduce Planning Costs Management Layers to Reduce OverheadActivities SupportSupport Consistent Pol. to Human Resource Management Effective Training Programs to Improve M Reduce Turnover Costs Worker Efficiency and Effectiveness A R Easy-to-Use Manufacturing Technological Development Investments in Technology in order G Technologies to Reduce Costs Associated with Manufacturing Processes IN Systems and Procedures to find Frequent Evaluation Processes Procurement Procurement Procurement M Service the Lowest Cost Products to Operations Operations to Monitor Suppliers’ Service Purchase Raw Materials Performances Outbound Outbound Logistics Logistics Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Marketing Marketing Logistics Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Inbound Inbound & Sales & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce Procurement IN ucts with the ing Costs Selection of Low Products Priced Frequency and Firm’s Produc- Timing of Asset Cost Transport to Generate Severity RG tion Processes Purchases Carriers Sales Volume of Recalls Systems and procedures toOrder National Frequent evaluation A Located in Close Policy Choice of Efficient find thewith Plant Tech. products Proximity lowest cost Suppliers Sizes processes to monitor Scale Advertising to purchaseOrganizational Interrelationships suppliers’ performances raw materials Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-17
    18. 18. Value Creating Activities common to a Cost Leadership Business Level Strategy Simplified Planning Relatively Few Cost Effective MIS Systems Firm Infrastructure Practices to Reduce Planning Costs Management Layers to Reduce OverheadActivities ActivitiesSupport Support Human Resource Management Consistent Pol. to Reduce Effective Training Programs to M Turnover Costs Improve Worker Efficiency and Effectiveness AR Easy-to-Use Manufacturing Technological Development Investments in Technology in order G Technological Development Technologies to Reduce Costs Associated with Manufacturing Processes IN Systems and Procedures to find Frequent Evaluation Processes Procurement the Lowest Cost Products to to Monitor Suppliers’ Service Service Operations Purchase Raw Materials Performances Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Technological Development Logistics Marketing Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce Easy-to-Use ucts with the ing Costs Investments in technology in IN order Selection of Low Products Priced Frequency and to reduce costs associated G Firm’s Produc- Timing of Asset Cost Transport to Generate Severity manufacturing tion Processes Purchases technologies Choice of Carriers Sales Volume Rwith of Recalls A manufacturing processes Located in Close Policy Proximity with Plant Tech. Efficient Order National Sizes Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-18
    19. 19. Value Creating Activities common to a Cost Leadership Business Level Strategy Simplified PlanningRelatively Few Firm Infrastructure Cost Effective MIS Systems Activities Activities Practices to Reduce Planning Costs Management Layers to Reduce OverheadActivities Support SupportSupport Human Resource Management MA Human Resource Management Consistent Pol. Effective Training Programs to to Reduce Improve Worker Efficiency and Turnover Costs R Effectiveness Easy-to-Use Manufacturing Technological Development Technological Development G Investments in Technology in order Technologies IN to Reduce Costs Associated with Manufacturing Processes HumanProcurement Resource Management Systems and Procedures to find Procurement the Lowest Cost Products to Operations Frequent Evaluation Processes to Monitor Suppliers’ Service Consistent policies to Purchase Raw Materials Intense & effective training Performances Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product Logistics reduce turnover costs programs to improve worker Marketing Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce ucts with the ing Costs efficiency and effectiveness Selection of Low Products Priced Frequency and IN RG Firm’s Produc- Timing of Asset Cost Transport to Generate Severity tion Processes Purchases Carriers Sales Volume of Recalls A Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-19
    20. 20. Value Creating Activities common to a Cost Leadership Business Level Strategy Simplified Planning Relatively Few MIS SystemsFirm Infrastructure Firm Infrastructure Cost Effective Practices to Reduce Planning Costs Management Layers to Reduce OverheadActivities ActivitiesSupport Support Human Resource Management Consistent Pol. Effective Training Programs to M to Reduce Turnover Costs Improve Worker Efficiency and Effectiveness AR Firm Infrastructure Easy-to-Use Manufacturing Technological Development Investments in Technology in order G Technologies to Reduce Costs Associated with Manufacturing Processes IN Cost effective Relatively few Systems and Procedures to find Simplified planning Frequent Evaluation Processes MIS systems Procurement to policies to reduce the Lowest Cost Products to to Monitor Suppliers’ managerial layers Service Purchase Raw Materials Performances Outbound Highly Efficient Efficient Plant Delivery Small, Highly Effective Product reduce overhead costs planning costs Logistics Operations Marketing Logistics Systems to Link Scale to Minim- Schedule that Trained Sales Installations to Inbound & Sales Suppliers’ Prod- ize Manufactur- Reduces Costs Force Reduce ucts with the ing Costs Selection of Low Products Priced Frequency and Firm’s Produc- Timing of Asset Cost Transport to Generate Severity GIN AR tion Processes Purchases Carriers Sales Volume of Recalls Located in Close Policy Choice of Proximity with Plant Tech. Efficient Order Sizes National Scale M Suppliers Advertising Organizational Interrelationships Learning with Sister Units Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-20
