2-Operations Strategy in a Global Environment

7/15/2019 2-Operations Strategy in a Global Environment

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22 CHAPTER TWO

Operations StrategyOperations Strategyin a Globalin a Global

EnvironmentEnvironment

Operations StrategyOperations Strategyin a Globalin a Global


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Define Mission and StrategyDefine Mission and Strategy

Explain Three Strategic Approaches to CompetitiveExplain Three Strategic Approaches to Competitive

Advantage Advantage Define GlobalizationDefine Globalization

Identify Issues in Operations StrategyIdentify Issues in Operations Strategy

Explain Four Global Operations Strategy OptionsExplain Four Global Operations Strategy Options

Learning Objectives

When you complete this chapter, you should be able to:When you complete this chapter, you should be able to:



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Chapter Outline

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787 DreamLiner:787 DreamLiner:

The Boeing Company



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Strategy forStrategy for 787787 DreamLinerDreamLiner is unique from bothis unique from bothengineering andengineering and global perspectiveglobal perspective

Latest in a wide range ofLatest in a wide range of aerospace technologiesaerospace technologies

Worked withWorked with GE and RRGE and RR to develop more efficient engineto develop more efficient engine

787 is787 is globalglobal with a range ofwith a range of 8,300 miles8,300 miles

BuiltBuilt across the worldacross the world led by Everett Washingtonled by Everett Washington – – spreadspreadthe risk the risk with partners in over a dozen countrieswith partners in over a dozen countries

Teamed with more thanTeamed with more than 20 international system suppliers20 international system suppliers

One of theOne of the fastestfastest--sellingselling commercial jets in historycommercial jets in history

2.12.1Boeing’s Global Strategy

Yields Competitive Advantage

The first passenger plane made mainly with plastic composites,The first passenger plane made mainly with plastic composites,making it lighter & more fuelmaking it lighter & more fuel--efficient than other commercial aircraft.efficient than other commercial aircraft.

After years of delays, the first Dreamliners were delivered to airlines in After years of delays, the first Dreamliners were delivered to airlines in September 2011 & it made its first commercial flight the next month. September 2011 & it made its first commercial flight the next month.

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A lot is riding on the success of the 787 Dreamliner, a riskyA lot is riding on the success of the 787 Dreamliner, a riskytechnological and commercial bet for Boeing.technological and commercial bet for Boeing.

Until Dec 2012, Boeing had delivered 38 jets to 8 airlines.Until Dec 2012, Boeing had delivered 38 jets to 8 airlines.

Boeing has outlined ambitious plans to double the productionBoeing has outlined ambitious plans to double the productionrate to 10 planes a month by the end 2013; also starting to buildrate to 10 planes a month by the end 2013; also starting to builda stretcheda stretched--out version & considering a larger one after that.out version & considering a larger one after that.

However,However, a string of embarrassing problemsa string of embarrassing problems, including a battery, including a battery

fire, fuel leaks and a cracked cockpit window, revived concernsfire, fuel leaks and a cracked cockpit window, revived concernsabout the reliability of the plane.about the reliability of the plane.

Aviation experts cast these issues as minor hiccups and said itAviation experts cast these issues as minor hiccups and said itwas typical for new planes to experience such problems.was typical for new planes to experience such problems.

Boeing also declared that it had “extreme confidence” in theBoeing also declared that it had “extreme confidence” in theinnovative design and technology used in the plane.innovative design and technology used in the plane.

But a spate of additional incidents in Jan 2013, including aBut a spate of additional incidents in Jan 2013, including abattery fire in Boston, led the F.A.A. to order a review of thebattery fire in Boston, led the F.A.A. to order a review of theplane’s electrical systems.plane’s electrical systems.

The controllers around the globe ordered the grounding ofThe controllers around the globe ordered the grounding ofDreamliners until they could determine what caused a new typeDreamliners until they could determine what caused a new typeof battery to catch fire.of battery to catch fire.

787 Dreamliner Problems



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MissionMission statements tell an organization where it is going.statements tell an organization where it is going.

MissionMission -- where are you going?where are you going?•• Organization’s purpose for beingOrganization’s purpose for being•• Answers ‘What do we provide society?’Answers ‘What do we provide society?’•• Provides boundaries and focus.Provides boundaries and focus.

StrategyStrategy tells the organization how to get there.tells the organization how to get there.

Mission StatementsMission Statements FedExFedEx -- to provide total reliable, competitively superior, global airto provide total reliable, competitively superior, global air--

ground transportation of high priority goods and documents that requireground transportation of high priority goods and documents that require

rapid, timerapid, time--certain delivery.certain delivery. Merck Merck -- to provide society with superior products & servicesto provide society with superior products & services -- innovationsinnovations &&

solutions that improve the quality of life and satisfy customer needs.solutions that improve the quality of life and satisfy customer needs.

