3.4.a-the contribution of technology to competitive advantag

8/6/2019 3.4.a-The Contribution of Technology to Competitive Advantag

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THE CONTRIBUTION OF TECHNOLOGY TO COMPETITIVE ADVANTAGE*

by

Theodore W. Schille

1. INTRODUCTION

An essential component of managing technology is recognizing the role that technology

plays in the competitive success of a firm in a free-market economy, and acting to ensure thattechnology decisions and policies contribute to the firms competitive advantage. This chapterprovides a framework which the manager can use to analyze and understand the linkagesbetween technology and competitive strategy and/or competitive advantage of a firm in agiven situation.

2. DEFINING COMPETITIVE STRATEGY AND COMPETITIVE ADVANTAGE

Many scholars... have contributed o the concept ofstrategy. The traditional approachto strategy has emphasized setting goals and developing the means to achieve them bymatching the resources of the firm (strengths and weaknesses) with opportunities (andassociated risks) in the external environment (which includes, especially, customers andcompetitors), and deciding which industries, businesses, or product-market segments tocompete in. For example

...corporate strategy is a pattern of decisions in a company that (1) determines, shapes,

and reveals its objectives, purposes, or goals; (2) produces the principal policies and plans forachieving these goals; and (3) defines the business the company intends to be in, the kind ofeconomic and human organization it intends to be, and the nature of economic and non-economiccontribution it intends to make to its shareholders, employees, customers, and communities...


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Moving down a level, there is the single industry-business firm such as Bethlehem Steel, or the

division of the multiindustry-business firm such as GE Aircraft Engines. At this level, the issueof which business or industry to be in is mootone is in the steel or the aircraft engine industry,and the only issue is how to compete successfully in it, or get out. This is the level at which weare concerned with competitive strategy, a concept that is perhaps most closely associatedwith Michael E. Porter, who expresses it as follows:

Essentially, developing a competitive strategy is developing a broad formula for how abusiness is going to compete, what its goals should be, and what policies will be needed to carryout those goals.

2.3 Functional Policies

Moving down one more level, there are the functions of the firmthe familiar R&D,engineering, manufacturing and production, marketing, sales, service, personnel and humanresources, purchasing, accounting, finance, planning, etc. functions. Although the termstrategyis widely used at this level, in order to avoid confusion I will use the termpoliciese.g.,manufacturing policies, instead of manufacturing strategy. Policies must be formulated andimplemented in any function of the firm, such as how to structure the organization, how toallocate resources, and how to reward people. The important point to note is that functionalpolicies must all support, reinforce, or contribute to the competitive strategy of the firm in orderfor the firm to compete effectively.

3. CHARACTERISTICS OF COMPETITIVE STRATEGY

Competitive strategy is a top-management responsibilityit is difficult to imagine something

more important to a firm than deciding how it will compete in its industry

but there must beorganizationwide participation in both its formulation and implementation. Information must becommunicated upward regarding the capabilities and competencies, the strengths andweaknesses, of the firm in order for a feasible competitive strategy to be formulated, and once

i i h b f l d i b i l d h h li i d


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4.1 Competitiveness Definition

In a free-market economy, I stipulate that the generic goal of industrial firms iscompetitiveness, which I define as follows: Competitiveness is the ability to get customers tochoose your product or service over competing alternatives on a sustainable basis.

This definition of competitiveness has the virtue of being operational, as compared withother definitions which include factors offree and fair market conditions, standard of livingandmaintaining or expanding the real income of its citizens , and are too complex to be measured.Competitiveness as defined above is measured by market share trends over time, and can be

described in terms such as increasing, decreasing or stable. The scope of the market share isdependent on the scope of competitionfor most manufactured products today, it is a globalscope and a world market share that are relevant. Competitiveness, then, is not a single pointin time number. To day that the U.S. commercial large transport aircraft industry accounted fora 65 percent share of the world market in year X may indicate that the United Statesdominantes this industry, but it does not indicate how the U.S. industry is doing competitively.For this, one also has to know what the U.S. world market share was in years X-1, X-2,....X-n,and in this particular case, although the United States may still dominate the industry, it hasbeen losing competitiveness (world market share) to the European Airbus Consortium over thepast 10 years or so. Why this is happening is a different matter, a matter that is the subject ofcompetitive analysis orcompetitive assessment.

