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Chapter 2: Strategy, Operations, and Global Competivevess

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Chapter 2

Strategy, Operations, and Global Competitiveness


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Introduction


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General Motors

Highly competitive automobile Industry Market share eroding Rebate strategy Weakness in product offerings (8

brands) Toyota (2 brands) Long lead time to redesign What is a sustainable market share?


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Large profit margins ($8 billion 2004) Asian manufacturers (LG Electronics

and Royal Philips, Sony and Samsung, and Matsushita)

North America’s Dell

Flat Panel TVs


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American Steel Industry (Nucor) Only domestic steelmaker to remain

profitable. Nucor pursued unique strategies

relative to other major players. Minimills used electric arc furnaces. Implementing strip casting, new

production process that should require little additional processing.


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Examples Illustrate

Shortage of employees often necessitates need to improve productivity.

Increased competition (especially foreign competition) another reason why companies seek to improve their productivity.

Improving productivity is often dependent on new technologies.


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Top Management

Responsible for making and keeping organization competitive.

Develops business strategy provides direction and vision guides short- and long-term decisions must consider international competition

All functional areas and business processes must support the business strategy.


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Business Strategy

A set of well defined objectives, plans, and policies for the organization to successfully compete in its markets, domestic and global.

The business strategy needs to be divided into functional strategies, throughout the organization, that are aligned and support the overall business strategy.


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Global Competitiveness

Long-term viability of a firm Short-term success in terms of market

share or profitability Since 1970s, imports to the US have

grown faster than exports from the US US is biggest debtor nation in world


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The United States’ Merchandise Trade


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Exchange Rates

US competitiveness reflected in value of dollar relative to other currencies

As US increases its imports relative to its exports, a surplus of US dollars accumulates abroad reducing the desirability of holding US dollars

Price adjusted broad dollar index


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Purchasing Power of the Dollar


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Implications of Exchange Rate

A large value of the price adjusted broad dollar index indicates a strong dollar making it easier for Americans to afford imports.

A weaker value of the price adjusted broad dollar index makes American products more competitive in foreign markets.

Economic relationship can be mediated by government actions.


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International Markets and Producers

Three Major Trading Regions Europe North America Pacific Rim

Previously firms classified as domestic, exporters, or international

Now have global firms, joint ventures, foreign subsidiaries


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Three Major Trading Regions


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Reasons to Produce Offshore

Circumvent governmental regulations Avoid effects of currency fluctuations Avoid fees and quotas Placate local customers


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Generating New Product Ideas Research and Development (R & D) primarily

responsible for developing new product ideas.

Research is divided into two types: pure and applied.

Pure research is working with basic technology to develop new knowledge.

Applied research is attempting to develop new knowledge along particular lines.


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R & D Con’t Development is the attempt to utilize

the findings of research. The development end of R & D is more

on the application side and often consists of modifications or extensions to existing outputs.

Currently the development effort is much larger than the research effort.


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Alternatives to Research Imitation of a proven idea (second-to-

market strategy). Purchase of someone else’s idea.

Outright purchase is becoming extremely popular where bring a new product to market can cost huge sums.

In addition to product research there is also process research (i.e. how to produce research).


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Disruptive Technologies An example of a disruptive technology

currently playing out is the impact that the Web is having on graduate business education.

e-mail Computers in the classroom Using the Web at work to shop


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Commercialization Refers to the process of moving an

idea from concept to market. Shorter life cycles. Increasingly competitive marketplace. Globalization.


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Measures of Commercialization Capabilities Time to market Range of markets Number of markets Breadth of technologies


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Measures of Commercialization Capabilities Once appropriate measures for

assessing commercialization have been established, organizations can begin working toward improving them. Make commercialization a top priority Set goals and benchmarks Build cross-functional teams Promote hands-on management


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Transformation Process Characteristics

Six primary characteristics of the transformation system: Efficiency Effectiveness Capacity Quality Response time Flexibility


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Supply Chain Management Cost of labor decreasing Cost of logistics becoming more

significant Total value chain of global production Coordination

Information flows Finding efficient suppliers Identifying and evaluating transportation

options


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New Technologies ERP EDI Bar coding Internet


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Formulating the Business Strategy


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Strategy Formulation


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Strategy Map for Department Store


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Vision and Mission Statements Vision statements used to

express organization’s values and aspirations.

Mission statements express organization’s purpose or reason for existence.


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Core Competencies Collective knowledge and skills an

organization has that distinguish it from the competition.

Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services.

Building blocks of core capabilities.


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Core Competencies continued Are basis on which new outputs are

developed. Better to think of organization in terms of

its portfolio of core competencies than as a portfolio of products.

Identifying and developing core competencies is one of top management’s most important roles.

Organization practices and business processes


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Examples of Core Competencies Sony - miniaturization 3M- knowledge of substrates, coatings

and adhesives Black and Decker - small electrical

motors and industrial design Honda - engines and power trains


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Core Competencies Used to Gain Access to Variety of Markets Cannon

core competencies in optics, imaging, and electronic controls

Products include copiers, laser printers, cameras, and image scanners.

Boeing integrating large scale systems commercial jetliners, space stations,

missiles


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Key Characteristics of Core Competencies/Capabilities Should be used to gain access to a

variety of markets Should be strongly related to key

benefits provides by products or services

Should be difficult to imitate


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Outsourcing Subcontracting out production of parts

or performance of activities Activities and parts fall on a continuum

ranging from strategically unimportant to strategically important

Activities not strategically important are candidates to be outsourced


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Strategically Important Parts or Activities

Strongly related to what customers perceive to be key product characteristics.

Require highly specialized skill and knowledge.

