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Chapter 2

Operations Strategy in a Global Environment

Professor Ahmadi

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Learning ObjectivesLearning Objectives

DEVELOPING MISSIONS AND STRATEGIESDEVELOPING MISSIONS AND STRATEGIES• MissionMission• StrategyStrategy

DEFINING GLOBAL OPERATIONSDEFINING GLOBAL OPERATIONS• International businessInternational business• Multinational corporationMultinational corporation• Global companyGlobal company• Transnational companyTransnational company

REASONS FOR GLOBALIZATIONREASONS FOR GLOBALIZATION• ProsPros• ConsCons

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Learning Objectives - ContinuedLearning Objectives - Continued

ACHIEVING COMPETITIVE ADVANTAGE ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONSTHROUGH OPERATIONS• Competing on DifferentiationCompeting on Differentiation• Competing on CostCompeting on Cost• Competing on ResponseCompeting on Response

TEN STRATEGIC OM DECISIONSTEN STRATEGIC OM DECISIONS STAGES OF PRODUCT LIFE CYCLESTAGES OF PRODUCT LIFE CYCLE

• IntroductionIntroduction• GrowthGrowth• MaturityMaturity• DeclineDecline

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Corporate MissionCorporate MissionCorporate MissionCorporate Mission

A A corporate missioncorporate mission is a set of long-range is a set of long-range goals and including statements about:goals and including statements about:

• the kind of business the company wants to be the kind of business the company wants to be inin

• who its customers arewho its customers are• its basic beliefs about businessits basic beliefs about business• its goals of survival, growth, and profitabilityits goals of survival, growth, and profitability

Mission - where you are goingMission - where you are going

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Business StrategyBusiness Strategy

Business strategyBusiness strategy is a long-range game plan of an is a long-range game plan of an organization and provides a road map of how to organization and provides a road map of how to achieve the corporate mission.achieve the corporate mission.

Inputs to the business strategy areInputs to the business strategy are• Assessment of global business conditionsAssessment of global business conditions - social, - social,

economic, political, technological, competitiveeconomic, political, technological, competitive• Distinctive competenciesDistinctive competencies or weaknesses - or weaknesses -

workers, sales force, R&D, technology, workers, sales force, R&D, technology, managementmanagement

Strategy - how you are going to get Strategy - how you are going to get there; an action planthere; an action plan

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Factors Affecting MissionFactors Affecting Mission

Mission

Philosophy &Values

Profitability& Growth

Environment

Customers Public Image

Benefit toSociety

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Strategy ProcessStrategy Process

MarketingDecisions

OperationsDecisions

Fin./Acct.Decisions

CompanyMission

BusinessStrategy

Functional AreaFunctional AreaStrategies

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Defining Global OperationsDefining Global Operations

International businessInternational business - engages in cross-border - engages in cross-border transactionstransactions

Multinational CorporationMultinational Corporation - has - has extensiveextensive involvement in international business, owning or involvement in international business, owning or controlling facilities in more than one countrycontrolling facilities in more than one country

Global companyGlobal company - integrates operations from - integrates operations from different countries, and views world as a single different countries, and views world as a single marketplacemarketplace

Transnational companyTransnational company - seeks to combine the - seeks to combine the benefits of global-scale efficiencies with the benefits of global-scale efficiencies with the benefits of local responsivenessbenefits of local responsiveness

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Reasons to Globalize OperationsReasons to Globalize Operations

Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chainImprove the supply chain Provide better goods and servicesProvide better goods and services Attract new marketsAttract new markets Learn to improve operationsLearn to improve operations Attract and retain global talentAttract and retain global talent

TangibleTangible

IntangibleIntangible

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Pros and Cons of GlobalizationPros and Cons of Globalization

Pros (Pluses)Pros (Pluses)• Productivity grows more quickly (living Productivity grows more quickly (living

standards can go up faster)standards can go up faster)• Global competition and cheap imports keep a Global competition and cheap imports keep a

lid on prices (inflation less likely to derail lid on prices (inflation less likely to derail economic growth)economic growth)

• Open economy spurs innovation (with fresh Open economy spurs innovation (with fresh ideas from abroad)ideas from abroad)

• Export jobs often pay more than other jobsExport jobs often pay more than other jobs• US has more access to foreign investment US has more access to foreign investment

(keeps interest rates low)(keeps interest rates low)

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Pros and Cons of GlobalizationPros and Cons of Globalization

Cons (Minuses)Cons (Minuses)• Millions of Americans have lost jobs due to Millions of Americans have lost jobs due to

imports or production shifts abroadimports or production shifts abroad• Most displaced workers find new jobs that pay Most displaced workers find new jobs that pay

lessless• Workers face pay-cuts demands from Workers face pay-cuts demands from

employersemployers• Service and white-collar jobs are increasingly Service and white-collar jobs are increasingly

vulnerablevulnerable• US employees lose their comparative US employees lose their comparative

advantage when companies build advantage when companies build advancedadvanced factories abroadfactories abroad

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Costs reduction through Costs reduction through globalizationglobalization

MaquiladorasMaquiladoras World Trade Organization (WTC)World Trade Organization (WTC) North American Free Trade North American Free Trade

Agreement (NAFTA)Agreement (NAFTA) European Union (EU)European Union (EU)

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Operational Effectiveness and Operational Effectiveness and Competitive AdvantageCompetitive Advantage

Operational effectivenessOperational effectiveness is the ability to is the ability to perform similar operations activities better than perform similar operations activities better than competitors.competitors.

It is very difficult for a company to compete It is very difficult for a company to compete successfully in the long run based just on successfully in the long run based just on operational effectiveness.operational effectiveness.

A firm must also determine how operational A firm must also determine how operational effectiveness can be used to achieve a effectiveness can be used to achieve a sustainable sustainable competitive advantagecompetitive advantage..

An effective An effective competitive strategycompetitive strategy is critical. is critical.

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Strategies for Competitive AdvantageStrategies for Competitive Advantage

DifferentiationDifferentiation

Cost leadershipCost leadership

Quick responseQuick response

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10 Strategic OM Decisions10 Strategic OM Decisions

Goods & service design Goods & service design Quality Quality Process & capacity designProcess & capacity design Location selectionLocation selection Layout designLayout design Human resource and job designHuman resource and job design Supply-chain managementSupply-chain management InventoryInventory SchedulingScheduling MaintenanceMaintenance

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Stages in a Product’s Life CycleStages in a Product’s Life Cycle

IntroductionIntroduction- Sales begin, production and - Sales begin, production and marketing are developing, profits are negative.marketing are developing, profits are negative.

GrowthGrowth - sales grow dramatically, marketing - sales grow dramatically, marketing efforts intensify, capacity is expanded, profits efforts intensify, capacity is expanded, profits begin.begin.

MaturityMaturity - production focuses on high-volume, - production focuses on high-volume, efficiency, low costs; marketing focuses on efficiency, low costs; marketing focuses on competitive sales promotion; profits are at peak.competitive sales promotion; profits are at peak.

DeclineDecline - declining sales and profit; product - declining sales and profit; product might be dropped or replaced.might be dropped or replaced.

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Stages in the Product Life CycleStages in the Product Life Cycle

Introduction

Growth

Maturity

Decline

Gro

wth

rate