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Chapter 3Chapter 3Chapter 3Chapter 3

Performance Excellence, Performance Excellence, Competitive Advantage, Competitive Advantage, and Strategic and Strategic ManagementManagement

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Competitive AdvantageCompetitive AdvantageCompetitive AdvantageCompetitive Advantage

Competitive advantageCompetitive advantage: a firm’s ability to : a firm’s ability to achieve market superiority over its competitors.achieve market superiority over its competitors.

Characteristics: Characteristics: – Is driven by customer wants and needsIs driven by customer wants and needs– Makes significant contribution to business successMakes significant contribution to business success– Matches organization’s unique resources with Matches organization’s unique resources with

opportunitiesopportunities– Is durable and lastingIs durable and lasting– Provides basis for further improvementProvides basis for further improvement– Provides direction and motivationProvides direction and motivation

Product Quality and Product Quality and Business Performance - Business Performance - PIMS StudiesPIMS Studies 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.

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Quality and ProfitabilityQuality and ProfitabilityQuality and ProfitabilityQuality and Profitability

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

Quality and Business Quality and Business Results StudiesResults Studies

General Accounting Office study of General Accounting Office study of Baldrige Award applicantsBaldrige Award applicants

Hendricks and Singhal study of quality Hendricks and Singhal study of quality award winnersaward winners

Performance results of Baldrige Award Performance results of Baldrige Award winnerswinners

GAO Study ModelGAO Study Model

Sources of Competitive Sources of Competitive AdvantageAdvantage

Cost LeadershipCost Leadership DifferentiationDifferentiation PeoplePeople

Quality and Quality and Differentiation StrategiesDifferentiation Strategies

Superior product and service design

Outstanding service High agility Continuous innovation Rapid response

Quality and Product Quality and Product DesignDesign Understanding customer needs and Understanding customer needs and

expectationsexpectations Systematic processes for design and Systematic processes for design and

product improvementproduct improvement Tools and techniquesTools and techniques

– Concurrent engineeringConcurrent engineering– Value analysisValue analysis– Design reviewsDesign reviews– Experimental designExperimental design

Quality and Outstanding Quality and Outstanding ServiceService Key components of service quality: Key components of service quality:

employees and information technologyemployees and information technology Dimensions of service qualityDimensions of service quality

– ReliabilityReliability – ability to provide what was – ability to provide what was promisedpromised

– AssuranceAssurance – knowledge and courtesy of – knowledge and courtesy of employees and ability to convey trustemployees and ability to convey trust

– TangiblesTangibles – physical facilities and – physical facilities and appearance of personnelappearance of personnel

– EmpathyEmpathy – degree of caring and individual – degree of caring and individual attentionattention

– ResponsivenessResponsiveness – willingness to help – willingness to help customers and provide prompt servicecustomers and provide prompt service

Quality and AgilityQuality and Agility

AgilityAgility – capacity for flexibility and – capacity for flexibility and rapid changerapid change– Continual monitoring and sensing of Continual monitoring and sensing of

changing customer needs and changing customer needs and expectationsexpectations

– Fast design changesFast design changes– Rapid roll out of new products and Rapid roll out of new products and

processesprocesses– Cross-functional cooperation and Cross-functional cooperation and

coordinationcoordination– Good supplier relationsGood supplier relations

Quality and InnovationQuality and Innovation

Innovation is vital to competing in Innovation is vital to competing in today’s worldtoday’s world

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

Creativity and breakthrough Creativity and breakthrough thinking are encouragedthinking are encouraged

Quality and TimeQuality and Time

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

Success in today’s markets requires increasingly shorter cycle times

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.

Information and Information and Knowledge for Knowledge for Competitive AdvantageCompetitive Advantage A supply of consistent, accurate,

and timely data across all functional areas of business provides real-time information for the evaluation, control, and improvement of processes, products, and services to meet both business objectives and rapidly changing customer needs.

