BA 405 CHP 4

REASONS FOR HIGH FAILURE RATE OF INNOVATION

-Demand for innovations is essentially uncertain. -Technology is poorly commercialized. -Poor positioning strategy § Positioning strategy: Specific set of options adopted for a product based on price, distribution, promotion and advertising, and product features. -Marketing a technology for which there is inadequate demand. -Slow marketing of products.

EFFICIENCY AND ECONOMIES OF SCALE

-Efficiency: Measured by the quantity of inputs that it takes to produce a given output. -Economies of scale: Reductions in unit costs attributed to a larger output. § Ability to spread fixed costs over a large production volume and produce in large volumes ; To achieve greater division of labor and specialization. -Diseconomies of scale - Unit cost increases associated with a large scale of output. -Managers should avoid being complacent about efficiency-based cost advantages derived from experience effects as: § neither learning effects nor economics of scale are sustained forever. § cost advantages gained from experience effects can be made obsolete by new technologies.

EXPERIENCE CURVE

-Experience curve: Systematic lowering of the cost structure and consequent unit cost reductions. § Occur over the life of a product. -A product's per-unit production costs decline each time its accumulated output doubles. § Accumulated output: Total output of a product since its introduction. -Is important in industries that mass-produce a standardized output.

FLEXIBLE PRODUCTION TECHNOLOGY

-Flexible production technology § Reduces setup times for complex equipment. § Increases the use of individual machines through better scheduling. § Improves quality control at all stages of the manufacturing process. § Increases efficiency and lower unit costs. § Enables better customization of product offerings.

FUNCTIONAL-LEVEL STRATEGIES

-Functional-level strategies: Actions that improve the efficiency and effectiveness of one or more value creation activities. -Used to build valuable resources to attain: efficiency, quality, innovation, customer responsiveness.

ACHIEVING SUPERIOR CUSTOMER RESPONSIVENESS

-Give customers what they want, when they want it, and at a price they are willing to pay—within company profitability. § Focus on the customer. § Demonstrate leadership. § Shape employee attitudes. § Know customer needs. § Satisfy customer needs.

HUMAN RESOURCES AND EFFICIENCY

-Human resource strategy § Productive employees lower the costs of generating revenues and increasing return of sales. -HR does this through: § hiring strategy. § employee training. § self-managing teams. § pay for performance.

INFORMATION SYSTEMS AND INFRASTRUCTURE AND EFFICIENCY

-Information systems § Impact on productivity affects all company activities. § Cost savings by: moving customer service and ordering online ; automating customer and supplier interactions ; reducing staff ; reducing physical stores. -Infrastructure: Organizational structure, culture, style of leadership, and control systems. § Strategic leadership is important in building commitment to efficiency.

LEARNING EFFECTS

-Learning effects: Cost savings that come from learning by doing. -More significant when a technologically complex task is repeated, as there is more to learn. -Diminish in importance after a period of time. -Triggered by changes in a company's production system.

STEPS IN QUALITY IMPROVEMENT PROGRAMS

-Management should strive to eliminate mistakes, defects, and poor-quality. -Supervision quality should be improved. -Employees should not fear reporting problems or suggesting improvements. -Work standards should stress quality of work. -Employees should be trained in new skills to remain informed of workplace changes. -Everyone in the company should commit to achieving better quality.

MASS CUSTOMIZATION

-Mass customization: Use of flexible manufacturing technology to reconcile: § low cost. § differentiation through product customization.

MATERIALS MANAGEMENT AND EFFICIENCY

-Materials management: Activities necessary to get inputs and components: § to a production facility. § through the production process. § out through a distribution system to the end-user. -Enormous potential for reducing costs.

ACHIEVE SUPERIOR INNOVATION

-Most important source of competitive advantage. -Innovative products or processes gives a company competitive advantage that allows it to: § differentiate its products and charge a premium price. § lower its cost structure below that of its rivals. -Successful new-product launches are catalysts of superior profitability.

CUSTOMER DEFECTION

-Percentage of a firm's customers who defect every year to competitors. § Lowering customer defection helps achieve a lower cost structure.

MARKETING STRATEGY

-Position of a company with regard topricing, promotion, advertising, product design, and distribution. § Impacts efficiency and cost structure.

