Operation Strategy in global environment Companies are responding to global environment with speed and strategies, unheard of in past. For Instance: 1.Boeing is competitive because both its sales and production are worldwide. 2.Italy’s Benetton moves inventory to stores around the world faster than its compitition,by building flexibility into its design, production and distribution. 3.Sony purchases components from its suppliers in Thailand. Malaysia and around the world for assembly in its electronic products. 4.Volvo,considered as Swedish company, is controlled by a U.S.company ,Ford. But the model Volvo S40 is built in Belgium, on a platform shared with Mazda 3(Built in Japan) and the Ford Focus(built and sold in Europe). REASONS TO GLOBALIZE : Many domestic business operations are deciding to change to some form of international operations. This can be viewed as a continuum, ranging from tangible reasons to intangible reasons. Let us examine the underlying six reasons, as under. 1.Reduce cost : Many international operations seek to take the benefit of tangible opportunities to reduce their costs. Locations with lower wages, less stringent government regulations (on environmental control, health, Safety etc) and offering opportunities to cut the cost of taxes and tariffs, attract foreign investors. 1 08/14/2022
49
Embed
Operations Strategy in a Global Environment(Chapter 2)
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
04/21/2023 1
Operation Strategy in global environmentCompanies are responding to global environment with speed and strategies, unheard of in past. For Instance:1.Boeing is competitive because both its sales and production are worldwide.2.Italy’s Benetton moves inventory to stores around the world faster than its compitition,by building flexibility into its design, production and distribution.3.Sony purchases components from its suppliers in Thailand. Malaysia and around the world for assembly in its electronic products.4.Volvo,considered as Swedish company, is controlled by a U.S.company ,Ford. But the model Volvo S40 is built in Belgium, on a platform shared with Mazda 3(Built in Japan) and the Ford Focus(built and sold in Europe).REASONS TO GLOBALIZE:Many domestic business operations are deciding to change to some form of international operations. This can be viewed as a continuum, ranging from tangible reasons to intangible reasons. Let us examine the underlying six reasons, as under.1.Reduce cost: Many international operations seek to take the benefit of tangible opportunities to reduce their costs. Locations with lower wages, less stringent government regulations (on environmental control, health, Safety etc) and offering opportunities to cut the cost of taxes and tariffs, attract foreign investors.
04/21/2023 2
Operation Strategy in global environmentIn Mexico, the free trade zones allows the manufacturers to cut their costs of taxation by
levying tax only on value added operations.e.g. if a U.S.manufacturer IBM brings a $500
computer to Free trade zone, in Mexico, for carrying out assembly operation, which is
worth $25,then tariff duties will be charged only on $25 of work performed in Mexico.
Shifting low skilled jobs to other countries has many advantages.
a).Cost reduction.
b).Shifting low skilled jobs, frees the high skilled workforce for doing the more valuable tasks.
c).The revenue generated through cost reduction can be invested in improved products and facilities (and for retaining the skilled workforce in the home country).
2.Improve the supply chain: The supply chain can be improved by locating facilities in
the countries where unique resources are available. These resources may be expertise,
labor or raw material.e.g.,
- Auto styling studios ,from throughout the world are shifting to southern California, to
ensure the necessary expertise in their auto design.
-World athletic shoe production, has shifted from South Korea to
Guangzhou,China,where besides low cost, the advantage of production competence is
available. This is a place where 40000 people produce athletic shoes for the world.
04/21/2023 3
Operation Strategy in global environment-A perfume essence manufacturer wants his presence in Grasse, France ,where world’s
perfume essence is manufactured from the flowers of Mediterranean.
3.Provide better goods and services:
Although, the characteristics of goods and services can be objective and measurable(No
of on time deliveries),they can also be subjective and less measurable( e. g. sensitive to
culture). We need even better understanding the cultural differences and of the ways
business is handled in different countries. Improved understanding, as a result of local
presence, helps companies to produce customized goods and services, to meet the
unique cultural needs in the foreign markets. Besides, meeting the cultural needs,
response time becomes faster.
4.Understanding markets:
With the increased interaction with the foreign customers, firms learn about the various
opportunities for their goods and services.
e.g. Europe led the innovations of cell phones, whereas the Japanese lead with latest
cell phone fads. Besides knowing the trends in the foreign markets, it helps the firms
to diversify their customer base, add flexibility and smooth the business cycle.
Another reason to go for foreign markets is the opportunity to expand the life cycle of an
existing product.
04/21/2023 4
Operation Strategy in global environmente.g. Many products might be in their maturity stage(One of product development stages
Introduction,growth,maturity and decline)in developed countries, which might be state -of -the -art products in less developed countries.e.g.The Personal computers might be in mature stage in U.S.whereas in countries like Albania,Myanmar,China etc it might be in its introductory stage.