4.2 Sustainability

There is an important caeat contained in the definition described above, however, which is thatcompetitiveness must be built on a sustainable basis. It is possible, in the short run, for a firmto get customers to buy its products or services over competing alternatives on an

unsustainable basis by, for example, mortgaging its assets and using the proceeds tosubsidize and lower prices, thus attrating customers until the proceedds run out and the firmcollpases. In this context of sustainability, a discussion of profits and the tradeoff with growthand market share is useful.


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Reliability. Reliability is the ability of a product or service to perform at a specified,promised level over a reasonable useful life under normal conditions of use. It is not, however,

expected to perform at levels higher than what was promised. A product or service is defectivewhen it does not meet the conditions listed above; and when a customers reason for apurchase is higher reliability, this means that, of the number of products or services they havepurchased from a supplier and used, very few--if any--have been defective.

There are, however, two very different ways to achieve high reliability: (1) to inspect it inby identifying and removing defects from the product-services stream before they reach thecustomer and (2) to build it in by improving production processes and getting them undercontrol. There are costs that result from poor reliability--the costs from waste, scrap, rework,

warranties, loss of customer goodwill, and product liability. Improving reliability also hascosts--the investments needed to inspect or build it in. In the latter case, getting productionprocesses under control may require process simplification and redesign or the implementationof an effective statistical process control (SPC) program, but if done well, it should producesignificant savings in all the cost categories resulting from poor reliability. It is in this sensethat quality is free, as Philip Crosby puts it, that the benefits from greater reliability throughimproved process control can--at least in the initial stages of improvement--far outweigh thecosts. Although some complex, high-cost-of-failure products may still require testing andinspection, the result of improved process control should be higher yield rates, which meansthat fewer defects to the customer correspond to less waste, scrap, and rework. Therefore,higher reliability--at least up to the point where processes have been improved so much thatdiminishing returns have set in--is not a tradeoff with cost. The achievement of both lowercosts and higher reliability is possible.

Performance. Performance level refers to a property, feature, or characteristic of product orservice which customers value, and therefore having more of it than competing alternatives docan be a reason for their purchase decision. Performance has multiple dimensions depending

on the specific product or service and the customer or market segment. For industrialcustomers of fabricated parts, dimensional tolerances are a performance dimension that isoften cited along with surface finish (corrosion resistancedurability), weight, etc. In the caseof process industry customers, purity and uniformity might be relevant performance


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5.4 Customer Service

Customer service enhances the utility of a product or the social relationships that complementits sale and use. Traditional forms of customer service have included applications engineering,training of employees, and service-maintenance contracts. Financing services (time payments,leasing, trade-ins, etc.) that enable the customer to purchase the product are also included.Good customer service can also make up for a lot of customer ill will caused by productdefects. And the social nature of person-to-person interactions that occur in connection withthe sale and use of the product can also be very crucial in competition-consider the restaurantwith great food but poor service and vice versa. In any of these cases, customers may bechoosing among competitive alternatives based on the service that comes along with a

product.

5.5 Attractiveness

Attractiveness applies principally to consumer products, although even industrial customersmay be turned off by a product's unattractive appearance. Attractiveness obviouslyencompasses style and bas an aesthetic component that transcends the annual style changesof, for example, the fashion apparel industry, although what is perceived as being attractivemay have some cultural basis. An attractive product design may also be functional, of course,and for some consumers functionality itself may constitute attractiveness. Because of its highlyindividualistic and abstract nature, attractiveness operates something like the Supreme Court'sview of obscenity-it's hard to define, but you know it when you see it.

5.6 Awareness

Awareness is a factor in all other competitive advantages as well as a possible reason in itsown right why customers choose one product or service over competing alternatives. If

customers simply know more about one product or service than competing alternatives, theymay choose it because of the comfort level which that knowledge brings them compared to therelative uncertainty of the alternatives. If the knowledge is positive and is repeatedly reinforcedthrough experience and marketing or advertising activities, brand-name loyalty may be created


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sooner availability, better customer service, etc., competitive advantages.

