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COMPETITIVE ADVANTAGE AND

STRATEGIC MANAGEMENT FOR

PERFORMANCE EXCELLENCE

CHAPTER 5

CADORNA CALAWOD BELA-ONG SAWIT

O U

T L I N E

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Examine the relationship between quality and profitability

Discuss cost leadership, differentiation, and people as principal sources of competitive advantage

Describe the importance of quality in meeting customer expectations

Discuss the role of information in strategic planning and quality-focused decisions; and

Describe the role of quality in strategy formulation and implementation

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COMPETITIVEADVANTAGEa firm’s ability to achieve market superiority over its competitors.

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CHARACTERISTICS:

Is driven by customer wants and needs

Makes significant contribution to business success

Matches organization’s unique resources with opportunities

Is durable and lasting

Provides basis for further improvement

Provides direction and motivation

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PRODUCT QUALITY ANDBUSINESS PERFORMANCE

(PIMS STUDIES)

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Product quality is the most important determinant of business profitability.

Businesses offering premium quality products and services usually have large market shares and were early entrants into their markets.

Quality is positively and significantly related to a higher return on investment for almost all kinds of products and market situations.

A strategy of quality improvement usually leads to increased market share but at a cost in terms of reduced short-run profitability.

High-quality producers can usually charge premium prices.

PRODUCT QUALITY ANDBUSINESS PERFORMANCE

QUALITY AND PROFITABILITY

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Improved quality of design

Higher perceived value

Increased market share

Higher prices

Increased revenues

Improved quality of conformance

Lower manufacturing and

service costs

Higher profitability

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GAO STUDY MODEL

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SOURCES OF COMPETITIVE ADVANTAGE

Cost Leadership

Differentiation

People

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COST LEADERSHIPStrategy used by businesses to create a low cost of operation within their niche.

The use of this strategy is primarily to gain an advantage over competitors by reducing operation costs below that of others in the same industry.

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DIFFERENTIATIONResult of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors

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PEOPLEs

13SUPERIOR PRODUCT AND SERVICE DESIGN

OUTSTANDING SERVICE

HIGH AGILITYCONTINUOUS INNOVATION

RAPID RESPONSE

QUALITY AND DIFFERENTIATION STRATEGIES

COMPETING ON SUPERIOR PRODUCT DESIGN

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• Understanding customer needs and expectations

• Systematic processes for design and product improvement

• Tools and techniquesConcurrent engineering

Value analysisDesign reviews

Experimental design

COMPETING ON SERVICE

Researchers repeatedly have demonstrated that when service employee job satisfaction is high, customer satisfaction is high, and that when job satisfaction is low, customer satisfaction is low.

Key components of service quality: employees and information technology

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ELEMENTS OF SUPERIOR SERVICE Establish service goals that

support business and product-line objectives.

Identify and define customer expectations for service quality and responsiveness.

Translate customer expectations into clear, deliverable, service features.

Set up efficient, responsive, and integrated service delivery systems and organizations.

Monitor and control service quality and performance.

Provide quick but cost-effective response to customers’ needs.

COMPETING ON AGILITY

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AGILITY – capacity for flexibility and rapid change

Agility requires Continual monitoring and sensing of changing

customer needs and expectations Fast design changes Rapid roll out of new products and processes Cross-functional cooperation and coordination Good supplier relations

COMPETING ON INNOVATION Innovation is vital to

competing in today’s world

Innovation creates new customer needs and expectations and leads to higher levels of performance

Creativity and breakthrough thinking are encouraged

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COMPETING ON TIME

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Major improvements in response time often require work organizations, processes, and paths to be simplified and shortened. Simplified processes reduce opportunities for errors, leading to improved quality.

Improvements in response time often result from increased understanding of internal customer-supplier relationships and teamwork.

Cycle time – the time it takes to accomplish one cycle of a process

Success in today’s markets requires increasingly shorter cycle times

NEED FOR PERFORMANCE MEASUREMENT

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To lead the entire organization in a particular direction; that is, to drive strategies and organizational change;

To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans; and

To operate the processes that make the organization work and continuously improve

BALDRIGE CLASSIFICATION OF

PERFORMANCE MEASURES

Product and process outcomes

Customer-focused outcomes

Workforce-focused outcomes

Leadership and governance outcomes

Financial and market outcomes

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STRATEGIC PLANNING

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STRATEGYthe pattern of decisions that determines and reveals a company’s goals, policies, and plans to meet the needs of its stakeholders

STRATEGIC PLANNINGthe process by which members of an

organization envision its future and develop the necessary procedures and

operations to carry out that vision

Two activities: development and

implementation

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OF STRATEGIC PLANNING

Plan for the long term, and understand the key influences, risks, challenges, and other requirements that might affect the organization’s future opportunities and directions.

