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CHAPTER TWO

Operations Strategy in a Global Environment

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Learning Objectives
When you complete this chapter, you should be able to:

Define Mission and Strategy Explain Three Strategic Approaches to Competitive Advantage Define Globalization Identify Issues in Operations Strategy Explain Four Global Operations Strategy Options

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Chapter Outline

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The Boeing Company

787 DreamLiner:

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2.1

Boeings Global Strategy Yields Competitive Advantage

Strategy for 787 DreamLiner is unique from both engineering and global perspective Latest in a wide range of aerospace technologies Worked with GE and RR to develop more efficient engine 787 is global with a range of 8,300 miles Built across the world led by Everett Washington spread the risk with partners in over a dozen countries Teamed with more than 20 international system suppliers One of the fastest fastest-selling commercial jets in history
The first passenger plane made mainly with plastic composites, making it lighter & more fuelfuel-efficient than other commercial aircraft. After years of delays, the first Dreamliners were delivered to airlines in September 2011 & it made its first commercial flight the next month.
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787 Dreamliner Problems

A lot is riding on the success of the 787 Dreamliner, a risky technological and commercial bet for Boeing. Until Dec 2012, Boeing had delivered 38 jets to 8 airlines. Boeing has outlined ambitious plans to double the production rate to 10 planes a month by the end 2013; also starting to build a stretchedstretched-out version & considering a larger one after that. However, a string of embarrassing problems, problems, including a battery fire, fuel leaks and a cracked cockpit window, revived concerns about the reliability of the plane. Aviation experts cast these issues as minor hiccups and said it was typical for new planes to experience such problems. Boeing also declared that it had extreme confidence in the innovative design and technology used in the plane. But a spate of additional incidents in Jan 2013, including a battery fire in Boston, led the F.A.A. to order a review of the planes electrical systems. The controllers around the globe ordered the grounding of Dreamliners until they could determine what caused a new type of battery to catch fire.
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2.2

Missions and Strategies

Mission statements tell an organization where it is going. Mission - where are you going? Organizations purpose for being Answers What do we provide society? Provides boundaries and focus. Strategy tells the organization how to get there.

Mission Statements
FedEx - to provide total reliable, competitively superior, global airairground transportation of high priority goods and documents that require rapid, timetime-certain delivery. Merck - to provide society with superior products & services - innovations & solutions that improve the quality of life and satisfy customer needs. Hard Rock Cafe - to spread the spirit of Rock n Roll by delivering an exceptional entertainment and dining experience. Arnold Palmer Hospital - a healing environment providing familyfamily-centred care with compassion, comfort & respect ... when it matters the most.
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2.2

Missions and Strategies

Mission Statements

Sample mission statements:

delivering healthy and timetime-saving morning food service. providing access to high end services at lowest price. providing trustworthy staff, services and solutions for retaining and restoring life span and reliability of vehicles.

Mission statements have consequences for formulation of strategies. strategies.

Factors Affecting Mission

Philosophy and Values Profitability and Growth Mission Customers Public Image Environment

Benefit to Society

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2.2

Missions and Strategies

Strategy
With the mission established, strategy and its implementation can begin. Strategy is an organizations plan to achieve the mission. Each functional area has a strategy for achieving its mission and for helping organization reach the overall mission. mission.
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2.2

Missions and Strategies

Strategy Development and Implementation

SWOT Analysis
Mission Internal Strengths Analysis Internal Weaknesses Strategy
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External Opportunities

External Threats

2.2

Missions and Strategies

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 firms 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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2.3
1. 2. 3. 4. 5.

Operations Strategy
Issues in Operations Strategy
High product quality High capacity utilization High operating efficiency Low investment intensity Low direct cost per unit

Research:

Preconditions:
1. Strength & weakness of competitors 2. Current and prospective environmental, technological, legal and economic issues 3. Product life cycle 4. Available resources 5. Integration of OM strategy with companys strategy and other functional areas

Dynamics
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2.3

Operations Strategy
Product Life Cycle
Introduction
Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality

Growth
Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focus Enhance distribution

Maturity
Standardization Less rapid product changes more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting

Decline
Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity

OM Strategy/Issues

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2.4

Strategic Approaches to Competitive Advantage

Firms achieve missions in three conceptual ways:

Differentiation leadership: leadership: providing offerings to which customers perceive as adding value to them because the services are faster, better and more appropriate for their needs than offerings of competitors (not all service differences constitute a competitive advantage). Cost leadership: leadership: providing offerings to customers at the best value to cost ratio (cost leadership is not necessarily cheapest price). Response leadership: leadership: providing offerings that rapidly, flexibly and reliably adapt to customer diversity, needs and demands.

Not all good ideas are strategies, e.g. funding roads. The best strategies are those which directly add value to the customer. Most strategies have implications for the design and management of a companys operations.
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2.4

Strategic Approaches to Competitive Advantage

Achieving Competitive Advantage through Operations

Each of the three strategies provides an opportunity for operations managers to achieve competitive advantage. advantage. Competitive advantage implies the creation of a system that has a unique advantage over competitors.

Competing on Differentiation
Uniqueness (differentiation differentiation) ) can go beyond both the physical characteristics and service attributes to encompass everything that impacts customers perception of value. Hard Rock Cafe theme experience.

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2.4

Strategic Approaches to Competitive Advantage Competing on Cost

Provide the maximum value as perceived by customer does not imply low quality. quality. Southwest Airlines secondary airports, no frills service, efficient utilization of equipment. WalWal -Mart small overheads, shrinkage, distribution costs.

Competing on Response
Flexibility is matching market changes in design innovation and volumes a way of life at HewlettHewlett-Packard. Packard. Reliability is meeting schedules German machine industry. industry . Timeliness is quickness in design, production, and delivery Johnson Electric, Pizza Hut, Motorola.
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2.5

Globalization
Global Innovative 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. Volvo (a Swedish Company) is controlled by a US company, Ford. Haier (China) has at least oneone-third of the US market (South Carolina). Globalization means that domestic production and exporting may no longer be viable business model. model.
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2.5
Tangible Reasons

Globalization
Reasons to Globalize
Reduce costs (labor, taxes, tariffs, etc.) - foreign locations with lower wage rates can lower direct and indirect costs. Improve supply chain - locating facilities closer to resources. Provide better goods and services - objective & subjective. characteristics of goods & services (on(on-time deliveries, cultural variables, improved customer service). Understand markets - interacting with foreign customer and suppliers can lead to new opportunities (cell phone design, extend life cycle). Learn to improve operations - remain open to the free flow of ideas. Attract and retain global talent - offer better employment opportunities.
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Intangible Reasons

2.5

Globalization
Cultural and Ethical Issues

Cultures can be quite different. Attitudes can be quite different towards Punctuality Lunch breaks Environment Intellectual property Thievery Bribery Child labor

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2.6

Global Operations Strategies

Four International Operations Strategies

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