Operations
Management
Chapter 2 –
Operations Strategy in a
Global Environment
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
Prentice
Hall, Inc. Hall, Inc.
©
2006
Prentice
2–1
OUTLINE
 STRATEGIC
ANALYSIS
Strategic Management : Creating
Competitive advantage
Analyzing The External Environment
of The Firm
Assessing The Internal Environment
of The Firm
Recognizing a Firm`s Intellectual
Assets : Moving Beyond a Firm`s
Tangible Resources
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 STRATEGIC
FORMULATION
Business-Level Strategy : Creating
and Sustaining Competitive
Advantages
Corporate-Level Strategy : Creating
Value through Diversification
International Strategy : Creating
Value in Global Markets
The Internet and E-Commerce :
Creating Value through E-Business
Strategies
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STRATEGIC FORMULATION
Business-Level Strategy
Type of competitive advantage and
sustainability :
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Strategy Decomposition
• Value chain analysis
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Overall Low-Cost Leadership
strategy
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Differentiation strategy
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Focus strategy
Based on the choice of a narrow competitive scope.
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Global Operations Strategy
 Global Operations Strategy
Options
 International Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy
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Four International
Operations Strategies
Cost Reduction Considerations
High
Global Strategy
Transnational Strategy
 Standardized product
 Economies of scale
 Cross-cultural learning
 Move material, people, ideas
across national boundaries
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Examples
Coca-Cola
Nestlé
International Strategy
 Import/export or
license existing
product
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
U.S. Steel
Harley Davidson
Examples
Heinz
The Body Shop
McDonald’s Hard Rock Cafe
Low
Low
High
Local Responsiveness Considerations
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(Quick Response and/or Differentiation)
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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
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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
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Reasons to Globalize
Reasons to Globalize
Tangible  Reduce costs (labor, taxes, tariffs, etc.)
Reasons  Improve supply chain
 Provide better goods and services
 Understand markets
Intangible  Learn to improve operations
Reasons  Attract and retain global talent
Figure 2.1
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Reduce Costs
 Foreign locations with lower wage
rates can lower direct and indirect
costs
 Maquiladoras
 World Trade Organization (WTC)
 North American Free Trade
Agreement (NAFTA)
 APEC, SEATO, MERCOSUR
 European Union (EU)
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Improve the Supply Chain
 Locating facilities closer to
unique resources
 Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France
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Provide Better Goods
and Services
 Objective and subjective
characteristics of goods and
services
 On-time deliveries
 Cultural variables
 Improved customer service
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Understand Markets
 Interacting with foreign customer
and suppliers can lead to new
opportunities
 Cell phone design from Europe
 Cell phone fads from Japan
 Extend the product life cycle
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Learn to Improve Operations
 Remain open to the free flow of
ideas
 General Motors partnered with a
Japanese auto manufacturer to
learn
 Scandinavian design ideas have
been used to improve equipment
design and layout
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Attract and Retain Global
Talent
 Offer better employment
opportunities
 Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to
more prosperous locations
 Incentives for people who like to
travel
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Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different
towards
 Punctuality
 Thievery
 Lunch breaks
 Bribery
 Environment
 Child labor
 Intellectual
property
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Mission
 Mission - where are
you going?
 Organization’s
purpose for being
 Answers ‘What do
we provide society?’
 Provides boundaries
and focus
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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
Figure 2.2
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Factors Affecting Mission
Philosophy
and Values
Profitability
and Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
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Strategic Process
Organization’s
Mission
Functional
Area Missions
Marketing
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Operations
Finance/
Accounting
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Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
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Strategies for Competitive
Advantage
 Differentiation – better, or at least
different
 Cost leadership – cheaper
 Quick response – more
responsive
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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
 Hard Rock Cafe – theme experience
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Competing on Cost
Provide the maximum value as
perceived by customer. Does not
imply low quality.
