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Chapter 2. Strategy, Operations, and Global Competitiveness. 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?.

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Chapter 2

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Chapter 2 l.jpg

Chapter 2

Strategy, Operations, and Global Competitiveness

Chapter 2: Strategy, Operations, and Global Competivevess


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Introduction

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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The United States’ Merchandise Trade

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Purchasing Power of the Dollar

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Three Major Trading Regions

Chapter 2: Strategy, Operations, and Global Competivevess


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Reasons to Produce Offshore

  • Circumvent governmental regulations

  • Avoid effects of currency fluctuations

  • Avoid fees and quotas

  • Placate local customers

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Commercialization

  • Refers to the process of moving an idea from concept to market.

  • Shorter life cycles.

  • Increasingly competitive marketplace.

  • Globalization.

Chapter 2: Strategy, Operations, and Global Competivevess


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Measures of Commercialization Capabilities

  • Time to market

  • Range of markets

  • Number of markets

  • Breadth of technologies

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Transformation Process Characteristics

  • Six primary characteristics of the transformation system:

    • Efficiency

    • Effectiveness

    • Capacity

    • Quality

    • Response time

    • Flexibility

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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New Technologies

  • ERP

  • EDI

  • Bar coding

  • Internet

Chapter 2: Strategy, Operations, and Global Competivevess


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Formulating the Business Strategy

Chapter 2: Strategy, Operations, and Global Competivevess


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Strategy Formulation

Chapter 2: Strategy, Operations, and Global Competivevess


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Strategy Map for Department Store

Chapter 2: Strategy, Operations, and Global Competivevess


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Vision and Mission Statements

  • Vision statements used to express organization’s values and aspirations.

  • Mission statements express organization’s purpose or reason for existence.

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

  • Boeing

    • integrating large scale systems

    • commercial jetliners, space stations, missiles

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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Business Strategy and the Product Life Cycle

Chapter 2: Strategy, Operations, and Global Competivevess


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The Life-Cycle Curve

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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Categories of Business Strategies

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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-market’s mistakes

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Market Segmentation

  • Serving niche markets

  • Applied engineering skills and flexible manufacturing processes needed

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Performance Measured in Four Areas

  • Financial Performance

  • Customer Performance

  • Internal Business Process Performance

  • Organizational Learning and Growth

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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Innovation

Customization

Product/service flexibility

Volume flexibility

Performance

Quality

Product/service reliability

Delivery reliability

Response

After-sale service

Price

Common Areas of Focus

Chapter 2: Strategy, Operations, and Global Competivevess


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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 customer’s purchase

Chapter 2: Strategy, Operations, and Global Competivevess


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Loss of Focus

  • New outputs

  • New attributes

  • New tasks

  • Departmental professionalism

  • Ignorance and noncommunication

  • Life cycle changes

Chapter 2: Strategy, Operations, and Global Competivevess


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Product Life Cycle Stages and Emphasis

Chapter 2: Strategy, Operations, and Global Competivevess


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Strategic Frameworks

Chapter 2: Strategy, Operations, and Global Competivevess


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The Sand Cone Model

Chapter 2: Strategy, Operations, and Global Competivevess


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Example Performance Frontier

Chapter 2: Strategy, Operations, and Global Competivevess


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New Technology Results in Shift of Performance Frontier

Chapter 2: Strategy, Operations, and Global Competivevess


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Stages of Operational Effectiveness

  • Internally Neutral

  • Externally Neutral

  • Internally Supportive

  • Externally Supportive

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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Chapter 2: Strategy, Operations, and Global Competivevess


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Four Mass Customization Strategies

  • Collaborative customizers

  • Adaptive customizers

  • Cosmetic customizers

  • Transparent customizers

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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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


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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Relationship Between Response Time and Unit Cost

Chapter 2: Strategy, Operations, and Global Competivevess


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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.

Chapter 2: Strategy, Operations, and Global Competivevess


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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


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