There are some important qualifications that Porter makes regarding low-cost lead-ership and differentiation strategies that deserve greater emphasis than they usually receive.The first is that the successful low-cost low-price competitor cannot ignore the differentiatingadvantages in its pursuit of low costs. If quality, availability, customer service, or otherparameters of differentiated competition fall below a threshold of acceptability held bycustomers, then the low-cost low-price competitor may sink to a lower category of discount orlow-quality competition. Therefore, Porter says that low-cost leaders need to achieve paritywith competitors in differentiating advantages. A similar qualification applies to the genericstrategy of differentiation. The differentiating uniqueness must be something that is valued by

customers, and that value must be great enough to persuade customers to pay the pricepremium that is normally associated with the additional costs required to create thedifferentiating uniqueness. Therefore, the successful differentiator does not ignore costs-inPorter's terms, it needs to achieve cost parityorproximityrelative to competitors through costreductions in activities that do not affect its differentiating uniqueness.

As indicated above, a firm cannot normally pursue both low-cost low-price anddifferentiating strategies at the same time. Attempting to do so is one example of how,according to Porter, a firm winds up being stuck in the middle. There can be exceptions,usually in cases of major process innovation, but the achievement of a differentiatinguniqueness normally comes at the expense of higher costs. Firms that routinely claim that theyare the lowest-cost, highest-quality, quickest-delivery, best everything competitor are the rareexceptions, or are engaging in rhetorical hyperbole. Since differentiators also lower costs inactivities unrelated to achieving their uniqueness, and low-cost low-price leaders also pursueimprovements in quality, delivery, etc., in order to remain in the mainstream of competition, theonly sure way to distinguish between them is to examine tradeoff decisions where potentialdifferentiating uniqueness is at stake. If those decisions are made consistently in favor of lower

costs, the obvious conclusion is that the firm is pursuing a low-cost low-price strategy, and viceversa.

7.2 Focus


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Industry Wide

Focus

MultipleNiche

Figure 1: Strategy-scope framework

8. THE VALUE CHAIN

8.1 Defining the Value Chain

Thus far I have dealt with competitive strategy by emphasizing customers and their ultimaterole in determining competitiveness by collectively choosing to buy the products or services ofone firm over competing alternatives. In this section the focus shifts to firms and what firms doto achieve competitive advantage in implementing their competitive strategies. To address thisset of issues, another tool developed by Michael E. Porter is utilized: the value chain. InPorter's words, the value chain is "a systematic way of examining all the activities a firmperforms and how they interact.. for analyzing the sources of competitive advantage."

Porter's value chain can be used to organize all the activities of a firm into categories ofprimary and support activities. Primary activities constitute the processes by which firmsreceive inputs (inbound logistics), convert those inputs into outputs (operations), get thoseoutputs to customers (outbound logistics), persuade customers to buy the outputs (marketingand sales), and support customers in using the outputs (service).. Support activities are

processes which provide support to the primary activities and to each other in terms ofpurchasing inputs (procurement); developing new and improved ways of doing activities(technology development); dealing with personnel (human resource management); andgeneral management, accounting, finance, and other activities which support the entire


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8.3 Input/Output Analysis

Input/output analysis can be used at various levels of an organization-including theorganization as a wholeto get a better idea of what the entity is and does. The organizationalunit of analysisin this case, the specific activityis represented as a black box, with inputsgoing in and outputs coming out (see Fig. 2). The amounts and types of inputs will vary fromorganization to organization and activity to activity, and in addition to the intended output therewill always be other outputs, some portion of which will be waste. The activity can then beviewed as the transformation or conversion of inputs into outputs, and the efficiency orproductivity of the activity can be measured by the ratio of intended output to inputs.

Inputs Outputs

Plant & Equipment People

People The Intended OutputActivity

Materials UnintendedOutputs Waste

Energy

Other Byproductsand

RecycledOutput

FIGURE 2 Input/Output analysis.

9. TECHNOLOGY


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For example, let us take the inbound logistics activity known as inbound materials

handling-the movement of material goods from where the supplier gives them over to the firmto when they enter into operations. There are a wide range of alternative ways to do theseactivities-alternative technologies that might be used, including manual labor, manual laborsupplemented by tools (hand carts), conveyor systems, forklift trucks, automated guidedvehicles, robotic loaders/unloaders, stacking cranes, and pneumatic hoses. The nature of theinbound material would, of course, limit the feasible use of some of these technologies, but aninput/output analysis of inbound materials handling utilizing forklift trucks vs. conveyor systemstechnologies would point out the differences in inputs required, intended outputs achieved,unintended outputs produced, and the efficiency of the conversion process. One could look

similarly at the inbound materials storage or the inbound materials inspection activities.

