Functional Strategy
STRATEGIC BUSINESS UNIT
Strategy
Formulation:
Functional Strategy
and Strategic
Choice
FINANCE
R&D
PRODUCTION
INVENTORY
MARKETING
/SALES
PURCHASING
How do we coordinate?
Professor Robert R. Wiggins
MGMT 4710
Functional Strategy
Professor Robert R. Wiggins
Functional Strategy
Functional Strategy
Production Manager




Product Design
Models
Production Run
Produce to:
STRATEGIC BUSINESS UNIT
FINANCE
R&D
PRODUCTION
INVENTORY
MARKETING
/SALES
PURCHASING
How do we coordinate?
MGMT 4710
Professor Robert R. Wiggins
MGMT 4710
Functional Strategy
Functional Strategy
Levels of Strategy
Marketing/Sales Manager




Professor Robert R. Wiggins
Functional Strategy
Product Design
Models
Production Run
Produce to:
1.
2.
3.
4.
5.
6.
Functional Strategy
Business Unit Strategy
Corporate Strategy
Enterprise Strategy
Cooperative Strategy
Hypercompetitive Strategy
How do we coordinate?
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
Sourcing
Generic Model of Core Processes and Systems
Your Organization
Activity’s Total Value-Added
High
Low
High
Activity’s
Potential for
Competitive
Advantage
Low
Supplier’s
Organization
Taper Vertical
Integration:
Full Vertical
Integration:
Produce Some
Internally
Produce All
Internally
Outsource
Completely:
Outsource
Completely:
Buy on Open
Market
Purchase with
Long-Term
Contracts
MGMT 4710
Capital
Information
Human
Resourcing Resourcing Resourcing
Customer’s
Organization
PRODUCT DEVELOPMENT PROCESS
DEMAND MANAGEMENT PROCESS
Professor Robert R. Wiggins
ORDER FULFILLMENT PROCESS
Control Systems
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
The Full Model of Core Processes and Systems
Your Organization
Capital
Information
Human
Resourcing Resourcing Resourcing
Supplier’s
Organization
Three Levels of Strategy-Operations Fit
Customer’s
Organization
P1
PRODUCT DEVELOPMENT PROCESS
DEMAND MANAGEMENT PROCESS
P1
P1
Professor Robert R. Wiggins
Organizational Supply Chain
MGMT 4710
P2
P3
Operating Processes
Professor Robert R. Wiggins
Customer Retailer Distributor Factory
Casting
Process
Third-Order Fit:
Second Order +
Optimization of Effort
Clay
Supplier
Technology Supply Chain
Valve Lifters
P3
Supply Chain Volatility
vs. Product Life Cycle Volatility
Mapping the Supply Chain
Engines
P2
STRATEGY/COMPETITIVE ADVANTAGE
Control Systems
Casting
Supplier
Second-Order Fit:
First Order +
Processes
Reinforce Each Other
Operating Processes
ORDER FULFILLMENT PROCESS
Eaton
P3
STRATEGY/COMPETITIVE ADVANTAGE
PRODUCTION PROCESS
Chrysler
P2
Operating Processes
PURCHASING PROCESS
MGMT 4710
First-Order Fit:
Processes Consistent
with Strategy
STRATEGY/COMPETITIVE ADVANTAGE
Supplier Equipment
Clay
Chemistry
Business Capability Chain
Plant Management
Metal-Machining
JIT
Supply Chain Management Plant Management Delivery
MGMT 4710
Chemical
Process
Control
Professor Robert R. Wiggins
Web Site
Developer
MGMT 4710
PC Maker
Chip Maker
Equipment
Maker
Professor Robert R. Wiggins
Principles of Reengineering
 The mission of a business is to create value for
its customers
 It is a company’s processes that create value
for its customers
 Business success comes from superior process
performance
 Superior process performance is achieved by
having a superior process design, the right
people to perform it, and the right
environment for them to work in
MGMT 4710
Professor Robert R. Wiggins
TQM
versus
CPR
Incremental
Level of Change
Radical
Reengineering Defined
“The fundamental rethinking and
radical redesign of business
processes to achieve dramatic
improvements in critical,
contemporary measures of
performance, such as cost, quality,
service, and speed.”
-- Hammer & Champy (1993),
Reengineering the Corporation
MGMT 4710
Professor Robert R. Wiggins
TQM and CPR Emphasize Complementary
Elements of Operations Improvement
Existing Process
Starting Point
Clean Slate
One-Time/Continuous
Frequency of Change
One-Time
Short
Time Required
Long
Bottom Up
Participation
Top Down
Narrow, Within Functions
Typical Scope
Broad, Cross-Functional
Moderate
Risk
High
Statistical Control
Primary Enabler
Information Technology
Cultural
Type of Change
Cultural/Structural
Improvement
MGMT 4710
Source: Davenport, Thomas (1993), Process Innovation, Harvard Business School Press
Professor Robert R. Wiggins
Prevention
Fix as
Fail
Innovation
Goal
Kaizen vs. Reengineering
Process Capabilities
Level of Improvement
Anticipation
Steps
Tasks
Activities
Core
Deming’s PDCA Cycle
Plan
TQM improves
capabilities within each
generation of design
Develop
structured approach
to addressing
issues
Third-generation
process design
Act
Second-generation
process design
First-generation
process design
Subprocesses
Processes
Scope of Target “Site”
Professor Robert R. Wiggins
MGMT 4710
Do
Respond to
undesired outcomes
by repeating
cycle
Carry out
approach as
planned
Check
CPR replaces one generation of
process design with another
Evaluate
outcomes: are
they desirable?
Time
MGMT 4710
Professor Robert R. Wiggins
MGMT 4710
Professor Robert R. Wiggins
Typical Approach to Managing CPR
The “Crazy Time” in CPR
Strategy Formulation
Identifies Competitive
Advantage Sought
Study Generic
Process Improvement Principles for
Possible Adoption
Identification of
Needed Process
Execution Capability
Process
Capabilities
Use Benchmarking
to Identify Best
Practices for
Possible Adoption
Redesign of
Process
Short-term loss
in process
capability
associated
with changing
the system
Plan for Transition
to New Generation
of Process Designs
MGMT 4710
Transition to
New Generation
of Process
Professor Robert R. Wiggins
Approaches to Innovation
• Internal Corporate Venturing
(Corporate Entrepreneurship)
• Contracting for Innovation
Generation 1
Process
MGMT 4710
•
•
•
•
•
• Investing Outside
(Acquiring Innovation)
Professor Robert R. Wiggins
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
Types of Innovative Activity
• Invention
Creating or developing a new product, service
or process idea
• Innovation
Extracting Value from Innovation
Barriers to Integration



