1. Iona College Operations Management MBA-540 Jerry Fjermestad

2. Operations Management Operations Strategy for Competitive Advantage Chapter 2 3. Outline

Global Company Profile: Komatsu

Identifying Missions and Strategies

• Mission

• Strategy

Achieving Competitive Advantage Through Operations

• Competing on Differentiation

• Competing on Cost

• Competing on Response

4. Outline - continued

Ten Strategic OM decisions

Issues in Operations Strategy

• Research

• Preconditions

• Dynamics

Strategy Development and Implementation

• Identify Critical Success Factors

• Build and Staff the Organization

• Integrate OM with Other Activities

5. Learning Objectives

When you complete this chapter, you should be able to :

Identify or Define :

• Mission

• Strategy

• Ten Decisions of OM

Describe or Explain :

• Specific approaches used by OM to achieve strategic concepts

• Differentiation

• Low Cost

• Response

6. Komatsu Strategies

1960s - licensed design and technology from others; improved quality

1970s - became global enterprise and built export markets aided by increasing value of yen

1980s - joint ventures with Dresser, and manufacturing outside Japan

1990s - used the latest technology to improve quality and drive down costs; focused on electronic engine controls

2000s - increased European presence through ownership and joint ventures

7. Komatsu Strategies

Each strategy established in light of:

threats and opportunities in the environment

strengths and weaknesses of the organization

(related to environment)

8. Mission

Mission - where are you going?

• Organizations purpose for being

• Provides boundaries & focus

• Answers How can we satisfy peoples needs?

• Expressed in published statement

1995 Corel Corp. 9. Sample Mission - Circle K

As a service company, our mission is to:

Satisfy our customers immediate needs and wants by providing them with a wide variety of goods and services at multiple locations.

10. Sample Mission - Merck

The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return

11. Factors Affecting Mission Mission Philosophy & Values Profitability & Growth Environment Customers Public Image Benefit to Society 12. Mission/Strategy

Mission -where you are going

Strategy -how you are going to get there

13. Strategy

Action plan to achieve mission

Shows how mission will be achieved

Company has a business strategy

Functional areas have strategies

1995 Corel Corp. 14. Strategy Process Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area Functional Area Strategies 15. Competitive Advantage Through:

Differentiation

Cost leadership

Quick response

better, cheaper, more responsive

16. Competing on Differentiation

Uniqueness - can go beyond both the physical characteristics and service attributes to encompass everything that impacts customers perception of value

17. Competing on Cost

Maximumvalueas perceived bycustomer

Doesnotimply low value or low quality

18. Competing on Response

Flexible

Reliable

Rapid

Requiresinstitutionalization within the firmof the ability to respond

19. Competing On Any Basis

Probably requires the institutionalization within the firm of the ability to change, to adapt

20. OMs Contribution to Strategy Quality Product Process Location Layout Human Resource Supply Chain Inventory Scheduling Maintenance Compaq Computers ability to follow the PC market Differentiation (Better) Response (Faster) Cost leadership (Cheaper) Southwest Airlines No-frills service Sonys constant innovation of new products Pizza Huts five-minute guarantee at lunchtime Federal Expresss absolutely, positively on time Motorolas automotive products ignition systems Motorolas pagers IBMs after-sale service on mainframe computers Fidelity Securitys broad line of mutual funds FLEXIBILITY Design Volume LOW COST DELIVERY Speed Dependability QUALITY Conformance Performance AFTER-SALE SERVICE BROAD PRODUCT LINE Operations Decisions Examples Specific Strategy Used Competitive Advantage 21. 10 Decision Areas of OM

Goods & service design

Quality

Process & capacity design

Location selection

Layout design

Human resource and job design

Supply-chain management

Inventory

Scheduling

Maintenance

22. Goods & Services and the 10 Operations Management Decisions 23. Goods & Services and the 10 Operations Management Decisions 24. Goods & Services and the 10 Operations Management Decisions 25. Goods & Services and the 10 Operations Management Decisions 26. Process Design Process-focused Job Shops (Print shop, emergency room , machine shop, fine dining Repetitive (modular) focus Assembly line (Cars, appliances, TVs, fast-food restaurants) Product-focused Continuous (steel, beer, paper, bread) Mass Customization Customization at high Volume (Dell Computers PC) LowModerateHigh Volume High Moderate Low Variety of Products 27. Operations Strategies for Two Drug Companies 28. Operations Strategies for Two Drug Companies - continued 29. Operations Strategies for Two Drug Companies - continued 30. Operations Strategies for Two Drug Companies - continued 31. Characteristics of High ROI Firms

High quality product

High capacity utilization

High operating effectiveness

Low investment intensity

Low direct cost per unit

From the PIMS study of the StrategicPlanning Institute 32. Strategic Options Managers Use to Gain Competitive Advantage

