Operations Strategy in

Global economy

2–1
 Overview
• Introduction
• Today’s Global Business Conditions
• Operations Strategy
• Forming Operations Strategies
• Wrap-Up: What World-Class
Producers Do

2–2
 Introduction
• Operational effectiveness is the ability to perform
similar operations activities better than
competitors.

• It is very difficult for a company to compete

successfully in the long run based just on
operational effectiveness.

• A firm must also determine how operational

effectiveness can be used to achieve a sustainable
competitive advantage.

• An effective competitive strategy is critical.

2–3
 Factors Affecting Today’s
Global Business Conditions
• Changing nature of world business
• International companies
• Strategic alliances and production sharing
• Quality, customer service, and cost
challenges
• Rapid expansion of advanced
technologies
• Scarcity of operations resources
• Social responsibility issues

2–4
 Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Citicorp USA 34 46 NA
Colgate- USA 72 63 NA
Palmolive
Dow USA 60 50 NA
Chemical
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51

2–5
 Some Multinational
Corporations
% Sales % Assets
Outside Outside
Home Home Home % Foreign
Company Country Country Country Workforce

Nestle Switzerland 98 95 97
Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Unilever Britain & 95 70 64
Netherlands

2–6
 Reasons to Globalize

Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)

Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
5. Learn to improve operations
Intangible 6. Attract and retain global talent
Reasons

2–7
 Global Strategies
 Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world

 Volvo – considered a Swedish company but it is

controlled by an American company, Ford.

 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

2–8
 Mission
 Mission - where are
you going?
 Organization’s
purpose for being
 Answers ‘What do
we provide to
society?’
 Provides boundaries
and focus

At Emirates Airlines we strive to consistently deliver a safe, value

based, and enjoyable travel experience to all our guests

2–9
 Strategic Process
Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting

2 – 10
 Strategy
 Action plan to
achieve mission
 Functional areas
have strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

2 – 11
 Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?

2 – 12
 Strategy Example
Example
Rakesh is B Tech student. He would like to have a
career in business management, have a good
job, and earn enough income to live comfortably
• Mission: Live a good life
• Goal: Successful career in business
mgmt, good income
• Strategy: Obtain Management
education
• Tactics: Select a MBA institute
• Operations: Admission, buy books, Select
courses, study, exam, get job

2 – 13
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, after-
sale service, broad product lines.

2 – 14
 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

2 – 15
 Order Winners
and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

1-162 – 16
 Critical Success Factors and Core
Competencies

Decisions Sample Options

Product Customized, or standardized
Quality Define customer expectations and how to achieve them
Process Facility size, technology, capacity
Location Near supplier or near customer
Layout Work cells or assembly line
Human resource Specialized or enriched jobs
Supply chain Single or multiple suppliers
Inventory When to reorder, how much to keep on hand
Schedule Stable or fluctuating production rate
Maintenance Repair as required or preventive maintenance

2 – 17
Strategies for Competitive
Advantage

 Differentiation – better, or at least

different
Differentiation
 Cost leadership – cheaper (Better)

 Response – rapid response Response

(Faster)
Cost
leadership
(Cheaper)

2 – 18
 Operational Measures
Quality
First pass yield, quality cost, defects
per million, number of suggestions
per employee, process capability
indices
Cost
Average days of inventory,
manufacturing cost as percentage of
sales, procurement cost,

Delivery
Lead time for order fulfillment,
Procurement and manufacturing lead
time, On time delivery for suppliers,,
Schedule adherence
Flexibility
Number of models introduced, New
product development time, Breadth
and depth of the product offerings,
Process and manufacturing flexibility

Indirect Measures
Indirect labour to direct labour ratio, Average training time per employee,
Number of suggestions per employee, Non value added content in processes,
Number of certified deliveries

2 – 19
 Model for Strategy Formulation
Competitive dynamics Order winners/
at the market place Order qualifiers

Strategic options for Generic Competitive

sustaining competitive Priorities
options Quality, Cost, Delivery,
Flexibility

Corporate strategy

Strategic options for Operations strategy Measures for

operations operational excellence

2 – 20
 Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Goods and Product is usually Product is not
service tangible tangible
design
Quality Many objective Many subjective
standards standards
Process Customers not Customer may be
and involved directly involved
capacity Capacity must
design match demand

2 – 21
 Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Supply chain Relationship critical Important, but may
to final product not be critical

