Operations
Management
Operations Strategy
Chapter 2
2-1
Outline
Missions and Strategies.
Achieving Competitive Advantage Through
Operations.

Competing on Differentiation.

Competing on Cost.

Competing on Response.
Life Cycle.
Global Strategies.
2-2
Mission
 Mission - “Where are you going?”
 Mission statement:
 States organization’s purpose for being.
 Provides boundaries & focus.
 Answers ‘How can we satisfy people’s needs?’
 Published.
2-3
Mission Statement - Merck
The mission of Merck is to provide:
(1) Society with superior products and
services - innovations and solutions that
improve the quality of life and satisfy
customer needs,
(2) Employees with meaningful work and
advancement opportunities, and
(3) Investors with a superior rate of return.
2-4
Mission Statement - COBA
The College of Business Administration...seeks to:
 Provide students with a high quality business
education that prepares them to become productive
contributors and leaders...
 Conduct research…[to] extend and expand existing
levels of knowledge and understanding relating…to
enterprises in both the private and public sectors.
 Serve the university, the citizens of Missouri, and
the St. Louis business community through useful
outreach programs...
2-5
Mission/Strategy
Mission - “Where are you going?”
Strategy - “How are you going to get there?”
2-6
Strategy
 Action plan to achieve
mission.
 Exploits strengths and
opportunities, avoid
weaknesses.
 Functional areas have
strategies.
2-7
Strategy Process
Company
Mission
Business
Strategy
Marketing
Strategy
Operations
Strategy
2-8
Fin./Acct.
Strategy
Operations Strategy
 Should include measurable goals:






Product quality.
Customer wait time.
Delivery times.
Safety.
Equipment down time.
Employment and/or layoffs.
2-9
Competitive Advantage Through:
Differentiation.
Better!
Cost leadership.
Cheaper!
Quick response.
Faster!
2-10
Competing on Differentiation
Better physical characteristics and service
attributes.
Can encompass everything that impacts
customer’s perception of value:

Higher quality.

More convenient.

Better service.

Broader product line.

Innovative products/services.
2-11
Competing on Cost
Maximum value as perceived by customer.
Does not imply low value or low quality.
Usually results in a narrow range of products
or services.
2-12
Competing on Response
Flexible to match changes in marketplace.
Reliable scheduling.
Rapid design, development, delivery, etc.
Requires institutionalization within the firm of
the ability to respond.
2-13
OM’s Contribution to Strategy - p. 37
Operations
Decisions
Specific
Strategy Used
Examples
Quality
Product
FLEXIBILITY
Sony’s constant innovation of new products
Compaq Computer’s ability to follow the PC market
Process
Design
Volume
LOW COST
Southwest Airlines No-frills service
Location
DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime
Federal Express’s “absolutely, positively on time”
Layout
Human Resource
Supply Chain
Speed
Dependability
Maintenance
Differentiation
(Better)
QUALITY
Motorola’s automotive products ignition systems
Motorola’s pagers
Conformance
Performance
Inventory
Scheduling
Competitive
Advantage
IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE
2-14
Cost
leadership
(Cheaper)
Response
(Faster)
Southwest Airline’s Low Cost
Competitive Advantage
Lean,
productive
employees
High
aircraft
utilization
Courteous, but
limited passenger
service
Competitive
Advantage:
Low Cost
Short haul, point-topoint routes, often to
secondary airports
Frequent flights.
Standardized fleet
of Boeing 737
aircraft
2-15
Southwest Airline’s Low Cost
Competitive Advantage
Courteous, but
limited passenger
service
No seat assignments.
No baggage transfers.
Automated ticketing machines.
No meals.
2-16
Southwest Airline’s Low Cost
Competitive Advantage
Short haul, point-topoint routes, often to
secondary airports
Lower gate costs at
secondary airports.
2-17
Southwest Airline’s Low Cost
Competitive Advantage
Less employee idle time
between flights.
Lower administrative costs per
passenger.
2-18
Frequent flights.
Southwest Airline’s Low Cost
Competitive Advantage
Pilot and maintenance training on only
one type of aircraft.
Reduced maintenance inventory.
Excellent supplier relations with Boeing.
Standardized fleet
of Boeing 737
aircraft
2-19
Southwest Airline’s Low Cost
Competitive Advantage
Fast (15 minute) gate turnarounds.
Flexible employees and standard
planes aids scheduling.
High
aircraft
utilization
Easier maintenance with only one
type of aircraft.
2-20
Southwest Airline’s Low Cost
Competitive Advantage
High level of stock ownership.
Lean,
productive
employees
Hire for attitude, then train.
High employee compensation.
Empowered employees.
2-21
How Do These Organizations
Compete?
UM - St. Louis.
Other area universities.
Boeing.
7-11
2-22
Life Cycle
Every product/service has a life cycle with
four phases:

