There is a 8 question part for manufacturing and a case study regarding manufacturing.
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20201018211521topic_2___operations_strategy_in_a_global_economy_modified21.pptUnit 305
Operations Management
Topic 2 - Operations
Strategy in a Global
Economy
Operations Strategy in a Global Environment
From topic 1 we discussed the need for
organisations to regularly adapt their strategies
in order to compete effectively in today’s hightech
global economy.
An operations management strategy specifies
HOW this will occur.
An integrated, cooperative approach between all
functional areas (especially marketing) will be
fundamental to successful strategy
implementation.
Assignment - Question 2
Identify the competitive priorities (CSFs) in a service organization of your choice. What is the role of the operations manager in ensuring that these CSFs are achieved in the organization?
Corporate, Business and Operations
Strategies
Corporate strategy involves determining the
organisations overall goals. For example, Walt
Disney Productions considers itself in the
business of “making people happy”.
• Business strategy follows from corporate
strategy and defines how a particular business
will compete.
• Operations strategy should then be connected
to the particular business strategy selected.
Strategy Development Process
Determine Corporate Mission
State the reason for the firm’s existence and identify the value it
wishes to create.
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats. Understand the
environment, customers, industry, and competitors.
Form a Strategy
Build a competitive advantage, such as low price, design, or volume
flexibility, quality, quick delivery, dependability, after-sale service, broad
product lines.
Developing Missions and Strategies
Mission statements tell an organization
where it is going
The Strategy tells the organization
how to get there
Mission
Mission - where are you
going?
Organization’s purpose
for being
Answers ‘What do we
provide society?’
Provides boundaries and
focus
Factors Affecting Mission
Philosophy and
Values
Environment
Mission
Customers
Benefit to
Society
Profitability and
Growth
Public Image
FedEx
FedEx is committed to our People-Service-Profit philosophy.
We will produce outstanding financial returns by providing
total reliable, competitively superior, global air-ground
transportation of high priority goods and documents that
require rapid, time-certain delivery. Equally important,
positive control of each package will be maintained using real
time electronic tracking and tracing systems. A complete
record of each shipment and delivery will be presented with
our request for payment. We will be helpful, courteous, and
professional to each other and the public. We will strive to
have a completely satisfied customer at the end of each
transaction.
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
Strategy
Action plan to achieve
mission
Functional areas have
strategies
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
Strategy
• Mission statements are the “constitution” for
an organization, the corporate directive, but
they are no good unless they are supported by
strategy and converted into action.
• Thus, the next step in strategy formulation is
assessing the core competencies of a firm.
CORE COMPETENCIES
• Core competency is what a firm does better than anyone else, its
distinctive competence.
• A firm’s core competence can be exceptional service, higher quality, faster
delivery, or lower cost.
• One company may strive to be first to the market with innovative designs,
whereas another may look for success arriving later but with better
quality.
• Based on experience, knowledge, and know-how, core competencies
represent sustainable competitive advantages.
CORE COMPETENCIES
• Products and technologies are seldom core competencies.
• The advantage they provide is short-lived, and other companies can
readily purchase, emulate, or improve on them.
• Core competencies are more likely to be processes, a company’s ability to
do certain things better than a competitor.
• Thus, while a particular product is not a core competence, the process of
developing new products is.
• For example, while the iPod was a breakthrough product, it is Apple’s
ability to turn out hit product after hit product (e.g., iPhone, iPad,
MacBook, etc.) that gives it that competitive advantage.
CORE COMPETENCIES
• Core competencies are not static. They should be nurtured, enhanced, and
developed over time.
• Core competencies that do not evolve and are not aligned with customer
needs can become core rigidities for a firm.
• Walmart and Dell went astray when they failed to update their competencies
to match changes in customer desires.
• To avoid these problems, companies need to continually evaluate the
characteristics of their products or services that prompt customer purchase;
that is, the order qualifiers and order winners.
ORDER WINNERS AND ORDER
QUALIFIERS
• Order qualifiers are the characteristics of a product or service that qualify
it to be considered for purchase by a customer.
• An order winner is the characteristic of a product or service that wins
orders in the marketplace—the final factor in the purchasing decision.
• For example, when purchasing a DVD or Blu-ray player, customers may
determine a price range (order qualifier) and then choose the product
with the most features (order winner) within that price range.
• Or they may have a set of features in mind (order qualifiers) and then
select the least expensive player (order winner) that has all the required
features.