Inventory Raw materials, Cannot be stored

work-in-process,
and finished goods
may be held

Scheduling Level schedules Meet immediate

possible customer demand
2 – 22
 Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Maintenance Often preventive Often “repair” and
and takes place takes place at
at production site customer’s site

2 – 23
 Product Life Cycle
Introduction Growth Maturity Decline
Best period to Practical to change Poor time to Cost control
Company Strategy/Issues

increase market price or quality change image, critical

share image price, or quality

R&D engineering is Strengthen niche Competitive costs

critical become critical
Defend market
position
CD-ROMs
Internet search engines
Analog TVs
LCD & plasma TVs

Sales iPods

3 1/2”
Xbox 360 Floppy
disks

2 – 24
 Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Product Heavy R&D investment; Low R&D investment;
Selection and extensive labs; focus on focus on development
Design development in a broad of generic drugs
range of drug
categories
Quality Major priority, exceed Meets regulatory
regulatory requirements requirements on a
country by country
basis

2 – 25
 Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Process Product and modular Process focused;
process; long general processes; “job
production runs in shop” approach, short-
specialized facilities; run production; focus
build capacity ahead of on high utilization
demand
Location Still located in the city Recently moved to low-
where it was founded tax, low-labor-cost
environment

2 – 26
 Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Scheduling Centralized production Many short-run
planning products complicate
scheduling

Layout Layout supports Layout supports

automated product- process-focused “job
focused production shop” practices

2 – 27
 Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Human Hire the best; Very experienced top
Resources nationwide searches executives; other
personnel paid below
industry average

Supply Chain Long-term supplier Tends to purchase

relationships competitively to find
bargains

2 – 28
 Operations Strategies for
Two Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Inventory High finished goods Process focus drives up
inventory to ensure all work-in-process
demands are met inventory; finished
goods inventory tends
to be low
Maintenance Highly trained staff; Highly trained staff to
extensive parts meet changing demand
inventory

2 – 29
Operations Strategy at Wal-
Mart

2 – 30
 Activity Mapping
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft

2 – 31
 Four International
Operations Strategies
International
High
Strategy
 Export or license
Cost Reduction Considerations

existing product
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 32
 Four International
Operations Strategies
High
Cost Reduction Considerations

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 33
 Four International
Operations Strategies
Global
High Strategy
 Standardized
Cost Reduction Considerations

product
 Economies of scale
 Cross-cultural
learning
Examples
International Strategy
 Import/export or
Texas Instruments
license existing
product

Examples Caterpillar
Otis Elevator
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 34
 Four International
Operations Strategies
High
Global Strategy
 Standardized product
Cost Reduction Considerations

 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 35
 Four International
Multidomestic
Operations Strategies
Strategy
High
 Use existing
Global Strategy
 Standardizeddomestic model
Cost Reduction Considerations

product
 Economies of scale
globally
 Cross-cultural learning

Texas 
Examples
Franchise, joint
Instruments
Caterpillar
Otis Elevatorventures,

subsidiaries
International Strategy
Examples
 Import/export or
license existing
product Heinz
Examples McDonald’s
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 36
 Four International
Operations Strategies
High
Global Strategy
 Standardized product
Cost Reduction Considerations

 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz
Harley Davidson McDonald’s

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 37
 Four International
Operations Strategies
Transnational
High Strategy
 Move material,
Global Strategy
 Standardized product
Cost Reduction Considerations

people, ideas
 Economies of scale
 Cross-cultural learning

Examples across national

Texas Instruments
Caterpillar boundaries
Otis Elevator
 Economies of scale
 Cross-cultural
International Strategy Multidomestic Strategy
learning
 Import/export or
 Use existing
domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples
Examples Examples
Coca-Cola
U.S. Steel
Harley Davidson
Heinz The Body Shop
McDonald’s Hard Rock Cafe

Low Nestlé
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 38
 Four International
Operations Strategies
High
Global Strategy Transnational Strategy
 Standardized product  Move material, people, ideas
Cost Reduction Considerations

 Economies of scale across national boundaries

 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

International Strategy Multidomestic Strategy

 Use existing
 export or license domestic model globally
existing product  Franchise, joint ventures,
subsidiaries
Examples
U.S. Steel Examples
Harley Davidson Heinz The Body Shop
McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation) 2 – 39
THANK YOU
2 – 40