Unit I; Chapter 2: Operations Strategy

2.1 Global view of operations,

2.2 Developing missions and strategies,
2.3 Achieving competitive advantages through
operations,
2.4 Strategy development and implementation.
 2.1 Global view of operations

 Globalization is a free movement of goods, services, people, capital

and information across national boundaries.
 It is a process by which an activity becomes worldwide in scope.
 It is a process of integration of the world as one market.
 It has two components which are globalization of production and
globalization of markets.
Reasons for globalizations are:
 Improved transportation and communication technologies;
 Opened financial market
 Increased demand for imports
 Reduced import quotas and other trade barriers
Global operations should focus on:
1. Reduce Cost
• Foreign locations with lower wages can help lower costs
• Less stringent/strict regulations (such as environmental control, health and control)
can save costs
• Tax and tariff cuts may be enjoyed (through free trade zones and bi/multilateral
agreements)
• Reducing wage costs allows the savings to be invested in:
– Higher/specialized workers doing more valuable work
– Improving products and facilities
2. Improve Supply Chain
• Can be achieved by:
– Locating facilities in countries where unique and cheap resources are available
3. Provide Better Goods and Services
• Better understanding of different cultures and the way business is handled in
different countries needed
• Allows firms to customize products and services to meet unique cultural needs
• Allows the reduction of response time to meet changing demands and expectations 
4. Understand Markets
• International firms learn about opportunities for new products and
services through interactions with:
– Foreign customers
– Suppliers
– Other competitive businesses
• Opportunities to expand the life cycle of an existing product
Eg: US market for personal computers are “mature” but are in the
“introductory” phase in some underdeveloped markets. 
5. Learn to Improve Operations
• Learning does not take place in isolation
• Eg: General Motor found improvements by working with the
Japanese
– GM contributes capital, labour and environmental knowledge and
– The Japanese contribute production and inventory ideas
6. Attract and Retain Global Talent
• Global organizations offer more employment
opportunities
• Can pick from outstanding talent from all over the world
• Can offer employees growth
• Can offer employees various destinations to work in
• Can offer protection from unemployment during
economic downturns by means of relocation to more
profitable countries/region
7. Cultural and ethical issues
What one culture deems acceptable may be considered
unacceptable or illegal in another.
 2.2 Developing missions and strategies
Mission
• Mission shows the management where it should go and
where it is going.
• Is the purpose that states what it’ll serve to the society.
• Provides boundaries and focus for organizations.
• States the rationale for the firm’s existence.
• Helps to develop a good strategy
• Organizational mission is followed by supporting missions
from functional areas
• Functional area missions are followed by lower-level
supporting missions for the OM functions.
Strategy
• Strategy tells the management how to get to its destination.
• Organization’s action plans to achieve its missions.
• Each functional area has its strategy for achieving its own mission
which adds up to the overall achievement of organizational
mission
• Strategies:
– Exploit opportunities and strengths
– Neutralize threats
– Avoid weaknesses
 Vision &
Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
Firms achieve missions in three conceptual ways:
1. Differentiation
– Goods and services that are better/different
Maybe related to:
– different features
– convenience of a broad product line
– service related to the product (training, product delivery, installation, repair
and maintenance)
– convenience of location centers, stores, or branches
2. Cost Leadership
– Goods and services that are cheaper
• Identifying the optimum size and investment allows firms to:
– Spread overhead costs
– Drive down distribution cost
– Drive down warehousing cost
3. Response
Firms that are more responsive to changing demand trends in their
products and services
• Response may be in terms of ability to:
– be flexible quickly and reliable
– manage timely product development and delivery
– manage reliable scheduling and flexible performance
– match with changes in a marketplace with design innovations
and fluctuating volumes
 Any one or a combination of the three can:
– Produce a unique system
– Provide an advantage over competitors
That is, this offers Competitive Advantage
Strategy
• Strategy is an organization’s action plan to achieve the
mission.
• Strategy set direction by identifying the key issues or
activities that help develop specific goals and plans.
• Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses.
• Strategies can aim
i. Operational effectiveness: performing similar
activities better than the competitor
ii. Achieving a competitive advantage: not performing
the same activities as competitor perform or
performing similar activities in different ways.
2.3 Achieving competitive advantages through operations

Competitive advantages implies the creation of a

system that has a unique advantage over
competitors.
For many organizations, the operations function
provides the competitive advantage.
• Competitive advantage in an organization can be
achieved by managers via following aspects:
1. Differentiation
– Goods and services that are better/different
 2. Cost Leadership
– Goods and services that are cheaper 
3.Response (flexibility as well as reliable and quick)
– Firms that are more responsive to changing demand trends
in their products and services
• Any one or a combination of the three can:
– Produce a unique system
– Provide an advantage over competitors
• That is, this offers Competitive Advantage
Operations decisions may be related with:
• Product, quality, process, location, layout, human resources, supply chain,
inventory, scheduling, maintenance.
Competitive Advantage can be achieved by applying following Strategies
1. Differentiation
• Innovative design
• Broad product line
• After sales service
• Experience
2. Cost leadership
• Low overhead
• Effective capacity use
• Inventory management
3. Response
• Flexibility
• Reliability
• Quickness
 2.4 Strategy development and implementation
• Firms evaluate their:
– Internal strengths and weaknesses
– Opportunities and threats of the environment
• Firms position themselves to have a competitive advantage
• Firms wish to:
– maximize the opportunities and minimize threats
– maximize advantages of strengths
– minimize weaknesses
• Mission statement is then reevaluated to match with the SWOT analysis
• This strategy is continually evaluated against:
– Value provided to customers
– Competitive realities
• From this process, Key Success Factors (KSFs) are identified.
• KSFs refers to activities or factors that are key to achieving competitive
advantage (may be location, product, human resource etc)
A SWOT Analysis provides an excellent model for evaluating a strategy.
• The process for strategy development and
implementation :
1. Analyze the environment
Identify strength, weaknesses, opportunities, and threats.
Understand the environment, customers, industry and
competitor.
2. Determine the corporate mission
State the reason for the firm’s existence and identify the
value it wishes to create.
3. Form a strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, after sale
services, or broad product line.