strategic management/ business policy joe mahoney
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Strategic Strategic Management/Management/Business PolicyBusiness Policy
Joe Mahoney
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Background of Joe MahoneyBackground of Joe Mahoney
Grew up in Philadelphia, PA.
One younger sister (BA University of Pennsylvania; MBA accounting).
One younger brother (Ph.D. Finance, Wharton).
BA in Economics in 1980 University of Pennsylvania.
MA in business economics 1984 from Wharton School of Business of University of Pennsylvania.
Ph.D. in business economics in 1989 from Wharton School of University of Pennsylvania.
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Background of Joe MahoneyBackground of Joe Mahoney
Tenure-track faculty member in business administration department at the university of Illinois since the Fall term of 1989.
Assistant professor 1989-1995.Associate professor 1995-2002.Full professor of strategy 2003-
Research: vertical integration, contracts, alliances, and corporate governance.
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Background of Joe MahoneyBackground of Joe Mahoney
Teaching.
BA 389 undergraduate course -- 15 years experience.
BA 401 MBA course -- 9 years experience.
BA 444 executive MBA course -- 9 years experience.
BA 444 international executive MBA course – 5 years experience.
BA 490 ph.D. Course -- 13 years experience.
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Background of Joe MahoneyBackground of Joe Mahoney
Work experience.
Manager at a fast-food restaurant.
Manager at a bookstore.
Worked for project link at university of Pennsylvania.
Worked three years for the Reginald Jones center of corporate strategy at Wharton on scenario planning and the hazardous waste industry.
Consulting experience for government contacting, and for fortune 500 company on vertical coordination.
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Joe’s Insights From 15 Years Teaching:Joe’s Insights From 15 Years Teaching:
Ninety percent of students think that they are above average.
Best advice I ever got on teaching:“Trust the class.”
“We have a cup of knowledge floating in a sea of emotion.” -- John Dewey
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The Wisdom of Choice:The Wisdom of Choice:
“To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.”
– Chester Barnard, The Functions of the Executive
8BARTOL - MANAGEMENT: A PACIFIC RIM FOCUS 3e © McGraw-Hill Australia 200115
Physiological
Safety
Social
Esteem
Self-actualisation
MASLOW’S HIERARCHY OF NEEDS
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Executive MBA Words of Wisdom from ExperienceExecutive MBA Words of Wisdom from Experience
Executive #1: “My basic business philosophy is to do what is right [leading to] professional growth without expending others in the process. Integrity and experiences are about the only things that one takes to the grave. My life’s goal is to maximize integrity and good things will most likely follow.”
Executive #2: “What I feel is most important for the [management] profession is … providing future challenges and professional growth for personnel in the organization.”
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Executive MBA Words of Wisdom from ExperienceExecutive MBA Words of Wisdom from Experience
Executive #3: “Catch people doing things right [and] reward [them]. Remember that all workers are “boss watchers”; thus, lead (don’t manage).”
Executive #4: “The significant problems we face cannot be solved by the same level of thinking we were at when we created them.”
Executive #5: “Trust your instincts, sometimes it’s worth more than your training.”
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Executive MBA Words of Wisdom from ExperienceExecutive MBA Words of Wisdom from Experience
Executive #6: “Anyone who claims to have the [complete] answer is probably wrong.”
Executive #7: “Who you are as a person is largely defined by who you perceive yourself to be, not by what you do or what others think of you. It is hazardous to your physical and mental health to hold grudges and bitterness against others. Treat people as if they were priceless, because every person is. Learn to like the work you are given to do. Try to maintain balance in your life. Maintain and nurture a network of friends.”
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Executive MBA Words of Wisdom from ExperienceExecutive MBA Words of Wisdom from Experience
Executive #8: “[I]n order to receive the kind of support I need [within the organization], negotiation is the key. I can’t readily impose my goals on others. … That means communicating with … those I rely upon for support via their preferred medium (face to face, over the phone, e-mail, meetings, etc.)”
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What Is Strategic Management About?What Is Strategic Management About?
Understanding how firms create, capture, and sustain competitive advantage.
Analyzing strategic business situations and formulating strategic plans.
Implementing strategy and organizing the firm for strategic success.
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Basic Elements of the Strategic Management Process
Evaluationand
Control
StrategyImplementation
EnvironmentalScanning
StrategyFormulation
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Identify current mission and strategic goals
Conduct competitive analysis:•strengths•weakness•opportunity•threats
Develop specific strategies:•corporate•business•functional
carry out strategic plans
maintain strategic control
assess organisational factors
assess environmental factors
Strategy implementationStrategy formulation
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What Is Strategic Management About?
Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate.
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What Is Strategic Management About?What Is Strategic Management About?
An important basis for sustainable competitive advantage is the development of resources and capabilities.
Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.
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The Evolution of Strategic ManagementThe Evolution of Strategic Management
DOMINANTTHEME
MAINISSUES
CONCEPTS&
TECHNIQUES
IMPLEMENT-ATION
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s
Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New
Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of
planning Synergy competition Case advantagemarket competences Knowledgeshare management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest forplanning market share critical mass
The Evolution of Strategic ManagementThe Evolution of Strategic Management
DOMINANTTHEME
MAINISSUES
CONCEPTS&
TECHNIQUES
IMPLEMENT-ATION
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s
Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New
Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of
planning Synergy competition Case advantagemarket competences Knowledgeshare management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest forplanning market share critical mass
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Fundamental Changes Facing ManagementFundamental Changes Facing Management
GlobalizationGlobalization
TechnologicalTechnologicalInnovationInnovation
DeregulationDeregulation
DemographicDemographicChangesChanges
PoliticalPoliticalChangesChanges
UncertaintyUncertainty
TurbulenceTurbulence
ChangeChange
ResponsiveResponsive
AdaptiveAdaptive
FastFast
Forces AreCreating
Forces AreCreating
CompaniesMust Be
CompaniesMust Be
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Strategy Relates A Business To Itself and Its Competitive EnvironmentStrategy Relates A Business To Itself and Its Competitive Environment
Mktg. Oper.Strategy
Finance
Acctg. H.R.
Competitive Environment
GovernmentRegulation
Technology
IndustryEnvironment
National/Int’l Economies
OtherCompetitors
RelatedIndustries
21Copyright © by Houghton Mifflin Company. All rights reserved. 6–9
Age DistributionsAge Distributions
1999 2025
Under15
15 to24
25 to34
35 to49
50 to64
65 orolder
21.4%
20.1%
13.9%
13.1%
14%
12.9%
23.5%
18.2%
14.6%
17.2%
12.7%
18.5%
By 2025, more than one-third of thepopulation will be over age 50:
1999 2005 2010 2015 2020 2025
40
The median age will climb to 38:
39
38
37
36
35
0
38
35.5
Figure 6.2
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Task EnvironmentTask Environment
Customers and Markets: Distributors End users
Competitors: Competitors for Markets Competitors for Resources
23Copyright © by Houghton Mifflin Company. All rights reserved. 10–8
JOB LOSSES
–116,000PepsiCo
–92,153IBM
–86,578GeneralMills
–86,475Kmart
–181,100
–3,400
–16,340QuakerOats
–21,100NationalSemi-
Conductor
GeneralMotors
Toys “ ”Us
+100,000
+ 639,000
+45,000
+36,270
+29,000
+22,900
+21,631
+12,100
JOB GAINS
AmericaOnline
Conagra
DellCorporation
Wal-Mart
Barnesand
Noble
CircuitCity
Albertson’s
DaytonHudson
Representative Jobs Created and Lost by Representative Jobs Created and Lost by Big Business 1990Big Business 1990––19991999
Figure 10.2
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Task EnvironmentTask EnvironmentSuppliers
Suppliers of physical resources Suppliers of human resources Suppliers of financial resources
Regulatory Groups Government Union Special Interest Groups
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Task EnvironmentTask Environment
Technology
Rate of Development
Substitutes
Stage of Product or Industry
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The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
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The Role of Strategy In Business is to Generate and Sustain Value The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organizationvia the Linkages Between Position, Resources, and Organization
Position
Resources& Capabilities
Organization
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PositioningPositioning
Scope of the Firm:
Geographic Scope
Choice of businesses (corporate portfolio analysis)
Product Market Positioning within a business
Vertical integration decisions
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ResourcesResources
Tangible Resourcese.g., physical capital
Intangible Resourcese.g., trademarks, “know-how”
Organizational Capabilitiese.g., routines and standard operating procedures
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OrganizationOrganization
StructureFormal Definition of authorityConflict Resolution
SystemsRules, Routines, Evaluation and rewards
ProcessesInformal communication, networks, recruitment
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A Definition of StrategyA Definition of Strategy
Strategy (Quinn, 1980):
“The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment , and contingent moves by intelligent opponents.”