Require highly specialized physical assets The organization has the technological

lead or is likely to obtain it.


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Hollowed Out The extent that most of a firm’s

complex parts and production are outsourced

Often when complex parts outsourced, engineering talent follows

Supplier may become competitor


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Creeping Breakeven Phenomenon Vicious cycle where products appear

to become more expensive to produce in-house as others are outsourced. Result from way overhead is allocated

Logical conclusion is organization ends up producing no outputs.


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Business Strategy and the Product Life Cycle


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The Life-Cycle Curve


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Product Life Cycle

Strategies often tied to product life cycle

Length of life cycles shrinking Business strategy should match life

cycles stages


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Categories of Business Strategies


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First-to-Market Strategy

Products available before competition Strong applied research capability

needed Can set high price to skim market or

set lower price to gain market share


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Second-to-Market Strategy

Quick imitation of first-to-market companies

Less emphasis on applied research and more emphasis on development

Learn from first-to-market’s mistakes


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Cost Minimization or Late-to-Market Strategy

Wait until market becomes standardized and large volumes demanded

Compete on basis of costs instead of product features

Research efforts focus on process development versus product development


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Market Segmentation

Serving niche markets Applied engineering skills and flexible

manufacturing processes needed


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The Balanced Scorecard Helps translate mission and strategy into

appropriate performance measures. Traditionally organizations relied primarily on

financial measures. No single set of measures can provide information

needed in all critical areas of the business. Purpose of balanced scorecard the development of

a set of measures that provides a comprehensive view of the organization.


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Benefits of Using Balanced Scorecard

Clarify and gain consensus of strategy Mechanism for communicating strategy Mechanism for aligning departmental

and personal goals to the strategy Help ensure strategic objectives are

linked to annual budget Timely feedback related to improving

the strategy


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Performance Measured in Four Areas

Financial Performance Customer Performance Internal Business Process

Performance Organizational Learning and Growth


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Developing a Balanced Scorecard Top management translates mission and

strategy into specific customer and financial objectives.

Measures for internal business processes developed on basis of customer and financial objectives.

Investments in employee training and information technology linked to customer, financial, and internal business process objectives.


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Focus

Goal of business strategy is to establish and maintain a unique strength, or focus that leads to a sustainable competitive advantage.

Two successful competitive positions lowest cost outstanding strength


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Common Areas of Focus

Innovation Customization Product/service

flexibility Volume flexibility Performance Quality

Product/service reliability

Delivery reliability Response After-sale service Price


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Order Qualifiers and Winners Order qualifiers are

characteristics that are the ante to enter the market

Order winners are characteristics that win the customer’s purchase


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Loss of Focus New outputs New attributes New tasks Departmental

professionalism Ignorance and

noncommunication Life cycle changes


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Product Life Cycle Stages and Emphasis


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Strategic Frameworks


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The Sand Cone Model


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Example Performance Frontier


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New Technology Results in Shift of Performance Frontier


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Stages of Operational Effectiveness Internally Neutral Externally Neutral Internally Supportive Externally Supportive


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Critical Value Factors Quality – affects a business unit’s

competitive ability Customers are more pleased with high

quality product or service Refer friends Repeat business Protect firm from competition


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Critical Value Factors con’t Customization – refers to offering a product

or service suited to a customer’s desires or needs.

Flexibility Faster matches to customers’ needs Closer match to customers’ needs Ability to supple items when needed Faster design to market Lower costs of changing production Ability to offer full product line


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Mass Customization Seek to produce low-cost, high-quality

outputs in high variety. Not all products lend themselves to

being customized (Ex. Sugar, gas, electricity, and flour).

Is applicable to products characterized by short life cycles, rapidly advancing technology, or changing customer requirements.


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Four Mass Customization Strategies Collaborative customizers Adaptive customizers Cosmetic customizers Transparent customizers


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Collaborative Customizers These organizations establish a dialogue to

help customers articulate their needs and then develop customized outputs to meet these needs. For example, one Japanese eyewear retailer developed a computerized system to help customers select eyewear. The system combines a digital image of the customer's face and then various styles of eyeware are displayed on the digital image. Once the customer is satisfied, the customized glasses are produced at the retail store within an hour.


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Adaptive Customizers These organizations offer a standard

product that customers can modify themselves such as closet organizers. Each closet-organizer package is the same, but includes instructions and tools to cut the shelving and clothes rods so that the unit can fit a wide variety of closet sizes.


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Cosmetic Customizers These organizations produce a standard

product but present it differently to different customers. For example, Planters packages its peanuts and mixed nuts in a variety of containers on the basis of specific needs of its retailing customers such as Wal-Mart, 7-Eleven, and Safeway.


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Transparent Customizers These organizations provide custom

products without the customers’ knowing that a product has been customized for them. For example, Amazon.com provides book recommendations based on information about past purchases.


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Dependability and Speed The competitive advantages of faster,

dependable response to new markets or to the individual customer's needs have only recently been noted in the business media.

Americans spend more time and money on marketing, whereas the Japanese spend five times more than the Americans on developing more efficient production methods.


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Relationship Between Response Time and Unit Cost


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Cost and Productivity Operational activities play a major role in

determining the cost of a product or service, particularly during the up-front design for the output.

It is worth noting that cost to the producer and price to the customer are two very different factors.

It is always to the producers’ advantage to keep their absolute costs as low as possible.


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Productivity A special measure of efficiency defined as output per

worker-hour. This definition of productivity is actually what is

known as a partial factor measure of productivity, in the sense that it considers only worker-hours as the productive factor.

For a society to increase its standard of living, it must first increase its productivity.

Be careful, however, not to focus solely on productivity as the problem, but rather, to consider overall competitive ability.

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