Operations

Management
Operations Strategy
Chapter 2

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 Outline
Missions and Strategies.
Achieving Competitive Advantage Through
Operations.
 Competing on Differentiation.
 Competing on Cost.
 Competing on Response.
Life Cycle.
Global Strategies.

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 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.

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 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.

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 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...
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 Mission/Strategy

Mission - “Where are you going?”

Strategy - “How are you going to get there?”

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 Strategy
 Action plan to achieve
mission.

 Exploits strengths and

opportunities, avoid
weaknesses.

 Functional areas have

strategies.

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 Strategy Process
Company
Mission

Business
Strategy

Marketing Operations Fin./Acct.

Strategy Strategy Strategy

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 Operations Strategy
 Should include measurable goals:
 Product quality.
 Customer wait time.
 Delivery times.
 Safety.
 Equipment down time.
 Employment and/or layoffs.

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 Competitive Advantage Through:

 Differentiation. Better!

 Cost leadership. Cheaper!

 Quick response. Faster!

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 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.
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 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.

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 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.

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 OM’s Contribution to Strategy - p. 37
Operations Specific Strategy Competitive
Decisions Examples Used Advantage
Quality FLEXIBILITY
Sony’s constant innovation of new products Design
Product Compaq Computer’s ability to follow the PC market Volume

Process Southwest Airlines No-frills service LOW COST

Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
Layout Federal Express’s “absolutely, positively on time” Dependability Differentiation
(Better)
Human Resource QUALITY
Motorola’s automotive products ignition systems Conformance Response
Cost leadership (Faster)
Supply Chain Motorola’s pagers Performance (Cheaper)

Inventory
IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE
Scheduling
Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE
Maintenance

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Southwest Airline’s Low Cost Competitive
Advantage
Courteous, but limited
passenger service

Lean, productive
employees Short haul, point-to-point
Competitive routes, often to secondary
Advantage: airports
Low Cost
High aircraft
utilization Frequent flights.

Standardized fleet of
Boeing 737 aircraft

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Southwest Airline’s Low Cost Competitive
Advantage
Courteous, but limited
passenger service

No seat assignments.

No baggage transfers.

Automated ticketing machines.

No meals.
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Southwest Airline’s Low Cost Competitive
Advantage

Short haul, point-to-point

Lower gate costs at routes, often to secondary
secondary airports. airports

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Southwest Airline’s Low Cost Competitive
Advantage

Less employee idle time

between flights.

Lower administrative costs per

passenger.
Frequent flights.

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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

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Southwest Airline’s Low Cost Competitive
Advantage

Fast (15 minute) gate turnarounds.

Flexible employees and standard

planes aids scheduling.

High aircraft Easier maintenance with only one

utilization type of aircraft.

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Southwest Airline’s Low Cost Competitive
Advantage
High level of stock ownership.

Hire for attitude, then train.

Lean, productive
employees
High employee compensation.

Empowered employees.

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How Do These Organizations Compete?

UM - St. Louis.

Other area universities.

Boeing.

7-11
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 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.

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 Life Cycle
Introduction Growth Maturity Decline
Increase Strengthen Defend market Cost control
market share. position. critical.
niche.
R&D product Poor time to
engineering Can change change image,
critical. image, price, price, or quality.
quality.

Sales

Time
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Strategy Issues During Life Cycle
Introduction Growth Maturity Decline

Frequent design Forecasting Optimum Reduce

changes. critical. capacity. capacity.
Short production Increase capacity. Long production
Minimize cost.
runs. Enhance runs.
distribution. Eliminate items.
High production Product
costs. improvement and
cost cutting.
Limited models.

Sales

Time
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 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.

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 Global Business
Company Home % Sales Outside % Assets Outside
Country Home Country Home Country
Citicorp USA 34 46
Colgate- USA 72 63
Palmolive
Dow Chemical USA 60 50
Gillette USA 62 53
Honda Japan 63 36
IBM USA 57 47

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 $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).
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 Defining Global Operations
 International business - engages in cross-border
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.
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 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

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 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.

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 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.

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 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.

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 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.

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