CHAPTER 2 OPERATIONS STRATEGY IN GLOBAL ENVIRONMENT

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Outline
GLOBAL COMPANY PROFILE: BOEING DEVELOPING MISSIONS AND STRATEGIES Mission Strategy ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS Competing on Differentiation Competing on Cost Competing on Response TEN STRATEGIC OM DECISIONS

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Outline - Continued
ISSUES IN OPERATIONS STRATEGY Research Preconditions Dynamics STRATEGY DEVELOPMENT AND IMPLEMENTATION Identify Critical Success Factors A Global view of Operations Cultural and Ethical Issues Build and Staff the Organization Integrate OM with Other Activities
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Outline - Continued
GLOBAL OPERATIONS STRATEGY OPTIONS
International Strategy Multidomestic Strategy Global Strategy Transnational Strategy

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Examples of Global Strategies

Boeing both sales and production are worldwide. Benetton moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution Sony purchases components from suppliers in Thailand, Malaysia, and around the world GM is building four similar plants in Argentina, Poland, China, and Thailand

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Management Issues in Global Operations

Global Strategic Context
Differentiation Cost leadership Response

Supply Chain Management

Location Decisions

Logistics Management

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Defining Global Operations

International business - engages in cross-border transactions Multinational Corporation - has extensive involvement in international business, owning or controlling facilities in more than one country Global company - integrates operations from different countries, and views world as a single marketplace Transnational company - seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness
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Some Multinational Corporations

Company Home Country % Sales Outside Home Country
78 98 94

% Assets Outside Home Country

50 95 85

% Foreign Workforce

ICI Nestl Philips Electronics Siemens Unilever

Britain Switzerland Netherlands

NA 97 82

Germany
Britain & Netherlands

51
95

NA
70

38
64

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Pontiac - the LeMans Included the Following

About $6,000 heads to South Korea for autos assembly $3,500 goes to Japan for engines, axles, and electronics $1,500 goes to Germany for design $800 goes to Taiwan, Singapore, and Japan for smaller parts $500 heads to England for marketing $100 goes to Ireland for information technology the rest $7,600, goes to GM and its US bankers, insurance agents, and attorneys.
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Reasons to Globalize Operations

Tangible

Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chain Provide better goods and services Attract new markets Learn to improve operations Attract and retain global talent

Intangible
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Trade and Tariff

Maquiladoras - Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment GATT - an international treaty that helps promote world trade by lowering barriers to the free flow of goods across borders NAFTA - a free trade agreement between Canada, Mexico, and the United States
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Some Definitions
International business
A firm that engages in cross-border transactions.

Multinational Corporation (MNC)

A firm that has extensive involvement in international business, owning or controlling facilities in more than one country
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Some Global Strategies

International Strategy: uses exports and licenses to penetrate the global area Multidomestic Strategy: uses decentralized authority with substantial autonomy at each business Global Strategy: Uses a high degree of centralization, with headquarters coordinating to seek standardization and learning between plants Transnational Strategy: Exploits economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competencies reside everywhere in the organization
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Mission
Mission - where are you going?
Organizations purpose for being Provides boundaries & focus Answers What do we provide society?

1995 Corel Corp.

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Sample Mission - Merck

The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return

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Mission/Strategy
Mission - where you are going Strategy - how you are going to get there; an action plan

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Strategy
Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies
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1995 Corel Corp.

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Strategy Process
Company Mission Business Strategy

Functional Functional Area Area Strategies

Marketing Decisions Operations Decisions Fin./Acct. Decisions

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Strategies for Competitive Advantage

Differentiation Cost leadership

Quick response

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Competing on Differentiation
Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customers perception of value

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Competing on Cost
Provide the maximum value as perceived by customer Does not imply low value or low quality

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Competing on Response
Flexibility Reliability Timeliness Requires institutionalization within the firm of the ability to respond

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Competing, Regardless of the Basis,

Requires the institutionalization within the firm of the ability to change, and to adapt

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OMs Contribution to Strategy

Operations Decisions
Quality Product Process Location Layout Human Resource
Pizza Huts five-minute guarantee at lunchtime Federal Expresss absolutely, positively on time Sonys constant innovation of new products HPs ability to follow the printer market Southwest Airlines No-frills service

Examples

Specific Strategy Used

FLEXIBILITY

Competitive Advantage

Design Volume
LOW COST DELIVERY

Speed Dependability
QUALITY

Differentiation (Better)

Supply Chain
Inventory Scheduling Maintenance

Motorolas automotive products ignition systems Motorolas pagers

Conformance Performance

Cost leadership (Cheaper)

