The Value Chain-Creating Competitive Advantage

Cross - Functional Goals and Value Chain

Cross functional goals can be regarded as goals that cut across the different value creation functions of a company.

These cross functional goals are efficiency, quality, innovation and customer responsiveness.

Achieving Superior efficiency: -

1. By Economies of scale: -

   One way of achieving superior efficiency is by gaining economies of scale. Economies of scale is the ability to spread fixed costs over a large production volume. Another source of scale economies is the ability of companies producing in large volumes to achieve a greater division of labor and specialization. Specialization in turn will increase employee productivity.

2. By Learning Effect: -

   Learning effects are cost saving that come from learning by doing. Labor learns by repetition how best to carry out a task. Learning effects tend to be more significant in situations where a technologically complex task is repeated, since there is more to learn. No matter how complex the task, however learning effects typically die out after a limited period of time.

   This concept is more important in those industries where the production process involve the mass production of a standardized output.(for example the manufacturer of semiconductor chips) . So every company must try to ride down the experience curve as quickly as possible.

3. By Flexible Manufacturing (Lean Production)

   Best way to achieve high efficiency and hence low unit costs, is through the mass production of a standardized output. The trade off implicit in this idea is one between unit costs and product variety . Producing greater product variety from a factory implies an inability to realize economies of scale. According to this logic, the way to increase efficiency and drive down unit cost is to limit product variety and produce a standardized product in large volumes.

   The term flexible manufacturing technology or lean production covers a range of manufacturing technologies designed to : –

• - Reduce setup times for complex equipment.
• - Increase the utilization of individual machines through better scheduling.
• - Improve quality control at all stages of manufacturing .

Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost that at one time could only be achieved through the mass production of a standardized output.

Achieving Superior Quality : -

Achieving superior quality gives company two advantages. The enhanced reputation for quality lets the company charge a premium for its products and the elimination of defects from the manufacturing process increases efficiency and hence lowers costs.

Achieving TQM requires the adoption of strategies that cut cross functions. This includes building an organization wide commitment to quality.

Achieving Superior Innovation : -

Successful innovation of products or process gives a company something unique that its competitors lack.

This uniqueness may allow a company to charge a premium price or lower its cost structure below that of its rivals. Competitors, however, will try to imitate successful innovations. Often they will ultimately succeed, although high barriers to imitation can slow it down. Therefore maintaining a competitive advantage requires a continuing commitment to innovation.
But failure rate of innovation is very high , only 10 to 20 % of new products actually generate profit when they get to market place.

Achieving Superior Customer Responsiveness : -

The more responsive a company is to the needs of its customers, the greater the brand loyality that the company can command. Achieving superior customer responsiveness involves giving customers value for money. In fact achieving superior efficiency , quality, and innovation are all part of achieving superior customer responsiveness. It must ensure a strong customer focus which can be attained through leadership.

References:-   

Strategic Management Theory: An Integrated Approach, 10th edition, Cengage Learning, by Charles W.L. Hill  and Gareth R. Jones