Creating Customer Value at the Functional Level

by ayd

This post is a summary of Chapter 5 Strategic Management at the Functional Level: Managing for Customer Value in “Strategic Management” by Dess and Miller 1995.

Managing Customer Value at the Functional Level

Strategy is usually thought of as a top management concern, and not concerned with funtional areas. However a business cannot be successful without all of its functional areas sharing responsibility for the firms competitive position.

For example for a company which emphasises Quality, Efficiency and Delivery at the corporate level, must also implement these traits funtionally according to the role that functional division will play. These aspects have different meanings across the functional areas, however only by focusing on these dimensions at the functional level can firms create customer value. An example of how this can be applied in different functional areas is shown in the table below:

Quality Efficiency Delivery
Marketing Provides accurate assesment of customers product preferences to R&D Targets advertising campaigns at customers, using cost-effective mediums. Quickly uncovers and reacts to changing market trends.
Operations Consistently produces goods matching engineering design Minimises scrap and rework through high production yield. Quickly adapts to latest demands with production fexibility
R&D Designs products that combine customer demands and production capabilities Uses computers to test feasability of idea before going to more expensive full scale prototype. Carries out parallel product/process designs to speed up overall innovation.
Accounting Provides the information that managers in other functions need to make decisions Simplifies and computerises to decrease the cost of gathering information Provides information in real time.
Purchasing Selects vendors for their ability to join in an effective ‘partnership’ Given the required vendor quality, negotiates prices to provide good value. Schedules inbound deliveries efficiently, avoiding both extensive inventories and stock-outs.
HR Trains work force to perform required tasks. Minimises employee turnover, reducing hiring and training expense. In response to strong growth in sales, finds large numbers of employees and quickly teaches needed skills.

Functional areas must also be though of a separate business units within themselves, each with their own suppliers and customers. By looking at every function as both having customers and being a customer, the central importance of maximising customer value becomes clear. Customer and suppliers are also divided into external and internal customers for greater clarity. If functional areas take this perspective, they will be readily able to identify their role in strengthening the firms overall value chain and its competitive advantage.

Kaizen as a Tool to Improve Customer Value

Kaizen or continous improvement, is a Japanese concept , that serves as a mean to becoming dantotsu or “the best of the best”. To reach the standard of dantotsu, every function must try to be “best in class”. Best in class areas are determined through benchmarking, and then experimentation is used to progress to the desired level. If these techniques fail, then firms may decide to outsource to a firm that does a better job.

Benchmarking: can be done within industry for the same job functions, but also performed by looking at similar processes within different industries.

Experimenting: using the PDCA planning cycle (plan, do , check, act) employees can improve processes.

Outsourcing: as a last resort when functional area cannot attain the position of best in class, to ensure customer value creation they can outsource the task to firms which are best in class.