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egekwu_2004 1
Chapter 2
Business Strategy and Global Competitiveness
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Manor Care
Operates Sleep Inns Labor Shortage Designed rooms to minimize housekeeping
staff needed– attached nightstands to walls– no doors on closets– rounded shower stalls– advanced security system
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Manor Care Results
Rooms can be cleaned in 20 minutes versus 30 minute industry standard.
92-room hotel operated with equivalent of 11 full-time workers.
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American Steel Industry
Foreign competition posed major threat to industry in early 1980s.
In 1982, US producers needed 10.59 labor hours to produce on metric ton compared with 10.01 hours in Japan.
US closed plants, modernized others, and reduced payrolls.
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American Steel Industry continued
By middle of 1991, US steelmakers able to produce a metric ton with 5.4 hours compared to 5.6 hours for Japanese.
At the same time, quality also improved. In early 80s, Ford rejected 8% of domestic
steel shipments and 20% were late. By early 1990s, steel rejects reduced to 1%
and 99% of shipments were on time.
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Technology Examples
Kansas City Power & Light using automatic meter readers which broadcasts data on electricity usage and eliminates $15/hour human meter readers.
Coca-Cola is installing similar technology in its vending machines.
This will allow Coke to better schedule deliveries and evaluate ad campaigns.
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Examples Illustrate
Shortage of employees often necessitates need to improve productivity.
Increased competition (especially foreign competition) another reason why companies seek to improve their productivity.
Improving productivity is often dependent on new technologies.
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Top Management
Responsible for making and keeping organization competitive.
Develops business strategy– provides direction and vision– guides short- and long-term decisions– must consider international competition
All functional areas and business processes must support the business strategy.
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Business or Corporate StrategyA set of objectives, plans, and policies for the
organization to successfully compete in its markets.
Long range (3 to 5 years) It specifies what organization’s competitive
advantage will be Focuses on few key areas The pattern of decisions made over time is in fact
an organization’s business strategy.
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Formulating the Corporate Strategy
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Corporate Strategy Formulation
COLLBORATORS& COOPERATORS
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Vision and Mission StatementsVision statements used to express
organization’s values and aspirations.
Mission statements express organization’s purpose or reason for existence.
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Core Competencies
Collective knowledge and skills an organization has that distinguish (or differentiate) it from the competition.
Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services.
Are aggregates of core capabilities.
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Core Competencies continued
Are basis on which new outputs are developed. Better to think of organization in terms of its
portfolio of core competencies than as a portfolio of products.
Identifying and developing core competencies is one of top management’s most important roles.
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Examples of Core Competencies
Sony - miniaturization 3M- knowledge of substrates, coatings and
adhesives; Knowledge management Black and Decker - small electrical motors
and industrial design Honda - engines and power trains Daimei-Benz - safety systems, quality and
luxury.
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Core Competencies Used to Gain Access to Variety of Markets Cannon
– core competencies in optics, imaging, and electronic controls
– Products include copiers, laser printers, cameras, and image scanners.
Boeing– integrating large scale systems– commercial jetliners, space stations, missiles
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Core Capabilities
Organization practices and business processes
Collection of capabilities lead to core competencies
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Key Characteristics of Core Competencies Should be used to gain access to a variety of
markets Should be strongly related to key benefits
provided by products or services Should be difficult to imitate (what about
benchmarking?)
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Operations Strategy - Definition
Operations Strategy - involves setting broad policies and plans on how to use “available” resources of a firm to support its long-term competitive strategy.
Corporate strategy leads to Operations strategy
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3
Operations Strategy
Customer Needs Corporate Strategy
Operations Strategy
Alignment
CoreCompetencies
Decisions
Processes, Infrastructure, and Capabilities
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10
How do we convert order winners into specific performance requirements?
Us(Core competencies)
Competition(Them) Differentiation
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A Framework for Operations/Manufacturing Strategy
Customer Needs
New and CurrentProducts
Performance Prioritiesand Requirements
Quality, Dependability,Speed, Flexibility, and Price
Operations & Supplier Capabilities
Technology PeopleSystems R&D CIM JIT TQM Distribution
Support Platforms
Financial Management Human Resource Management Information Management
Enterprise Capabilities
Strategic Vision
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Strategy Example:Outsourcing
Subcontracting out production of parts or performance of activities
Activities and parts fall on a continuum ranging from strategically unimportant to strategically important
Activities not strategically important are candidates to be outsourced
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Strategically Important Parts or Activities Strongly related to what customers perceive
to be key product characteristics. Require highly specialized skill and
knowledge. Require highly specialized physical assets The organization has the technological lead
or is likely to obtain it.
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Hollowed Out
The extent that most of a firm’s complex parts and production are outsourced
Often when complex parts are outsourced, engineering talent follows
Supplier may become competitor
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Creeping Breakeven Phenomenon Viscous cycle where products appear to
become more expensive to produce in-house as others are outsourced.– Result from way overhead is covered and
allocated
Logical conclusion is organization ends up producing no outputs.
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Business Strategy and the Product Life Cycle
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The Life-Cycle Curve
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Product Life Cycle
Strategies often tied to product life cycle Length of life cycles shrinking Business strategy should match life cycles
stages
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Product Life Cycle Stages and Emphasis
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Categories of Business Strategies
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A:First-to-Market Strategy
Products available before competition Strong applied research capability needed Can set high price to skim market or set
lower price to gain market share
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B:Second-to-Market Strategy
Quick imitation of first-to-market companies
Less emphasis on applied research and more emphasis on development
Learn from first-to-market’s mistakes
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C:Cost Minimization or Late-to-Market Strategy Wait until market becomes standardized
and large volumes demanded Compete on basis of costs instead of
product features Research efforts focus on process
development versus product development
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D:Market Segmentation
Serving niche markets Applied engineering skills and flexible
manufacturing processes needed
flexibility:ability to handle variations in
product volume and product mix.
