Building competence through functional level and gaining sustainable competitive advantage

1. Business Strategy Session 4:
Building Competitive Advantage Through Functional-Level
Strategies
Author: Anik Saha

2. Agenda
Blocks of Functional Level Strategy
Achieving Superior Efficiency
Achieving Superior Quality
Achieving Superior Innovations
Achieving Superior Customer Responsiveness
2 © Anik Saha

3. 3
Roots of Competitive Advantage
Functional Level Strategies Focus on Superior Efficiency,
Quality, Innovation & Customer Responsiveness
Resource
Distinctive
Competencies
Capabilities
Functional &
Business
Strategies
Competitive Adv./
Value Creation
Grow
Profitability
Build
Build
Shape
Distinctive Competencies & Strategies gets reciprocally developed to drive SCA
© Anik Saha
Differentiation
Low Cost

4. 4
Fundamental Principles of Competitive Advantage
Innovations
Efficiency Superior Quality
Customer Responsiveness
• Productivity Improvement drives
better returns
• Operations, Processes, skills
included
• Physical & Functional attributes
delivering higher benefits over
competition
• Positioning in Perceptual Map or
Quality Map (reliability vs.
excellence) helps increasing
perceived benefits
• Creating benefits through CSAT
Example SLA: 99.9997%
• Technological Innovations to showcase
least downtime
• Proactive alerts
• In services, reduce time taken to deliver
each customer; better queue mgmt
• Innovation in both Product/ Processes
• Prod Innovation drives realization of
more benefits
• Process innovation drives lower Opex
© Anik Saha

5. 5
Achieving Efficiency
Higher Productivity Reduced Expenses
© Anik Saha
Traditional Mechanisms to
Achieve Efficiency
Reduce Fixed Cost Bulk Production Optimized Control System
• Impacts ROIC, ROS by
reducing COGS, SG&A,
R&D, PPE

6. 6
Economies & Diseconomies of Scale
© Anik Saha
http://www.investinganswers.com/financial-dictionary/economics/diseconomies-scale-1506
Large Scale output reduces Unit Cost
Spread Fixed Cost over Large Production
Volume
Mass Production, Division of Labor to
specialized repeatable task
Intensive/ Optimal usage of existing
capacity
Increased Bureaucracy, Distorted information, Dysfunctional Politics initiates Diseconomies of scale

7. 7
Efficiency & Learning Effects
© Anik Saha
http://wikieducator.org/Learning_Curve_Effect
Cost Savings by Learning
Operational Excellence derived of
Experience
Declining Production cost with Improved
Productivity
Higher scope to learn in complex repetitive
tasks or at startup phase
Impacts COGS/ COGM to go down and increase ROIC
• Learning Effect slows down as Optimization achieved over time;
• Technology shifts/ M&As brings back Positive Learning effects

8. 8
Efficiency & Experience Curve
http://www.slideshare.net/trendsettersjim/building-competive-advantages
© Anik Saha
Unit cost significantly lower as Accumulated
Output doubles
Ride down the experience curve faster than
competition
Applicable for Mass Production of Standardized output Orgs
• Construct efficient scale manufacturing facilities
• Intensive Marketing push, promotions and price cuts to generate demand
• The optimal output scale varies on different tech within same industry
Technology Shifts, Saturation achieved, competition following, Unit cost reductions slows down

9. 9
Efficiency, Flexible Production System (Lean system) and Mass Customization
© Anik Saha
Traditional Systems Flexible Systems
Mass production of Std. output; Limited Variety Mass Customization; wider variety of output
• Leverage range of technologies
• Improved Setup time, better scheduling,
higher quality control
• Reduced WIP and waste materials through
close coordination of machines and CNC algos
• Lower unit cost and differentiation achieved
• Prototype Technology
• Increased cost as variety increases
http://slideplayer.com/slide/5095605/

10. 10
Marketing and Efficiency
© Anik Saha
Customer Retention KEY concept to reduce cost
• Marketing cost increases to attain economies of scale
• New Customer: acquisition cost exceedingly high, Price cuts likely
• Retention customer:
• Scope for higher GP
• Fixed cost getting spread on repeated purchase
• Customer testimonials, referrals saves Marketing $
CRM Tools Tracks Customer Churn, Explore Reasons and ensures Preventive Measures
http://slideplayer.com/slide/5345953/

