Fall 2008 Operations Strategy

Corporate

missions and strategies Steps towards devising a strategy Main Operations Strategies for achieving competitive advantage Operations Strategies for international corporations Strategies and OM decisions

Faced with the pressures of increasing competition, businesses need to coordinate the activities of their principal functions within a coherent mission and strategy.
Mission: The purpose for an organizations existence Strategy: The way for the organisation to fulfill its purpose

Mission statements tell an organization where it is going The Strategy tells the organization how to get there

Determining an organizations mission requires answers to fundamental questions such as

What

business are we in? Where should we be 5-10 years from now? Who are our customers or clients? What are our basic concepts and beliefs? What are the key performance objectives by which we measure our success? What will we contribute to society?

Strategy Embodies the aspects of both mission direction (what to do) and implementation (how to do it). Levels

Corporate strategy Business Unit strategy Functional area strategy

The strategic role of each function (operations, finance, finance) is to support those competitive dimensions for which it is responsible.

 Southwest

Airlines Co.

A key component of providing the highest quality of Customer Service and a stable work environment is low fares. In order to keep our fares low we must keep our costs low. We are, therefore, dedicated to finding ways to lower our costs and increase our productivity and quality. We value suppliers who have the same focus and look internally for ways to improve their processes and service, and willingly pass on cost savings to Southwest Airlines.

The General Environment (PEST analysis-National/global level) Politics-institutions Economy - macroeconomic outlook Socio-cultural factors Technology The Immediate Environment (5 forces analysis - industry level) Demand-Side Analysis Supply-Side Analysis New entrants Substitutes products Existing Competitors The Internal environment (Value Chain Analysis): Firms primary activities (logistics, production, marketing, after sale) Firms support activities (Human resource, infrastructure, technology) Profitability (profit margins, pricing strategy)
Competitive Strategy Options: Low Cost, Product Differentiation, Response

Where are we operating (External Business Environment)? World-Country (PEST), Industry (5-Forces)

Where does our Firm stand w.r.t. external environment? Firm (Value Chain), Competitive Position(Others Value Chains)
Where do we want to be? (Mission) Defend Market Position , Expand to new markets How do we get there? (Strategy) New products, Exports, Acquisitions, supply-chain focus How do we organise it? (Essential Functions) Organisational Design: Operations, Finance, Marketing What changes do we need to be making? Assessing Effectiveness on an ongoing basis

PEST

5-Forces

Value Chain

Strengths

Economic stability Friendly FDI laws Good Location Limited R&D Weak Tech. Culture Weak Banking

No domestic rivals Hi-tech Product Limited Substitutes R&D Personnel Market Niche Weak clustering Weak marketing No R&D incentives Scarce Inputs Infrastructure After-sales service

Weaknesses

Opportunities

Rising Demand Improving economy Corporate clients Joining EU First-In market Rising Middle-Strata IP-rights Legal instability Foreign Entrants High taxation Unofficial Economy Supplies Problems Weak Competition law

Economies of scale Regional expansion Improving Margins

Limited intl. exposure Limited capital Product imitations

Threats

Medium-sized EU electronics company seeking to enter SEE market

To achieve a competitive advantage we could adopt one or more of the following strategies
1. 2. 3.

Competing on Cost Competing on Differentiation Competing on Response

Does a low cost strategy necessarily mean low quality or ? Does a low cost strategy necessarily mean having the lowest cost?

Achieving maximum value, as perceived by the customers, at lowest cost Usually entails some degree of product standardisation, particularly for industrial goods Discount Food retailers Wal-Mart Southwest Airlines

 We

are a successful chain of grocery stores, expanding throughout Europe and beyond its borders (mission) Simplicity is the cornerstone of our success. Simplicity is the benchmark for all our operations and work processes. We buy and sell with the aim of offering our customers everyday quality products at the lowest possible price (strategy).