    21. 21. How to Obtain a Cost Advantage1 Determine and Control Cost Drivers2 Reconfigure the Value Chain as needed Alter production process Change in automation New raw material New advertising media Forward integration New distribution channel Backward integration Direct sales in place Alter location relative of indirect sales to suppliers or buyers © 2006 by Nelson, a division of Thomson Canada Limited. 5-21
    22. 22. Cost Leadership Strategy and the Five Forces of Competition R Co ival hr e Pr t o f uc t ea od s mp ry eti Am ng on Rivalry with Existing T ut Su bs tit Fi g rm s Competitors Can use cost leadership strategy Five Forces of of B u g Powe rThr trantsThre trants yer s to advantage since: En En eat o Competition at of a inin q competitors avoid price wars f Ne New Barg w Bargaining Power with cost leaders, creating of Suppliers higher profits for the entire industry © 2006 by Nelson, a division of Thomson Canada Limited. 5-22
    23. 23. Cost Leadership Strategy and the Five Forces of Competition R s Co ival o f uc t mp ry hr e Pr T ut t ea od eti Am ng on Fi g Bargaining Power of Buyers tit rm Su bs s (Customers) Five Forces of of B u g Powe rThr trantsThre trants yer s Can mitigate buyers’ power by: En En eat o Competition at of Driving prices far below a inin f Ne New Barg competitors and cause exit and w Bargaining Power of Suppliers shift power back to firm. © 2006 by Nelson, a division of Thomson Canada Limited. 5-23
    24. 24. Cost Leadership Strategy and the Five Forces of Competition R t o f uc t ea od s Co ival mp ry eti Am Bargaining Power of Suppliers hr e Pr T ut ng on Fi g tit rm bs s Su Can mitigate suppliers’ power by: of B u g Powe r Five Forces of being able to absorb costThr trantsThre trants q yer s En En eat o Competition at of increases due to low cost a inin f Ne New position Barg w Bargaining Power of Suppliers q being able to make very large purchases, reducing chance of supplier using power © 2006 by Nelson, a division of Thomson Canada Limited. 5-24
    25. 25. Cost Leadership Strategy and the Five Forces of Competition R s Co ival o f uc t hr e Pr T ut t ea od mp ry eti Am ng on Threat of New Entrants Fi g tit rm bs s Su Can frighten off new entrants due to: Five Forces of of B u g Powe rThr trantsThre trants yer s q their need to enter on a large scale En En eat o Competition at of a inin in order to be cost competitive f Ne New Barg w q the time it takes to move down the Bargaining Power of Suppliers learning curve © 2006 by Nelson, a division of Thomson Canada Limited. 5-25
    26. 26. Differentiation Strategy and the Five Forces of Competition R s Co ival o f uc t mp ry hr e Pr T ut t ea od eti Am ng on Fi g Threat of Substitute Products tit rm bs s Su of B u g Powe r Well positioned relative to substitutes Five Forces ofThr trantsThre trants yer s because: En En eat o Competition at of a inin q brand loyalty to a differentiated f Ne New Barg product tends to reduce customers’ w Bargaining Power of Suppliers testing of new products or switching brands. © 2006 by Nelson, a division of Thomson Canada Limited. 5-26
    27. 27. Major Risks of Cost Leadership Business Level StrategyDramatic technological change couldtake away your cost advantage.Competitors may learn how to imitateValue Chain.Focus on efficiency could cause CostLeader to overlook changes in customerpreferences. © 2006 by Nelson, a division of Thomson Canada Limited. 5-27
    28. 28. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Broad Cost Target Differentiation Market Leadership Breadth ofCompetitive Scope Narrow Target Market © 2006 by Nelson, a division of Thomson Canada Limited. 5-28
    29. 29. Differentiation strategy“An integrated set of actions designed by a firm to produce or deliver goods or services that customers perceive as being different in ways that are important to them.” © 2006 by Nelson, a division of Thomson Canada Limited. 5-29
    30. 30. How to Obtain a Differentiation AdvantageControl if needed Reconfigure to maximize Cost Drivers Value Chain • Lower buyers’ costs • Raise performance of product or service • Create sustainability through: - customer perceptions of uniqueness - customer reluctance to switch to non-unique product © 2006 by Nelson, a division of Thomson Canada Limited. 5-30
    31. 31. Value Creating Inbound common to a Activities Logistics Differentiation Business Level Strategy Compensation programs A companywide emph- Firm Infrastructure of intended to encourage worker creativity & prod. Activities Support asiis on producing high Superior handling quality productsActivities MSupport Highly Developed Information Extensive use of subjective Superior incoming raw Human Resource Management Systems to better understand rather than objective materials to performance measures customers’ purchasing preferences personnel training AR minimize damagewill allow capability in G Coordination among R&D, Strong Technological firm to consistently produce basic research IN the Development Investments in tech. that product development and marketing and improve the Systems and procedures used to highly differentiated products Purchase of highest quality materials Procurement parts find the highest quality raw quality of the final Operations replacement product and Strong Coordin- Service Consistent Accurate Complete field Outbound Logistics manufacturing responsive ation among stocking of Marketing Logistics Inbound & Sales of attractive order functions in replacement products processing R&D, Marketing parts IN RG procedures and Product Development Rapid responses to Extensive A customers unique Rapid and timely personal product relationships M deliveries to with buyers manufacturing Premium specifications customers Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-31
