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Chapter 2

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

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

  3. 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

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

  6. 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

  7. 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

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

  10. The United States’ Merchandise Trade Chapter 2: Strategy, Operations, and Global Competivevess

  11. 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

  12. Purchasing Power of the Dollar Chapter 2: Strategy, Operations, and Global Competivevess

  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. Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  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. Chapter 2: Strategy, Operations, and Global Competivevess

  18. 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. • e-mail • Computers in the classroom • Using the Web at work to shop Chapter 2: Strategy, Operations, and Global Competivevess

  21. 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

  22. Measures of Commercialization Capabilities • Time to market • Range of markets • Number of markets • Breadth of technologies Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  26. New Technologies • ERP • EDI • Bar coding • Internet Chapter 2: Strategy, Operations, and Global Competivevess

  27. Formulating the Business Strategy Chapter 2: Strategy, Operations, and Global Competivevess

  28. Strategy Formulation Chapter 2: Strategy, Operations, and Global Competivevess

  29. Strategy Map for Department Store Chapter 2: Strategy, Operations, and Global Competivevess

  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. Chapter 2: Strategy, Operations, and Global Competivevess

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

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  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 Chapter 2: Strategy, Operations, and Global Competivevess

  36. 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

  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. Chapter 2: Strategy, Operations, and Global Competivevess

  38. 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

  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. Chapter 2: Strategy, Operations, and Global Competivevess

  40. Business Strategy and the Product Life Cycle Chapter 2: Strategy, Operations, and Global Competivevess

  41. The Life-Cycle Curve Chapter 2: Strategy, Operations, and Global Competivevess

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

  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 Chapter 2: Strategy, Operations, and Global Competivevess

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

  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

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