Hard Rock CafeHard Rock Cafe -- to spread the spirit of Rock ‘n’ Roll by delivering anto spread the spirit of Rock ‘n’ Roll by delivering anexceptional entertainment and dining experience.exceptional entertainment and dining experience.

Arnold Palmer HospitalArnold Palmer Hospital -- a healing environment providing familya healing environment providing family--centredcentredcare with compassion, comfort & respect ... when it matters the most.care with compassion, comfort & respect ... when it matters the most.

2.22.2 Missions and Strategies

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Sample mission statements:Sample mission statements:•• delivering healthy and timedelivering healthy and time--saving morning food service.saving morning food service.•• providing access to high end services at lowest price.providing access to high end services at lowest price.•• providing trustworthy staff, services and solutions for retaining andproviding trustworthy staff, services and solutions for retaining and

restoring life span and reliability of vehicles.restoring life span and reliability of vehicles.

Mission statements have consequences for formulation of strategiesMission statements have consequences for formulation of strategies..

Benefit to Society

Mission

Philosophy and Values

Profitability and Growth Environment

Customers Public Image


Mission StatementsMission Statements

Factors Affecting MissionFactors Affecting Mission



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With the mission established,With the mission established, strategystrategy and its implementation canand its implementation canbegin.begin.

StrategyStrategy is an organization’sis an organization’s planplan to achieve the missionto achieve the mission..

Each functional area has aEach functional area has a strategystrategy for achieving itsfor achieving its missionmission andandfor helping organization reach thefor helping organization reach the overall missionoverall mission..


StrategyStrategy

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Strategy Development and Implementation

Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal S trengths

Internal W eaknesses

External O pportunities

External T hreats

Mission




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Strategy Development Process

Determine Corporate Mission

State the reason for the firm’s existence and identify the value it wishes to create.

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.

Environmental Analysis

Identify the strengths, weaknesses, opportunities, and threats.Understand the environment, customers, industry, and competitors.


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Research:Research:1.1. High product qualityHigh product quality2.2. High capacity utilizationHigh capacity utilization3.3. High operating efficiencyHigh operating efficiency4.4. Low investment intensityLow investment intensity

5.5. Low direct cost per unitLow direct cost per unit Preconditions:Preconditions:

1.1. Strength & weakness of competitorsStrength & weakness of competitors2.2. Current and prospective environmental, technological, legalCurrent and prospective environmental, technological, legal

and economic issuesand economic issues3.3. Product life cycleProduct life cycle4.4. Available resourcesAvailable resources5.5. Integration of OM strategy with company’s strategy and otherIntegration of OM strategy with company’s strategy and other

functional areasfunctional areas

DynamicsDynamics

Issues in Operations StrategyIssues in Operations Strategy

2.32.3 Operations Strategy



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Product Life Cycle

Product design Product design and and development development critical critical

Frequent Frequent product and product and process design process design changes changes

Short production Short production runs runs

High production High production costs costs

Limited models Limited models

Attention to Attention to quality quality

Introduction Growth Maturity Decline

O M

S t r a t e g y / I s s u e s

O M

S t r a t e g y / I s s u e s

Forecasting Forecasting critical critical

Product and Product and process process reliability reliability

Competitive Competitive product product improvements improvements and options and options

Increase capacity Increase capacity

Shift toward Shift toward product focus product focus

Enhance Enhance distribution distribution

Standardization Standardization

Less rapid Less rapid product changes product changes – – more minor more minor changes changes

Optimum Optimum capacity capacity

Increasing Increasing stability of stability of process process

Long production Long production runs runs

Product Product improvement improvement and cost cutting and cost cutting

Little product Little product differentiation differentiation

Cost Cost minimization minimization

Overcapacity Overcapacity in the in the industry industry

Prune line to Prune line to eliminate eliminate items not items not

returning returning good margin good margin

Reduce Reduce capacity capacity

2.32.3 Operations Strategy

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Firms achieve missions in three conceptual ways:Firms achieve missions in three conceptual ways:•• Differentiation leadershipDifferentiation leadership: providing offerings to which: providing offerings to which

customers perceive as adding value to them because thecustomers perceive as adding value to them because theservices are faster, better and more appropriate for their needsservices are faster, better and more appropriate for their needsthan offerings of competitors (not all service differencesthan offerings of competitors (not all service differencesconstitute a competitive advantage).constitute a competitive advantage).

•• Cost leadershipCost leadership: providing offerings to customers at the best: providing offerings to customers at the best

value to cost ratio (cost leadership is not necessarily cheapestvalue to cost ratio (cost leadership is not necessarily cheapestprice).price).

•• Response leadershipResponse leadership: providing offerings that rapidly, flexibly: providing offerings that rapidly, flexiblyand reliably adapt to customer diversity, needs and demands.and reliably adapt to customer diversity, needs and demands.