9.3 Ubiquitousness of Technology

The power of using this definition of technology is that it applies to every value-chain activity,not just the activities in manufacturing or engineering that we usually associate with the term.Thus there are technologies involved in accounting and cost management activities (thetraditional direct labor plus overhead; activity-based costing or management), in personnelselection activities (psychological and aptitude testing, persona] interviews), in market researchactivities (focus groups, consumer surveys, test marketing), and even in R&D activities(computer-aided molecular design, electron microscopes, gene-splicing equipment). This viewof technology allows us to include management technologies (ways to motivate personnel,allocate resources, and structure organizations) and even what might be called socialtechnologies (ways to integrate people and work, support the whole person, and provide forthe people who lose out in the course of doing business) in our analysis of technology'scontribution to competitive strategy.

10. CREATING COMPETITIVE AD VANTAGE


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cost technology should be chosen by the firm pursuing a low-cost low-price advantage; thehigh-performance technology for the high-performance advantage, and so on. This point is

discussed further later in this chapter.

10.2 Managing Linkages

Defining Linkages. The subject of linkages among value-chain activities requires furtherelaboration. According to Porter, value-chain activities are not independent, but form chains ofinterdependent, linked, activities, in which "Linkages are relationships between the way onevalue chain activity is performed and the cost or performance of another."

Earlier it was indicated that inbound materials inspection was a specific activity thatmight be found in the inbound logistics category of the value chain. The way this activity isdone-the technology used, the amount of emphasis placed on it, how well managed it is couldhave major impacts on the cost or performance of downstream activities such as assembly,systems testing, after-sales service, and warranty claims administration.

Coordination and Optimization of Linkages. For a firm to manage its linkages better thancompetitors do, it must first recognize that such interdependencies exist. This is often madedifficult by organizational boundaries that separate inbound inspection activities frommanufacturing, systems testing, or after-sales service activities. If the recognition is present,then better coordination of linked activities can be a source of competitive advantage. Forexample, better coordination of the inbound inspection and systems testing activities couldhelp to identify causes of systems failures and preferred components suppliers. Movingbeyond coordination, investments can often be made in one activity to improve the cost orperformance position of linked activities. For example, improving inbound inspection activitiesthrough investments in more sophisticated technology, the training of inspectors, or the

assignment of better managers to this activity should avoid costs incurred by defectivecomponents in the downstream activities mentioned earlier. But even when the downstreambenefits are recognized and quantifiable, it can be difficult to make such investments becauseof the perverse effects of organizational boundaries and reward systems; in many organi-


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Information Technology and Linkages. Linkages are perhaps more easily recognized andmanaged today because of the pervasive and ubiquitous influence of information technology-

the marriage of sensor, computing, communications, and software technologies. Informationsystems are in place that collect more data than ever before, integrating across organizationalboundaries and into supplier and customer organizations, with real-time analytical capabilitiesthat can establish and quantify cause and effect linkages, thus making them observable andmanageable.

11. LINKING TECHNOLOGY TO COMPETITIVE ADVANTAGE

On the basis of the preceding discussion, the choice of which way to perform a value chainactivity-which technology to use-should be governed by the competitive advantage(s) that thefirm is pursuing in implementing its competitive strategy. In other words, if low cost-low price isthe strategy, then low-cost technologies should be used, consistent with maintainingacceptable levels of quality, availability, attractiveness, and so forth. (Of course, technologychoice interacts with other strategic variables e.g., low unit costs are often achieved througheconomies of scale which in the past have depended on mass-production technologies andlarge customer markets demanding standardized products and services.) Similarly, if adifferentiating uniqueness is the strategy, then technologies which maximize the specificcompetitive advantage in terms of higher performance, sooner delivery, better customerservice, etc., should be used, consistent with the price premium customers are willing to payfor the uniqueness.

Technology choice is therefore a more complex decision for firms pursuing a dif-ferentiation strategy. The number of potential differentiating competitive advantages is verylarge, and much more attention must be paid to determining which value-chain activities arethe major sources of competitive advantage and to examining technology alternatives in terms

of the specific competitive advantage being sought. To say that one is pursuing the advantageof higher performance is not enough. One must specify the performance dimension that ispredicted to be of value to a segment of customers, look at which activities create and deliverthat performance value, and make technology choices for those activities accordingly. In trying


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technologies usually labeled as Japanese manufacturing management techniques such asTQC, JIT, and Kanban pull systems. These technologies will be related to the three

competitive advantages of low price, higher quality, and sooner availability.

