BUS189: WEEK5 CH5

How is efficiency defined?

Outputs ÷ Inputs. Fewer inputs for same output = higher efficiency, lower costs

What are economies of scale?

Unit cost reductions from large-scale output

What are two main sources of economies of scale?

• Spreading fixed costs (e.g., Microsoft Windows 10 R&D).

• Division of labor & specialization (e.g., Ford’s Model T assembly line)

What are diseconomies of scale?

Rising costs in very large organizations due to bureaucracy, politics, poor communication (e.g., Nucor Steel prefers small plants)

What are learning effects?

Cost savings from “learning by doing” → more productivity, lower costs (e.g., Toyota, healthcare surgeries)

What is the experience curve?

Systematic lowering of unit costs as accumulated output doubles → driven by scale + learning effects (e.g., Intel, TSMC, Amazon logistics)

What is mass customization?

Combining low cost with differentiation using flexible production (e.g., Dell PCs, Mars M&Ms, Pandora)

How do automation & AI improve efficiency?

Robotics and AI reduce labor costs, improve productivity (e.g., Boeing, autonomous trucks)

How does marketing improve efficiency?

Aggressive pricing & promotion move firms down the experience curve; lowering customer defection rates reduces costs

What is Just-in-Time (JIT) inventory?

Reduces holding costs by delivering inputs as needed → higher capital turnover (e.g., Walmart frequent restocking)

How can R&D improve efficiency?

Design for manufacturing (DFM) and process innovations (e.g., Toyota flexible manufacturing, Texas Instruments simplification)

How do HR strategies impact efficiency?

Hiring for cultural fit, training, self-managing teams, and performance pay → higher productivity (e.g., Southwest, Nucor)

How do information systems improve efficiency?

Automating customer service, supplier coordination, and internal processes (e.g., Cisco, Amazon, banking online transactions)

What are the two dimensions of quality?

Reliability (consistent performance) and Excellence (superior attributes, features, service)

What is the logic behind Deming’s TQM approach?

Better quality → lower costs → higher productivity → bigger market share → higher prices → higher profitability → more jobs

What is Six Sigma?

A structured, data-driven approach to minimize defects (3.4 per million units)

What are key steps for quality improvement?

Senior management commitment, Black Belts, defect elimination, small lot sizes, quality metrics, incentives, employee involvement, supplier collaboration, simplified product design, cross-functional cooperation

What are the two main ways innovation improves competitiveness?

Product differentiation (premium prices) and cost reduction (efficiency)

What is the failure rate of innovation?

80–90% of R&D projects fail commercially

What are the 5 main reasons for innovation failure?

Uncertain demand, poor commercialization, poor positioning, technology without demand, long cycle times

How to reduce innovation failures?

Cross-functional integration (R&D + marketing + production), strong product development teams, customer input, clear milestones, post-project reviews

What is customer responsiveness?

Giving customers what they want, when they want, at the right price without harming long-term profitability

What benefits does responsiveness create?

Builds brand loyalty, allows premium pricing or higher volumes

What are prerequisites to responsiveness?

Listening to customers and continually finding better ways to meet needs

What are the prerequisites for building customer responsiveness?

Leadership commitment, employee attitudes, mechanisms for customer knowledge (feedback systems, CRM)

Example of leadership by customer focus?

Domino’s founder Tom Monaghan personally ate pizzas, visited stores, and delivered orders to demonstrate commitment

Example of employee training & reinforcement?

Four Seasons rewarded an employee who flew across the country to deliver a forgotten briefcase → reinforced customer-first culture

How do companies satisfy customer needs?

Customization (Amazon, Honda), faster response time (FedEx, Caterpillar)

Which functions contribute to responsiveness?

Leadership, production (customization), marketing (feedback), materials mgmt (JIT), R&D (co-create with customers), IS (online systems), HR (customer-first training)