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Definitions of StrategyDefinitions of Strategy“The term “strategy” is intended to focus on the inter-dependence of the adversaries’ decisions and on their expectations about each other’s behavior.”
– Thomas Schelling The Strategy of Conflict
“Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.”
– Alfred D. Chandler Strategy and Structure
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Abell’s Framework for Defining the Business
Who is beingsatisfied?
Customer Groups
What is beingsatisfied?
Customer Needs
How arecustomer needs
satisfied?Distinctive
Competencies
Definitionof Business
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Defining the Business: Defining the Business: The Starting PointThe Starting Point of Strategy of Strategy
Example: Fall of the Railroads
“They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.”
– Theodore Levitt “Market Myopia”
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Mission Statement and GoalsMission Statement and Goals
It is the function of the top management team to provide the firm’s purpose or “strategic intent.”
– Chester Barnard The Functions of the Executive– Alfred Sloan My Years with General Motors– Kenneth Andrews The Concept of Corporate Strategy
e.g., Komatsu ---> “Encircle Caterpillar”Canon ---> “Beat Xerox”Kodak ---> “Be the leader in the imaging sector”Coca Cola ---> “To put a Coke within ‘arms reach’ of every consumer in the world.”
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Mission Statement and Goals:Mission Statement and Goals:Strategic intent is the leveraging of a firm’s internal resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment.
Strategic intent implies a significant stretch of an organization’s resources, capabilities, and core competencies.
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Achieving goals through “operational objectives”Achieving goals through “operational objectives”
Kodak: “Be the leader in the imaging sector”
Customer FocusMore Rapid new product developmentRaise manufacturing qualityReduce costsGain access to critical knowledge through strategic alliancesBenchmarkingMaintain proprietary technology (e.g., silver halide materials technology)
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Fundamental question of the choice of Goals: Planning for what purpose(s)?
Profitability (net profits)Efficiency (low costs)Growth (e.g., increase in total assets, sales, etc)Shareholder Wealth (dividends plus stock price appreciation)Utilization of Resources (e.g., ROE, ROI)ReputationContribution to Stakeholders (e.g., employees, society)Market ShareSurvival (avoid bankruptcy)
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The Manager’s role in balancing expectations
Business Roundtable:“Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management.”
Understanding corporate strategy means understanding the competing value claims of multiple stakeholders.
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The Manager’s role in balancing expectationsThe Manager’s role in balancing expectations
Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.
41Copyright © 2001 Houghton Mifflin Company. All rights reserved. 2-2
FIGURE 2.1
Stakeholders and the EnterpriseStakeholders and the Enterprise
Contributions
Contributions
Inducements
Inducements
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The Manager’s role in balancing expectationsThe Manager’s role in balancing expectations
Organizational culture refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business. It is the social energy that drives --- or fails to drive --- the organization.
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The Manager’s role in balancing expectationsThe Manager’s role in balancing expectations
There are inherent conflicts of goals within the firm. In The Reckoning, David Halberstam documents the hard fought goal disparities between MBAs on Ford Motor Company’s finance staff, who stressed strategies with clear, quantifiable, profit-maximizing prospects, and the engineering-oriented “product” people, who urged an accelerated pace of design improvement and were more inclined to accept added cost to improve product quality.
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A A Key Performance Measure:Key Performance Measure:Sustainable Competitive AdvantageSustainable Competitive Advantage
For a company, the definition of success is superior economic performance.
To achieve superior economic performance, a firm has to create a sustainable competitive advantage (SCA).
SCA is achieved by a value-creating strategy that cannot be (easily) duplicated.
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Key Drivers of Value Creation and Key Drivers of Value Creation and Sustainable Competitive Advantage:Sustainable Competitive Advantage:
Generating value can be accomplished through:
REVENUE drivers
COST drivers
RISK drivers
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Sources of Superior Profitability
RATE OF PROFIT ABOVE THE
COMPETITIVE LEVEL
How do we make
money?
INDUSTRY
ATTRACTIVENESS
Which businesses
should we be in?
COMPETITIVE ADVANTAGE
How should we compete?
CORPORATE STRATEGY
BUSINESS STRATEGY
Sources of Superior Profitability
RATE OF PROFIT ABOVE THE
COMPETITIVE LEVEL
How do we make
money?
INDUSTRY
ATTRACTIVENESS
Which businesses
should we be in?
COMPETITIVE ADVANTAGE
How should we compete?