REDUCING INNOVATION FAILURES

-Tight, cross-functional integration can help a company ensure that: § product development projects are driven by customer needs. § new products are designed for ease of manufacture. § development costs are controlled. § the time it takes to develop a product and bring it to market is minimized. § close integration between R&D and marketing is achieved.

IMPROVING QUALITY AS EXCELLENCE

-To achieve a perception of high quality of attributes the company should: § collect marketing information indicating which attributes are most important to customers. § design products so that those attributes are embodied in the product. § decide significant attributes to promote and how best to position them in the minds of consumers. § recognize that competition is not stationary.

TOTAL QUALITY MANAGEMENT

-Total quality management: Increasing product reliability to perform consistently as designed and rarely break down. -Five factors of TQM: § Improved quality means that costs decrease. § As a result, productivity improves. § Better quality leads to higher market share, allowing the company to raise prices. § Higher prices increase profitability, allowing the company to stay in business. § Enables the company to create more jobs.

JUST-IN-TIME SYSTEMS AND EFFICIENCY

Just-in-time (JIT) inventory system: -Economizes on inventory holding costs by scheduling components to arrive: § just in time to enter the production process. § as stock is depleted. -Cost savings come from increasing inventory turnover and reducing the need for working and fixed capital. -Drawback of leaving a company without a buffer stock of inventory. -Supply chain management: Managing the flow of inputs and components from suppliers into the company's production processes to: § minimize inventory holding. § maximize inventory turnover. -Research and development: § boots efficiency by designing products that are easy to manufacture. § develops process innovation with a new way that the production process can operate more efficiently.

R&D

PRIMARY ROLE 1. Design products for ease of manufacture. 2. Seek process innovations. ROLES: 1. Design products that are easy to manufacture. 1. Develop new products and processes. 2. Cooperate with other functions, particularly marketing and manufacturing, in the development process. •Bring customers into the product development process

materials management

PRIMARY ROLE 1. Implement JIT systems. 2. Implement supply chain coordination. ROLES: 1. Rationalize suppliers. 2. Help suppliers implement quality improvement methodologies. 3. Trace defects back to suppliers. •Develop logistics systems capable of responding quickly to unanticipated customer demands (JIT)

human resources

PRIMARY ROLE 1. Institute training programs to build skills. 2. Implement self-managing teams. 3. Implement pay for performance. ROLES: 1. Institute quality improvement training programs. 2. Identify and train black belts. 3. Organize employees into quality teams 1. Hire talented scientists and engineers. •Develop training programs that get employees to think like customers

information systems

PRIMARY ROLE 1. Use information systems to automate processes. 2. Use information systems to reduce costs of coordination. ROLES: 1. Use information systems to monitor defect rates. 1. Use information systems to coordinate cross-functional, cross-company product development. •Use web-based information systems to increase responsiveness to customers

marketing

PRIMARY ROLE 1. Where appropriate, adopt aggressive marketing to ride down the experience curve. 2. Limit customer defection rates by building brand loyalty. ROLES: 1. Focus on the customer. 2. Provide customer feedback on quality. 1. Provide market information to R&D. 2. Work with R&D to develop new products. •Know the customer •Communicate customer feedback to appropriate functions

Infrastructure (leadership)

PRIMARY ROLE: 1. Provide companywide commitment to efficiency. 2. Facilitate cooperation among functions. ROLES: 1. Provide leadership and commitment to quality. 2. Find ways to measure quality. 3. Set goals and create incentives. 4. Solicit input from employees. 5. Encourage cooperation among functions. 1. Manage overall project (i.e., manage the development function). 2. Facilitate cross-functional cooperation. •Through leadership by example, build a companywide commitment to responsiveness to customers

production

PRIMARY ROLE: 1. Where appropriate, pursue economies of scale and learning economics. 2. Implement flexible manufacturing systems. ROLES: 1. Shorten production runs. 2. Trace defects back to the source. 1. Cooperate with R&D on designing products that are easy to manufacture. 2. Work with R&D to develop process innovations. •Achieve customization through implementation of flexible manufacturing •Achieve rapid response through flexible manufacturing