Topic 2 (b)

The Global Environment

and Operations Strategy

1-1
 OUTLINE

▶ Strategies for Competitive Advantage

▶ Global Operations Strategy Options

1-2
Strategies for Competitive
Advantage

1. Differentiation – better, or at least different

2. Cost leadership – cheaper
3. Response – more responsive

1-3
 Competing on
Differentiation
Uniqueness can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts
customer’s perception of value

► Walt Disney Magic Kingdom – experience differentiation

► Hard Rock Cafe – dining experience

1-4
 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
► Walmart – small overhead, shrinkage, and distribution
costs
► Franz Colruyt – no bags, no bright lights, no music, and
doors on freezers
1-5
 Competing on Response
▶ Flexibility is matching market changes in design
innovation and volumes
▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules
▶ German machine industry
▶ Timeliness is quickness
in design, production,
and delivery
▶ Johnson Electric,
Pizza Hut, Motorola 1-6
 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports

Competitive Advantage:
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
2-7
 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service

Lean, Short Haul, Point-to-

Productive Point Routes, Often to
Employees Secondary Airports
Automated ticketing machines
Competitive Advantage:
No seat assignments
Low Cost
No baggage transfers
High Frequent,
Aircraft No meals (peanuts) Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
© 2011 Pearson Education, Inc. publishing as Prentice Hall 2-8
 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Service
No meals (peanuts)
Lean,
Lower gate costs at Short Haul, Point-to-
Productive Point Routes, Often to
secondary airports
Employees Secondary Airports
High number of flights
Competitive Advantage:
reduces employee idleCost
Low time
between flights
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
2-9
 Activity Mapping at
Southwest Airlines
Courteous,
High number but
of flights
Limited Passenger
reduces employee idle time
Service
between flights
Lean,
Saturate a city with flights, Short Haul, Point-to-
Productive Point Routes, Often to
lowering administrative
Employees Secondary Airports
costs (advertising, HR, etc.)
Competitive
per passenger Advantage:
for that city
Low Cost
Pilot training required on
Highonly one type of aircraft Frequent,
Aircraft Reliable
Reduced maintenance
Utilization Schedules
Standardized
inventory required because
Fleet of Boeing
of only one type737
ofAircraft
aircraft
Figure 2.8
2 - 10
 Activity Mapping at
Southwest Airlines
Pilot training required on
Courteous,
onlyLimited
one type butaircraft
of
Passenger
ReducedService
maintenance
Lean,
inventory required because Short Haul, Point-to-
Productive of only one type of aircraft
Point Routes, Often to
Employees Secondary Airports
Excellent supplier relations
with Boeing
Competitive has aided
Advantage:
financing
Low Cost
High Frequent,
Aircraft Reliable
Utilization Standardized Schedules
Fleet of Boeing
737 Aircraft
Figure 2.8
2 - 11
 Activity Mapping at
Southwest Airlines
Courteous, but
Limited Passenger
Reduced maintenance
Service
inventory required because
Lean, of only one type of aircraft
Short Haul, Point-to-
Productive Point Routes, Often to
Flexible union
Employees Flexible employeesSecondary
and Airports
contracts standard planes aid
Competitive Advantage:
scheduling
Low Cost
Maintenance personnel
High trained only one type of
Frequent,
Aircraft aircraft Reliable
Utilization Standardized Schedules
20-minute gate turnarounds
Fleet of Boeing
737 Aircraft
Figure 2.8
2 - 12
 Activity Mapping at
Southwest Airlines
Automated ticketing
Courteous, but
machines
Limited Passenger
Service
Empowered employees
Lean, High employee
Short Haul, Point-to-
Productive Point Routes, Often to
compensation
Employees Secondary Airports
Hire for attitude, then train
Competitive Advantage:
LowHigh level of stock
Cost
ownership
High High number of flightsFrequent,
Aircraft Reliable
Utilization reduces employee idle time
Schedules
Standardized
Fleetbetween
of Boeing flights
737 Aircraft
Figure 2.8
2 - 13
 OM’s Contribution to Strategy
10 Operations Competitive
Decisions Approach Example Advantage

Product DIFFERENTIATION
Innovative design … Safeskin’s innovative gloves
Broad product line … Fidelity Security’s mutual funds
Quality After-sales service … Caterpillar’s heavy equipment
service
Process Experience … Hard Rock Café’s dining
experience