Advanced Manufacturing Hardware Plant &Technology (NC, CNC, CAM, CIM, FMS etc.) Equipment

Stand alone vs. Systems Costs Specialized vs. multipurpose Other Space requirements Costs Environmental requirements are lower Maintenance requirements Labor Capital - labor substitution Costs Skill requirements Health/Safety factors Materials Component requirements Costs Production Price

etc. Costs are isCompetitiveness

lower lower EnergyCosts

Advanced Manufacturing ManagementTechnology (JIT, TQC, ABC, etc.) Manufacturing Investment cost-justification Process Costs Cost management Cost of poor Subsidies Vendor relationships quality Cellular layout-group technology inventories Employee involvement/ downtime Exchange

empowerment etc. Ratesetc.

Cost Impacts of Reliaiblity

and Economies of Scope

A B


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12.1 Production Costs and Advanced Manufacturing Hardware

Working further to the left, production costs are divided into the familiar categories of plant andequipment, labor, materials, energy, and manufacturing process costs. When an examinationis made of how advanced manufacturing hardware technologies [AMHTse.g.,., CAM,CAD/CAM, CIM, FMS, NC, CNC (computer-aided manufacturing, computer-aided design/manufacturing, computer-integrated manufacturing, flexible manufacturing systems, numericalcontrol, computer numerical control)] might affect these production costs compared withalternative, traditional manufacturing technologies, there is no clear and easy answer. The

answer is the all-too-familiar "it depends!"

Plant and Equipment Costs. On what do these cost impacts depend? A partial list mightinclude whether the AMHT was implemented in systems or in a series of stand-alone pieces ofequipment-e.g., replacing an entire machinery system vs. replacing a worn-out lathe with anew NC or CNC lathe. Especially in product flow layouts, the AMHT systems approach mightcost less than traditional technology because of the potential cost savings due to systemsredesign, while the stand-alone approach would probably cost more because the NC/CNClathe costs more than the manually controlled lathe and there are no cost savings fromSystems redesign. Similarly, equipment costs might be affected by the choice of specializedvs. multipurpose AMHT-e.g., a CNC lathe vs. a CNC machining center. The lathe might fit intoa system providing one of a number of required machining operations, while the machiningcenter might do all the required operations itself, so the comparison of AMHT equipment costs

with traditional manufacturing technology equipment costs has to be adjusted accordingly.

But this latter example illustrates other potential cost impacts as well. The multi-purposeCNC machining center should also take up much less space than the system with the CNC


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AMHT maintenance is again an "it depends" situation. AMHT equipment is normally morecomplex and sophisticated so that maintenance costs might be presumed to be greater, but on

the other hand much of the complex electronics is modularized on printed-circuit boards whichare simply replaced when a circuit goes bad, so maintenance costs might be less.

AMHT might have more positive cost impacts when the health and safety of workers isconsidered. Automating dangerous or environmentally hazardous 'operations utilizing AMHT(e.g., spray painting, welding) may require more expensive equipment but provide savings inlost labor hours, workmen's compensation premiums, and other employee health and safetycosts. Similarly, automated operations that are difficult for humans to do because of theirphysical makeup or boring for humans to do because of their psychological makeup can both

lower health and safety costs and prevent human error that results in scrap, rework, or othercosts of poor quality.

Materials Costs. Materials costs might or might not increase with AMHT and less direct labor.The human operator may lack the data input and processing speed of the computer, but ismore flexible when it comes to dealing with unexpected problems. Using AMHT in assemblyoperations, for example, may require higher-tolerance and higher-cost components so thatfeeders don't jam and robots don't position parts off center, whereas human operators usingtraditional manufacturing technology could have easily handled these kinds of exceptionalproblems when they occurred.

The point of all this discussion is that the contribution of advanced manufacturinghardware technology to the competitive advantage of low cost-low price is ambiguous andsituation-specific. One would not want to precipitously rush into AMHT pursuing a low-cost low-price competitive strategy!

12.2 Production Costs and Advanced Manufacturing Management Technology

Japanese Management Practices. When we look at advanced manufacturing management


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are based on cooperative partnering rather than arm's-length confrontation can lead to lowermaterials and manufacturing process costs ;37 negotiated partnering with labor unions (trading

job security for work-rule flexibility) vs. confrontational bargaining over wages and benefits canlead to lower labor and manufacturing process costs;and giving operators the power and theresponsibility for quality, routine maintenance, and other activities associated with theirprincipal work tasks rather than relying on specialized quality control or maintenance staffs canlower labor and manufacturing process costs.

