Operations Strategy in a Global Environment Competitive advantage

Operations Strategy in a Global Environment

Competitive advantage at Dells business model based on direct selling of customized product at low prices l Location advantages (Brazil, Ireland, Malaysia, China & US) l Close to markets l l l Low shipping costs Speed of delivery Global supply base l Dell manages global supply chain to minimize inventory and customize PCs in three days l

Strategic Management Tasks l Form a Strategic Vision l Convert to Measurable Objectives l Craft a Strategic Plan l Implement the Plan l Evaluate the Results

Crafting a Strategy l Proactive and Reactive l Strategy and Entrepreneurship l Evolution l Strategy and Planning l Implementation and Execution

Strategy Making Tasks: Vision and Mission l What is the Business? Customer Needs l Customer Groups l Technologies and Functions l Broad vs. Narrow Definition l l Communicate the Vision l Decide When to Change

Strategy Making Tasks: Setting Objectives l Strategic vs. Financial l Long-range vs. Short-term l Challenging but Achievable Test What Will Conditions Allow? l What Results Indicate Success? l What Is the Capability with a Push? l l Objectives at All Management Levels

Strategy Making Tasks: Crafting a Strategy l Corporate Strategy l Business Strategy l Functional Strategy l Operating Strategy l Uniting the Strategy Making Effort: Completeness l Internal consistency l Develop synergies l

Strategy Process Company Mission Business Strategy Functional. Area Functional Strategies Marketing Decisions Operations Decisions Fin. /Acct. Decisions

Factors that Influence Strategy l Industry Attractiveness l SWOT l Beliefs and Ambitions of Managers l Company Culture l Societal and Political Influences l Regulatory and Legislative Actions

SWOT Analysis to Strategy Formulation Mission Internal Strengths External Opportunities Strategy Internal Weaknesses Competitive Advantage External Threats

Strategy Making Approaches l Approaches Chief Architect l Delegation l Collaborative l Corporate Intrapreneur l l Comparing Approaches l Board of Directors

Tests of a Winning Strategy l Goodness of Fit l Competitive Advantage l Performance

The 3 Generic Strategies Low-cost leadership l Market niche l l l High end Low end Geographic Special needs buyers Other l Differentiation based on: l l l l Quality Service Technological superiority Breadth of product line Image and reputation Value Other attributes

Competing on Response l Flexibility l Reliability l Timeliness Requires the institutionalization within the firm of the ability to respond, change, and to adapt

Building Competitive Advantage l Company competence Product of experience and learning l Real proficiency l Consciously built and developed l l Competitive capability Valuable and beneficial to customers l Differentiate company from competitors l Enhances competitiveness l

Building Competitive Advantage l Core competence Internal activities performed well l Central to competitiveness and profitability l Resides in people, not assets l l Distinctive competence Activities performed well compared to competitors l Basis for competitive advantage l

Distinctive Competence and Strategy l Importance Competitive capability provided l Cornerstone of strategy l l Sustainable competitive advantage Resource is hard to copy l Longevity of resource l Resource is competitively superior l Not easily trumped l

Strategic Options Managers Use to Gain Competitive Advantage l 28% - Operations Management l 18% - Marketing/distribution l 17% - Momentum/name recognition l 16% - Quality/service l 14% - Good management l 4% - Financial resources l 3% - Other

Strategic Options Managers Use to Gain Competitive Advantage l 28% l l l l l Operations Management 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

POM Strategic objectives l Lower costs l l Increase productivity l l Total Quality Management Accommodate demands for local responsiveness l l Disperse manufacturing activities to efficient global locations Decentralize production Respond quickly to shifts on customer demand l Time-based competition extremely important

Relationship Between Quality & Cost

POM Strategy Considerations l. A successful POM strategy is consistent with: Corporate and business strategies l Environmental demands l Competitive demands l Social, legislative, regulatory and political demands l The product life cycle l

POM Strategy Considerations l Therefore, a successful POM strategy: Identifies and organizes the POM tasks l Identifies resources available within the firm and the POM function l Makes the necessary choices within the POM function l Integrates the POM strategy with the company strategy and with other functions l Identifies and develops a sustainable competitive advantage l

Stages in the Product Life Cycle Growth rate Introduction Growth Maturity Decline

POM Issues During Product Life Introduction l l Company Strategy & Issues POM 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

POM Issues During Product Life Growth Company Strategy & Issues POM 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

POM 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 POM Strategy & Issues Standardization Less rapid product changes and more minor annual model changes Optimum capacity; long production runs Increasing stability of manufacturing process Lower labor skills Attention to product improvement and cost cutting

POM Issues During Product Life Decline Company Strategy & Issues POM 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

Strategy and Issues During a Product’s Life

International Strategies: Advantages l Gain access to: Markets l Capital l Raw materials l Skills and expertise l l Exploit economies of scale l Capitalize on core competencies l Spread risks across a broader base

International Strategies: Advantages l Reduce costs: Labor l Taxes l Tariffs l l Improve the supply chain l Provide better goods and services l Learn to improve operations l Attract and retain global talent

International Strategies: Political Environment l Political risk Domestic instability l Foreign conflict l Political climate l Economic climate l

International Strategies: Political Environment l Political mechanisms l Protectionism l l l Tariff Quota Subsidy Cartel Under the table l l l Bribery Extortion Grease payments

International Strategies: Cultural Environment Language l Symbols l Values and beliefs l Individual differences l l l Social orientation Power orientation Uncertainty orientation Goal orientation Time orientation

International Strategies: Economic Environment l Economic system Market l High growth/high potential l Other l l Natural resources l Infrastructure l FX exposure

International Strategies: Entering International Markets l Importing and exporting l Licensing l Franchising l Strategic alliances l Direct investment Greenfield l Acquisition l

International Strategies: Direct Investment l Profit sanctuaries Countries where a firm derives significant profits l Strong market position l l Cross-market subsidization Subsidize price through margins gained in other markets l Many consider unfair l

Product Factors & Location Strategies l Two product features affect location decisions: l l l Value to weight ratio. Product serves universal needs Two basic strategies: l l Concentrating in a centralized location and serving the world market Decentralizing them in various regional or national locations close to major markets when opposite conditions exist

International Strategies: The 4 Generic Strategies

International Strategy l l l Global markets are penetrated using exports and licenses Create value by transferring valuable core competencies to foreign markets that indigenous competitors lack Centralize product development functions at home Establish manufacturing and marketing functions in local country but head office exercises tight control over it Limit customization of product offering and market strategy Strategy effective if firm faces weak pressures for local responsive and cost reductions

Multidomestic Strategy Main aim is maximum local responsiveness l Customize product offering, market strategy including production, and R&D according to national conditions l Generally unable to realize value from experience curve effects and location economies l Possess high cost structure l

Global Strategy Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies l Production, marketing, and R&D concentrated in few favorable functions l Market standardized product to keep cost’s low l Effective where strong pressures for cost reductions and low demand for local responsiveness l Semiconductor industry l

Transnational Strategy To meet competition firms aim to reduce costs, transfer core competencies while paying attention to pressures for local responsiveness l Global learning l l Valuable skills can develop in any of the firm’s world wide operations Transfer of knowledge from foreign subsidiary to home country and/or to other foreign subsidiaries Transnational strategy difficult task due to contradictory demands placed on the organization l Example: Caterpillar

4 International Operations Strategies