CH 02

Chapter 2
Strategy, Operations, and Global Competitiveness
Chapter 2: Strategy, Operations, and Global Competivevess
Introduction
General Motors
Highly competitive automobile Industry Market share eroding Rebate strategy Weakness in product offerings (8 brands) Toyota (2 brands) Long lead time to redesign What is a sustainable market share?
Chapter 2: Strategy, Operations, and Global Competivevess 3
Flat Panel TVs
Large profit margins ($8 billion 2004) Asian manufacturers (LG Electronics and Royal Philips, Sony and Samsung, and Matsushita) North Americas Dell
American Steel Industry (Nucor)
Only domestic steelmaker to remain profitable. Nucor pursued unique strategies relative to other major players.
Minimills used electric arc furnaces. Implementing strip casting, new production process that should require little additional processing.
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.
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.
Business Strategy
A set of well defined objectives, plans, and policies for the organization to successfully compete in its markets, domestic and global. The business strategy needs to be divided into functional strategies, throughout the organization, that are aligned and support the overall business strategy.
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
The United States Merchandise Trade
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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
Purchasing Power of the Dollar
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Implications of Exchange Rate
A large value of the price adjusted broad dollar index indicates a strong dollar making it easier for Americans to afford imports. A weaker value of the price adjusted broad dollar index makes American products more competitive in foreign markets. Economic relationship can be mediated by government actions.
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
Three Major Trading Regions
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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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Generating New Product Ideas
Research and Development (R & D) primarily responsible for developing new product ideas. Research is divided into two types: pure and applied. Pure research is working with basic technology to develop new knowledge. Applied research is attempting to develop new knowledge along particular lines.
R & D Cont
Development is the attempt to utilize the findings of research. The development end of R & D is more on the application side and often consists of modifications or extensions to existing outputs. Currently the development effort is much larger than the research effort.
Alternatives to Research

Imitation of a proven idea (second-tomarket strategy). Purchase of someone elses idea.
Outright purchase is becoming extremely popular where bring a new product to market can cost huge sums.
In addition to product research there is also process research (i.e. how to produce research).
Disruptive Technologies
An example of a disruptive technology currently playing out is the impact that the Web is having on graduate business education. e-mail Computers in the classroom Using the Web at work to shop
Commercialization
Refers to the process of moving an idea from concept to market. Shorter life cycles. Increasingly competitive marketplace. Globalization.
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Measures of Commercialization Capabilities

Time to market Range of markets Number of markets Breadth of technologies
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Measures of Commercialization Capabilities
Once appropriate measures for assessing commercialization have been established, organizations can begin working toward improving them.

Make commercialization a top priority Set goals and benchmarks Build cross-functional teams Promote hands-on management
Transformation Process Characteristics
Six primary characteristics of the transformation system:

Efficiency Effectiveness Capacity Quality Response time Flexibility

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
New Technologies

ERP EDI Bar coding Internet
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Formulating the Business Strategy
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Strategy Formulation
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Strategy Map for Department Store
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Vision and Mission Statements
Vision statements used to express organizations values and aspirations. Mission statements express organizations purpose or reason for existence.
Core Competencies
Collective knowledge and skills an organization has that distinguish it from the competition. Typically center on an organizations ability to integrate a variety of specific technologies and skills in the development of new products and services. Building blocks of core capabilities.
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 managements most important roles.
Organization practices and business processes
Examples of Core Competencies

Sony - miniaturization 3M- knowledge of substrates, coatings and adhesives Black and Decker - small electrical motors and industrial design Honda - engines and power trains
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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.
integrating large scale systems commercial jetliners, space stations, missiles
Boeing

Key Characteristics of Core Competencies/Capabilities
Should be used to gain access to a variety of markets Should be strongly related to key benefits provides by products or services Should be difficult to imitate
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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
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 firms complex parts and production are outsourced Often when complex parts outsourced, engineering talent follows Supplier may become competitor
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Creeping Breakeven Phenomenon
Vicious cycle where products appear to become more expensive to produce in-house as others are outsourced.
Result from way overhead is allocated
Logical conclusion is organization ends up producing no outputs.
39
Business Strategy and the Product Life Cycle
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The Life-Cycle Curve
41
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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Categories of Business Strategies
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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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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-markets mistakes
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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
Market Segmentation
Serving niche markets Applied engineering skills and flexible manufacturing processes needed
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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
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.
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 Order winners are characteristics that win the customers purchase
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Loss of Focus

New outputs New attributes New tasks Departmental professionalism Ignorance and noncommunication Life cycle changes
Product Life Cycle Stages and Emphasis
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Strategic Frameworks
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The Sand Cone Model
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Example Performance Frontier
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New Technology Results in Shift of Performance Frontier
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Stages of Operational Effectiveness

Internally Neutral Externally Neutral Internally Supportive Externally Supportive
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Critical Value Factors
Quality affects a business units competitive ability
Customers are more pleased with high quality product or service Refer friends Repeat business Protect firm from competition
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Critical Value Factors cont
Customization refers to offering a product or service suited to a customers desires or needs. Flexibility

Faster matches to customers needs Closer match to customers needs Ability to supple items when needed Faster design to market Lower costs of changing production Ability to offer full product line
Mass Customization