Need for Performance Need for Performance MeasurementMeasurement

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

Balanced ScorecardBalanced Scorecard

1.1. Financial perspectiveFinancial perspective

2.2. Internal perspectiveInternal perspective

3.3. Customer perspectiveCustomer perspective

4.4. Innovation and learning Innovation and learning perspectiveperspective

Leading measures Leading measures Lagging Lagging measuresmeasures

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Baldrige Classification of Baldrige Classification of Performance MeasuresPerformance Measures

Product and service outcomesProduct and service outcomes Customer-focused outcomesCustomer-focused outcomes Financial and market outcomesFinancial and market outcomes Human resource outcomesHuman resource outcomes Organizational effectiveness Organizational effectiveness

outcomesoutcomes Leadership and social responsibility Leadership and social responsibility

outcomesoutcomes

Strategic PlanningStrategic Planning

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

Strategic planningStrategic planning – the process by – the process by which members of an organization which members of an organization envision its future and develop the envision its future and develop the necessary procedures and operations necessary procedures and operations to carry out that visionto carry out that vision

Goals of Strategic Goals of Strategic PlanningPlanning 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.

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.

Strategic Planning Strategic Planning Process Process

MissionMission

Definition of products and Definition of products and services, markets, customer services, markets, customer needs, and distinctive needs, and distinctive competenciescompetencies

Example - Procter & GambleExample - Procter & Gamble: “We : “We will provide products of superior will provide products of superior quality and value that improve quality and value that improve the lives of world consumers.”the lives of world consumers.”

VisionVision

Where the organization is headed and Where the organization is headed and what it intends to bewhat it intends to be– Brief and memorable - grab attentionBrief and memorable - grab attention– Inspiring and challenging - creates excitementInspiring and challenging - creates excitement– Descriptive of an ideal state - provides Descriptive of an ideal state - provides

guidanceguidance– Appealing to all stakeholders - employees can Appealing to all stakeholders - employees can

identify withidentify with Example – SolectronExample – Solectron: “Be the best and : “Be the best and

continuously improve”continuously improve”

Values (Guiding Values (Guiding Principles)Principles)

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

Example – Federal expressExample – Federal express: “We will be : “We will be helpful, courteous, and professional to helpful, courteous, and professional to each other an the public. We will strive each other an the public. We will strive to have a completely satisfied customer to have a completely satisfied customer at the end of each transaction.”at the end of each transaction.”

Environmental Environmental AssessmentAssessment

Customer and market requirements, Customer and market requirements, expectations, and opportunitiesexpectations, and opportunities

Technological and other innovationsTechnological and other innovations Organizational strengths and weaknessesOrganizational strengths and weaknesses Financial, societal, ethical, regulatory and Financial, societal, ethical, regulatory and

other potential risksother potential risks Changes in global or national economyChanges in global or national economy Factors unique to the organization, such Factors unique to the organization, such

as partner and supply chain needs as partner and supply chain needs

Strategies and Action Strategies and Action PlansPlans

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

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

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

Strategy ImplementationStrategy Implementation

Developing 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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Policy Deployment Policy Deployment (Hoshin Kanri)(Hoshin Kanri)Policy Deployment Policy Deployment (Hoshin Kanri)(Hoshin Kanri)

Top management vision leading to Top management vision leading to long-term objectiveslong-term objectives

Deployment through annual Deployment through annual objectives and action plansobjectives and action plans

Negotiation for short-term objectives Negotiation for short-term objectives and resources (catchball)and resources (catchball)

Periodic reviewsPeriodic reviews

Hoshin PlanningHoshin Planning

Linking Human Resource Linking Human Resource Plans and Business Plans and Business StrategyStrategy Changes in strategy often require Changes in strategy often require

changes in HR planschanges in HR plans ExamplesExamples

– Redesign of the work organization to Redesign of the work organization to increase empowerment or teamworkincrease empowerment or teamwork

– Changes in labor/management Changes in labor/management partnershipspartnerships

– Directed training and educationDirected training and education– Improved processes for knowledge sharingImproved processes for knowledge sharing

Illustrative Example Illustrative Example

Requirements for Requirements for Effective Strategic Effective Strategic PlanningPlanning 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.

Case StudiesCase Studies

Bronson Methodist HospitalBronson Methodist Hospital Branch-Smith Printing DivisionBranch-Smith Printing Division SolectronSolectron

TQ and Strategic TQ and Strategic Management TheoryManagement Theory

Classic strategy formulation Classic strategy formulation addresses the 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