Response (Faster)

IBMs after-sale service on mainframe computers Fidelity Securitys broad line of mutual funds

AFTER-SALE SERVICE BROAD PRODUCT LINE

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10 Strategic OM Decisions
Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance
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Goods & Services and the 10 OM Decisions

Operations Decisions Goods & services decisions Quality Process and capacity design
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Goods
Product is usually tangible Objective quality standards Customer not involved in most of process

Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity must match demand to avoid lost sales
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Goods & Services and the 10 OM Decisions Continued

Operations Decisions Location Selection Layout Design Human Resources and Job Design Goods
May need to be near raw materials or labor force Layout can enhance production efficiency Workforce focused on technical skills. Labor standards consistent. Output-based wage system.

Services
Product is usually intangible Subjective quality standards Customer may be directly involved in process. Capacity matches demand to avoid lost sales

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Goods & Services and the 10 OM Decisions Continued

Operations Decisions Goods Services

Supply-chain relationships Supply chain Supply-chain management relationships critical to important, not necessarily final product critical Most services cannot be stored Primarily concerned with meeting the customer's immediate schedule
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Inventory

Raw materials, workin-process, and finished goods Ability to convert inventory may allow leveling of production rates
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Scheduling

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Goods & Services and the 10 OM Decisions Continued

Operations Decisions Goods Services Maintenance Maintenance is often
Maintenance is often preventive and takes "repair" and takes place at place at the production the customer's site site

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Process Design
High

Process-focused

Customization at high Volume

Job Shops
(Print shop, emergency room , machine shop, fine dining Variety of Products
Moderate

Mass Customization
(Dell Computers PC) Repetitive (modular) focus

Assembly line
(Cars, appliances, TVs, fast-food restaurants)

Product-focused

Continuous
(steel, beer, paper, bread, institutional kitchen)
Low Low Moderate High
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Volume

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Operations Strategies for Two Drug Companies

Brand Name Drugs, Inc.
Heavy R & D; Product Extensive labs; focus Selection and Design on development in

Generic Drug Corp.

Low R & D investment; focus on development of generic drugs

Quality

broad range of \drug categories Quality is a major priority; Standards exceed regulatory requirements

Meets regulatory requirements on a country-by-country basis as necessary

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Operations Strategies for Two Drug Companies - Continued

Brand Name Drugs, Inc.
Product & modular production processes Long product runs in specialized facilities Build capacity ahead of demand Still located in city in Location which it was founded Scheduling Central production planning

Generic Drug Corp.

Process focused General production processes; Job Shop approach, short run; Focus on high utilization

Process

Recently moved to low tax, low labor cost environment Many short run products complicate scheduling

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Operations Strategies for Two Drug Companies - Continued

Brand Name Drugs, Inc. Human Resources Supply Chain Inventory
Hires the best; nationwide searches Long term supplier relationship Maintains high finished goods inventory, primarily to ensure all demands are met

Generic Drug Corp.

Very experienced top executives provide direction; other personnel paid below average Tends to purchase competitively to find bargains Process focus drives up WIP inventory. Finished goods inventory tends to be low
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Operations Strategies for Two Drug Companies - Continued

Brand Name Drugs, Inc. Maintenance Highly trained staff;
Extensive parts inventory

Generic Drug Corp.

Highly trained staff to meet challenging demands

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Strategic Options Managers Use to Gain Competitive Advantage

28% - Operations Management 18% - Marketing/distribution 17% - Momentum/name recognition 16% - Quality/service 14% - Good management 4% - Financial resources 3% - Other
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Stages in the Product Life Cycle

Introduction Growth Maturity Decline

Growth rate

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Strategy & Issues During Product Life

Introduction
Company Strategy & Issues
Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects
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OM Strategy & Issues

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Strategy & Issues During Product Life

Growth
Company Strategy & Issues OM Strategy & Issues
Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution

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Strategy & Issues During Product Life

Maturity
Company Strategy & Issues
Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches
Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises
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OM Strategy & Issues

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Strategy & Issues During Product Life

Decline
Company Strategy & Issues OM Strategy & Issues
Cost control critical to market share

Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity

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SWOT Analysis to Strategy Formulation

Mission Internal Strengths External Opportunities

Strategy
Internal Weaknesses External Threats

Competitive Advantage
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Multidomestic Strategy
Operating decisions are decentralized to each country to enhance local responsiveness

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Global Strategy
Operating decisions are centralized and headquarters coordinates the standardization and learning between facilities

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Transnational Strategies
Combines the benefits of global-scale efficiencies with the benefits of local responsiveness

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