Seek to produce low-cost, high-quality outputs in high variety. Not all products lend themselves to being customized (Ex. Sugar, gas, electricity, and flour). Is applicable to products characterized by short life cycles, rapidly advancing technology, or changing customer requirements.
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Four Mass Customization Strategies

Collaborative customizers Adaptive customizers Cosmetic customizers Transparent customizers
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Collaborative Customizers
These organizations establish a dialogue to help customers articulate their needs and then develop customized outputs to meet these needs. For example, one Japanese eyewear retailer developed a computerized system to help customers select eyewear. The system combines a digital image of the customer's face and then various styles of eyeware are displayed on the digital image. Once the customer is satisfied, the customized glasses are produced at the retail store within an hour.
Adaptive Customizers
These organizations offer a standard product that customers can modify themselves such as closet organizers. Each closet-organizer package is the same, but includes instructions and tools to cut the shelving and clothes rods so that the unit can fit a wide variety of closet sizes.
Cosmetic Customizers
These organizations produce a standard product but present it differently to different customers. For example, Planters packages its peanuts and mixed nuts in a variety of containers on the basis of specific needs of its retailing customers such as Wal-Mart, 7-Eleven, and Safeway.
Transparent Customizers
These organizations provide custom products without the customers knowing that a product has been customized for them. For example, Amazon.com provides book recommendations based on information about past purchases.
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Dependability and Speed
The competitive advantages of faster, dependable response to new markets or to the individual customer's needs have only recently been noted in the business media. Americans spend more time and money on marketing, whereas the Japanese spend five times more than the Americans on developing more efficient production methods.
Relationship Between Response Time and Unit Cost
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Cost and Productivity
Operational activities play a major role in determining the cost of a product or service, particularly during the up-front design for the output. It is worth noting that cost to the producer and price to the customer are two very different factors. It is always to the producers advantage to keep their absolute costs as low as possible.
Productivity

A special measure of efficiency defined as output per worker-hour. This definition of productivity is actually what is known as a partial factor measure of productivity, in the sense that it considers only worker-hours as the productive factor. For a society to increase its standard of living, it must first increase its productivity. Be careful, however, not to focus solely on productivity as the problem, but rather, to consider overall competitive ability.
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Chapter 2

Strategy, Operations, and Global Competitiveness

Chapter 2: Strategy, Operations, and Global Competivevess

Chapter 2: Strategy, Operations, and Global Competivevess

Flat Panel TVs

Chapter 2: Strategy, Operations, and Global Competivevess

American Steel Industry (Nucor)

Chapter 2: Strategy, Operations, and Global Competivevess

The United States Merchandise Trade

Chapter 2: Strategy, Operations, and Global Competivevess

Purchasing Power of the Dollar

Chapter 2: Strategy, Operations, and Global Competivevess

Implications of Exchange Rate

International Markets and Producers

Three Major Trading Regions

Europe North America Pacific Rim

Three Major Trading Regions

Chapter 2: Strategy, Operations, and Global Competivevess

Reasons to Produce Offshore

Chapter 2: Strategy, Operations, and Global Competivevess

Generating New Product Ideas

Imitation of a proven idea (second-tomarket strategy). Purchase of someone elses idea.

Chapter 2: Strategy, Operations, and Global Competivevess

Measures of Commercialization Capabilities

Time to market Range of markets Number of markets Breadth of technologies

Chapter 2: Strategy, Operations, and Global Competivevess

Measures of Commercialization Capabilities

Transformation Process Characteristics

Six primary characteristics of the transformation system:

Efficiency Effectiveness Capacity Quality Response time Flexibility

Supply Chain Management

ERP EDI Bar coding Internet

Chapter 2: Strategy, Operations, and Global Competivevess

Formulating the Business Strategy

Chapter 2: Strategy, Operations, and Global Competivevess

Chapter 2: Strategy, Operations, and Global Competivevess

Strategy Map for Department Store

Chapter 2: Strategy, Operations, and Global Competivevess

Vision and Mission Statements

Core Competencies continued

Examples of Core Competencies

Chapter 2: Strategy, Operations, and Global Competivevess

Core Competencies Used to Gain Access to Variety of Markets

Key Characteristics of Core Competencies/Capabilities

Chapter 2: Strategy, Operations, and Global Competivevess

Strategically Important Parts or Activities

Chapter 2: Strategy, Operations, and Global Competivevess

Chapter 2: Strategy, Operations, and Global Competivevess

Creeping Breakeven Phenomenon

Result from way overhead is allocated

Logical conclusion is organization ends up producing no outputs.

Chapter 2: Strategy, Operations, and Global Competivevess

Business Strategy and the Product Life Cycle

Chapter 2: Strategy, Operations, and Global Competivevess

The Life-Cycle Curve

Chapter 2: Strategy, Operations, and Global Competivevess

Product Life Cycle

Chapter 2: Strategy, Operations, and Global Competivevess

Categories of Business Strategies

Chapter 2: Strategy, Operations, and Global Competivevess

Chapter 2: Strategy, Operations, and Global Competivevess

Chapter 2: Strategy, Operations, and Global Competivevess

Cost Minimization or Late-to-Market Strategy