Hardware and Management Technologies. These kinds of illustrations can go onand on.Two genera] points to make are as follows:

1. Advanced manufacturing management technologies appear to have a more direct anda larger impact on lowering production costs than do advanced manufacturinghardware technologies-indeed, in numerous cases the cost and reliability benefits fromimplementing AMMT are regarded as the real key to manufacturing improvement.

2. Even when AMHT is successfully implemented and has a positive impact on productioncosts and other competitive factors, it usually occurs after or in tandem with thesuccessful implementation of AMMT-what one author has called synchronousinnovation.

Finally, in examining Fig. 3, we note the cost impacts of reliability and economies of

scope. The sources of these cost impacts arise out of the quality and availability advantagesand will be discussed below. However, the cost impacts are felt principally in loweringmanufacturing process costs.


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Hardware & Management Technologies A CAM - reduction of human error

- real time data collection,analysis, & feedback Build

Computer Simulation It In Reliability Tool precision/accuracy (Process is Role of Automated inspection and Control) Higher Customer

quality control Service Statistical Process Control Inspect TQC, TQM, Q Circles It In

etc.

Integration of CAD & CAM, CIM Design for Quality Concurrent engineering Manufacturability is

Competitiveness

Mandatory use of standard compoents Higher

CAD/CAE Product Value Analysis/ Design Performance Aesthetic

Value Engineering Choices is Dimension Market Research, QFD etc. -features Higher of Quality

-materials- size-etc.

FIGURE 4 Competitive advantage of high quality.

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2. Theperformance of the product or service is highera design-related phenomenon.

These two aspects of quality are interrelated. For products, this interrelationship isknown as design for manufacturability, which refers to situations in which a design which isunnecessarily complex or sets performance levels unnecessarily high may cause processproblems which decrease the reliability of the resulting product. A similar concept could relateto service design and the processes necessary to provide that service.

13.1 Reliability: Building It in

Working from right to left, there are two basic ways to improve reliability: to build it in orinspectit in. Building it in is usually the preferred way to improve reliability because, as discussedearlier, this involves improvement of the production process itself and therefore has the addedcompetitive effect of lowering manufacturing process costs at the same time-see the earlierdiscussion of reliability. Thus the dashed arrow (A) in Fig. 4 shows up also in Fig. 3.

Process Control. Improving the production process is a matter of getting it under control orstabilized so that operations are repeatable; thus, variations in operations due to specialcauses arising out of specific circumstances not inherently part of the process are removed,and only the acceptable variation that is inherently part of the process remains. (If a process toproduce a product or service at designed performance levels cannot be brought under control,then the process or the product or service must be redesigned-or both.) Getting a processunder control results in increasing yield rates (or declining defect rates), and this is the sourceof the net reduction in production process costs.

Advanced Manufacturing Hardware Technology. What are the benefits of advanced

manufacturing hardware and advanced manufacturing management technologies on buildingreliability in to production processes? The first benefit is that all computer automation in CAMwhich removes human beings from direct contact with the production process reduces humanerroras a source of special variation affecting the process. The greater the potential for human


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13.2 Reliability: Inspecting It in

Inspecting quality,' in to the process without building it in results in higher reliability asperceived by the customer because few or no defects get past the inspection system, but thereare no reductions in production process costs because the process itself remains unchanged-warranty, service, loss of customer goodwill, and liability costs of poor quality are merelyshifted to scrap and rework.

A firm can inspect quality in by providing more inspection-hiring more QC inspectors-or

by providing better inspection, which can be the result of using advanced technology.Automated quality control and inspection equipment such as coordinate measuring machinesor automated test equipment can improve the inspection activity by reducing human error thatwould result in mistakenly letting defects get through (or mistakenly weeding out nondefects),by doing inspections faster than humans can, and by doing inspections with greater accuracyand precision than humans can. Advanced training technology or improved inspectionmethods design might also be used to improve manual inspection, but in all these instancesthe investment made to achieve the higher reliability (as perceived by the customers) is adirect cost tradeoff since there are no cost reductions from bringing the process under control.

