Corporate Strategy and its Connection to Operations

Corporate Mission

• The mission of the organization– defines its purpose, i.e., what it contributes to society

– states the rationale for its existence

– provides boundaries and focus

– defines the concept(s) around which the company can rally

• Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.

Corporate Mission Examples

• 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.

• FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.

Corporate Strategy

• The organization’s action plan to achieve its mission

• The corporate strategy translates into more detailed strategies for each functional area (i.e., Operatios, Finance, Marketing)

• Generally speaking, these strategies seek to exploit (external) opportunities and (internal) strengths, neutralize (external) threats, and address (internal) weaknesses

Defining the Corporate Strategy

Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)

Cost Leadership (Price; e.g., Wal-Mart, Southwest Airlines, Generic Drugs)

Responsiveness (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services)

Competitive Advantage through whichthe company market share is attracted

OM’s contribution to Corporate Strategy

Differentiation

Responsiveness

Cost Leadership

Design & Volume Flexibility Low Cost

Fast & Dependable Delivery

Quality

After-Sale Service

Broad Product Line

Product Process Quality Location Layout Human ResourcesSupply Chain Inventories Scheduling Maintenance

Critical Success factors and Activity Maps

• Critical Success Factors (CSF): Those activities or factors that are key to achieving and maintaining competitive advantage.

• Activity Map: A graphical representation of the links among the competitive advantage, CSF’s, and the company supporting activities.

• Example: Figure 2.7-Activity Mapping of Southwest Airlines’ Low Cost Corporate Strategy

Strategy Development Process (J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Environmental AnalysisUnderstand the environment, customers, industry, and competitors

Identify your strengths, weaknesses, opportunities and threats.

Determine Corporate MissionState the reason for the firm’s existence and

identify the value it wishes to create

Form a StrategyBuild and maintain a competitive advantage, such as low price,

quick delivery or quality, by identifying and developing the critical success factors

The operations frontier, trade-offs, and the operational effectiveness

Differentiation

Cost Leadership

Responsiveness

Expanding the operations frontier:Dell’s “revolution” in the PC market

• Dell’s competitive advantage: Provide customized PC configurations, with short delivery times and affordable prices.

• Dell’s success in PC market:

The CSF’s underlying Dell’s competitive advantage

• Very high product (configurable) variety – mass customization!

• Direct fulfillment - no intermediaries• No production launch until customer order booked (pure

pull!)• Very low finished goods inventory (costs) – high inventory

turns (raw material inventory influenced by “recommended configurations”)

• High velocity material flows & fulfillment

Vir

tual

Inte

gra

tio

n

Customer

Dell

Suppliers

Dell Supply Chain

PUSH

PULL

PC SUPPLY CHAINS

Typical PC Supply Chain(Compaq, HP, IBM, etc.)

Customer

DistributionChannels

Manufacturer

Suppliers

PUSH

PULL

Supporting Dell’s competitive advantage through a new operational model

• Focused on strategic partnerships: suppliers down from 200 to 47

• Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour

• Suppliers own inventory until used in production• Demand pull throughout value chain – “information for

inventory” substitution• Demand forecasting is critical – changes are shared immediately

within Dell and with supply base• Customers frequently steered to “recommended configurations”

with high availability to balance supply and demand• External logistics supplier used to manage inbound supply chain

Dell performance

Emerging factors and trends enabling Dell’s strategy

• The commoditization of the PC industry– Standardized and interchangeable components

– Emergence of reliable manufacturing service providers

• Recent advances in Supply Chain Management– Information Technology (IT) platforms that allow the effective

and efficient information exchange and coordination across the entire supply chain

– 3rd party logistics service providers

– Emerging emphasis on virtual rather than vertical company integration

Factors affecting Corporate Strategy• External

– Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively

– New industry entrants– Development of substitute products– Development of new technologies– Legal developments (e.g., environmental concerns and regulations)– Economic and political developments (e.g., new international agreements,

political crises)

• Internal– Company politics and restructuring– Modified relationships with customers and suppliers– Product Life Cycle

Strategy and Issues during a Product’s Life(J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Introduction Growth Maturity Decline

Time

Sales

• Best period to increase market share

•R&D engineering critical

• Frequent product and process changes•Short production runs•High production costs•Limited models•Attention to quality

•Practical to change price or quality image•Strengthen niche

•Forecasting critical•Products and process reliability•Increase capacity•Shift towards product focus•Enhance distribution

•Poor time to change image, price or quality•Competitive costs become critical•Defend market position

•Standardization - minor product changes•Optimum capacity•Process stability•Long production runs

•Cost control critical

•Little product differentiation•Overcapacity in the industry•Reduce capacity and eventually prune line to eliminate items not returning good margin

The opportunities and challenges of globalization

Some basic definitions

• International business: A firm that engages in cross-border transactions.

• Multinational corporation (MNC): A firm that has extensive involvement in international business, owing or controlling facilities in more than one country.

Building competitive advantage through globalization

• Cost reductions: labor, transportation, taxation (free trade zones), tarrifs, etc.

• Easier access to local markets; ability to understand and adjust better to the local markets and cultures;

• Ability to create new markets and expand the life cycle of existing products

• Ability to tap to the local expertise or unique resources

• Ability to interact with and learn from the local industry

The challenges underlying the deployment and support of

global operations

• The provided products and services need to appeal to the local markets => need for broader product lines and customization

• Need to coordinate the production activity across a geographically dispersed network

• Need to understand and systematically assess the pros and cons offered by the various geographical locations– Technological infrastructure– Labor skills and education– Political stability and legal issues (prod. Liability laws, export restrictions)– Economic factors (tax and interest rates, availability of raw materials, etc.)– Social and cultural aspects (language, work ethic, etc.)

• Need to align the provided products and services, as well as the deployed production and business functions to the local culture and ethics

Global Operations Strategies

• International

• Multi-domestic

• Global

• Transnational

c.f. Figure 3.2 of page 67