ORDER WINNERS AND ORDER
QUALIFIERS
• Order winners and order qualifiers can evolve over time, just as
competencies can be gained and lost.
• Japanese and Korean automakers initially competed on price but had to
ensure certain levels of quality before the U.S. consumer would consider
their product.
• Over time, the consumer was willing to pay a higher price (within reason)
for the assurance of a superior-quality Japanese car.
• Price became a qualifier, but quality won the orders.
• Today, high quality, as a standard of the automotive industry, has become
an order qualifier, and innovative design or superior gas mileage wins the
orders.
Competitive Advantage
In today’s dynamic business environments, as
the business world becomes more competitive,
firms must find their own path to sustainable
competitive advantage.
Effectively managed operations are important to
a firm’s competitiveness.
Developing Operations Strategy
Internal and External Analysis … “inside looking
out and outside looking in”.
Some factors are macro-economic rather than
micro-economic such as interest rates, inflation,
currency exchange rates.
Some factors are socio-cultural such as changing
buying patterns, disposable incomes.
Some are competition based such as how likely
are competitors able to influence your
marketplace.
How is your organisation perceived in the
marketplace?
SWOT Analysis
Strengths, weaknesses, opportunities and threats.
The fundamental objective of a SWOT analysis is
to identify those trends, forces, conditions and
factors that potentially affect the formulation and
implementation of the organisations three tiers of
strategy.
The external analysis will result in a list of
opportunities and threats whereas the internal
analysis will result in a list of strengths and
weaknesses.
SWOT Analysis
Mission
Internal
Strengths
Analysis
Internal
Weaknesses
Strategy
External Opportunities
External Threats
Critical Success Factors (CSF’s)
In evaluating the SWOT analysis the correct
identification of critical success factors (CSF’s)
is one of the most important outcomes.
Also referred to as “competitive priorities”
they are the elements of an organisation that
determine its strategic success or failure.
They might include such factors as quality,
economy, performance, special local needs.
Critical Success Factors
Marketing
Finance/Accounting
Production/Operations
Service
Leverage
Distribution
Cost of capital
Promotion
Working capital
Channels of distribution
Receivables
Product positioning
Payables
(image, functions)
Financial control
Lines of credit
Decisions
Sample Options
Product
Customized, or standardized
Quality
Define customer expectations and how to achieve them
Process
Facility size, technology, capacity
Location
Near supplier or near customer
Layout
Work cells or assembly line
Human resource
Specialized or enriched jobs
Supply chain
Single or multiple suppliers
Inventory
When to reorder, how much to keep on hand
Schedule
Stable or fluctuating production rate
Maintenance
Repair as required or preventive maintenance
22
Class Discussion
What might be the CSF’s of these automobiles in
the UAE.
• Toyota Yaris
• Lexus LX570
• McLaren P1 TM
Are the CSF’s of these automobiles the same in
France?
POSITIONING THE FIRM
• No firm can be all things to all people. Strategic positioning
involves making choices—choosing one or two important
things on which to concentrate and doing them extremely
well.
• A firm’s positioning strategy defines how it will compete in the
marketplace—what unique value it will deliver to the
customer.
• An effective positioning strategy considers the strengths and
weaknesses of the organization, the needs of the
marketplace, and the positions of competitors.
Positioning Strategies for Competitive
Advantage
Differentiation - better, or at least
different
Cost leadership - cheaper
Quick response - more responsive
Evaluating Alternative Business
Strategies
Different writers have proposed various
alternative strategies that can be adopted by an
organisation.
Porter (1980) argues that a choice of one of three
strategies is appropriate for any given business:
• Cost leadership strategy
• Differentiation strategy
• Focus strategy
Porters Competitive Strategies
Cost Leadership Strategy:
Objective is to be the lowest-cost producer,
achieved through economies of scale, technology
advantage, access to materials, efficiency in
operations.
Differentiation Strategy:
How an organisation can “stand out” from its
competitors. What special features it provides.
Focus strategy:
Involving concentrating on a particular buyer
group, area or product/market segment.
Competing on Differentiation
Uniqueness can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts
customer’s perception of value
Safeskin gloves – leading edge products
Walt Disney Magic Kingdom – experience differentiation
Competing on Cost
Companies that compete on cost relentlessly
pursue the elimination of all waste.
Does not imply low quality.
