Corporate Strategy and its
Connection to Operations
Corporate Mission
• The mission of the organization
–
–
–
–
defines its purpose, i.e., what it contributes to society
states the rationale for its existence
provides boundaries and focus
defines the concept(s) around which the company can rally
• Functional areas and business processes define their
missions such that they support the overall corporate
mission in a cooperative and synergistic manner.
Corporate Mission Examples
• 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.
• FedEx: FedEx is committed to our People-Service-Profit philosophy.
We will produce outstanding financial returns by providing totally
reliable, competitively superior, global air-ground transportation of
high-priority goods and documents that require rapid, time-certain
delivery. Equally important, positive control of each package will be
maintained utilizing real time electronic tracking and tracing systems.
A complete record of each shipment and delivery will be presented
with our request for payment. We will be helpful, courteous, and
professional for each other, and the public. We will strive to have a
completely satisfied customer at the end of each transaction.
Corporate Strategy
• The organization’s action plan to achieve its mission
• The corporate strategy translates into more detailed
strategies for each functional area (i.e., Operations,
Finance, Marketing)
• Generally speaking, these strategies seek to exploit
(external) opportunities and (internal) strengths, neutralize
(external) threats, and address (internal) weaknesses
Defining the Corporate Strategy
Responsiveness (Reliability; Quickness; Flexibility;
e.g., Dell, Overnight Delivery Services)
Competitive Advantage through which
the company market share is attracted
Cost Leadership (Price;
e.g., Wal-Mart, Southwest
Airlines, Generic Drugs)
Differentiation (Quality; Uniqueness;
e.g., Luxury cars, Fashion Industry,
Brand Name Drugs)
The operations frontier, trade-offs, and
the operational effectiveness
Responsiveness
Cost Leadership
Differentiation
OM’s contribution to Corporate Strategy
Differentiation
Cost Leadership
Responsiveness
Design & Volume Flexibility
Fast & Dependable Delivery
Quality
Low Cost
After-Sale Service
Broad Product Line
Product Process Quality Location Layout Human Resources
Supply Chain Inventories Scheduling Maintenance
Critical Success factors and
Activity Maps
• Critical Success Factors (CSF): Those activities or factors
that are key to achieving and maintaining competitive
advantage.
• Activity Map: A graphical representation of the links
among the competitive advantage, CSF’s, and the company
supporting activities.
• Example: Figure 2.7-Activity Mapping of Southwest
Airlines’ Low Cost Corporate Strategy
Strategy Development Process
(J. Heizer & B. Render, “Operations Management”, Prentice Hall)
Environmental Analysis
Understand the environment, customers, industry, and competitors
Identify your strengths, weaknesses, opportunities and threats.
Determine Corporate Mission
State the reason for the firm’s existence and
identify the value it wishes to create
Form a Strategy
Build and maintain a competitive advantage, such as low price,
quick delivery or quality, by identifying and developing
the critical success factors
Expanding the operations frontier:
Dell’s “revolution” in the PC market
• Dell’s competitive advantage: Provide customized PC
configurations, with short delivery times and affordable
prices.
• Dell’s success in PC market:
The CSF’s underlying Dell’s
competitive advantage
• Very high product (configurable) variety – mass
customization!
• Direct fulfillment - no intermediaries
• No production launch until customer order booked (pure
pull!)
• Very low finished goods inventory (costs) – high inventory
turns (raw material inventory influenced by “recommended
configurations”)
• High velocity material flows & fulfillment
PC SUPPLY CHAINS
Customer
Customer
Distribution
Channels
PUSH
Manufacturer
Suppliers
Typical PC Supply Chain
(Compaq, HP, IBM, etc.)
Virtual Integration
PULL
PULL
Dell
Suppliers
Dell Supply Chain
PUSH
Supporting Dell’s competitive advantage
through a new operational model
• Focused on strategic partnerships: suppliers down from
200 to 47
• Suppliers maintain nearby ship points; delivery time 15
minutes to 1 hour
• Suppliers own inventory until used in production
• Demand pull throughout value chain – “information for
inventory” substitution
• Demand forecasting is critical – changes are shared
immediately within Dell and with supply base
• Customers frequently steered to “recommended
configurations” with high availability to balance supply
and demand
• External logistics supplier used to manage inbound supply
chain
Dell performance
Emerging factors and trends enabling
Dell’s strategy
• The commoditization of the PC industry
– Standardized and interchangeable components
– Emergence of reliable manufacturing service providers
• Recent advances in Supply Chain Management
– Information Technology (IT) platforms that allow the effective and
efficient information exchange and coordination across the entire
supply chain
– 3rd party logistics service providers
– Emerging emphasis on virtual rather than vertical company
integration
Factors affecting Corporate Strategy
• External
– Emerging strengths and weaknesses of competitors => new threats
and opportunities, respectively
– New industry entrants
– Development of substitute products
– Development of new technologies
– Legal developments (e.g., environmental concerns and regulations)
– Economic and political developments (e.g., new international
agreements, political crises)
• Internal
– Company politics and restructuring
– Modified relationships with customers and suppliers
– Product Life Cycle
Strategy and Issues during a Product’s Life
(J. Heizer & B. Render, “Operations Management”, Prentice Hall)
Introduction
• Best period to
increase market
share
•R&D engineering
critical
Growth
•Practical to
change price or
quality image
•Strengthen
niche
Maturity
•Poor time to change
image, price or
quality
•Competitive costs
become critical
•Defend market
position
Decline
•Cost control
critical
Sales
Time
• Frequent product
and process
changes
•Short production
runs
•High production
costs
•Limited models
•Attention to
quality
•Forecasting
critical
•Products and
process reliability
•Increase capacity
•Shift towards
product focus
•Enhance
distribution
•Standardization minor product
changes
•Optimum capacity
•Process stability
•Long production
runs
•Little product
differentiation
•Overcapacity in
the industry
•Reduce capacity
and eventually
prune line to
eliminate items not
returning good
margin
The opportunities and challenges
of globalization
Some basic definitions
• International business: A firm that engages in cross-border
transactions.
• Multinational corporation (MNC): A firm that has
extensive involvement in international business, owing or
controlling facilities in more than one country.
Building competitive advantage
through globalization
• Cost reductions: labor, transportation, taxation (free trade
zones), tarrifs, etc.
• Easier access to local markets; ability to understand and
adjust better to the local markets and cultures;
• Ability to create new markets and expand the life cycle of
existing products
• Ability to tap to the local expertise or unique resources
• Ability to interact with and learn from the local industry
The challenges underlying
the deployment and support of
global operations
• The provided products and services need to appeal to the local markets
=> need for broader product lines and customization
• Need to coordinate the production activity across a geographically
dispersed network
• Need to understand and systematically assess the pros and cons offered
by the various geographical locations
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–
–
–
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Technological infrastructure
Labor skills and education
Political stability and legal issues (prod. Liability laws, export restrictions)
Economic factors (tax and interest rates, availability of raw materials, etc.)
Social and cultural aspects (language, work ethic, etc.)
• Need to align the provided products and services, as well as the
deployed production and business functions to the local culture and
ethics
Global Operations Strategies
•
•
•
•
International
Multi-domestic
Global
Transnational
c.f. Figure 3.2 of page 67