13.3 Performance: Designing It in

Improving product performance is largely a matter of product design and the choices that aremade in the product design activity. These design choices include the tightness of thetolerances that are specified, the special features that are included, the choice of materialsutilized, and the size of the product or service offerings.

Advanced Manufacturing Hardware Technology. Computer-aided design engineering(CAD/CAF) technologies would appear to have a significant impact on performance in terms ofreducing the potential for human error and in the enhanced ability to design more sophisticated


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13.4 Integrating Reliability and Performance

The integration of CAD/CAE and CAM provides a hardware linkage between reliability andperformance, the two dimensions of quality. This hardware linkage gives design andmanufacturing engineers real-time electronic sharing of information that supports concurrent orsimultaneous engineering. Each group can feed back cost and capability information to theother so that in the end, the product-process combination is optimal for the firm, rather thanone or the other. This hardware integration can be supported by management policies to, forexample, use standardized components whenever feasible or justify why not. These policiescan be programmed into the CAD/CAE and the computer process simulation systems to

prompt either group of engineers to consider the viewpoint of the other. Thus hardware andmanagement technologies are themselves integrated into design for manufacturability.

13.5 Aesthetics and Customer Service

Two side issues complete this discussion of quality. In terms of performance, there is anaesthetic dimension that must be taken into account apart from objective facts. Many people,for example, prefer natural leather or wood products over plastic, relating this in their minds to

higher quality, even though on any given performance dimension (hardness, durability,cleanability, etc.), the plastic product might objectively score higher. Market researchtechniques help identify these aesthetic preferences. Second, there is also a customer servicedimension to the reliability issue. When customers unfortunately experience a product defect,the loss of goodwill can he prevented and customer loyalty even enhanced throughappropriate customer service activities. Information technologies which speed up the service tofix or replace the defective product combined with management policies which remove the"hassles" from the experience for the customer can go a long way toward alleviating customer

complaints, but this service again comes at additional cost only unless the process is firstbrought under control.


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BAdvance Manufacturing Licensing orHardware Technology Acquisition

CAD/CAE Rapid prototyping New CAD-CAM/CIM R&D Products FMS/Agile manufacturing New Product Distribution CIE/CIB, EDI Development Lead System Science base Time/Cycle Time Scientific I Instruments Information technology

etc. Product AvailabilityPlatforms is Competitiveness

Sooner

Advanced ManagementTechnology CreatingConcurrent engineering Product Vendor partnering Families Intellectual property policy Expanded/ Marketing Shortening product Customizing Extended & Sales

life cycles Products Product Capabilities

JIT, TQM etc. Lines

Market researchetc.

Adding bells &whistles complexityto products

FIGURE 5. Competitive advantage of sooner availability.

Licensing or Acquisition. There are a couple different ways to obtain new products. Oneway is to license oracquire them as products, or to license or acquire underlying technologieswhich feed into the second way the firm's internal new product development process which


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contend that the biggest contribution that these technologies can make to competitiveadvantage is in this area of availability.

Advanced Manufacturing Hardware Technology. Earlier we mentioned the performanceimpacts of CAD/CAE technologies, but surely a bigger impact of CAD/CAE pertains to thespeed with which product design and engineering analysis activities can be done. Fast

prototyping is another technology that has the potential to speed up product design. Newproducts must be manufactured before they can be sold, however, and CAM/FMStechnologies can be used to change manufacturing Systems over from existing to newproducts-as long as the new products are within the envelope of the systems-almostinstantaneously and at almost no cost. CIM technology, which integrates the product design

and manufacturing processes electronically, has the potential to make the transition fromdesign to manufacturing go even more quickly and smoothly.

Other activities and new technologies also have the potential for expediting the new-product development process. The more fundamental research that goes on in industry as wellas in universities and national laboratories can result in an iteration between science andtechnology that results in new and faster ways of doing R&D. Advances in microscopy andspectroscopy technologies have resulted in much more powerful scientific instruments whichhave advanced the scientific study of molecular and atomic structures related to materials and

resulted in computer-aided molecular design technologies for developing newpharmaceuticals, for example.

