levels of strategy
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Levels of Strategy
Diagram adapted from Restoring Our Competitive Edge by R.H. Hayes & S. C. Wheelwright and from “Manufacturing Strategic Planning” by D. A. Garvin.
CORPORATE STRATEGY
BUSINESS A STRATEGY
BUSINESS B STRATEGY
`
BUSINESS C STRATEGY
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
CAPACITY FACILITIES TECHNOLOGYVERTICAL
INTEGRATION
Amount Size Equipment DirectionTiming (lead/lag) Location Automation ExtentType Specialization
QUALITYPRODUCTION &
INVENTORY PLANNING
ORGANIZATION WORK FORCE
Methods Sourcing Structure Skill LevelsMetrics Decision Rules Control Wages
Distribution Reward Training
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Cartoon
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Typical Views of Manufacturing
In some companies, many managers believe that there is no such thing as a Manufacturing Strategy.
The quotes on the next slide illustrate the belief that Manufacturing exists to do whatever it takes to satisfy R&D and Marketing/Sales.
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Typical Views of Manufacturing(continued)
“R&D designs the product, Marketing/Sales sells the product, and then Manufacturing produces what it’s told when it’s told.”
“Manufacturing is supposed to make up R&D delays and change orders and meet whatever promises are made by Marketing/Sales.”
“In our top management meetings, R&D and Marketing/Sales dominate the discussion and, at the end of the meeting, Manufacturing is told what to do.”
“Everything is going well in Manufacturing when you don’t hear any complaints about it.”
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Typical Views of Manufacturing (continued)
In this session, my goals are:
To convince you that the quotes on the previous slide are wrong and that there is such a thing as a Manufacturing Strategy.
To provide you with a broad framework for thinking about a Manufacturing Strategy.
During the remainder of our sessions, we will see both good and bad elements of a Manufacturing Strategy.
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Reason #1 Why “Chipping Away” at Productivity Doesn’t Work
InputLaborofAmount
edManufacturGoodsofValuetyProductivi
“Chipping away” at Productivity does NOT work because:
1. It is concerned mostly with the efficiency of direct labor, which is a low percentage of total costs.
Direct Labor Costs as a percentage of Total Costs:
In contrast to Direct Costs, Indirect Costs are costs associated with activities such as process engineering, software development, quality control, and maintenance.
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Reason #2 Why “Chipping Away” at Productivity Doesn’t Work
InputLaborofAmount
edManufacturGoodsofValuetyProductivi
“Chipping away” at Productivity does NOT work because:
2. It focuses excessively on improving workers’ efficiency.
Studies have shown that improvements that lower costs can be categorized as follows:
40% Manufacturing Structure (e.g., the number, size, location, & capacity of facilities) and Materials Management
40% Equipment and Process Technology
20% Conventional Productivity Improvement
There is a higher “payoff” to focusing on the two 40% categories.
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Reason #3 Why “Chipping Away” at Productivity Doesn’t Work
InputLaborofAmount
edManufacturGoodsofValuetyProductivi
“Chipping away” at Productivity does NOT work because:
3. It fails to support any other business strategy than being a “low-cost” provider.
As we will see later in this session, sometimes the business strategy should place less priority on Cost and more priority on Quality, Dependability, or Flexibility.
Examples: Mercedes and Ritz-Carlton.
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Corporate Culture
CORPORATE STRATEGY
BUSINESS A STRATEGY
BUSINESS B STRATEGY
`
BUSINESS C STRATEGY
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
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Corporate Culture(continued)
Corporate Culture is the set of guiding principles, driving forces, and engrained attitudes
that help communicate to all employees at all levels of the organization
goals, plans, policies, and what is right and wrong.
Corporate Culture is reinforced through
conscious behavior and unconscious behavior.
Mission Statement
Signs
Interaction BetweenManagement and Labor
Dress
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Corporate Culture at Southwest Airlines
At Southwest, there is a Culture Committee with 100+ members to reinforce the culture by:
Planning celebrations.
Ensuring that new employees understand the airline’s “underdog” origins.
Passing on to all employees extraordinary customer service by an employee that captures the “spirit” of Southwest.
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The Best Mission Statement That I Have Ever Seen
Posted throughout the plant of a Japanese shipbuilder:
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Definition of StrategyWebster’s Dictionary defines “strategy” as follows:
business management
“… the science and art of ^ military command
competitor in competition
used to meet the ^ enemy in combat
under advantageous conditions.”
“… the science and art of military command
used to meet the enemy in combat
under advantageous conditions.”
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Corporate Strategy
CORPORATE STRATEGY
BUSINESS A STRATEGY
BUSINESS B STRATEGY
`
BUSINESS C STRATEGY
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
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Corporate Strategy(continued)
The Corporate Strategy:
1. Specifies the businesses in which the corporation will compete – that is, the number and type of business units and, for each business unit, the geographic and demographic markets in which the business unit will compete.
2. Acquires important corporate resources ($$$ and personnel) and then allocates these resources across the business units.
Toyota has Toyota and Lexus.
Marriott has Marriott Hotels, Courtyard by Marriott, & Fairfield Inn.
Gap has Banana Republic, The Gap, & Old Navy.
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Business Strategy
CORPORATE STRATEGY
BUSINESS A STRATEGY
BUSINESS B STRATEGY
`
BUSINESS C STRATEGY
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
The Business Strategy specifies the priorities with which the business unit will achieve and maintain its competitive advantage.