 Southwest Airlines – secondary
airports, no frills service, efficient
utilization of equipment
 Wal-Mart – small overheads, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers
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Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness in design,
production, and delivery
 Johnson Electric, Bennigan’s, Motorola
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OM’s Contribution to Strategy
Operations
Decisions
Product
Quality
Process
Examples
Specific
Strategy Used
Competitive
Advantage
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
Location
Layout
Human
resource
Supply-chain
Inventory
Scheduling
Maintenance
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DELIVERY
Pizza Hut’s five-minute
guarantee at lunchtime…………………..…..……..Speed
Federal Express’s “absolutely,
positively on time”………………………..….Dependability
Differentiation
(Better)
Response
(Faster)
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
Cost
leadership
(Cheaper)
Figure 2.4
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Process Design
Variety of Products
High
Moderate
Process-focused
Mass Customization
JOB SHOPS
Customization at high
Volume
(Print shop, emergency
room, machine shop,
(Dell Computer’s PC)
fine dining
Repetitive (modular)
focus
ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
Product focused
restaurants)
CONTINUOUS
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low
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Moderate
Volume
High
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Managing Global Service
Operations
Probably requires a different
perspective on:
 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling
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Characteristics of
High ROI Firms
 High quality product
 High capacity utilization
 High operating effectiveness
 Low investment intensity
 Low direct cost per unit
From the PIMS program of the Strategic Planning Institute
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Strategic Options to Gain a
Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
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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
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Preconditions
One must understand:
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas
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Dynamics of
Strategic Change
 Changes within the organization




Personnel
Finance
Technology
Product life
 Changes in the environment
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Product Life Cycle
Company Strategy/Issues
Introduction
Growth
Maturity
Best period to
increase market
share
Practical to change
price or quality
image
Poor time to
change image,
price, or quality
R&D engineering is
critical
Strengthen niche
Competitive costs
become critical
Defend market
position
CD-ROM
Internet
Sales
Decline
Cost control
critical
Fax machines
Drive-through
restaurants
Color printers
Flat-screen
monitors
DVD
3 1/2”
Floppy
disks
Figure 2.5
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Product Life Cycle
OM Strategy/Issues
Introduction
Product design
and
development
critical
Frequent
product and
process design
changes
Growth
Forecasting
critical
Product and
process
reliability
Maturity
Standardization
Less rapid
product changes
– more minor
changes
Competitive
product
improvements
and options
Optimum
capacity
High production
costs
Shift toward
product focus
Long production
runs
Limited models
Enhance
distribution
Product
improvement
and cost cutting
Short production
runs
Attention to
quality
Increasing
stability of
Increase capacity process
Decline
Little product
differentiation
Cost
minimization
Overcapacity
in the
industry
Prune line to
eliminate
items not
returning
good margin
Reduce
capacity
Figure 2.5
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Strategy Development and
Implementation
 Identify critical success factors
 Build and staff the organization
 Integrate OM with other activities
The operations manager’s job is to implement
an OM strategy, provide competitive
advantage, and increase productivity
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Strategy Development Process
Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.
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, aftersale service, broad product lines.
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Figure 2.6
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SWOT Analysis
Mission
Internal
Strengths
External
Opportunities
Analysis
Internal
Weaknesses
External
Threats
Strategy
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BALANCE SCORECARD
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BALANCE SCORECARD
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Strategic Positioning and
Operational Effectiveness
• Competitive product space : representation of the
firm’s product portfolio as measured along four
dimensions or product attributes- product cost,
response time, variety and quality.
• Strategic positioning : defines those positions that
the firm wants to occupy in its competitiveness
product space.
• Operational effectiveness : developing processes
and operating policies that support the strategic
position better than processes and policies of
competitors do.
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• Product cost is the total cost that a
customer incurs in order to own and
experience the product.
• Product delivery-response time is the
total time that a customer must wait
before receiving a product or for which he
or she has expressed a need to the provider.
• Product variety is the range of choices
offered to the customer to meet his or her
needs.
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Variety
High
B
A
Low
Low
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Cost Efficiency
High
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Case of Wall-Mart strategy and
its operations structure.
Corporate Strategy
Enable everyday low prices and above average profitability by
procuring, distributing, and selling products, when and where
needed, at lower costs than any competitor
Operations Strategy
Short cycle times
Low inventory levels
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Operations Structure
Cross docking
Proprietary electronic information system (Retail Link)
Fast transportation system
Focused locations
Communication between retail stores
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Strategic Fit
 What distinguish an effective business process?
– equate effective and efficient process?
 A process is efficient if it operates low cost. A
process is effective if it supports the execution
of the company’s strategy.
 Strategic fit means consistency between the
competitive advantage that a firm seeks and the
process architecture and managerial policies
that it uses to achieve that advantage.
(an approach through market and process
driven strategies, focused operations, and
product-process matrix)
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Jumbled flow
Process
segments
Loosely linked
High
Process
Flexibility
Job Shop
(commercial
printer,
architecture
firm)
Disconnected
line flow/
jumbled flow but
a dominant flow
exist
Batch
(heavy
equipment,
auto repair)
Line
Flows
Connected line
flow (assembly
line)
Continuous,
automated, rigid
line flow
Process segments
tightly linked
(auto
assembly)
Continuous
Flow
(oil refinery)
Low
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High
standardization
Commodity
products
High volume
Few
major
products
Many
products
Low
standardization
One of a kind
Low volume
High
Product
Variety
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