06. Business Level Strategy Exercise.pdf
- 1. Business-Level Strategy Exercise Value chain for Cost Leadership and Differentiation
- 2. EXERCISE -1 1. Pick a product from the industry of your choice! 1. Define the source and the driver of the competitive advantage of the product for 1. Cost leadership strategy 2. Differentiation strategy
- 3. The Drivers Of Cost Advantage ECONOMIES OF SCALE ECONOMIES OF LEARNING PRODUCTION TECHNIQUES PRODUCT DESIGN INPUT COSTS CAPACITY UTILIZATION RESIDUAL EFFICIENCY • Technical input-output relationships • Indivisibilities • Specialization • Increased individual skills • Improved organization routines • Process innovation • Re-engineering of business process • Standardization of design and components • Design for manufacture • Location advantage • Ownership of low-cost inputs • Nonunion labor • Bargaining power • Ratio of fixed to variable cost • Fast and flexible capacity adjustment • Organizational slack/X-inefficiency • Motivation and organizational culture • Managerial effectiveness
- 4. Identifying Differentiation Potential: The Demand Side THE PRODUCT THE CUSTOMER What are key attributes? What needs does it satisfy? Relate patterns of customer preference to product attributes By what criteria do they choose? What price premiums do product attributes command? What are demographic, sociological, psychological correlates of customer behavior? What motivates them?
- 5. Dimensions Of Quality Quality • Performance • Features • Reliability • Conformance • Durability • Serviceability • Aesthetics • Perceived Quality • Brands Dimensions
- 6. EXERCISE - 2 1. Please conduct a detail value chain analysis for a company choosing a cost leadership strategy. 1. Choose a firm in a B2B market. Who are their customer? Using value chain for differentiation, please propose a differentiation strategy that the firm can adopt.
- 7. Stages Of Value Chain Analysis For Cost Leadership Strategy 1. Disaggregate the firm into separate activities 2. Establish the relative importance of different activities in the total costs of the product. 3. Identify cost drivers 4. Identify linkages 5. Identify opportunities for reducing costs
- 8. Cost Leadership Example Company Overview IKEA Group, a Swedish company founded in 1943 by Ingvar Kamprad, is a multinational operator of a chain of stores for home furnishing and furniture. It is the world’s largest furniture retailer, in 40 countries with 330 stores and 154.000 workers with sales turnover is recorded as USD 27.5 billion for year 2012, which specializes, in stylish but inexpensive Scandinavian designed furniture. IKEA focused in younger buyer and provided Unique designed functional, high quality yet low priced furniture. IKEA has strong relationship with suppliers which help them to be cost leader in the furniture industry as well as a strong social and environmental policy. Their image of quality and affordability is an asset and their unique decision to go to flat packs provided portability and greater storage capacity.
- 9. Cost Leadership Example The Firm’s Activity Manufacturing Process Material Handling Assembly Transport Packaging R&D
- 10. Cost Leadership Example The Relative Importance Of Different Activities In The Total Costs Of The Product Department Cost (Euro) % R&D 10.34 4% Material Handling 164.42 56% Manufacturing Process 21.58 7% Assembly 42.42 14% Packaging 20.18 7% Transport 35.05 12% Total 293.99 100%
- 11. Cost Leadership Example The Cost Drivers Material Handling ❖ Steel ❖ Plastic ❖ Induction coil control ❖ Control Panel ❖ Fan ❖ Glass ❖ Cables Manufacturing Process ❖ Injection molding ❖ Sheet metal work ❖ Automatic machine R&D ❖ Research and development ❖ Design furniture
- 12. Cost Leadership Example The Cost Drivers Transport ❖ Transporting semi-finished components ❖ Delivering finished production Packaging ❖ Cardboard ❖ Expandable polystyrene (EPS) Assembly ❖ Production in Italy and Poland
- 13. Cost Leadership Example Linkages ❖ R&D team can develop design of furniture that using certain material that can cut cost in material handling. ❖ R&D team can also develop design of furniture for ease of manufacture that can lead to saving cost in manufacturing process.
- 14. Cost Leadership Example Opportunities For Reducing Costs Materials Assembly Transport ❖ Use less stainless steel , replace with carbon steel. ❖ Reduce the number of motors, change motor model. ❖ Increase awareness of the design effect. ❖ Integrate filter board, number of PCB. ❖ Design products with standard edge shape and format. ❖ Source assembly to low cost countries. ❖ Apply DFA ❖ Optimize the packaging to the product Up to 20% cost reduction Up to 20% cost reduction Up to 10% cost reduction
- 15. Cost Leadership Example Conclusion IKEA’s vision is to create a better everyday life for the many people by offering functional and well- designed home furnishing products at low prices. In order to achieve and retain low prices it is critical to monitor the product cost development to indicate cost saving potentials. IKEA should in the future consider using different type of steel for some products. It is also recommended to consider how the design of the product affect the performance, and thereby required motor choice. Then the choice of ceramic glass and the solution for the printed circuit board should be considered as well. Using methodologies to decrease required assembly time and number of components of some products can reduce assembly cost. There is also a substantial cost saving potential in sourcing assembly operations to low cost countries. So by identifying cost saving potentials, IKEA is able to strengthen its position over the competitors and maintain its position as well as the market leader for furniture retailer.
- 16. Value Chain For Differentiation Value chain analysis of producer goods • Construct a value chain for the firm and the customer • Identify the drivers of uniqueness in each activity • Select the most promising differentiation variables for the firm • Locate linkages between the value chain of the firm and that of the buyers Value chain analysis of consumer goods
- 17. Differentiation Example – Canmaker 1. Construct a value chain for firm and customers
- 18. Differentiation Example – Canmaker 2. Identify the drivers of uniqueness For each of the canmaking activities it is possible to suggest several possible differentiation variables. Example: 1. Distinctive can designs support canners’ own marketing activities. 2. High manufacturing tolerances minimize breakdowns on customers’ canning lines. 3. Frequent, punctual deliveries enable canners to minimize inventories. 4. Efficient order processing system reduces canners’ ordering costs. 5. Speedy, competent technical support increases capacity utilization of canning lines.
- 19. Differentiation Example – Canmaker 3. Select key variables 1. Select the most promising differentiation variables based on the company’s internal strengths. 2. identify linkages among activities, since some differentiation variables may involve interaction among several activities. 3. the ease with which different types of uniqueness can be sustained 4. Example: ? (+) technical capabilities 🡪 product with difficult technical and design specification ? (+) logistics capabilities 🡪 fast and reliable delivery
- 20. Differentiation Example – Canmaker 4. Identify linkages To determine differentiation likely to create value for the customer: ? Identify linkages between the canmaker’s potential for differentiation ? Identify the potential for reducing cost or enhancing differentiation within the customer’s value chain.
- 21. Differentiation Example – Canmaker 4. Identify linkages
- 22. THANK YOU