MGT 405 - Sloan (Ch. 5-7)
Mass Customization
a marketing and manufacturing technique that combines the flexibility and personalization of custom-made products with the low unit costs associated with mass production
competitive parity (cost leadership)
firm's achievement of similarity with competitors in respect to low cost, differentiation, etc
Unscaling to create a combination strategy
firms build small scale operations that meet needs of customers efficiently
Value Chain Activities: Differentiation: operations
flexibiliyt and speed to changes in manufacturing low defect rates to improve quality
Atlas Door
found in niche market, manufacturing custom-made doors very quickly
unrelated diversification
hierarchical relationship
related diversification
horizontal relationship
retrenchment strategy: piecemeal productivity improvements
increase productivity to improve costs
Retrenchment Strategy
selectively cutting unprofitable market segments and asset investments
Retrenchment strategy: asset and cost strategy
selling assets to free up cash
Value Chain Activities: Differentiation: firm infrastructure
superior MIS facilities that promote firm image widely respected CEO
Value Chain Activities: Differentiation: technology development
superior material handling and sorting technology excellent application engineering support
Value Chain Activities: Differentiation: inbound logistics
superiro material handling to minimze damage quick transfer of inputs to manufacturing process
profit pool
total profits in an industry at all points along value chain
Levi Example of Mass Customization
using machines to cut fabrics for specific body types
unrelated diversification
- restructuring/parenting - portfolio management
Pitfalls of focus strategy: Focusers can become too focused to satisfy buyer needs
- some firms might have too narrow product or service - Ace & true Value losing to Home Depot and Lowes because they offer full line - national chains have so much power, specialty retailers have a hard time attain parity on cost
Value Chain Activities: Overall Cost Leadership: Service
- thorough service repair to minimize repeat maintain calls - use of single type of vehicle to minimize repair costs
Related Diversification: economies of scope
-sharing activities (3m) -core competencies (polaris)
Diversification through: (4)
1. M&A 2. strategic alliances 3. joint ventures 4. internal development
Strategies in Decline Stage
1. Maintaining 2. Harvesting 3. Exiting the Market 4. Consolidation
2 variants of focus strategy
1. cost focus (create cost advantage) 2. differentiation focus (differentiation)
Value Chain Activities: Overall Cost Leadership: Procurement (2)
1. effective policy guidelines to ensure low-cost raw materials 2. shared purchasing operations with other business units
Value Chain Activities: Overall Cost Leadership: Technology Development (2)
1. effective use of automated technology to reduce scrappage rates 2. expertise in process engineering to reduce manufacturing costs
Atlas Pro: Strategy is highly sustainable
1. exert power over customers because of ability to deliver quality product in short amount of time 2. high barriers to entry because of dominance
Value Chain Activities: Overall Cost Leadership: Firm Infrastructure (2)
1. few management layers to reduce overhead costs 2. standardize accounting practices to minimize personnel required
Value Chain Activities: Overall Cost Leadership: Support Activities (4)
1. firm infrastructure 2. human resource management 3. technology development 4. procurement
Differentiation & 5 Forces
1. high barriers to entry 2. reduces buyer power 3. reduces supplier power 4. reduces threats from substitutes (brand loyalty) 5. protects against rivalry
Value Chain Activities: Overall Cost Leadership: Primary Activities (5)
1. inbound logistics 2. operations 3. outbound logistics 4. marketing and sales 5. Service
Do managers learn from media?
1. managers are sensitive to media and temporal orientation 2. temporal orientation doesn't affect stock market evaluations 3. stock market and media evaluations are independent of each other
Value Chain Activities: Overall Cost Leadership: Human Resource Mangement
1. minimize costs assocaited with employee turnover through effective policies 2. effective orientation and training programs to maximize employee productivity
Reasons Diversification fails
1. paying premium for company 2. failing to integrate activities of new business into corporate family 3. diversification efforts can be easily imitated
Overall Cost Leadership & 5 Forces
1. protects firm from rivalry 2. protects from powerful buyers 3. flexibility with supplier demands 4. barriers to entry substitute products
6 pitfalls to overall cost leadership
1. too much focus on one or a few value-chain activities 2. increase in cost of inputs 3. strategy can be imitated easily 4. lack of parity on differentiation 5. reduced flexibility 6. obsolescence of the basis of cost advantage
Atlas Con: Strategy can be easily imitated or substituted
1. uses well known technology 2. rival could imitate JIT 3. hire away atlas talent (human capital) or have large resource base 4. rival "leapfrog" technology
Aldi can offer products __% lower than competing markets
40
How does Primark balance low costs and environmental sustainability?
- leveraging streamline logistics - low market budget -large scale helps bargain with suppliers -makes up for low margins by selling at higher volume than rivals
Indochino Case
- mass customization - leverages technology to improve efficiency -Indochino has people take measurements online then order a custom-made suit; offer in-store locations based on where people order online and 1 yr after store opens, people return to online sales
related diversificaition: market power:
- pooled negotiation (conagra) - vertical integration (shaw industires)
Value Chain Activities: Overall Cost Leadership: Marketing and Sales
- purchase of media in large blocks - sales force use is maximized by territory management
______ is a low-cost leader and differentiator
Walmart
What type of strategy does Primark use?
Overall cost leadership
Making diversification work:
Related Businesses (horizontal relationship) i.e. sharing tangible/intangible resources Unrelated Businesses (hierarchical relationships) i.e. value creation derives from corp office, leveraging support activities
Value Chain Activities: Differentiation: outbound logistics
accurate/responsive order processing effective product replenishment to reduce customer inventory
Overall cost leadership
broad target market + low cost position
broad differntiation
broad target market + superior value by customer
experience curve (cost leadership)
business learns to lower costs and gains experience with production processes
Cost-leadership does not mean offering cheap prices, cost is how much it ____ ____ ___ _____
costs you to make
Value Chain Activities: Differentiation: marketing and sales
creative/innovative advertising programs fostering relationships with customers
retrenchment strategy: selective product and market pruning
discontinued product lines and focus resources on few core profitable areas
Value Chain Activities: Overall Cost Leadership: Inbound Logistics
effective layout of receiving dock operations
Value Chain Activities: Overall Cost Leadership: Outbound Logistics
effective use of delivery fleets
Value Chain Activities: Overall Cost Leadership: Operations
effective use of quality control inspectors to minimze rework
Aldi Example: limits number of products to ...
ensure product turn, easier stocking, increase power over suppliers
Primary example balances low costs with ______ ________
enviornmental sustainability
corportate resturctureing/parenting
kkr- uses parent compant for advice on cost savings and growth plans
Focus strategy requires firms have either (3)
low cost position, high differentiation or both
Mass Customization other name
made-to-order or built-to-order
if you're a cost leader in marketing and sales in the value chain, you want to purchase ____ in large blocks to take advantage of ______
media, discounts
Aldi sells private-label products to
minimize costs
Focus strategy
narrow competitive scope within an industry
Cost focus
narrow target markets + low cost position
Differentiation focus
narrow target markets + superior value by customer
portfolio managemetn
novartis uses resource allocation and reward systems
Exploiting Profit Pool for Competitive Advantage
one of the ways to combine overall cost leadership and differentation
Berkshire Hathaway and Virgin Group create value through
parenting expertise (unrelated diversification)
Value Chain Activities: Differentiation: Human Resource Management
programs attract talented engineers and scientist provision of training and incentives to ensure strong customer service orientation
Value Chain Activities: Differentiation: procurement
purchase of high quality parts use prestige outlets
Value Chain Activities: Differentiation: service
rapid response to CS requests complete inventory of replacement parts and supplies
