Departament d’Economia de l’Empresa /

Department of Business Economics & Administration

Operations
Performance
Strategy
2–1
 Learning Objectives
When you complete this chapter you
should be able to:

1. Define mission and strategy

2. Identify and explain three strategic
approaches to competitive advantage
3. Identify and define the 10 decisions of
operations management

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2–2
 Learning Objectives
When you complete this chapter you
should be able to:

4. Identify five OM strategy insights

provided by PIMS research
5. Identify and explain four global
operations strategy options

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2–3
 Reasons to Globalize

Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
2. Improve supply chain
Reasons
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
6. Attract and retain global talent
Reasons

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2–4
Cultural and Ethical Issues
 Cultures can be quite different
 Attitudes can be quite different
towards
 Punctuality  Thievery
 Lunch breaks  Bribery
 Environment  Child labor
 Intellectual
property
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2–5
 You May Wish To Consider
 National literacy rate  Work ethic
 Rate of innovation  Tax rates
 Rate of technology  Inflation
change
 Availability of raw
 Number of skilled materials
workers
 Interest rates
 Political stability
 Population
 Product liability
laws  Number of miles of
 Export highway
restrictions  Phone system
 Variations in Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2–6
 Departament d’Economia de l’Empresa /

Developing Missions and

Department of Business Economics & Administration

Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there

2 – 16
 Mission
 Mission - where are
you going?
Organization’s
purpose for being
Answers ‘What do we
provide society?’
Provides boundaries
and focus

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2–8
 Hard Rock Cafe

Our Mission: To spread the spirit of Rock ‘n’

Roll by delivering an exceptional
entertainment and dining experience. We
are committed to being an important,
contributing member of our community and
offering the Hard Rock family a fun, healthy,
and nurturing work environment while
ensuring our long-term success.

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2–9
 Factors Affecting Mission
Philosophy
and
Values
Profitability
Environment
and
Growth
Mission

Customers Public Image

Benefit to
Society
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 10
 Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and profitable
worldwide microwave communications business that exceeds our
customers’ expectations.

Sample Operations Management Mission

To produce products consistent with the company’s mission as the

worldwide low-cost manufacturer.

Figure 2.3
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 11
 Sample Missions
Sample OM Department Missions
Product design To design and produce products and services
with outstanding quality and inherent customer
value.
Quality management To attain the exceptional value that is consistent
with our company mission and marketing
objectives by close attention to design,
procurement, production, and field service
operations

Process design To determine and design or produce the

production process and equipment that will be
compatible with low-cost product, high quality,
and good quality of work life at economical cost.

Figure 2.3
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 12
 Sample Missions
Sample OM Department Missions
Location To locate, design, and build efficient and
economical facilities that will yield high value to
the company, its employees, and the
community.
Layout design To achieve, through skill, imagination, and
resourcefulness in layout and work methods,
production effectiveness and efficiency while
supporting a high quality of work life.

Human resources To provide a good quality of work life, with well-

designed, safe, rewarding jobs, stable
employment, and equitable pay, in exchange for
outstanding individual contribution from
employees at all levels.

Figure 2.3
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 13
 Sample Missions
Sample OM Department Missions
Supply chain To collaborate with suppliers to develop
management innovative products from stable, effective, and
efficient sources of supply.
Inventory To achieve low investment in inventory
consistent with high customer service levels and
high facility utilization.
Scheduling To achieve high levels of throughput and timely
customer delivery through effective scheduling.

Maintenance To achieve high utilization of facilities and

equipment by effective preventive maintenance
and prompt repair of facilities and equipment.

Figure 2.3
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 14
 Strategic Process
Organization’s
Mission

Functional Area
Missions

Finance/
Marketing Operations
Accounting
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 15
 Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 16
Strategies for Competitive
Advantage

 Differentiation – better, or at least

different
 Cost leadership – cheaper
 Response – rapid response

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 17
 Competing on
Differentiatio
n can go beyond both the
Uniqueness
physical characteristics and service
attributes to encompass everything
that impacts customer’s perception of
value
 Safeskin gloves – leading edge products
 Walt Disney Magic Kingdom – experience
differentiation
 Hard Rock Cafe – dining experience
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 18
 Competing on Cost
Provide the maximum value as
perceived by customer. Does not
imply low quality.
 Southwest Airlines – secondary airports,
no frills service, efficient utilization of
equipment
 Wal-Mart – small overheads, shrinkage,
distribution costs
 Franz Colruyt – no bags, low light, no
music, doors on freezers
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 19
 Competing on Response
 Flexibility is matching market changes in
design innovation and volumes
 Institutionalization at Hewlett-Packard
 Reliability is meeting schedules
 German machine industry
 Timeliness is quickness
in design, production,
and delivery
 Johnson Electric,
Bennigan’s, Motorola

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 20
 10 Strategic OM Decisions