Advanced Management Technology. New management technologies can also play animportant role in speeding up new product development. Concurrent or simultaneousengineering-the parallel or joint development of new-product and accompanying new-processtechnology-not only improves design for manufacturability as discussed earlier but also cansignificantly speed up the development cycle. Management policies to deliberately shorten

product life cycles by obsoleting current products with new developments can speed things upas well. Many of the process improvements that result from TQM-type programs in newproduct development also tend to speed up the process. All of these new product decisionscan, of course, be affected by the firm's approach to intellectual property protection, and


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Customized Products. In contrast with planned product families, the second case ofcustomized products refers to design and production activities responding to individualcustomer orders. In many industries, customers have unique requirements, which can besatisfied only with a customized product. The extent of the customization may range fromminor modifications to product features to totally new designs of major components orsubassemblies. These would not be considered new products, however, as the customizationis based on current knowledge and skills. The customized order might be Tor a single product,or for thousands of units, but there is no commitment to that specific customized designbeyond that order. Examples of customization occur in many machinery and equipmentindustries in which the equipment-and the major components and subassemblies-have to becustomized to fit the specific size and functionality requirements of the customer.

Adding Bells and Whistles. The final case of expanded or extended product lines is wherecomplexity of the "bells and whistles" type is added to products. This is a special case ofcustomization, but is very different in its motivation. Customization as described above is doneto meet the unique functionality requirements of customers, adding bells and whistles is doneto appeal to customers' personal tastes and preferences, or impulses. A popular examplewould be a T-shirt shop which allows customers to print pictures of their faces on shirts in realtime when making their purchases. More complex cases might include accommodatingcustomers' desires for coffee-cup holders, round vs. square corners, narrow lapels and cuffs

vs. wide lapels and no cuffs, and so forth in various products.

Hardware and Management Technology. The availability advantage for these expanded orextended product lines also depends on speeding up design-manufacturing cycle times as wasindicated above in the discussion of new-product development. Therefore all the advancedmanufacturing hardware and management technologies discussed above also have thepotential for greatly enhancing the availability advantage in these situations.

Market Feedback and Information Technology. Expanded or extended product linesituations are more dependent on market information and the ability of the firm to quickly acton this information, however, and on market information on customers' needs and wants just toget started, but then, perhaps even more importantly, on market feedback to be able to quickly


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The agile-flexible CIM. technologies used to create availability advantages withexpanded or extended product lines also give rise to a cost impact called economies of scope,which is defined as cost savings that can result from multiproducti.e., flexible-agilemanufacturing systems.What are some of these potential cost savings? Since flexible-agile manufacturing systems can switch from one product design to another (within theparameters or envelope of the system) with little or no cost or time penalty, the risk that aninvestment in a manufacturing plant might be rendered obsolete by a sudden change in marketdemand is reduced considerably, the ability to meet quick delivery requirements withoutfinished goods inventories is increased, and the downside of the level scheduling tradeofftheaccumulation of finished-goods inventories to handle seasonal fluctuations in demand cannow be avoided by the judicious selection of a product mix whose individual demand patterns

are complementary.

These cost impacts of economies of scope are shown in Fig. 3 see arrowB.

14.5 Distribution and Customer Education

The activities and technologies shown in Fig. 7.5 are not the only ones affecting theavailability advantage, of course. Products normally go through a distribution system to reach acustomer, and these activities and the technologies used in them can obviously affect how

soon they reach the customer. Marketing and sales activities and technologies may also becritical in educating customers about the existence and use of an expanding choice ofproducts available to them.

15. SUMMARY AND CONCLUSIONS

To summarize the framework presented in this chapter for use in analyzing and under-standing the contribution of technology to competitive advantage of the firm, please refer toFig. 6.


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SOURCES OF OOMPETITIVE ADVANTAGE

The Firm The Customer

________________________________________________________- low cost leadership

Competitive Strategy- differentiation

Plant & Technology - 0 GENERIC COMPETITIVENESSEquipment the way an 0 COMPETITIVE ... the ability to get

activity is done 0 ADVANTAGES customers to choose0 ...Reasons why your product or

Labor transformation 0 customers choose service over competing- direct of inputs I nto Products/ 0 one product/service alternative on a

- indirect outputs Services 0 over competing sustainable basis0 alternatives

Materials 0 price performance0 quality reliability0 availability

Energy 0 attractiveness0 awareness

Other 0 customer service0 stability

INPUTS VALUE CHAIN OUTPUTS 00

Firms create competitive advantage by:- placing greater or lesser emphasis on specific VC activities than competitors do- performing VC activities better or differently than competitors do- managing linkages among VC activities better than competitors do

FIGURE 6. Technology and competitive advantage.* * * *

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3.4.a-the contribution of technology to competitive advantag

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