1. Strategy, Operations, and Global Competitiveness
Chapter 2
Strategy, Operations, and Global Competitiveness
Chapter 2: Strategy, Operations, and Global Competivevess

2. Chapter 2: Strategy, Operations, and Global Competivevess
Introduction
Chapter 2: Strategy, Operations, and Global Competivevess

3. Chapter 2: Strategy, Operations, and Global Competivevess
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?
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4. Chapter 2: Strategy, Operations, and Global Competivevess
Flat Panel TVs
Large profit margins ($8 billion 2004)
Asian manufacturers (LG Electronics and Royal Philips, Sony and Samsung, and Matsushita)
North America’s Dell
Chapter 2: Strategy, Operations, and Global Competivevess

5. 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.
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6. Chapter 2: Strategy, Operations, and Global Competivevess
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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7. Chapter 2: Strategy, Operations, and Global Competivevess
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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8. Chapter 2: Strategy, Operations, and Global Competivevess
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.
Chapter 2: Strategy, Operations, and Global Competivevess

9. 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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10. The United States’ Merchandise Trade
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11. Chapter 2: Strategy, Operations, and Global Competivevess
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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12. Purchasing Power of the Dollar
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13. 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.
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14. 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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15. Three Major Trading Regions
Chapter 2: Strategy, Operations, and Global Competivevess

16. Reasons to Produce Offshore
Circumvent governmental regulations
Avoid effects of currency fluctuations
Avoid fees and quotas
Placate local customers
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17. 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.
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18. Chapter 2: Strategy, Operations, and Global Competivevess
R & D Con’t
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.
Chapter 2: Strategy, Operations, and Global Competivevess

19. Alternatives to Research
Imitation of a proven idea (second-to-market strategy).
Purchase of someone else’s 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).
Chapter 2: Strategy, Operations, and Global Competivevess

20. Disruptive Technologies
An example of a disruptive technology currently playing out is the impact that the Web is having on graduate business education.
Computers in the classroom
Using the Web at work to shop
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21. Chapter 2: Strategy, Operations, and Global Competivevess
Commercialization
Refers to the process of moving an idea from concept to market.
Shorter life cycles.
Increasingly competitive marketplace.
Globalization.
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22. Measures of Commercialization Capabilities
Time to market
Range of markets
Number of markets
Breadth of technologies
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23. 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
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24. Transformation Process Characteristics
Six primary characteristics of the transformation system:
Efficiency
Effectiveness
Capacity
Quality
Response time
Flexibility
Chapter 2: Strategy, Operations, and Global Competivevess

25. 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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26. Chapter 2: Strategy, Operations, and Global Competivevess
New Technologies
ERP
EDI
Bar coding
Internet
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27. Formulating the Business Strategy
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28. Chapter 2: Strategy, Operations, and Global Competivevess
Strategy Formulation
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29. Strategy Map for Department Store
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30. Vision and Mission Statements
Vision statements used to express organization’s values and aspirations.
Mission statements express organization’s purpose or reason for existence.
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31. Chapter 2: Strategy, Operations, and Global Competivevess
Core Competencies
Collective knowledge and skills an organization has that distinguish 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.
Building blocks of core capabilities.
Chapter 2: Strategy, Operations, and Global Competivevess

32. 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.
Organization practices and business processes
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33. 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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34. 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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35. 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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36. Chapter 2: Strategy, Operations, and Global Competivevess
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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37. 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 outsourced, engineering talent follows
Supplier may become competitor
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39. 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.
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40. Business Strategy and the Product Life Cycle
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41. Chapter 2: Strategy, Operations, and Global Competivevess
The Life-Cycle Curve
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42. Chapter 2: Strategy, Operations, and Global Competivevess
Product Life Cycle
Strategies often tied to product life cycle
Length of life cycles shrinking
Business strategy should match life cycles stages
Chapter 2: Strategy, Operations, and Global Competivevess

43. Categories of Business Strategies
Chapter 2: Strategy, Operations, and Global Competivevess

44. 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
Chapter 2: Strategy, Operations, and Global Competivevess

45. 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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46. 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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47. Chapter 2: Strategy, Operations, and Global Competivevess
Market Segmentation
Serving niche markets
Applied engineering skills and flexible manufacturing processes needed
Chapter 2: Strategy, Operations, and Global Competivevess

48. 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.
Chapter 2: Strategy, Operations, and Global Competivevess

49. 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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50. Performance Measured in Four Areas
Financial Performance
Customer Performance
Internal Business Process Performance
Organizational Learning and Growth
Chapter 2: Strategy, Operations, and Global Competivevess

51. 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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52. Chapter 2: Strategy, Operations, and Global Competivevess
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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53. Chapter 2: Strategy, Operations, and Global Competivevess
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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54. Order Qualifiers and Winners
Order qualifiers are characteristics that are the ante to enter the market
Order winners are characteristics that win the customer’s purchase
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55. Chapter 2: Strategy, Operations, and Global Competivevess
Loss of Focus
New outputs
New attributes
New tasks
Departmental professionalism
Ignorance and noncommunication
Life cycle changes
Chapter 2: Strategy, Operations, and Global Competivevess

56. Product Life Cycle Stages and Emphasis
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57. Chapter 2: Strategy, Operations, and Global Competivevess
Strategic Frameworks
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58. Chapter 2: Strategy, Operations, and Global Competivevess
The Sand Cone Model
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59. Example Performance Frontier
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60. New Technology Results in Shift of Performance Frontier
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61. Stages of Operational Effectiveness
Internally Neutral
Externally Neutral
Internally Supportive
Externally Supportive
Chapter 2: Strategy, Operations, and Global Competivevess

62. Critical Value Factors
Quality – affects a business unit’s competitive ability
Customers are more pleased with high quality product or service
Refer friends
Repeat business
Protect firm from competition
Chapter 2: Strategy, Operations, and Global Competivevess

63. Critical Value Factors con’t
Customization – refers to offering a product or service suited to a customer’s 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
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64. Chapter 2: Strategy, Operations, and Global Competivevess
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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65. Chapter 2: Strategy, Operations, and Global Competivevess

66. Four Mass Customization Strategies
Collaborative customizers
Adaptive customizers
Cosmetic customizers
Transparent customizers
Chapter 2: Strategy, Operations, and Global Competivevess

67. 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.
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68. Chapter 2: Strategy, Operations, and Global Competivevess
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.
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69. Chapter 2: Strategy, Operations, and Global Competivevess
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.
Chapter 2: Strategy, Operations, and Global Competivevess

70. 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.
Chapter 2: Strategy, Operations, and Global Competivevess

71. 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.
Chapter 2: Strategy, Operations, and Global Competivevess

72. Relationship Between Response Time and Unit Cost
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73. Chapter 2: Strategy, Operations, and Global Competivevess
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.
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74. Chapter 2: Strategy, Operations, and Global Competivevess
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.
Chapter 2: Strategy, Operations, and Global Competivevess