Corporate Strategy and its Connection to Operations

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Corporate Strategy and its Connection to
Operations
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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.

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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.

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Corporate Strategy

• The organizations action plan to achieve its
  mission
• The corporate strategy translates into more
  detailed strategies for each functional area
  (i.e., Operations, Finance, Marketing)
• Generally speaking, these strategies seek to
  exploit (external) opportunities and (internal)
  strengths, neutralize (external) threats, and
  address (internal) weaknesses

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Defining the Corporate Strategy
Responsiveness (Reliability Quickness
Flexibility e.g., Dell, Overnight Delivery
Services)
Competitive Advantage through which the company
market share is attracted
Cost Leadership (Price e.g., Wal-Mart,
Southwest Airlines, Generic Drugs)
Differentiation (Quality Uniqueness e.g.,
Luxury cars, Fashion Industry, Brand Name Drugs)
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The operations frontier, trade-offs, and the
operational effectiveness
Responsiveness
Cost Leadership
Differentiation
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OMs contribution to Corporate Strategy
Differentiation
Cost Leadership
Responsiveness
Low Cost
Quality
Design Volume Flexibility
After-Sale Service
Fast Dependable Delivery
Broad Product Line
Product Process Quality Location Layout
Human Resources Supply Chain Inventories
Scheduling Maintenance
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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, CSFs, and
  the company supporting activities.
• Example Figure 2.7-Activity Mapping of Southwest
  Airlines Low Cost Corporate Strategy

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Strategy Development Process (J. Heizer B.
Render, Operations Management, Prentice Hall)
Environmental Analysis Understand the
environment, customers, industry, and
competitors Identify your strengths, weaknesses,
opportunities and threats.
Determine Corporate Mission State the reason for
the firms existence and identify the value it
wishes to create
Form a Strategy Build and maintain a competitive
advantage, such as low price, quick delivery or
quality, by identifying and developing the
critical success factors
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Expanding the operations frontierDells
revolution in the PC market

• Dells competitive advantage Provide customized
  PC configurations, with short delivery times and
  affordable prices.
• Dells success in PC market

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The CSFs underlying Dells 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

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PC SUPPLY CHAINS
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Supporting Dells 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

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Dell performance
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Emerging factors and trends enabling Dells
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

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Factors affecting Corporate Strategy

• External
• Emerging strengths and weaknesses of competitors
  gt 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

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Strategy and Issues during a Products Life(J.
Heizer B. Render, Operations Management,
Prentice Hall)
Growth
Maturity
Decline
Introduction

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

• Cost control critical

• Practical to change price or quality image
• Strengthen niche

• Best period to increase market share
• RD engineering critical

Sales
Time

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

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

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

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

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The opportunities and challenges of globalization
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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.

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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

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The challenges underlying the deployment and
support of global operations

• The provided products and services need to appeal
  to the local markets gt 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

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Global Operations Strategies

• International
• Multi-domestic
• Global
• Transnational
• c.f. Figure 3.2 of page 67