CORPORATE STRATEGY
BUSINESS STRATEGY
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The Levels of Strategy
R&D
HR
Finance
Production
M ktg/Sales
D ivision A
R&D
HR
Finance
Production
M ktg/Sales
D ivision B
R&D
HR
Finance
Production
M ktg/Sales
D ivision C
C orpo rateH eadquarte rs
Corporate - General Electric
Business - Home Appliances
Functional - e.g., Production
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Corporate StrategyCorporate Strategy
At the corporate level, value creation can occur if the individual parts of a firm are integrated into a coherent whole.
Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.
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Eclectic Definitions of Strategy and Strategic Management
Mintzberg’s 5 P’s of Strategy:
PlanningPloys (non-credible strategies)Pattern (“emerging strategy”)Position (firm “dynamic fit” with environment)Perspective (Ideology and culture)
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Managers as decision makersAssumptions of the Rational Model
Managers as decision makersAssumptions of the Rational Model
Rationaldecisionmaking
Rationaldecisionmaking
An optimal decision is possible
An optimal decision is possible
All relevant informationis available
All relevant informationis available
All relevant information is understandable
All relevant information is understandable
All alternatives are knownAll alternatives are known
All possible outcomes knownAll possible outcomes known
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Managers as decision makersSatisficing
Managers as decision makersSatisficing
‘Satisficing’decisionmaking
‘Satisficing’decisionmaking
Time constraintsTime constraints
Limited ability to understand all factors
Limited ability to understand all factors
Inadequate baseof information
Inadequate baseof information
Limited memory ofdecision-makers
Limited memory ofdecision-makers
Poor perception of factorsto be considered
in decision process
Poor perception of factorsto be considered
in decision process
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1-40
Improving Strategic Improving Strategic DecisionDecision--MakingMaking
Prior Hypothesis
Bias
EscalatingCommitment
Reasoningby
Analogy
Representa-tiveness
Illusion of
Control
Copyright
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Techniques to improve group decisionsTechniques to improve group decisions
Member diversityMember diversity
Bettergroup
decisionmaking
Bettergroup
decisionmaking
Expert membersExpert members
Devil’s advocatesDevil’s advocates
Groupware useGroupware use
Dialectic inquiryDialectic inquiry
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TECHNIQUES TO ENHANCE GROUP CREATIVITYTECHNIQUES TO ENHANCE GROUP CREATIVITY
BrainstormingBrainstorming
Bettergroup
creativity
Bettergroup
creativity
Nominal grouptechnique
Nominal grouptechnique
DelphitechniqueDelphi
technique
Scenario analysisScenario analysis
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Concepts and Skills that we will develop Concepts and Skills that we will develop for this course in Strategic Management:for this course in Strategic Management:
Industry AnalysisFirm Analysis - Resources and CapabilitiesBusiness StrategyCompetitive DynamicsCorporate StrategyGlobal Strategy
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O u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m yO u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m y
1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s
2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s
3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e
1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s
2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s
3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e
4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a
5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m
6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s
4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a
5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m
6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s
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CrossCross--Functional Product Functional Product Development TeamsDevelopment Teams
facilitate efforts to integrate facilitate efforts to integrate activities associated with different activities associated with different organizational functionsorganizational functions
design, manufacturing, marketing, design, manufacturing, marketing, etc.etc.
new product development new product development processes can be completed more processes can be completed more quicklyquickly
products can be more easily products can be more easily commercialized when crosscommercialized when cross--functional teams work effectivelyfunctional teams work effectively
Cross functionalCross functionalproductproductdevelopment teamdevelopment team
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Importance of Cross-Functional TeamsImportance of Cross-Functional Teams
Chrysler’s “platform teams” composed of 600 engineers and 289 suppliers developed their Neon car in 42 months at a development cost of $1.3 billion.
In contrast, Ford’s Escort took 5 years to develop at a cost of $2 billion.
Saturn took 7 years at a cost of $5 billion.
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Personnel Development At Honda Motor Co.
The “T-shaped” Engineer
Breadth
Depth
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Summary “Take-aways”:Providing PURPOSE is an important Providing PURPOSE is an important function for the executive.function for the executive.
One important purpose is to One important purpose is to CREATE VALUE.CREATE VALUE.
Value creation can lead to Value creation can lead to SUSTAINABLE COMPETITIVE SUSTAINABLE COMPETITIVE ADVANTAGE.ADVANTAGE.