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Capability, Promote Strategy, and Culture

In this lecture, we focus

Strategy for Cash Hog and Cash Cow
businesses


Superior Efficiency

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Capability, Promote Strategy, and Culture
Cash Hog and Cash Cow Business
oA cash hog business is one whose
internal cash generations/flows are
inadequate to fully fund its needs for
working capital and new capital
investment
oA cash cow business is a valuable part of
a diversified companys business,
because it generates surplus cash for
financing new acquisitions, funding capital
requirements of cash hogs
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Capability, Promote Strategy, and Culture
Cash Hog and Cash Cow Business
oCorporate management has to decide
whether it is worth financially and
strategically to invest in cash hogs
oSurplus fund from cash cows can be
invested in promising cash hogs
oCash hogs in low industry attractiveness
or a weak competitive position can be
abandoned

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Achieving Superior Efficiency
Economies of scale
Unit cost reductions associated with a large scale of
output
Ability to spread fixed costs over a large production volume
Ability of companies producing in large volumes to achieve a
greater division of labor and specialization
Diseconomies of scale
Unit cost increases associated with a large scale of
output
May happen due to additional investment required for
additional output
Suppose a developer can build 5 apartment buildings at a
time using its present resources and capability. But if it goes
for 7 apartments, it has to buy huge machineries.
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Economies and Diseconomies of Scale
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Achieving Superior Efficiency
Learning effects

Cost savings that come from learning by doing
Labor productivity
Management efficiency


When changes occur in a companys
production system, learning has to begin
again
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Impact of Learning and Scale Economies
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Achieving Superior Efficiency
The experience curve

The systematic lowering of the cost structure
and consequent unit cost reductions that
occur over the life of a product
Economies of scale and learning effects underlie
the experience curve
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The Experience Curve
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Achieving Superior Efficiency
Dangers of complacency with the experience
curve
It will bottom out
New technologies can make experience effects
obsolete
Some technologies may not produce lower costs
with higher volumes of output
Flexible manufacturing technologies may allow
small manufacturers to product at low unit costs
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Organizational Capability
Achieving Superior Efficiency

Marketing

Marketing strategy: pricing, promotion,
advertising, product design, distribution
Reducing customer defection rates and
building customer loyalty
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Organizational Capability
Achieving Superior Efficiency

Materials management

Getting inputs and components to a production
facility, through the production process, and out
through a distribution system to the end user
Just-in-time (JIT) inventory system
Supply chain management
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Organizational Capability
Achieving Superior Efficiency

R&D strategy

Designing products that are easy to
manufacture
Process innovations
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Organizational Capability
Achieving Superior Efficiency

Human resource strategy: employee
productivity

Hiring
Training
Self-Managing Teams
Pay for Performance
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Organizational Capability
Achieving Superior Efficiency

Information systems and the Internet
Automating interactions between
Company and customers
Company and suppliers

Infrastructure
Company structure, culture, style of strategic
leadership, and control system determine
context of all value creation activities
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Organizational Capability
Achieving Superior Quality

Attaining superior reliability

Total quality management (TQM)
Improved quality means that costs decrease
As a result, productivity improves
Better quality leads to higher market share and allows
increased prices
This increases profitability
More jobs are created
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Value and Culture
Management is obligated to manage
organization in such a way that employees
will have the opportunity to earn according to
their productivity.
Employees should be able to feel confident
that if they do their jobs properly, they will
have a job tomorrow.
Employees have the right to be treated fairly
and must believe that they will be.
Employees must have an avenue of appeal
when they believe they are being treated
unfairly.