    32. 32. Value Creating Activities common to a Operations Differentiation Business Level Strategy Highly Developed Information Consistent Firm Infrastructure Systems to better understand manufacturing of customers’ purchasing preferencesActivities Compensation programsSupport Human Resource Management MA intended to encourage attractive products worker creativity & prod. Coordination among R&D, Strong RG Technological Development capability in product development and marketing Rapid responses basic research IN to customers Systems and procedures used to find Procurement the highest quality raw materials unique Service Operations Accurate andmanufacturingComplete field Outbound Superior Consistent Strong Coordin- Logistics Operations manufacturing responsive specifications stocking of ation among Marketing Logistics handling of Inbound & Sales incoming raw of attractive order functions in replacement R&D, Marketing parts IN materials to products processing minimize procedures and Product G damage and Development AR Rapid Extensive improve the Rapid and timely responses to personal quality of the product M customers relationships final product deliveries to unique with buyers manufacturing customers Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-32
    33. 33. Outbound Value Creating Activities common to a Logistics Differentiation Business Level Strategy Highly Developed Information A companywide emph- Firm Infrastructure Systems to better understand asiis on producing high customers’ purchasing preferences quality products Activities Accurate andActivities responsive Support Compensation programs Extensive use of subjective Superior Human Resource Management MASupport intended to encourage rather than objective personnel worker creativity & prod. performance measures order Coordination among R&D, training processing G Investments in tech. that will allow Strong R Technological firmdifferentiated products procedures IN product development and marketing the Development capability in highly to consistently produce basic research Systems and procedures used to find the Procurement Purchase of highest quality highest quality raw materials replacement parts Rapid and timely Service product deliveries Outbound Superior Consistent Accurate and Strong Coordin- Complete field Operations Outbound Logistics ation among functions in to customers Marketing Logistics handling of manufacturing responsive stocking of Logistics & Sales incoming raw of attractive order replacement Inbound R&D, Marketing parts IN materials to products processing minimize procedures and Product G damage and Development AR Rapid Extensive improve the Rapid and timely personal responses to quality of the product M customers relationships final product deliveries to unique with buyers manufacturing customers Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-33
    34. 34. Marketing Value Creating Activities common to a Highly Developed Information & Sales Differentiation Business Level StrategyA companywide emph- Strong coordination Firm Infrastructure Systems to better understand asiis on producing high customers’ purchasing preferences quality products among functions inActivities Compensation programs Extensive use of subjective Superior MSupport R&D, marketing & Human Resource Management intended to encourage worker creativity & prod. rather than objective performance measures personnel A product development Coordination among R&D, training Investments in tech. that will allow Strong RG Technological Development product development and marketing the firm to consistently produce highly differentiated products Extensive personal capability in IN basic research relationships with Systems and procedures used to find Purchase of highest quality Procurement the highest quality raw materials replacement parts buyers Service Outbound Superior Consistent Accurate and Strong Coordin- Premium Complete field Operations Logistics Marketing ation among Marketing Logistics handling of manufacturing responsive stocking of pricing Inbound & Sales & Sales incoming raw of attractive order functions in replacement R&D, Marketing parts IN materials to products processing minimize procedures and Product RG damage and Development Rapid Extensive improve the Rapid and timely A responses to personal quality of the product M customers relationships final product deliveries to unique with buyers customers manufacturing Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-34
    35. 35. Value Creating Activities common to a Differentiation Business Level Strategy Firm Infrastructure Service Highly Developed Information Systems to better understand A companywide emph- asiis on producing high customers’ purchasing preferences quality productsActivities Activities Complete fieldSupport Support Compensation programs Extensive use of subjective Superior stocking M Human Resource Management of A intended to encourage worker creativity & prod. rather than objective performance measures personnel replacement R training Investments in tech. that will allow Coordination among R&D, Technological Development parts G the firm to consistently produce Strong product development and marketing I highly differentiated products capability in basic research N Systems and procedures used to find Purchase of highest quality Procurement the highest quality raw materials replacement parts Service Service Outbound Strong Coordin- Operations Superior Consistent Accurate and Complete field Logistics ation among Marketing Logistics handling of manufacturing responsive stocking of Inbound & Sales incoming raw of attractive order functions in replacement IN materials to products processing R&D, Marketing parts RG minimize procedures and Product damage and Development Rapid improve the responses to Rapid and Extensive A quality of the final product customers unique timely product deliveries to personal relationships M customers with buyers manufacturing Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-35