A lean production system provides low costs
through disciplined operations
Southwest Airlines – secondary airports, no frills service,
efficient utilization of equipment
Wal-Mart – small overheads, shrinkage, distribution costs
Competing on Response
Flexibility is matching market changes in design
innovation and volumes
National Bicycle Industrial Company
Reliability is meeting schedules
German machine industry
Timeliness is quickness in design, production,
and delivery
Johnson Electric, Zara, Motorola
Competing on Flexibility
• National Bicycle Industrial Company fits bicycles to
exact customer measurements.
• Bicycle manufacturers typically offer customers a
choice among 20 or 30 different models.
• National offers 11,231,862 variations and delivers
within two weeks at costs only 10% above standard
models.
• Computerized design and computer-controlled
machinery allow customized products to be essentially
mass produced.
• The popular term for this phenomenon is mass
customization.
32
Risks of Competitive Strategies
You should be aware that no single strategy is guaranteed
to achieve success or maintain over time.
Class Discussion
Referring back to the three automobiles what
strategies have each of the suppliers adopted?
• McLaren
• Lexus
• Toyota
How do you believe that these strategies might
change over time?
Alliance Strategy
In order to exploit global business opportunities,
organisations often form strategic alliances …
joint ventures among international
organisations to pool complementary assets to
achieve SYNERGY.
• Product or production technology
• Market access
• Production capability
• Pooling of capital
Elements of Operations
Management Strategy
Low-cost product
Product-line breadth
Technical superiority
Product characteristics/differentiation
Continuing product innovation
Low-price/high-value offerings
Efficient, flexible operations adaptable to
consumers
Engineering research development
Location
Scheduling
Strategic Process
Company
Mission
Business
Strategy
Functional Area
Strategies
Marketing
Operations
Fin./Acct.
Decisions
Decisions
Decisions
OM’s Contribution to Strategy
Operations
Decisions
Product
Quality
Process
Location
Layout
Human resource
Supply-chain
Inventory
Scheduling
Maintenance
Specific
Examples Strategy Used
FLEXIBILITY
Sony’s constant innovation
of new products……………………………… Design
HP’s ability to follow
the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY
Pizza Hut’s five-minute
guarantee at lunchtime…………………..…..……..Speed
Federal Express’s “absolutely,
positively on time”………………………..….Dependability
QUALITY
Motorola’s automotive products
ignition systems………………………… Conformance
Motorola’s pagers………………………..….Performance
IBM’s after-sale service
on mainframe computers…… AFTER-SALE SERVICE
Fidelity Security’s broad
line of mutual funds………….BROAD PRODUCT LINE
Competitive
Advantage
Differentiation
(Better)
Response
(Faster)
Cost
leadership
(Cheaper)
38
Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product
Selection and
Design
Quality
Product Differentiation Low Cost
Heavy R&D; labs; focus Low R&D; focus on
on development in a development of generic
broad range of drug drugs
categories
Major priority, exceed Meets regulatory
regulatory requirements requirements on a
country by country
basis
Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Process Product and modular
process; long
production runs in
specialized facilities;
build capacity ahead of
demand
Location Still located in the city
where it was founded
Process focused;
general processes; job
shop approach, short
production runs; focus
on high utilization
Recently moved to low-
tax, low-labor-cost
environment
40
Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Scheduling
Centralized production Many short-run
planning
products complicate
scheduling
Layout
Layout supports
Layout supports
automated product-
process-focused job
focused production
shop practices
41
Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Human Hire the best;
Resources nationwide searches
Supply Chain Long-term supplier
relationships
Very experienced top
executives; other
personnel paid below
industry average
Tends to purchase
competitively to find
bargains
Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage
Product Differentiation Low Cost
Inventory High finished goods
inventory to ensure all
demands are met
Maintenance Highly trained staff;
extensive parts
inventory
Process focus drives up
work-in-process
inventory; finished
goods inventory tends
to be low
Highly trained staff to
meet changing demand
Four International Operations
Strategies
High
Global Strategy
Standardized product
Economies of scale
Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
International Strategy
Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Low
Low
Transnational Strategy
Move material, people, ideas
across national boundaries
Economies of scale
Cross-cultural learning
Examples
Coca-Cola
Nestlé
Multidomestic Strategy
Use existing
domestic model globally
Franchise, joint ventures,
subsidiaries
Examples
Heinz The Body Shop
McDonald’s Hard Rock Cafe
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Global Strategies
Boeing - sales and production are worldwide
Benetton - moves inventory to stores around the
world faster than its competition by building
flexibility into design, production, and
distribution
Sony - purchases components from suppliers in
Thailand, Malaysia, and around the world
Global Strategies
Volvo - considered a Swedish company but it is
controlled by an American company, Ford. The
current Volvo S40 is built in Belgium and shares
its platform with the Mazda 3 built in Japan and
the Ford Focus built in Europe.
