Session 1_MS25_1_manufactirung Strategy.pptx

linking Strategy to manufacturing

1. Manufacturing Strategy Session 1: Linking Strategy to Manufacturing Dr. Partha Priya Datta IIM Calcutta

2. Competitive Strategy: The Positioning View Options for firm positioning: Cost leadership Differentiation Focus And, within each of the three: Variety-based Needs-based Access-based What are the concerns with this positioning view of strategy?

3. Concerns with the Positioning View Too narrowly focused on industry and product economics rather than customer economics Allows too few options for positioning. Looking at conflicts among positions might lead to new options. Relies too much on analytical tools Does not acknowledge the need for learning and adaptation over time

4. Competitive Strategy: The Resource-Based View Competitive advantage is derived from the firm’s development of unique bundles of resources and capabilities that are: Inimitable: are difficult or costly to imitate or replicate Valuable: allow the firm to improve its market position relative to competitors Rare: in relatively short supply

5. Competitive Strategy: The Resource-Based View Resources: an observable, but not necessarily tangible, asset that can be valued and traded e.g., brand, patent, parcel of land, license Asset or input to production than an organization owns, controls or has access to on a semi-permanent basis Capability: not observable, and hence necessarily intangible, cannot be valued and changes hands only as part of an entire unit Activities or functions performed within a system Processes to utilize the organization's resources

6. Build Your Dream in France

7. How BYD developed a capability for low cost manufacturing

8. Should BYD take the Qinchuan Opportunity

9. How BYD developed a capability for building multi-specialty operations BYD’s position in battery market (p2) Approach to process decapitalization Labour capital tradeoff (how many workers can be substituted for each robot arm) (p5,7) Simple cost reduction by minimal process change Increased process monitoring Process change via task decomposition (p6) Process R&D (p6) & Quality (p4) Preconditions (task decomposition is not universally applicable): Individual tasks must be well enough specified Creating a standard process flow connecting decomposed subtasks It is economically feasible to dedicate workers to specific subtasks Workers must be willing to perform subtasks on a repeated basis (p6,7, use HR incentives) Risk of turnover?

10. Qinchuan Auto Opportunity: How to diversify into new and distant areas of growth without sacrificing benefits of focused expertise built in core business? Financial Payback Reduce the production cost of Flyer by 30% (p10) Cost of acquisition, upgrades and expansion Qualitative assessment Diversification is justified only if justifies leveraging an existing capability (strategic hinges or drivers for diversification) Products (BYD’s expertise in making rechargeable batteries) Processes (metal forming expertise) Markets (are there any vertical integration opportunities for cell phone manufacturers or any existing channels) All of the above hinges are weak to leverage in automobile as possibilities of developing power source for automobiles are far fetched at the time of the case as BYD need to understand Qinchuan’s processes first Capabilities not tied to any of the above (process depaitalization and task decomposition) BYD’s ability to substitute capital by labour but greater complexity of automobile manufacturing process may make this difficult to implement than battery manufacturing

11. Arguments for and against For Attractive terms from Government (land price etc ) Government has stopped issuing licenses for new automobile operations (p1) Potential for growth (expected growth in Chinese auto market with current margins of 10-30%) Leverage battery expertise to launch electric car Leverage capability in process decapitalization : experience to decompose battery manufacturing into narrow tasks supported by labour and jigs Need for vertical integration in nascent Chinese industries (highly competitive market and lack of strong legal system to enforce contracts) Against Opportunity is overblown (prices are declining by 10-20% per year, p9) suggesting existence of excess capacity Market is concentrated (75% held by 3 major players) Too broad a diversification! – viable electric car is a long term project Lack of sufficient and geographically proximate engineering expertise (2000 additional engineers in Xian) Not clear if automobile manufacturing can be decapitalised easily (question raised by you) Better to partner with an existing manufacturer to avoid starting from scratch allowing BYD to focus on design and manufacturing batteries for automobiles rather building entire automobiles

12. How it fared! BYD launched world’s first mass produced electric vehicle called F3DM (Dual mode) in 2008 two years ahead of GM and Toyota. The Li-Ion batteries used by BYD can last 100-110 kilometers

13. Focus Operational specialization or focus is a compelling strategy for improving performance (operational efficiency) of a particular activity/competency bundle What does it mean? Is it focusing on a narrow product mix for a particular market niche to outperform competition? Is it learning to focus each plant on a limited, concise, manageable set of products, technologies, volumes or markets Is it learning to structure basic policies, supporting services so that they focus explicitly on one strategic task, instead of many conflicting ones Traditional view of focus is based on the concept that simplicity, repetition, experience and homogeneity of tasks breed competence

14. The dilemma Assumptions: All units and their responsibilities remain identical Organization remains same and the interactions are fairly standard Traditionally we have been using the principle of economies of scale to do business But organizations want (or need) to do multiple things – Expanding product/service range Increased and diverse set of tasks Unclear strategic tasks and independent decision on compromises Utilizing equipment to the fullest Uncoordinated specialism Activities might require broad set of distinct but related activities Composition of groups might change (human resource dependent operations)