Chapter 9.
● Functional-level strategy: A plan of action to improve the ability of each of an
organization’s functions to perform its task-specific activities in ways that add
value to an organization’s goods and services.
● Value chain: The coordinated series or sequence of functional activities
necessary to transform inputs such as new product concepts, raw materials,
component parts, or professional skills into the finished goods or services
customers value and want to buy.
● Value chain management: The development of a set of functional-level
strategies that support a company’s business-level strategy and strengthen its
competitive advantage.
● What do customers want?
○ A lower price to a higher price
○ High-quality products to low-quality products
○ Quick service and good after sales service to slow service and poor
after-sales support.
○ Product with many useful or valuable features to products with few
features.
○ Products that are, as far as possible, customized to their unique needs.
● Although managers must seek to improve their responsiveness to customers by
improving how the value chain operates, they should not offer a level off
responsiveness to customers that results in costs becoming too high, something
that threatens an organization’s future performance and survival.
● Customer relationship management (CRM): A technique that uses technology
to develop an ongoing relationship with customers to maximize the value an
organization can deliver to them over time.
● A CRM system is a comprehensive method of gathering crucial information about
how customers respond to a company's products. It is a powerful functional
strategy used to align a company’s products with customer needs.
● Quality is a concept that can be applied to the products of both manufacturing
and service organizations. Why do managers seek to control and improve the
quality of their organization’s products? There are two reasons. First, customers
usually prefer a higher-quality product to a lower-quality product. The second
reason for trying to boost product quality is that higher product quality can
increase efficiency and thereby lower operating costs and boost profits.
Achieving high product quality lowers operating costs because of the effect of
quality on employee productivity:Higher product quality means less employee
time is wasted in making defective products that must be discarded or in
providing substandard services; thus, less time has to be spent fixing mistakes.
This translates into higher employee productivity, which also means lower costs.
● Total quality management (TQM): A management technique that focuses on
improving the quality of an organization's products and services.
● 10 steps of TQM:
○ Build organizational commitment to quality
○ Focus on the customer
○ Find ways to measure quality
○ Set goals and create incentives.
○ Solicit input from employees.
○ Identify defects and trace them to their source.
○ Introduce just in time inventory system. Inventory is the stock of raw
materials, inputs, and component parts that an organization has on hand
at a particular time. JIT: A system in which parts or supplies arrive at an
organization when they are needed, not before.
○ Work closely with suppliers.
○ Design for ease of production.
○ Break down barriers between functions.
● SIx sigma: A technique used to improve quality by systematically improving how
value chain activities are performed and then using statistical methods to
measure the improvement.
● The third goal of value chain management is to increase the efficiency of the
various functional activities. The fewer the input resources required to produce a
given volume of output, the higher will be the efficiency of the operating system.
So efficiency is a useful measure of how well an organization uses all its
resources such as labor, capital, materials, or energy to produce its outputs.
● Facilities layout: The strategy of designing the machine-worker interface to
increase operating system efficiency.
● Flexible manufacturing: The set of techniques that attempt to reduce the costs
associated with the product assembly process or the way services are delivered
to customers.There are three kinds:product layout, process layout, and
fixed-position layout.
● By all measures of performance, JIT systems have been successful, inventory
holding costs have fallen sharply and products are being delivered to customers
in time. In addition, the design-to-product cycles for new products have dropped
almost in half because suppliers are involved much earlier in the design process.
● Self-managed work teams and efficiency: Another functional strategy to
increase efficiency is the use of self-managed work teams. A typical
self-managed team consists of 5 to 15 employees who produce an entire product
instead of just parts of it. Team members learn all team tasks and move from job
to job.
● Process reengineering: The fundamental rethinking and radical redesign of
business processes to achieve dramatic improvement in critical measures of
performance such as cost, quality, service and speed.
● All large companies today use the internet to manage the value chain, feeding
real time information about order flow to suppliers, which use this information to
schedule their own production to provide components on a just in time basis.
This approach reduces the costs of coordination both between the company and
its customers and between the company and its suppliers.
● Quantum product innovation: The development of new, often radically
different, kinds of goods and services because of fundamental shifts in
technology brought about by pioneering discoveries.
● Incremental product innovation: The gradual improvement and refinement of
existing products that occur over time as existing technologies are perfected.
● Product development: The management of the value chain activities involved in
bringing new or improved goods and services to the market.
● Involve both customers and suppliers: Successful product development
requires inputs from more than just an organization’s members; also needed are
inputs from customers and suppliers.
● Stage-gate development funnel: A planning model that forces managers to
choose among competing projects so organizational resources are not spread
thinly over too many projects.
● Product development plan: A plan that specifies all of the relevant information
that managers need in order to decide whether to proceed with a full-blown
product development effort.
● Contract book: A written agreement that details product development factors
such as responsibilities, resource commitments, budgets, time lines, and
development milestones.
● Core members: The members of a team who bear primary responsibility for the
success of a project and who stay with a project inception to completion.
Chapter 8.
● Planning: Identifying and selecting appropriate goals and courses of action; one
of the four principal tasks of management.
● Strategy: A cluster of decisions about what goals to pursue, what actions to take
and how to use resources to achieve goals.
● Mission statement: A broad declaration of an organization’s purpose that
identifies the organization’s products and customers and distinguishes the
organization from its competitors.
● To perform the planning task, managers:
○ Establish and discover where an organization is at the present time,
○ Determine where it should be in the future, its desired future state, and
○ Decide how to move it forward to reach that future state.
● Why planning is important:
○ Planning is necessary to give the organization a sense of direction
and purpose.
○ Planning is a useful way of getting managers to participate in
decision making about the appropriate goals and strategies for an
organization.