    36. 36. Value Creating Activities common to a Differentiation Business Level Strategy Highly Developed Information A companywide emph- Firm Infrastructure Systems to better understand asiis on producing highActivities customers’ purchasing preferences quality productsSupport Activities Support Compensation programs Extensive use of subjective Superior Human Resource Management intended to encourage rather than objective personnel M worker creativity & prod. performance measures training A R Coordination among R&D, Technological Development Investments in tech. that will allow Strong G product development and marketing the firm to consistently produce highly differentiated products IN capability in basic research Systems and procedures used to Procurement Procurement find the highest quality raw Operations Purchase of highest quality replacement parts Service materials Outbound Superior Consistent Accurate and Strong Coordin- Complete field Logistics Marketing Logistics handling of manufacturing responsive ation among stocking of Inbound & Sales incoming raw of attractive order functions in replacement IN Procurement materials to products processing R&D, Marketing parts minimize procedures and Product RG Development Systems & procedures damage and improve the Rapid Purchase of highest Located in Extensive Rapid and timely personal A responses to used to find the highest quality of the quality replacement Close Proximity product M customers relationships final product deliveries to quality raw materials unique manufacturing parts customers with buyers with Suppliers Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-36
    37. 37. Value Creating Activities common to a Differentiation Business Level Strategy Highly Developed Information A companywide emphasis Firm Infrastructure Systems to better understand on producing high quality customers’ purchasing preferences productsActivities ActivitiesSupport Support M Compensation programs Extensive use of subjective Superior Human Resource Management intended to encourage worker creativity & prod. rather than objective personnel A performance measures training R Technological firmdifferentiated products capability in GIN Coordination among R&D, Investments in tech. that will allow Strong product development and the Development Technological Development basic research to consistently produce marketing highly Systems and procedures used to Purchase of highest quality Procurement parts find the highest quality raw Operations replacement Service materials Outbound Strong Coordin- Logistics Superior Consistent Accurate and Complete field Technological Development Marketing Logistics handling of manufacturing responsive ation among stocking of Inbound & Sales incoming raw of attractive order functions in replacement IN materials to products processing R&D, Marketing parts Coordination among minimize Investments in technol- procedures and Product Strong RG Development R&D, marketing and damage and Rapid improve the ogies to produce highly Extensive Rapid and timely personal capability in A responses to product development quality of the differentiated products product basic research M customers relationships final product unique deliveries to with buyers manufacturing customers Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-37
    38. 38. Value Creating Activities common to a Differentiation Business Level Strategy Highly Developed Information A companywide emph- Firm Infrastructure Systems to better understand asiis on producing highActivities customers’ purchasing preferences quality products ActivitiesSupport Activities Support M Support Compensation programs Extensive use of subjective Superior Human Resource Management Human Resource Management intended to encourage rather than objective personnel A worker creativity & prod. performance measures training R Coordination among R&D, Technological Development Investments in tech. that will allow Strong G product development and marketing the firm to consistently produce highly differentiated products IN capability in basic research Human Procurement Resource Management Systems and procedures used to find the highest quality raw Purchase of highest quality replacement parts Service materials Compensation programs Extensive use of Superior Outbound Strong Coordin- Operations Logistics Superior Consistent Accurate and ation among Complete field Marketing Logistics which encourage worker handling of manufacturing responsivesubjective perform- functions in personnel stocking of Inbound & Sales incoming raw of attractive order R&D, Marketing replacement creativity & productivity ance measures training IN materials to products processing and Product parts minimize procedures RG Development damage and Rapid Extensive improve the Rapid and timely personal A responses to quality of the product M customers relationships final product unique deliveries to with buyers manufacturing customers Premium specifications Pricing Primary Activities © 2006 by Nelson, a division of Thomson Canada Limited. 5-38

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