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The Four Major Categoriesof Competitive Prioritiesfor a Business Strategy
A customer buys a product or service because of his/her perception of
Cost
Quality
Delivery
Flexibility
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Costand its Subcategories
Cost•Initial Cost (purchase cost of an auto)
•Operating Cost (gasoline cost per mile)
•Maintenance Cost (cost of a tune-up)
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Qualityand its Subcategories
Quality•Performance (primary characteristics; e.g., picture clarity for a TV)
•Features (secondary characteristics; e.g., remote control for a TV)
•Reliability (frequency that repair is needed)
•Conformance (to pre-specified standards)
•Durability (time until replacement is needed instead of repair)
•Serviceability (speed, courtesy, competence)
•Aesthetics (look, feel, smell)
•Perceived Quality (brand image; e.g., for Mercedes or Rolex)
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Deliveryand its Subcategories
Delivery•Accuracy/Completeness (correct items in correct quantities)
•Dependability (on-time delivery)
•Availability (in-stock)
•Speed (lead time; i.e., elapsed time from placement of order until its receipt)
•Information Availability (use Internet for real-time order status)
•Quality after Shipment (breakage)
•Ease of Ordering (ability to order over Internet)
•Shipment Flexibility (ability to expedite a shipment)
•Ease of Return
•Customer Support
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Flexibilityand its Subcategories
Flexibility•Product Flexibility (features, innovation, and ability to customize)
•Volume Flexibility (response to unanticipated demand)
•Process Flexibility (adapt process to provide a variety of products)
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Remarks about Competitive Prioritiesfor a Business Strategy
1. Within the same corporation, different business units will probably have different business strategies.
2. For a business unit, it is difficult and perhaps even dangerous to emphasize all four of C, Q, D, & F.
It is best to focus on at most two of C, Q, D, & F.
3. Once a business unit chooses a competitive priority, then it is difficult and perhaps even dangerous to emphasize all subcategories within the priority.
For example, if Q is chosen, then it is best to focus on just a few of the 8 subcategories on Slide #19.
4. A business unit’s management must quickly recognize when an internal decision (e.g., introduction of a new product) or an external factor (e.g., a new competitor) requires a change in the business strategy.
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The Business Strategy Depends on the Position in the Product-Process Matrix
VERY LOW VOLUMES VERY HIGH VOLUMES
LOW STANDARDIZATION LOW VOLUMES HIGH VOLUMES HIGH STANDARDIZATION
One-of-a-kind Products Many Products Few Products Commodity Products
JUMBLED FLOW(Job Shop)
DISCONNECTED LINE FLOW(Batch Flow)
CONNECTED LINE FLOW(Machine or Worker paced)
CONTINUOUS FLOW
STRUCTUREPROCESS
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Functional Strategies
CORPORATE STRATEGY
BUSINESS A STRATEGY
BUSINESS B STRATEGY
`
BUSINESS C STRATEGY
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
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Functional StrategiesVertical & Horizontal Coordination
Vertical Coordination. Management of the Business Unit must clearly communicate the business strategy to the managers of Functional Areas.
Horizontal Coordination. Through a specific and consistent pattern of decisions, all functional strategies must support the competitive priorities of the business strategy.
Which is harder – Vertical Coordination or Horizontal Coordination?
BUSINESS B STRATEGY
`
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
Horizontal Coordination
Ver
tica
l Co
ord
inat
ion
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A “Nightmare” ofFunctional Strategies
Management of the Business Unit never communicates the business strategy to the managers of the Functional Areas and is ignorant of the fact that
R&D thinks that the competitive priority is Flexibility and thinks that it can demand as many change orders as it wants.
Manufacturing thinks that the competitive priority is Cost and bases all its decisions on what is the cheapest thing to do.
Marketing/Sales thinks that the competitive priority is Dependability and feels it can promise delivery as soon as a customer wants its.
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Manufacturing Strategy
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
CAPACITY FACILITIES TECHNOLOGYVERTICAL
INTEGRATION
Amount Size Equipment DirectionTiming (lead/lag) Location Automation ExtentType Specialization
QUALITYPRODUCTION &
INVENTORY PLANNING
ORGANIZATION WORK FORCE
Methods Sourcing Structure Skill LevelsMetrics Decision Rules Control Wages
Distribution Reward Training
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Manufacturing Strategy(continued)
For example, in many companies, there is frequently a tension between R&D and Manufacturing.
R&D views itself as a collection of creative people with the role of designing the most innovative product possible, even if it means submitting to Manufacturing a continual stream of change-orders.
On the other hand, Manufacturing views itself as a collection of practical people with the role of minimizing the manufacturing cost per unit.
Who is right – R&D or Manufacturing?
The purpose of the Manufacturing Strategy is to:
Support the Business Strategy.
Complement the other Functional Strategies.
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Manufacturing StrategyTwo Types of Decisions
R&D STRATEGY
ACCTING & FINANCIAL STRATEGY
MFG STRATEGY
MKT & SALES STRATEGY
CAPACITY FACILITIES TECHNOLOGYVERTICAL
INTEGRATION
Amount Size Equipment DirectionTiming (lead/lag) Location Automation ExtentType Specialization
QUALITYPRODUCTION &
INVENTORY PLANNING
ORGANIZATION WORK FORCE
Methods Sourcing Structure Skill LevelsMetrics Decision Rules Control Wages
Distribution Reward Training
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ReferencesRestoring Our Competitive Edge, Robert H. Hayes and Steven C. Wheelwright, John Wiley & Sons, New York, 1984.
“The Productivity Paradox”, Wickham Skinner, Harvard Business Review, July-August 1986, pp 55-59.
“Competing on the Eight Dimensions of Quality”, David A. Garvin, Harvard Business Review, Nov.-Dec. 1987, pp 101-109.
“Manufacturing Strategic Planning”, David A. Garvin, California Management Review, Summer 1993, pp 85-106.