1. Goods and 6. Human resources

service design and job design
2. Quality 7. Supply chain
3. Process and management
capacity design
8. Inventory
4. Location
9. Scheduling
selection
10.
5. Layout
Maintenance
design
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 21
 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 and Customers not Customer may be
capacity involved directly involved
design
Capacity must
match demand
Departament d’Economia de l’Empresa /
Table 2.1
Department of Business Economics & Administration 2 – 22
 Managing Global Service
Operations
Requires a different perspective on:

 Capacity planning
 Location planning
 Facilities design and layout
 Scheduling

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 23
Issues In Operations Strategy

 Research about effective

operations management
strategies
 Preconditions for developing
effective OM strategies
 The dynamics of OM strategy
development

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 24
 Characteristicsof
High ROI Firms
 High product quality
 High capacity utilization
 High operating efficiency
 Low investment intensity
 Low direct cost per unit

From the PIMS program of the Strategic Planning Institute

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 25
Strategic Options to Gain
a Competitive
Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 26
Elements of
Operations
Management
 Low-cost product
Strategy
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to
consumers
 Engineering research development
 Location
 Scheduling

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 27
 Preconditions
One must understand:
 Strengths and weaknesses of competitors and
possible new entrants into the market
 Current and prospective environmental,
technological, legal, and economic issues
 The product life cycle
 Resources available within the firm and within
the OM function
 Integration of OM strategy with company’s
strategy and with other functional areas

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 28
 Dynamics of
Strategic Change
 Changes within the organization
 Personnel
 Finance
 Technology
 Product life
 Changes in the environment

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 29
 Product Life Cycle
Introduction Growth Maturity
Decline
Best period to Practical to change Poor time to change Cost control
increase market price or quality image, price, or critical
Company Strategy/Issues

share image quality

R&D engineering is Strengthen niche Competitive costs

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

Sales iPods
3 1/2”
Xbox 360 Floppy
disks

Departament d’Economia de l’Empresa /

Figure 2.5
Department of Business Economics & Administration 2 – 30
 Product Life Cycle
Introduction Growth Maturity Decline
Product design Forecasting critical Standardization Little product
and development Product and Less rapid product differentiation
critical process reliability changes – more Cost
Frequent product minor changes minimization
Competitive
and process product Optimum capacity Overcapacity
design changes improvements and Increasing stability in the industry
Short production options of process Prune line to
runs Increase capacity eliminate items
Long production
High production Shift toward runs not returning
costs product focus good margin
Product
Limited models Enhance improvement and Reduce
distribution cost cutting capacity
Attention to
Strategy/Issues

quality

Departament d’Economia de l’Empresa /

Figure 2.5
Department of Business Economics & Administration 2 – 31
 SWOT Analysis

Mission

Internal External
Strengths Opportunities
Analysis

Internal External
Weaknesses
Strategy Threats

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 32
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.
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration Figure 2.6 2 – 33
 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

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 34
 Critical Success
Factors
Marketing Finance/Accounting Production/Operations
Service Leverage
Distribution Cost of capital
Promotion Working
Channels capital
of Receivables
distribution Payables
Product positioning Financial control
(image, functions) Lines of credit
Decisions Sample Options Chapter

Product Customized, or standardized 5

Quality Define customer expectations and how to achieve them 6, S6
Process Facility size, technology, capacity 7, S7
Location Near supplier or near customer 8
Layout Work cells or assembly line 9
Human resource Specialized or enriched jobs 10, S10
Supply chain Single or multiple suppliers 11, S11
Inventory When to reorder, how much to keep on hand 12, 14, 16
Schedule Stable or fluctuating production rate 13, 15
Maintenance Repair as required or preventive maintenance 17

Departament d’Economia de l’Empresa / Figure 2.7

Department of Business Economics & Administration 2 – 35
 The Supply Chain’s
Strategic
Importance
Supply chain management is the
integration of the activities that procure
materials and services, transform
them into intermediate goods and the
final product, and deliver them to
customers

Competition is no longer between

companies; it is between supply chains
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 36
Supply Chain Management
Important activities include determining
1. Transportation vendors
2. Credit and cash transfers
3. Suppliers
4. Distributors
5. Accounts payable and receivable
6. Warehousing and inventory
7. Order fulfillment
8. Sharing customer, forecasting, and
production information
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 37
A Supply Chain for Beer

Figure 11.1
Departament d’Economia de l’Empresa /
Department of Business Economics & Administration 2 – 38
Global Supply Chain Issues
Supply chains in a global environment
must be able to
 React to sudden changes in parts availability,
distribution, or shipping channels, import duties,
and currency rates
 Use the latest computer and transmission
technologies to schedule and manage the
shipment of parts in and finished products out
 Staff with local specialists who handle duties,
freight, customs and political issues

Departament d’Economia de l’Empresa /

Department of Business Economics & Administration 2 – 39