Introduction.

Growth.

Maturity.

Decline.
Strategy changes as product/service moves
through life cycle.
2-23
Life Cycle
Introduction
Increase
market share.
R&D product
engineering
critical.
Growth
Maturity
Strengthen
niche.
Can change
image, price,
quality.
Defend market
position.
Poor time to
change image,
price, or quality.
Sales
2-24
Time
Decline
Cost
control
critical.
Strategy Issues During Life Cycle
Introduction
Growth
Maturity
Decline
Frequent design
changes.
Forecasting
critical.
Optimum
capacity.
Short production
runs.
Increase
capacity.
Long production Minimize cost.
runs.
Eliminate
Product
items.
improvement
and cost cutting.
High production
costs.
Enhance
distribution.
Limited models.
Reduce
capacity.
Sales
2-25
Time
Life Cycle
Every product/service has a life cycle with
four phases:

Introduction.

Growth.

Maturity.

Decline.
Strategy changes as product/service moves
through life cycle.
2-26
Global Business
Home
Country
% Sales Outside
Home Country
Citicorp
USA
34
46
ColgatePalmolive
USA
72
63
Dow Chemical USA
60
50
Gillette
Honda
USA
Japan
62
63
53
36
IBM
USA
57
47
Company
2-27
% Assets Outside
Home Country
$20,000 for a Pontiac LeMans
 $6,000 to South Korea for auto’s assembly.
 $3,500 to Japan for engines, axles, and electronics.
 $1,500 to Germany for design.
 $800 to Taiwan, Singapore, and Japan for parts.
 $500 to England for marketing.
 $100 to Ireland for information technology.
 $7,600, to US (GM and its bankers, insurance
agents, and attorneys).
2-28
Defining Global Operations
 International business - engages in crossborder transactions.
 Multinational Corporation - has extensive
involvement in international business, owning
or controlling facilities in more than one
country.
 Global company - integrates operations from
different countries, and views world as a
single marketplace.
2-29
Reasons to Globalize Operations
Tangible
Reduce costs (labor, taxes, tariffs, etc.).
Provide better goods and services.
Improve operations.
 Improve the supply chain.

Attract new markets.
Attract and retain global talent.
Intangible
2-30
Trade and Tariffs
Maquiladoras - Mexican factories located
along the U.S.-Mexico border that receive
preferential tariff treatment.
GATT - an international treaty to promote
world trade by lowering barriers to the free
flow of goods across borders.
NAFTA - a free trade agreement between
Canada, Mexico, and the United States.
2-31
Global Product Design
Different countries/regions require different
versions of a product & different packaging.
Consider social and cultural differences:
Language.
 Measures: “liter” versus “quart”.
 “sweetness” and “taste”

 Coca-Cola for Mexico is different than for the USA.

Infrastructure: electricity, outlets, water,
transportation, etc.
2-32
Global Process Design and IT
Information technology (IT) enables
management of globally dispersed operations.
Low labor cost outside USA lowers production
cost.

Examples: Manufacturing in China, Call centers in
Asia.
Offshore production may increase other costs
(transportation, inventory, etc.) and may affect
response and risk.
2-33
Impact of Culture and Ethics
 Cultures differ in many ways!
 Some accept or expect:
Variations in punctuality.
 Long lunch hours.
 “Shrinkage” (theft).
 Bribery.
 Little protection of intellectual property.

2-34