Project the future competitive environment to help detect and reduce competitive threats, shorten reaction time, and identify opportunities.

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OF STRATEGIC PLANNING

OF STRATEGIC PLANNING

Develop action plans and deploy resources—particularly human resources—to achieve alignment and consistency, and provide a basis for setting and communicating priorities for ongoing improvement activities.

Ensure that deployment will be effective—that a measurement system enables tracking of action plan achievement in all areas.

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definition of products and services, markets, customer

needs, and distinctive competencies

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“Innovative approaches… practical results…outstanding service.”

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Where the organization is headed and what it intends to be Brief and memorable - grab attention Inspiring and challenging - creates

excitement Descriptive of an ideal state - provides

guidance Appealing to all stakeholders -

employees can identify with

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“Be the firm of choice for clients and employees.”

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Define attitudes and policies for all employees, which are reinforced through conscious and subconscious behavior at all levels of the organization.

(GUIDING PRINCIPLES)

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We are ethicalWe deliver qualityWe are responsiveWe add valueWe improve continuously

We are innovativeWe develop

professionallyWe respect othersWe give back to our communities

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ENVIRONMENTAL ASSESSMENT

Customer and market requirements, expectations, and opportunities

Technological and other innovations

Changes in global or national economy

Partner and supply chain needs

Strategic challenges - those pressures that exert a decisive influence on an organization’s likelihood of future success

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TYPICAL STRATEGIC PLANNING PROCESS

STRATEGIES AND ACTION PLANS

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Strategies are broad statements that set the direction for the organization to take in realizing its mission and vision.

STRAT•E•GIS

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are what an organization must change or improve to remain or become competitive.

STRATEGIC

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are things that an organization must do to achieve its strategic objectives.

STRATEGY IMPLEMENTATIONDeveloping detailed action

plans, defining resource requirements and performance measures, and aligning work unit, supplier, or partner plans with overall strategic objectives.

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LINKING HUMAN RESOURCE PLANS AND BUSINESS

STRATEGY Changes in strategy often require

changes in HR plans

Examples Redesign of the work organization to increase

empowerment or teamwork

Changes in labor/management partnerships

Directed training and education

Improved processes for knowledge sharing

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ILLUSTRATIVE EXAMPLE

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affinity diagramsInterrelationship digraphstree diagramsmatrix diagramsmatrix data analysisprocess decision program chartsarrow diagrams

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man

agem

ent an

d

plan

ning

too

ls

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DIAGRAM / KJ METHOD

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INTERRELATIONS DIAGRAPHS

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TREE DIAGRAM

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MATRIXDATA

AN

ALY

SIS

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PROCESS DECISION PROGRAM CHART (PDPC)

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EXAMPLE OF A CPM CHART

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CORECOMPETENCIES

ANDSTRATEGIC

WORKDESIGN

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CORECOMPETENCIES

refers to an organization’s areas of greatest expertise that

provide a sustainable competitive advantage in

the marketplace or service environment.

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CORECOMPETENCIES

Some contemporary theories suggest that business activities

that do not make up an organization’s core competency

should be outsourced. Outsourcing is the practice of

transferring the operations of a business function to an outside

supplier. The opposite of outsourcing is vertical

integration, by which certain business functions are acquired and consolidated within a firm.

REQUIREMENTS FOR EFFECTIVE STRATEGIC

PLANNING

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A definable approach for developing company strategy.

A clear company strategy with action plans derived from it, and human resource plans related to the action plans.

An approach for implementing action plans.

An approach for monitoring company performance relative to the strategic plan.

Projections of strategy-related changes in key indicators of company performance.

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Classic strategy formulation addresses the market environment, competitive environment, and company capabilities

Other TQ-related factors – financial and societal risk, human resource capabilities, and supplier/partner capabilities – are addressed only indirectly in the literature.

TQ AND STRATEGIC MANAGEMENT THEORY

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IDENTIFY WHAT IS RELEVANT

DEFINE PARAMETERS

EXPECTATIONS AND ACTUAL

ANALYSIS OF TRENDS

SYNTHESIS in action

IN action 55

IDEAS FOR STRATEGIES

NURTURING STRATEGIES

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ANALYSIS OF OPTIONS

CHANGE OF STRUCTURES

TRAINING AND DEVELOPMENT

IMPLEMENTATION

ORGANIZATION FOR LEARNING AND GROWTH

NOTHING IS AS PERMANENT AS CHANGE

in ACTION

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