11. 11
Materials Management and Efficiency
Higher Net Profit with Efficient Material Mgmt Faster than with Increase in Sales
Just In time
Inventory System
Economize Inventory Holding Cost
Increased Inventory Turnover
Supported by Efficient Logistics to Replenish
Less Working Capital to finance inventory
Real Estate savings to Store large Inventory
© Anik Saha
Drive SCM Orientation of Procurement with Multiple Suppliers to avoid dependency

12. 12
R&D Strategy, Human Resource to Efficiency
© Anik Saha
Efficient Design to
Manufacture
Decrease Assembly
Time
Reduced # of Parts Process Innovation
Efficient R&D
Reduces Cost
Human Resources
Improves Productivity
Hiring Strategy Enablement Self Managing Teams Compensation

13. 13
Information Systems and Infrastructure to Efficiency
High Network
Bandwidth
Operations driven by
Intranet
Funnel Mgmt by IT
Tools
Customer Segmentation,
Promotions, Marketing Progs
Employee
Productivity
Increasing through IT
Customer Database
& CSAT
Strategic Leadership, Org. Culture, Cross Functional Communication & Commitment, Control Systems
Drive Common Business Goals
Information Systems
as Backbone
© Anik Saha

14. 14
Achieving Superior Quality
Superior Quality Achieved through
Reliability and Excellence
Quality as Reliability Quality as Excellence
Consistent Functional Performance creating
superior Brand/ Reputation
Excellence as Collective concept:
Form, Feature, durability, style etc.
Least Amount of Defects leading Reduced
COGS
Associated Service with Product adds to
Excellence
Reduced Waste, higher efficiency through
optimized cost structure
Overall offering perceived superior to
competition
Profitable
© Anik Saha

15. 15
Quality as Reliability
Less Rework, Fewer
Mistakes
Improved
Productivity &
Quality
Increased Market Share;
Opportunity to Increase
Price
Increased
Profitability
Create More Jobs
1 Leadership’s commitment to Quality
Programs; Communication across Org
2 Certified Individuals leading Quality
Initiatives (six sigma etc.)
3 Find Process Defects, Root Cause
analysis and provide solution
4 Metric to measure quality (3.4 defects
per million per six sigma)
5 Set challenging goal and reward 6 Participation from last mile Operational
employees
7 SCM driven procurement to improve
suppliers’ component quality
8 Reduce # of components and assembly
in manufacturing chain © Anik Saha

16. 16
Quality as Excellence
Market Sensing on
Attributes matter most
Design with focus on
Important Attributes
Tailor Marketing
Communication around
key attributes; Build
Positioning
Continuous
Upgradation of
Attributes to
Maintain superiority
© Anik Saha

17. 17
Achieving Superior Innovation
New Products with Improved Quality, Meeting Customer Needs Better, Reduced cost
Innovate to Differentiate,
charge Premium
Innovate to Reduce Cost
vs. Competition
Profitable
© Anik Saha

18. 18
Innovation and Its Failure
High Failure Rates/
Reasons
Reducing Innovation
Failures
Uncertain Market Demand, Lack of Pain
points
Poor Design or Commercial Readiness
Wrong Positioning/ Segmentation
New Technology but less takers
Slow or Poor Go-to-Market Plan
Create Need or Pain point for Customer
Ease of Manufacturing
Cost of Development to be Optimized
Coordination between Market Sensing and
R&D
Quick Efficient GTM Plan
© Anik Saha

19. 19
Superior Responsiveness to Customers
© Anik Saha
Customer Responsiveness builds Brand Loyalty, Better Pricing options
• Listen to customer needs and focus on meeting
• Supported by Innovation, Efficiency and Quality
• Development of new features, solutions to deliver and exceed needs
Tuning Organization Culture to Deliver Customer Responsiveness
• Mission/ Vision statement
aligned to customer priority
• Periodic Executive visits to key
customers
Deliver & Exceed Customer Needs
• Optimal Customization
• Improved Response time
• Proactive action plan to prevent failures
Leadership focus
• Be in customer’s shoes
• Incentives to employees for
better customer responses
Employee Attitudes
• Incorporate customer’s requests
in offerings
• Invite to facilities to generate
confidence
Importance to Customer’s
Concerns/ Requests

20. 20
Acknowledgement
Strategic Management by Charles W. L. Hill/ Gareth R.
Jones, Published by CENGAGE Learning
© Anik Saha