Haier - A Chinese company, produces compact
refrigerators (it has one-third of the US market)
and wine cabinets (it has half of the US market)
in South Carolina
STRATEGY DEPLOYMENT
• Implementing strategy can be more difficult than
formulating strategy.
• Strategy deployment converts a firm’s positioning
strategy and resultant order winners and order
qualifiers into specific performance
requirements.
• Companies struggling to align day-to-day
decisions with corporate strategy have found
success with two types of planning systems—
policy deployment and the balanced scorecard.
47
Barriers Implementing Business Strategy
Wheelen & Hunger (2004) identified 10 barriers:
• Key implementation tasks poorly defined
• Implementation took longer than planned
• Unanticipated major problems arose
• Activities ineffectively coordinated
• Competing activities
• Lack of right competencies
• Lower level employees inadequately trained
• Uncontrollable external factors
• Departmental managers inadequate direction
• Information systems failed to monitor
Difficulties Implementing Operations
Strategy
Execution of an operations strategy can also face
difficulties:
• Failure of suppliers to deliver on time
• Machine breakdowns
• Non-availability of tooling
• Excessive absenteeism
• Scrap and rework problems
• Errors in estimating times and performance
• Facilities experiencing bottlenecks
• Customers changing orders
Operations & Marketing
Remember the 4 P’s
• Product
• Pricing
• Promotion
• Place (distribution)
Operations strategy is directly influenced by
all these 4 elements.
Policy Deployment
• Policy deployment, also known as hoshin planning, tries to focus everyone in an
organization on common goals and priorities by translating corporate strategy into
measurable objectives throughout the various functions and levels of the
organization.
• Suppose the corporate strategic plan of competing on speed called for a reduction
of 50% in the length of the supply chain cycle.
• Senior management from each functional area would assess how their activities
contribute to the cycle, confer on the feasibility of reducing the cycle by 50%, and
agree on each person’s particular role in achieving the reduction.
• Marketing might decide that creating strategic alliances with its distributors would
shorten the average time to release a new product.
• Operations might try to reduce its purchasing and production cycles by reducing its
supplier base, certifying suppliers, using e-procurement, and implementing a just-
in-time (JIT) system.
• Finance might decide to eliminate unnecessary approval loops for expenditures,
begin prequalifying sales prospects, and explore the use of electronic funds
transfer (EFT) in conjunction with operations’ lean strategy.
51
Balanced Scorecard
• The balanced scorecard, developed by Robert Kaplan and David Norton, examines
a firm’s performance in four critical areas:
1.
Finances—How should we look to our shareholders?
2.
Customers—How should we look to our customers?
3.
Processes—At which business processes must we excel?
4.
Learning and Growing—How will we sustain our ability to change and improve?
• It’s called a balanced scorecard because more than financial measures are used to
assess performance.
• Operational excellence is important in all four areas.
• How efficiently a firm’s assets are managed, products produced, and services
provided affects the financial health of the firm.
• Identifying and understanding targeted customers helps determine the processes
and capabilities the organization must concentrate on to deliver value to the
customer.
• The firm’s ability to improve those processes and develop competencies in new
areas is critical to sustaining competitive advantage.
52
Operations Strategies in Services
Refer back to topic 1 slides 21-27
Summary
Operational effectiveness is the ability to perform
similar operations activities better than your
competitors.
To be successful requires the appropriate mix of
organisational, business AND operational
strategies.
An effective overall COMPETITIVE STRATEGY
This applies to private or public organisations
alike …
The Abu Dhabi government has set itself a target
to be one of the leading global government’s
within 5 years.
Possible Assignment Question
What combination of organisational, business
and operational strategies might the Abu Dhabi
Government use in order to achieve its objectives
of being one of the leading global governments
within 5 years?
References
Porter, M. E. (1980). Competitive Strategy. New York: Macmillan.
Wheelen, T. L., & Hunger, D. J. (2004). Strategic Management and
Business Policy 9th edition. Upper Saddle River, NJ: Pearson Prentice
Hall.