5.Learn to improve operations:
Learning does not take place in isolation. Firms serve themselves and their customers, better when they are open for free flow of ideas. e.g. General Motors found that it could improve by jointly building and running its operations with the Japanese, an auto assembly plant in San Jose, California. This strategy allow G.M.to contribute its capital and knowledge of U.S.labor &Environmental laws, whereas Japanese contribute for their production and inventory ideas.
6. Attract and retain global talent:
Global organizations can attract and recruit better employees by offering them more employment opportunities. They need employees in all the functional areas and areas of expertise worldwide.
They can attract and retain employees by providing them growth opportunities and also by insulating them against unemployment during economic downturns. During economic downturns, they can relocate employees, who are temporarily unneeded, from one location to relatively prosperous locations. Global organizations also provide incentives for people who like to travel or take vacations in foreign countries.
04/21/2023 5
Operation Strategy in global environment
Reasons to globalize Tangible ● Reduce cost(Labor,taxex,tarrifs etc.)
Reasons ● Improve supply chain.
● Provide better goods and services.
● Understand markets.
Intangible ● Improve operations.
Reasons ● Attract and retain global talent.
04/21/2023 6
Operation Strategy in global environment
Developing missions and strategies:
An effective operations management must have its mission to define where it is going and a strategy to define how it is going there. This is applicable for both domestic as well as international organizations.
Mission:
Mission is purpose of an organization,
-To satisfy customer’s needs and wants.
-What it will contribute to society.
Mission statement provides boundaries and focus for organizations and concepts around which organizations can rally.
It states rationale for organization’s existence.
Developing strategy is difficult without well defined mission.
Once an organization’s mission has been decided, each
functional area,i.e.marketing,finance/accounting, operations/production etc, within
the organization decides its supporting mission.
04/21/2023 7
Operation Strategy in global environment
Mission statements for two organizations, are as under.:1.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.2.Kirloskar Group:We Will…► Strengthen the cultural backbone to be a process centric organization and become an Industry leader in Innovation and Technology,Quality,cost and Delivery.► Become a ”Globally Dominant Player” for pumps and related systems. ”Globally Dominant Player” for the engines for the off highway and power generation market. ”Regional Player "in compression technology & a "National leader "in mechanical power
transmission.► Create a diverse global auto component business using our capability in machining and
castings.Strategy:Strategy is an organization’s action plan to achieve the mission. Once the mission is established, strategy and its implementation can begin.Stategies work on SWOT analysis,i.e.exploit opportunities and strengths and neutralize threats and avoid weaknesses.
04/21/2023 8
Operation Strategy in global environment
04/21/2023 9
Operation Strategy in global environment
• Strategies– Plans for achieving organizational goals
• Mission– The reason for existence for an organization
• Mission Statement– Answers the question “What business are we in?”
• Goals– Provide detail and scope of mission
• Tactics– The methods and actions taken to accomplish strategies
04/21/2023 10
Operation Strategy in global environment
04/21/2023 11
Operation Strategy in global environment
Example:Rita is a high school student. She would like to have a career in business, have a goodjob, and earn enough income to live comfortably.
Mission: Live a good life• Goal: Successful career, good income.
• Strategy: Obtain a college education.
• Tactics: Select a college and a major.
• Operations: Register, buy books, take courses, study, graduate, get job
04/21/2023 12
Operation Strategy in global environmentFirms achieve missions in three conceptual ways:1)Differentiation2)Cost leadership and 3)response. Operation managers are required to translate these strategic concepts into tangible tasks to be achieved. Any one or combination of the above concepts can generate a system that has unique advantage over competitors. e.g. Hunter fan has differentiated itself as a premier maker of quality ceiling fans that lower Heating and cooling costs for its customers. Nucor steel is producing lowest cost steel in the world. Dell is known for its rapid response, in building personal computers with each customer’s requested software in a matter of hours.ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS:Each of the three strategies provides an opportunity to the operations managers to achieve competitive advantage.Competing on Differentiation:Differentiation is concerned with providing uniqueness. The firm’s opportunities to create uniqueness are not located within a particular function or activity. But can arise in everything that the firm does. Differentiation should be thought of as going beyond both physical characteristics and service attributes to encompass everything of the product or the service that influences the value the customer derives from it.
04/21/2023 13
Operation Strategy in global environmentIn service industry the idea of experience differentiation is to engage the customer-to use people’s five senses so they become immersed and even participate in the product.e.g., In hard rock cafe, the customer is engaged with classic rock music, big videos, staff who can tell stories. The result is dining experience rather than just a meal. Competing on cost:Low cost leadership entails achieving maximum value as defined by your customer. A low cost strategy does not imply low value or low quality.e.g. Air Deccan-India’s first low cost airline has a basic strategy of making air travel accessible to practically every Indian by pricing their services 30 to 40 % of other regular airline services. This has been achieved by four features, namely, more flying hours, cutting out all frills (In flight food, business class and lounges at air ports etc),elimination of inter- airline arrangements for baggage and a new distribution model(Which eliminates travel agents and the associated costs, which has own computerized reservation system,CRS,which has a call centre that can book tickets 24 hours, makes use of local phone numbers as opposed to costly nationwide toll free numbers and uses multiple modes of cash collection and ticket delivery.Competing on response:Response is often thought of as flexible response but it also refers to reliable and quick response.
