value chain

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144 PART 2 Strategic Formulation Below, we will discuss some examples of how firms enhance cost leadership in their industries. While other managed care providers had a string of weak years, WellPoint, b Thousand Oaks, California, has had a number of banner years and recently enjoyed growth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD company's focus on innovation for both expanding revenues and cutting costs. R, for example, WellPoint asked the Food and Drug Administration (FDA) to make : lergy drug Claritin available over the counter. Surprisingly, this may be the first . an insurer has approached the FDA with this type of request. Schaeffer claimed. were kind of stunned," but the FDA agreed to consider it. It was a smart move f Point. If approved as an over-the-counter drug, Claritin would reduce patient visit doctor and eliminate the need for prescriptions-two reimbursable expenses for WellPoint would otherwise be responsible. Stephen Sanger, CEO of General Mills, recently came up with an idea that heln, firm cut costs.? To improve productivity, he sent technicians to watch pit crew NASCAR race. That experience inspired the techies to figure out how to reduce it takes to switch a plant line from five hours to 20 minutes. An important lesson: • teresting benchmarking examples can take place far outside of one's industry. 0 novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~ Firm infrastructure Few management layers to reduce overhead costs. Standardized accounting practices to minimize personnel required. Effective orientation and training programs to maximize employee productivity. Expertise in process engineering to reduce manufacturing costs. ~ ~. "? Human resource management Minimize costs associated with employee turnover through effective policies. Effective use of automated technology to reduce scrappage rates. Technology development Effective policy guidelines to ensure Shared purchasing operations with Procurement low-cost raw materials (with other business units. acceptable quality levels). Effective Effective Effective Purchase of Thorough layout of use of utilization media in large service repair receiving quality of delivery blocks. guidelines to dock control fleets. minimize operations. inspectors Sales force repeat maintenance $ to minimize utilization is calis. rework on maximized by ci3 the final territory Use of single product. management. type of repair vehicle to minimize costs. Inbound Operations Outbound Marketing Service logistics logistics and sales I Value-Chain Activities: Examples of Overall Cost Leadership Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter.

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Page 1: value chain

144 PART 2 Strategic Formulation

Below, we will discuss some examples of how firms enhance cost leadershipin their industries.

While other managed care providers had a string of weak years, WellPoint, bThousand Oaks, California, has had a number of banner years and recently enjoyedgrowth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD

company's focus on innovation for both expanding revenues and cutting costs. R,for example, WellPoint asked the Food and Drug Administration (FDA) to make :lergy drug Claritin available over the counter. Surprisingly, this may be the first .an insurer has approached the FDA with this type of request. Schaeffer claimed.were kind of stunned," but the FDA agreed to consider it. It was a smart move fPoint. If approved as an over-the-counter drug, Claritin would reduce patient visitdoctor and eliminate the need for prescriptions-two reimbursable expenses forWellPoint would otherwise be responsible.

Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,firm cut costs.? To improve productivity, he sent technicians to watch pit crewNASCAR race. That experience inspired the techies to figure out how to reduceit takes to switch a plant line from five hours to 20 minutes. An important lesson: •teresting benchmarking examples can take place far outside of one's industry. 0novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~

Firminfrastructure

Few management layers toreduce overhead costs.

Standardized accountingpractices to minimizepersonnel required.

Effective orientation andtraining programs to maximizeemployee productivity.

Expertise in process engineeringto reduce manufacturing costs.

~~.

"?

Human resourcemanagement

Minimize costs associated withemployee turnover througheffective policies.

Effective use of automatedtechnology to reduce scrappagerates.

Technologydevelopment

Effective policy guidelines to ensure Shared purchasing operations withProcurement low-cost raw materials (with other business units.

acceptable quality levels).

Effective Effective Effective Purchase of Thoroughlayout of use of utilization media in large service repairreceiving quality of delivery blocks. guidelines todock control fleets. minimizeoperations. inspectors Sales force repeat maintenance

$to minimize utilization is calis.rework on maximized by ci3the final 5·

territory Use of singleproduct. management. type of repair

vehicle tominimizecosts.

Inbound Operations Outbound Marketing Servicelogistics logistics and sales

I Value-Chain Activities: Examples of Overall Cost LeadershipSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from CompetitiveAdvantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by MichaelE. Porter.

Page 2: value chain

144 PART 2 Strategic Formulation

Below, we will discuss some examples of how firms enhance cost leadershipin their industries.

While other managed care providers had a string of weak years, WellPoint, bThousand Oaks, California, has had a number of banner years and recently enjoyedgrowth of 22 percent to approximately $340 million." CEO Leonard Schaeffer CD

company's focus on innovation for both expanding revenues and cutting costs. R,for example, WellPoint asked the Food and Drug Administration (FDA) to make :lergy drug Claritin available over the counter. Surprisingly, this may be the first .an insurer has approached the FDA with this type of request. Schaeffer claimed.were kind of stunned," but the FDA agreed to consider it. It was a smart move fPoint. If approved as an over-the-counter drug, Claritin would reduce patient visitdoctor and eliminate the need for prescriptions-two reimbursable expenses forWellPoint would otherwise be responsible.

Stephen Sanger, CEO of General Mills, recently came up with an idea that heln,firm cut costs.? To improve productivity, he sent technicians to watch pit crewNASCAR race. That experience inspired the techies to figure out how to reduceit takes to switch a plant line from five hours to 20 minutes. An important lesson: •teresting benchmarking examples can take place far outside of one's industry. 0novation involves identifying the best practices in other inoustries 8.lJO 6Jd9p:'Ph'g ~

Firminfrastructure

Few management layers toreduce overhead costs.

Standardized accountingpractices to minimizepersonnel required.

Effective orientation andtraining programs to maximizeemployee productivity.

Expertise in process engineeringto reduce manufacturing costs.

~~.

"?

Human resourcemanagement

Minimize costs associated withemployee turnover througheffective policies.

Effective use of automatedtechnology to reduce scrappagerates.

Technologydevelopment

Effective policy guidelines to ensure Shared purchasing operations withProcurement low-cost raw materials (with other business units.

acceptable quality levels).

Effective Effective Effective Purchase of Thoroughlayout of use of utilization media in large service repairreceiving quality of delivery blocks. guidelines todock control fleets. minimizeoperations. inspectors Sales force repeat maintenance

$to minimize utilization is calis.rework on maximized by ci3the final 5·

territory Use of singleproduct. management. type of repair

vehicle tominimizecosts.

Inbound Operations Outbound Marketing Servicelogistics logistics and sales

I Value-Chain Activities: Examples of Overall Cost LeadershipSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from CompetitiveAdvantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by MichaelE. Porter.