Not allNot all good ideasgood ideas are strategies, e.g. funding roads. Theare strategies, e.g. funding roads. Thebest strategiesbest strategies are those whichare those which directly add valuedirectly add value to theto thecustomer.customer.

Most strategies have implications for the design andMost strategies have implications for the design andmanagement of a company’s operations.management of a company’s operations.

2.42.4Strategic Approaches toCompetitive Advantage



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Each of theEach of the three strategiesthree strategies provides an opportunity forprovides an opportunity foroperations managers to achieveoperations managers to achieve competitive advantagecompetitive advantage..

Competitive advantage implies the creation of a systemCompetitive advantage implies the creation of a systemthat has athat has a unique advantageunique advantage over competitors.over competitors.

Achieving Competitive Advantage through OperationsAchieving Competitive Advantage through Operations

Competing on DifferentiationCompeting on Differentiation

UniquenessUniqueness ((differentiationdifferentiation) can go beyond both the) can go beyond both thephysical characteristics and service attributes tophysical characteristics and service attributes toencompass everything that impacts customer’s perceptionencompass everything that impacts customer’s perceptionof value.of value.

Hard Rock CafeHard Rock Cafe – – theme experience.theme experience.


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Competing on CostCompeting on Cost Provide the maximum value as perceived by customerProvide the maximum value as perceived by customer --

does not implydoes not imply low qualitylow quality..

Southwest AirlinesSouthwest Airlines – – secondary airports, no frills service,secondary airports, no frills service,efficient utilization of equipment.efficient utilization of equipment.

WalWal--MartMart – – small overheads, shrinkage, distribution costs.small overheads, shrinkage, distribution costs.

Competing on ResponseCompeting on Response FlexibilityFlexibility is matching market changes in design innovationis matching market changes in design innovation

and volumesand volumes – – a way of life at Hewletta way of life at Hewlett--PackardPackard..

ReliabilityReliability is meeting schedulesis meeting schedules – – German machineGerman machineindustryindustry..

TimelinessTimeliness is quickness in design, production, and deliveryis quickness in design, production, and delivery – – Johnson Electric, Pizza Hut, MotorolaJohnson Electric, Pizza Hut, Motorola..




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BoeingBoeing – – sales and production are worldwide.sales and production are worldwide.

BenettonBenetton – – moves inventory to stores around the worldmoves inventory to stores around the worldfaster than its competition by building flexibility intofaster than its competition by building flexibility intodesign, production, and distribution.design, production, and distribution.

SonySony – – purchases components from suppliers inpurchases components from suppliers inThailand, Malaysia, and around the world.Thailand, Malaysia, and around the world.

VolvoVolvo – – (a Swedish Company) is controlled by a US(a Swedish Company) is controlled by a UScompany, Ford.company, Ford.

HaierHaier (China)(China) – – has at least onehas at least one--third of the US marketthird of the US market(South Carolina).(South Carolina).

Globalization means thatGlobalization means that domestic production anddomestic production andexporting may no longer be viable business modelexporting may no longer be viable business model..

Global Innovative Strategies

2.52.5 Globalization

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Reduce costsReduce costs (labor, taxes, tariffs, etc.)(labor, taxes, tariffs, etc.) -- foreignforeignlocations with lower wage rates can lower direct andlocations with lower wage rates can lower direct andindirect costs.indirect costs.

Improve supply chainImprove supply chain -- locating facilities closer tolocating facilities closer toresources.resources.

Provide better goods and servicesProvide better goods and services -- objective &objective &subjective. characteristics of goods & services (onsubjective. characteristics of goods & services (on--timetimedeliveries, cultural variables, improved customerdeliveries, cultural variables, improved customerservice).service).

Understand marketsUnderstand markets -- interacting with foreign customerinteracting with foreign customerand suppliers can lead to new opportunities (cell phoneand suppliers can lead to new opportunities (cell phonedesign, extend life cycle).design, extend life cycle).

Learn to improve operationsLearn to improve operations -- remain open to the freeremain open to the freeflow of ideas.flow of ideas.

Attract and retain global talentAttract and retain global talent -- offer betteroffer betteremployment opportunities.employment opportunities.

Reasons to Globalize

Tangible Tangible Reasons Reasons

Intangible Intangible Reasons Reasons




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CulturesCultures can be quite different.can be quite different.

AttitudesAttitudes can be quite different towardscan be quite different towards

PunctualityPunctuality

Lunch breaksLunch breaks


Intellectual propertyIntellectual property

ThieveryThievery

BriberyBribery

Child laborChild labor

Cultural and Ethical Issues


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Four International Operations Strategies Four International Operations Strategies

2.62.6 Global Operations Strategies

Documents

2-Operations Strategy in a Global Environment