 No

shopping bags at its checkout counters (you need to pay) Several products are often not unpacked from cartons Most of stores freezers have doors to save on energy Partnership with suppliers (suppliers benefit from economy of scale, no expenditures on promotion) Bid for large purchases of mass consumption goods at low prices

The increased competition has forced companies to pursue uniqueness (market niche). Products being a combination of goods and services provide unlimited opportunities for differentiation. Emphasis on engaging the customer Examples

Zara (variety, fast renewal of products) Hard Rock Caf (experience differentiation)

 Quickness:

Ability to respond quickly to customer needs Reliability of scheduling (Make sure that the products are delivered according to an agreed timeframe) Flexibility: The ability to adjust to changes in the marketplace, responsive to customer needs (customisation)

FedEx Zara Dell

OM Area
Design

Product Differentiation Emphasis on R & D and innovation.

Response Focus on R&D, product customisation skills

Low Cost Focus on mass production standardised drugs Short production runs focus on general production process.

Process

Long production runs to meet capacity ahead of demand

Flexible production processes, modular focus

Supply Chain Inventory

Long term relationships High Inventory to meet demand

Large number of suppliers

Try to find bargains

Large variety of Low inventory inventories at low volume or just-in-time Highly skilled flexible working groups, decentralised management Hire the best at the top executive level.

Human Resources

Hire the best at all levels

 Southwest

Airlines Co. (also EasyJet)

A key component of providing the highest quality of Customer Service and a stable work environment is low fares. We are, therefore, dedicated to finding ways to lower our costs and increase our productivity. We value suppliers who look internally for ways to improve their processes and willingly pass on cost savings to Southwest Airlines We are providing differentiation vis a vis traditional airlines by competing on a cost versus time combination with other transport modes

Southwest.pdf

Traditionally customisation and low cost have been mutually exclusive. Mass production/standarsisation provided low cost but at the expense of variety. Customisation was the product of designers and craftsmen. Its expense generally made it the preserve of the rich. To-day, new technologies, allow customers to interact with a company and specify their unique requirements which are then manufactured by automated systems. Whilst this may seem complex, the process can be handled by your staff and third parties (corporate network) at low cost. Hence customization (normally linked to response and differentiation) is coming to coexist with low cost strategies. (e.g. Dell Corporation, Zara)

1. 2. 3.

Low Cost or Price

Make the Product or Deliver the Service Cheap

Quality
Make a Great Product or Deliver a Great Service

Delivery Speed & Reliability

Make the Product or Deliver the Service Quickly

4.
5.

After sale service

Ensure permanent market presence

Broad product line (cope with demand Changes)

Change Its Volume and variety

6.

Flexibility and New Product Introduction

Change It

For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

Cost

Flexibility
Quality

Delivery

Reasons why a domestic business operation will decide to change to some form of international operation.

Panos Vlachos - ACT

 Lower

labor cost Less stringent government regulations

Health & safety Environmental control

Lower The

taxes

cases of South Eastern Europe (SEE), China, India and Mexico as destinations for foreign investors (what type of strategy?)

 Locate

in areas where there is availability of quality resources

Expertise Labor Raw material

The cases of Ireland, UK as destinations for foreign investors. What type of strategy?

Contrast low, middle and high income countries regarding their relative attractiveness for different types of foreign investors (e.g. the case of Greece)

 Have

direct access to local preferences Be aware of culture sensitivities Be able to offer better services, by utilizing local facilities Better understanding of market trends Expand product life cycles

 Share

production and design ideas Improve processes through benchmarking and cooperation with companies of different philosophy Be able to attract and retain high quality employees The cases of regional hubs e.g. silicon valley (US), Emilia Romana (Italy), the Golden Triangle (Frankfurt-Paris-London)

In their effort to compete in the global economy companies can follow one of the four following strategies:
1. 2. 3. 4.

International Strategy: at early stage of expansion via exports, licensing Multi-domestic: Transfer existing national model abroad (linked to differentiation, response) Global: Mass-Standardisation model applied globally e.g.via FDI (linked to low cost) Transnational : A more evolved global strategy [linked to all three strategies]

Panos Vlachos - ACT