BA 469 lecture ch4 - Building Competitive Advantage through...

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Building Competitive Advantage through Functional Level Strategy Chapter 4
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Functional-Level Strategies Should flow from Business-Level Strategy Strategies aimed at improving the effectiveness of a company’s operations Improving a company’s ability to attain superior efficiency, quality, innovation, and customer responsiveness
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The Roots of Competitive Advantage
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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 Diseconomies of scale Unit cost increases associated with a large scale of output
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Economies and Diseconomies of Scale
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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
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Achieving Superior Efficiency (cont’d) The experience curve The systematic lowering of the cost structure and consequent unit cost reductions that occur over the life of a product Economies of scale and learning effects underlie the experience curve
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The Experience Curve
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The Impact of Learning and Scale Economies on Unit Costs
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Economies of Scale Experience Old rule of thumb: Unit cost of production goes down 20% as volume doubles. Companies have set price to achieve a level of volume and desired unit cost of production; some with success.
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Achieving Superior Efficiency (cont’d) Dangers of complacency with the
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