Location COST LEADERSHIP

Low overhead … Franz-Colruyt’s warehouse-type Differentiation
stores
Layout (better)
Effective capacity
use … Southwest Airline’s
Human aircraft utilization
resource Inventory Response
management … Wal Mart’s sophisticated
(faster)
distribution system
Supply chain Cost
RESPONSE leadership
Inventory Flexibility … Hewlett-Packard’s response to (cheaper)
volatile world market
Reliability … FedEx’s “absolutely, positively,
Scheduling on time”
Quickness … Pizza Hut’s 5-minute guarantee
at lunchtime
Maintenance Figure 2.4

2 - 14
 Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Product Heavy R&D investment; Low R&D investment;
Selection and extensive labs; focus on focus on development
Design development in a broad of generic drugs
range of drug
categories
Quality Major priority, exceed Meets regulatory
regulatory requirements requirements on a
country by country
basis

Table 2.2
2 - 15
 Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Process Product and modular Process focused;
process; long general processes; “job
production runs in shop” approach, short-
specialized facilities; run production; focus
build capacity ahead of on high utilization
demand
Location Still located in the city Recently moved to low-
where it was founded tax, low-labor-cost
environment

Table 2.2
2 - 16
 Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Scheduling Centralized production Many short-run
planning products complicate
scheduling

Layout Layout supports Layout supports

automated product- process-focused “job
focused production shop” practices

Table 2.2
2 - 17
 Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Human Hire the best; Very experienced top
Resources nationwide searches executives; other
personnel paid below
industry average

Supply Chain Long-term supplier Tends to purchase

relationships competitively to find
bargains

Table 2.2
2 - 18
 Operations Strategies of Two Drug
Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Product Differentiation Low Cost
Advantage
Inventory High finished goods Process focus drives up
inventory to ensure all work-in-process
demands are met inventory; finished
goods inventory tends
to be low
Maintenance Highly trained staff; Highly trained staff to
extensive parts meet changing demand
inventory

Table 2.2
2 - 19
Global Operations Strategy
Options

2 - 20
 Four International
Operations Strategies
High International Figure 2.9

Strategy
Cost Reduction Considerations
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 21
 Four International
Operations
GlobalStrategies
High Figure 2.9
Strategy
Cost Reduction Considerations  Standardized
product
 Economies of scale
 Cross-cultural
learning
International Strategy
Examples
 Import/export or
license existing
Texas Instruments
product

U.S.Caterpillar
Examples
Steel
Harley Davidson
Otis Elevator
Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 22
 Four International
Operations Strategies
High Figure 2.9
Global Strategy

Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
Texas Instruments
Caterpillar
Otis Elevator

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 23
 Four International
Operations Strategies
Multidomestic
Strategy
High Figure 2.9

 Use existing
Global Strategy

Cost Reduction Considerations

 Standardized product
domestic
 Economies of scale
 Cross-cultural learning
model
Examples:globally

 Franchise, joint
Texas Instruments
Caterpillar
Otis Elevator
ventures,
subsidiaries
International Strategy
 Import/export or
Examples
license existing
product
Heinz
Examples
McDonald’s
U.S. Steel
Harley Davidson

Low The Body Shop

Low Hard Rock Cafe High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 24
 Four International
Operations Strategies
High Figure 2.9
Global Strategy

Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
Texas Instruments
Caterpillar
Otis Elevator

International Strategy
 Import/export or
license existing
product
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries

Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 25
 Four International
Operations Strategies
Transnational
High Figure 2.9
Strategy
Global Strategy

Cost Reduction Considerations  Move material,

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples:
people, ideas
Texas across
Instruments national
Caterpillar
boundaries
Otis Elevator

 Economies of scale
 Cross-cultural
Multidomestic Strategy
International Strategy  Use existing
 Import/export or domestic model globally
learning
license
product
existing  Franchise, joint ventures,
subsidiaries

Examples
Examples
Examples
U.S. Steel Heinz The Body Shop
McDonald’s Hard Rock Cafe
Harley Davidson
Coca-Cola
Low
Nestlé
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 26
 Four International
Operations Strategies
High Figure 2.9
Global Strategy Transnational Strategy

Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning
Examples:
Texas Instruments
Caterpillar
Otis Elevator
 Move material, people, ideas
across national boundaries
 Economies of scale
 Cross-cultural learning
Examples
Coca-Cola
Nestlé

International Strategy
 Import/export or
license existing
product
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries

Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
2 - 27