○ A plan helps coordinate managers of the different functions and
divisions of an organization to ensure that they all pull in the same
direction and work to achieve the organization's desired future state.
○ A plan can be used as a device for controlling managers within an
organization.
● Levels of planning:
○ Corporate level: CEO and top management. Responsible for planning
and strategy making for the organization as a whole.
○ Business level: Composed of different divisions or business units. Each
division has its own set of divisional managers who control planning and
strats for their division or unit.
○ Functional level: Responsible for the planning and strategy making
necessary to increase the efficiency and effectiveness of their particular
function.
● Types of planning:
○ Corporate level plan: Top management’s decisions pertaining to the
organization’s mission, overall strategy, and structure.
○ Corporate level strategy: A plan that indicates in which industries and
national markets an organization intends to compete.
○ Business level plan: Divisional managers’ decisions pertaining to
division’s long-term goals, overall strategy, and structure.
○ Business level strategy: a plan that indicates how a division intends to
compete against its rivals in an industry.
○ Functional level plan: Functional managers’ decisions pertaining to the
goals that they propose to pursue to help the division attain its business
level goals.
○ Functional level strategy: A plan of action to improve the ability of each
of an organization’s functions to perform its task-specific activities in ways
that add value to an organization’s goods and services.
● Scenario planning: The generations of multiple forecasts of future conditions
followed by an analysis of how to respond effectively to each of those conditions.
● Strategic leadership: The ability of the CEO and top managers to convey to
their employees a compelling vision of what they want the organization to
achieve.
● Strategy formulation: The development of a set of corporate, business, and
functional strategies that allow an organization to accomplish its mission and
achieve its goals.
● SWOT analysis: A planning exercise in which managers identify organizational
strengths and weaknesses and environmental opportunities and threats.
● The five forces model:
○ The level of rivalry among organizations in an industry
○ The potential for entry into an industry
○ The power of large suppliers
○ The power of large customers
○ The threat of substitute products
● Hypercompetition: Permanent, ongoing, intense competition brought about in
an industry by advancing technology or changing customer tastes.
● Low-cost strategy: Driving the organization’s costs down below the costs of its
rivals.
● Differentiation strategy: Distinguishing an organization’s products from the
products of competitors on dimensions such as product design, quality, or
after-sales services.
● Focused low-cost strategy: Serving only one segment of the overall market
and trying to be the lowest-cost organization serving that segment.
● Focused differentiation strategy: Serving only one segment of the overall
market and trying to be the most differentiated organization serving that segment.
● Concentration on a single industry: Reinvesting a company’s profits to
strengthen its competitive position in its current industry.
● Vertical integration: Expanding a company’s operations either backward into an
industry that produces inputs for its products forward into an industry that uses,
distributes, or sells its products.
● Diversification: Expanding a company’s business operations into a new industry
in order to produce new kinds of valuable goods or services.
● Related diversification: Entering a new business or industry to create a
competitive advantage in one or more of an organization’s existing divisions or
businesses.
● Synergy: Performance gains that result when individuals and departments
coordinate their actions.
● Unrelated diversification: Entering a new industry or buying a company in a
new industry that is not related in any way to an organization’s current business
or industries.
● Global strategy: Selling the same standardized product and using the same
basic marketing approach in each national market.
● Multidomestic strategy: Customizing products and marketing strategies to
specific national conditions.
● Exporting: Making products at home and selling them abroad.
● Importing: Selling products at home that are made abroad.
● Licensing: Allowing a foreign organization to take charge of manufacturing and
distributing a product in its country or world region in return for a negotiated fee.
● Franchising: Selling to a foreign organization the rights to use a brand name
and operating know-how in return for a lump-sum payment and a share of the
profits.
● Strategic alliance: An agreement in which managers pool or share their
organization’s resources and know-how with a foreign company, and the two
organizations share the rewards and risks of starting a new venture.
● Joint venture: A strategic alliance among two or more companies that greece to
jointly establish and share the ownership of a new business.
● Wholly owned foreign subsidiary: Production operations established in a
foreign country independent of any local direct involvement.
● Five steps of strategy implementation:
○ Allocating responsibility for implementation to the appropriate individuals
or groups.
○ Drafting detailed action plans that specify how a strategy is to be
implemented.
○ Establishing a timetable to implementations that includes precise,
measurable goals linked to the attainment of the action plan.
○ Allocating appropriate resources to the responsible individuals or groups.
○ Holding specific individuals or groups responsible for the attainment of
corporate, divisional, and functional goals.
Chapter 7.
● Decision making: The process by which managers respond to opportunities and
threats by analyzing options and making determinations about specific
organizational goals and courses of action.
● Programmed decision making: Routine, virtually automatic decision making
that follows established rules or guidelines.
● Nonprogrammed decision making: Nonroutine decision making that occurs in
response to unusual, unpredictable opportunities and threats.
● Intuition: Feelings, beliefs, and hunches that come readily ro minds, require little
effort and information gathering, and result in on-the-spot decisions.
● Reasoned judgment: A decision that requires time and effort and results from
careful information gathering, generation of alternatives, and evaluation of
alternatives.
● Classical model: A prescriptive approach to decision making based on the
assumption that the decision maker can identify and evaluate all possible
alternatives and their consequences and rationally choose the most appropriate
course of action.
● Optimum decision: The most appropriate decision in light of what managers
believe to be the most desirable consequence for the organization.
● Administrative model: An approach to decision making that explains why
decision making is inherently uncertain and risky and why managers usually
make satisfactory rather than optimum decisions.
● Bounded rationality: Cognitive limitations that constrain one’s ability to interpret,
process, and act on information.
● Risk: The degree of probability that the possible outcome of a particular course
of action will occur.
● Ambiguous informations