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In This Lecture, We Focus: - Strategy For Cash Hog and Cash Cow Businesses
In This Lecture, We Focus: - Strategy For Cash Hog and Cash Cow Businesses
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
o A cash hog business is one whose internal
cash generations/flows are inadequate to fully
fund its needs for working capital and new
capital investment
o A cash cow business is a valuable part of a
diversified company’s business, because it
generates surplus cash for financing new
acquisitions, funding capital requirements of
cash hogs
2
Capability, Promote Strategy, and Culture
3
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.
4
Economies and Diseconomies of Scale
5
Achieving Superior Efficiency
• Learning effects
7
Achieving Superior Efficiency
8
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
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Organizational Capability
Achieving Superior Efficiency
• Materials management
12
Organizational Capability
Achieving Superior Efficiency
• R&D strategy
13
Organizational Capability
Achieving Superior Efficiency
– Hiring
– Training
– Self-Managing Teams
– Pay for Performance
14
Organizational Capability
Achieving Superior Efficiency
• Infrastructure
– Company structure, culture, style of strategic
leadership, and control system determine context
of all value creation activities 15
Organizational Capability
Achieving Superior Quality