Creating a commercializable product from an
invention

Different functional time orientation
(e.g., R&D and production)
Different functional language and
interpersonal orientation
Different goal orientation
Formality of structure
The adoption of innovation by a group
of similar firms, which typically
results in standardization of the
product or process idea
Professor Robert R. Wiggins
Time to
Market
Interfunctional
Integration -Cross-Functional
Design Teams
• Imitation
Functional Strategy
Professor Robert R. Wiggins
Difficult for competitors to imitate
Provide significant value to customers
Timely
Capable of being exploited commercially
Utilize the firm’s existing capabilities
and core competencies to develop
competitive advantage and achieve
strategic competitiveness
Functional Strategy
MGMT 4710
Time
The period in which the
organization is developing
a new system while
maintaining the old one
Innovation and
Competitive Advantage
– Strategic Alliances
– Joint Ventures
MGMT 4710
Generation 2
Process
Product
Quality
Value
Appropriation
from
Innovation
Creation of
Customer Value
Facilitators of Integration
Shared values
 New product vision provided by
leadership
 Budget allocation to foster
integrated design

MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
Strategic Alliances
R&D Expenditures and Patents
Before and After Acquisitions
• Product-Link Alliances
• Knowledge-Link Alliances
• Advantages
0.032
0.030
• Disadvantages
Patent Intenstity
– Difficult for a single firm to keep up-to-date
– Knowledge is increasingly specialized
– International location advantages
Firm minus Industry
R&D Intenstity
0.000
-0.002
-0.004
-0.006
-0.008
-0.010
– Partners’ actions increase legal liability
– Partners’ diversification may distract them
– May become overly dependent on others
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
0.028
0.026
0.024
0.022
0.020
-0.012
0.018
-4
-2
0
2
4
-4
Years Before and
After Acquisition
-2
0
2
Years Before and
After Acquisition
MGMT 4710
Professor Robert R. Wiggins
Functional Strategy
4