BusinessPolicyNotes04 - Chapter 4 Building Competitive...

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Chapter 4 Building Competitive Advantage Through Business-Level Strategy 89
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STRATEGIC MANAGEMENT Lecture 4 Dr. John Kraft Opening Case Verizon Wireless 3 1 3 2 The Roots of Competitive Advantage Functional-Level Strategies - '- ~.'., .==.. ------ .~ _ .... _. _ ..... ••. ~ ...... •.. .-~ t -""'"'''":;. f~': s...,iIW i - Functional-level strategies arestrategies aimedat improvingthe effectivenessof a company'soperations. Improves company's ability to attain superior: 1. Efficiency 2. Quality 3. Innovation 4. Customer responsiveness Il> Increases the utility that customers receive: Throughdifferentiation • Creatingmorevalue Lowercost structure than rivals This leads to a competitive advantage and superior profitability and profit growth. 3 3 3 • The Value Chain: Primary and Su ort Activities Achieving Superior Efficiency Functional steps to increasing efficiency: CD Economies of Seale <V Learning Effects a> Experience Curve @) Flexible Manufacturing and Mass Customizatior ® Marketing ® Materials Management and Supply Chain <V R&D Strategy ® Human Resource Strategy ® Information Systems (ll) Infrastructure 3 5 90 3 • 1
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Achieving Superior Efficiency ·:·Economies of scale • Unit cost reductions associated with a large scale of output • Ability to spread fIXed costs over a large production volume • Ability of companies producing in large volumes to achieve a greater division of labor and specialization ·:·Oiseconomies of scale • Unit cost increases associated with a large scale of output Economies and Diseconomies of Scale 3 7 3 • Achieving Superior Efficiency (cont'd) ·:·Learning effects • Cost savings that come from learning by doing • Labor productivity • Management efficiency ·:·When changes occur in a company's production system, learning has to begin again (2) Learning Effects Learning Effects are: Cost savings that come from learning by doing • Labor productivity /..Bam by repetition how to best carry out the task • Management efficiency /..Bam over time how to best run the operation • Realization of learning effects implies a downward shift of the entire unit cost curve As labor and management become more efficient over time at eve/)' level of output I When changes occur in a company's production system, learning has to begin again. 3 • 3 10 The Impact of Learning and Scale Economies on Unit Costs (3) The Experience Curve The Experience Curve The systematic lowering of the cost structure and consequent unit cost reductions that occur over the IWe of a product • Economies of scale and learning effects underlie the experience curve phenomenon • Once down the experience curve, the company is likely to have a significant cost advantage over its competitors Strategic significance of the experience curve: Increasing a company's product volume and market share wil1lower its cost structure relative to its rivals.
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