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Implementation:The Balanced Scorecard Helps translate mission and strategy into
appropriate performance measures. Traditionally organizations relied primarily on
financial measures. No single set of measures can provide information
needed in all critical areas of the business. Purpose of balanced scorecard the development of
a set of measures that provides a comprehensive view of the organization.
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Benefits of Using Balanced Scorecard Clarify and gain consensus of strategy Mechanism for communicating strategy Mechanism for aligning departmental and
personal goals to the strategy Help ensure strategic objectives are linked to
annual budget Timely feedback related to improving the
strategy
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Performance Measured in Four Areas Financial Performance Customer Performance Internal Business Process Performance Organizational Learning and Growth
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Developing a Balanced Scorecard Top management translates mission and strategy
into specific customer and financial objectives. Measures for internal business processes
developed on basis of customer and financial objectives.
Investments in employee training and information technology linked to customer, financial, and internal business process objectives.
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Focus
Goal of business strategy is to establish and maintain a unique strength, or focus that leads to a sustainable competitive advantage.
Two successful competitive positions– lowest cost– outstanding strength
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Common Areas of Focus
Innovation Customization Product/service
flexibility Volume flexibility Performance Quality
Product/service reliability
Delivery reliability Response After-sale service Price
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Order Qualifiers and Winners
Order qualifiers are characteristics that are the ante to enter the market ( cost, quality, speed, flexibility, dependability)
Order winners are characteristics that win the customer’s purchase
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Dealing with Trade-offsCost
Quality
DeliveryFlexibility
FOCUS FOCUS
FOCUSFOCUS
Plant within a Plant (PWP)
TraditionalApproach
Advanced Approaches
World Class Manufacturing
Trade-offs
©The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
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World-Class ManufacturingWorld-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility as tradeoffs.
They have become order qualifiers.
What are the order winners in today’s market?
©The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
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7
Service Breakthroughs Service can be an
“order winner”Warranty
RoadsideAssistance
TravelPlanning
LoanerVehicles
Leases
©The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
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Contributors to Loss of Corporate (Business) Focus New outputs New attributes New tasks Departmental
professionalism Ignorance and
noncommunication Life cycle changes
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Strategic Frameworks
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The Sand Cone Model
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Example Performance Frontier
Which company ispursuing a customization policy?
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New Technology Results in Shift of Performance Frontier
“Company Bdevelops new technology”
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Global Competitiveness
Long-term viability of a firm Short-term success in terms of market share
or profitability Since 1970s, imports to the US have grown
faster than exports from the US US is biggest debtor nation in world
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Exchange Rates
US competitiveness reflected in value of dollar relative to other currencies
As US increases its imports relative to its exports, a surplus of US dollars accumulates abroad reducing the desirability of holding US dollars
Price adjusted broad dollar index
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International Markets and Producers Three Major Trading Regions
– Europe– North America– Pacific Rim
Previously firms classified as domestic, exporters, or international
Now have global firms, joint ventures, foreign subsidiaries
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Reasons to Produce Offshore
Circumvent governmental regulations Avoid effects of currency fluctuations Avoid fees and quotas Placate local customers
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Supply Chain Management
Cost of labor decreasing Cost of logistics becoming more significant Total value chain of global production Coordination
– Information flows– Finding efficient suppliers– Identifying and evaluating transportation
options
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New Technologies that facilitate globalization environment ERP EDI Bar coding/Radio frequency identification Internet
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Six Primary Characteristics of Transformation Process Efficiency Effectiveness Capacity Quality Response time Flexibility
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Productivity Definitions and Measures Normally defined as output per worker hour This is a partial measure of productivity Total Factor Productivity includes all
factors of production:
output
labor + capital + materials + energy
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Improving Productivity Growth
Estimated that technology has been responsible for at least half the productivity gains in the U.S.
Mechanization Automation
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International Comparisons of Productivity
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Why is Productivity Important?
For a society to increase its standard of living it must increase its productivity
How has the standard of living changed since 1970 in the US?
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Responsiveness
Customization, Response Time, and Quality
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Customization
Ability to offer a product or service exactly suited to the customer’s desires or needs
Closer matches to customers needs Ability of offer full product line with
minimal inventory Faster design-to-market time to meet new
customer needs
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Continuum of Customization
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Mass Customization
Goal is to produce low cost, high quality outputs in high variety
Mass Customization Strategies– Collaborative customizers– Adaptive customizers– Cosmetic customizers– Transparent customizers
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Prerequisites and Advantages of Rapid Response Sharper focus on the
customer Better management Efficient processing Higher quality Overhead elimination
Improved focus Reduced charges Faster revenue
generation Better communication Improved morale
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Cost Reductions with Decreases in Response Time
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Defining and Measuring Quality
Conformance to specifications Performance Quick response Quick-change expertise Features Reliability Durability
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Defining and Measuring Quality continued
Serviceability Aesthetics Perceived quality Humanity Value
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Benefits of High Quality
More satisfied customers Enhanced reputation Increased profitability and higher market shares Protection from competition Minimizes safety risks and liability Higher worker morale Reduced production costs