04/21/2023 14
Operation Strategy in global environmentFlexible response may be thought of as ability to respond to market place where design innovation and volumes fluctuate substantially.Hewlett-Packard is an exceptional example of flexibility in both design and volume changes in the volatile world of personal computers.HP has been successful at institutionalizing the ability to change the products and volumes to respond to dramatic changes in product design and cost-thus building a sustainable competitive advantage.The second aspect of response is the reliability of scheduling. The German machine industry has maintained its competitive advantage,inspite of highest labor cost in the world, through reliable response. The reliable response is manifestation of reliable scheduling. German machine manufacturers have schedules which they maintain and communicate to the customers, in advance and customer, in turn can rely on them.The third aspect of the response is quickness. The operations manager who develops system that can respond quickly can have a competitive advantage. The three concepts,differentiation,low cost and response are implemented via six specific strategies,i)Flexibility in design and volume,ii)Low price, iii)Delivery, iv)Quality, v)After-sale service and vi)Broad product line.
04/21/2023 15
Operation Strategy in global environmentOPERATIONS MANAGEMENT’S CONTRIBUTION TO STRATEGY:
Operations Example Specific Competitive advantage Decisions strategy used
Product Sony’s constant innovations of Flexibility : New products.HP’s leadership Design & Volume ResponseQuality (faster)
Process Air Deccan’s low cost service Low cost Cost leadership (cheaper)Location
Layout Pizza Hut's 5-minute guarantee Delivery: at lunch time Speed & DependabilityHuman Resource
Supply chain Motorola automotive products , Quality:Conformance Differentiation i.e. ignition systems performance (better)Inventory
Scheduling IBM after-sale service on After-sale service mainframe computers Fidelity security’s mutual funds Broad product line
Maintenance
04/21/2023 16
Operation Strategy in global environment
Issues in Operation strategy:
Once mission has been formed, the organization must look into development and implementation of its strategy for which the operations manager is required to consider certain issues.
1.Research:Strategic planning Institute, in its PIMS(Profit impact of market
strategy)programme,with high ROI(Return on Investment) as a measure of success,
has come out with characteristics, which affect the strategic OM decisions. These are
i)High product quality unit(Compared to competition). (.ii) High operating
efficiency.iii)High capacity utiliazation.iv) Low investment intensity(Capital required to
produce a dollar of sales).v)Low direct cost per unit(Compared to competition).
These five findings support high return on investment and hence should be considered
as an organization develops its strategy.
04/21/2023 17
Operation Strategy in global environment2.Preconditions: Before establishing and implementation of the strategy, the operations
manager must understand that the firm is operating in an open system, where there are multitude of factors. The more thorough the understanding and analysis of these factors, the more the likelihood of the success.
Few of these factors are,
i) Strengths and weaknesses of the competitors and possible new entrants in the
market, substitute products, commitments of suppliers and distributors.
ii) Current and prospective environmental,technological,legal and economic issues.
iii) Product life cycle, which may dictate limitations of operations strategy.
iv) Resources within the organization and within the OM function. Etc.
v)Integration of OM strategy with company’s strategy and other functional areas.
3.Dynamics:
Strategies change for two reasons.
First, strategy changes because of the changes in organization.
Secondly, strategy changes because of the changes in environment. e.g. Microsoft also
had to adapt quickly to market changes. Microsoft’s shift in strategy was in response to
change in the customer demands. They had to shift from operating systems to office
products to an Internet service provider.
04/21/2023 18
Operation Strategy in global environment
STRATEGY DEVELOPMENT AND IMPLEMENTATION:
Once the firm understands the various issues involved in effective strategy development,
SWOT(Strength ,weakness, opportunities and threat) analysis is carried out. Beginning with
SWOT analyses, firms position themselves, through their strategy, to have competitive
advantage. The firm may have excellent design skills or greater talent at identifying outstanding
locations. However, the firm may recognize the limitations of its manufacturing process or in
finding good suppliers. The idea is to maximize opportunities and minimize threats in the
environment while maximizing the advantages of the organization’s strengths and minimizing
the weaknesses. Any perceived ideas of the mission are then reevaluated to ensure that they
are consistent with the SWOT analysis.
Subsequently strategy for achieving the mission is developed. This strategy is continually
evaluated against the value provided customers and competitive realities. The strategy
development process is shown in the figure, on the next slide. From this strategy development
process , critical success factors are identified.
04/21/2023 19
Operation Strategy in global environment
Environmental Analysis
Identify the strength,weaknesses,opportunities and threats. Understand the environment,customers,industry and competitors
Define 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 Flexibility in design & volume,quality.low cost,