28% - Operations Management

18% - Marketing/distribution

17% - Momentum/name recognition

16% - Quality/service

14% - Good management

4% - Financial resources

3% - Other

33. Strategic Options Managers Use to Gain Competitive Advantage

28%Operations Management

• Low- cost product

• Product-line breadth

• Technical superiority

• Product characteristics/differentiation

• Continuing product innovation

• Low-price/high-value offerings

• Efficient, flexible operations adaptable to consumers

• Engineering research development

• Location

• Scheduling

34. Strategic Options Managers Use to Gain Competitive Advantage - continued

18% Marketing/Distribution

17% Momentum/name recognition

16% Quality/service

14% Good management

4% Financial resources

3% Other

35. Preconditions - To Implement a Strategy

One must understand:

• Strengths & weaknesses of competitors and new entrants into the market

• Current and prospective environmental, legal, and economic issues

• The notion of product life cycle

• Resources available with the firm and within the OM function

• Integration of OM strategy with company strategy and with other functions.

36. Impetus for Strategy Change

Changes in the organization

Stages in the product life cycle

Changes in the environment

37. Stages in the Product Life Cycle Introduction Growth MaturityDeclineGrowth rate 38. Strategy and Issues During a Products Life Introduction Growth Maturity Decline Standardization Less rapid product changes - more minor changes Optimum capacity Increasing stability of process Long production runs Product improvement and cost cutting Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Best period to increase market share R&D product engineering critical Practical to change price or quality image Strengthen niche Cost control critical Poor time to change image, price, or quality Competitive costs become critical Defend market position OM Strategy/Issues Company Strategy/Issues HDTV CD-ROM Color copiers Drive-thru restaurants Fax machines Station wagons Sales 3 1/2 Floppy disks Internet 39. Strategy & Issues During Product Life

Company Strategy& Issues

OM Strategy& Issues

Best period to increase market share R&D engineering are critical Product design and development are critical Frequent product and process design changes Over-capacity Short production runs High skilled-labor content High production costs Limited number of models Utmost attentions to quality Quick elimination of market-revealed design defects Introduction 40. Strategy & Issues During Product Life

Company Strategy

& Issues

OM Strategy

& Issues

Practical to change prices or quality image Marketing is critical Strengthen niche Forecasting is critical Product and process reliability Competitive product improvements and options Shift toward product oriented Enhance distribution Growth 41. Strategy & Issues During Product Life

Company Strategy

& Issues

OM Strategy

& Issues

Poor time to increase market share Competitive costs become critical Poor time to change price, image, or quality Defend position via fresh promotional and distribution approaches Standardization Less rapid product changes and more minor annual model changes Optimum capacity Increasing stability of manufacturing process Lower labor skills Long production runs Attention to product improvement and cost cutting Re-examination of necessity of design compromises Maturity 42. Strategy & Issues During Product Life

Company Strategy

& Issues

OM Strategy

& Issues

Cost control critical to market share Little product differentiation Cost minimization Overcapacity in the industry Prune line to eliminate items not returning Good margin Reduce capacity Decline 43. Strategy Development and Implementation

Identify critical success factors

Build and staff the organization

44. SWOT Analysis Process

Environmental Analysis

Determine Corporate Mission

Form a Strategy

45. SWOT Analysis to Strategy Formulation Strategy Mission External O pportunities Internal S trengths Internal W eaknesses External T hreats Competitive Advantage 46. IdentifyingCritical Success Factors Decisions Sample Options Product Customized, or standardized Quality Define customer expectations and how to achieve them Process Facility size, technology Location Near supplier or customer Layout Work cells or assembly line Human resourceSpecialized or enriched jobs Supply chain Single or multiple source suppliers Inventory When to reorder, how much to keep on hand Schedule Stable or fluctuating productions rate MaintenanceRepair as required or preventive maintenance Marketing Service Distribution Promotion Channels of distribution Product positioning (image, functions) Finance/Accounting Leverage Cost of capital Working capital Receivables Payables Financial control Lines of credit Production/Operations 47. Critical Success Factors Microsoft & Compaq

• They focus on one business

• They are global

• Their senior management is actively involved in defining and improving the product development process

• They recruit and retain the top people in their fields.

• They understand that speed to market reinforces product quality

48. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 357 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost 49. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals 50. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Short haul, point-to-point routes, often to secondary airports Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights 51. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Frequent, reliable schedules High number of flights reduces employee idle time between flights Saturate a city with flights flowering administrative costs per passenger for that city 52. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Standardized fleet of Boeing 357 aircraft Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing 53. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage High aircraft utilization Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 15 minute gate turnarounds 54. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Lean, productive employees High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines 55. Activity Mapping: Southwest Airlines Low Cost Competitive Advantage Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 357 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost 56. Vanguards Activity System A broad array of mutual funds excluding some fund categories Efficient investment management approach offering good consistent performance Straightforward client communication and education Strict cost control Direct distributions Very low expenses passed on to client 57. How It Works Company Mission Business Strategy Functional Area Strategies Marketing Decisions Operations Decisions Fin./Acct. Decisions If competitive advantage, leads to achieving Distinctive competencies affect