Ch.2 - Operations Strategy in a Global Environment

disadvantages of outsourcing

- Increased logistics and inventory costs - Loss of control (quality, delivery, etc.) - Potential creation of future competition - Negative impact on employees - Risks may not manifest themselves for years

strategy development process

- analyze the environment (SWOT analysis, understand environment, customers, industry, and competitors) -determine the corporate mission - form a strategy (build a competitive advantage)

advantages of outsourcing

- cost savings - gaining outside expertise that comes with - specialization improving operations and service - maintaining a focus on core competencies - accessing outside technology

operations managers' problems in dealing with outsourcing

- dealing with reduced employment levels - changes in facility requirements - potential adjustments to quality control systems and manufacturing processes - expanded logistics issues, including insurance, tariffs, customs, and timing

3 ways managers achieve competitive advantage

- differentiation (better or at least different) - cost leadership (low cost) - response (more responsive to customer needs and wants)

3 aspects of response

- flexible response - reliability of scheduling - quickness in response

3 main reasons outsourcing is rapidly accelerating

- increased technological expertise - more reliable and cheaper transportation - the rapid development and deployment of advancements in telecommunications and computers

advantages of shifting low-skilled jobs to another country

- the firm may reduce costs - frees higher-cost workers for more valuable tasks - reducing wage costs allows savings to be invested in improved products and facilities - having facilities in countries with different currencies can allow firms to finesse currency risk (and related costs) as economic conditions dictate

6 reasons domestic business operations decide to change to some form of international operation (globalization)

1. improve supply chain 2. reduce costs and exchange risk 3. improve operations 4. understand markets 5. improve products 6. attract and retain global talent

European Union (EU)

A European trade group that has 28 member states. - has reduced trade barriers among the participating European nations through standardization and a common currency, the euro.

international business

A firm that engages in crossborder transactions. - any firm that engages in international trade or investment.

multinational corporation (MNC)

A firm that has extensive involvement in international business, owning or controlling facilities in more than one country. - buy resources, create goods or services, and sell goods or services in a variety of countries. - example: IBM

North American Free Trade Agreement (NAFTA)

A free trade agreement between Canada, Mexico, and the United States.

activity map

A graphical link of competitive advantage, KSFs (key success factors), and supporting activities.

resources view

A method managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage. - This means thinking in terms of the financial, physical, human, and technological resources available and ensuring that the potential strategy is compatible with those resources.

five forces model

A method of analyzing the five forces in the competitive environment. - These potential competing forces are immediate rivals, potential entrants, customers, suppliers, and substitute products.

SWOT analysis

A method of determining internal strengths and weaknesses and external opportunities and threats. - The idea is to maximize opportunities and minimize threats in the environment while maximizing the advantages of the organization's strengths and minimizing the weaknesses.

core competencies

A set of skills, talents, and capabilities in which a firm is particularly strong. - allow a firm to set itself apart and develop a competitive advantage. - organizations that prosper identify these and nurture them

response

A set of values related to rapid, flexible, and reliable performance. - the entire range of values related to timely product development and delivery, as well as reliable scheduling and flexible performance. - Flexible response may be thought of as the ability to match changes in a marketplace where design innovations and volumes fluctuate substantially.

international strategy

A strategy in which global markets are penetrated using exports and licenses. - This strategy is the least advantageous, with little local responsiveness and little cost advantage. - often the easiest strategy though, as exports require little change in existing operations, and licensing agreements often leave much of the risk to the license - example: Harley davidson, US Steel

global strategy

A strategy in which operating decisions are centralized and headquarters coordinates the standardization and learning between facilities. - has a high degree of centralization, with headquarters coordinating the organization to seek out standardization and learning between plants, thus generating economies of scale. - This strategy is appropriate when the strategic focus is cost reduction but has little to recommend it when the demand for local responsiveness is high. - standardized product is used - when focus is more on cost reduction - examples: Texas Instruments and Caterpillar

multidomestic strategy

A strategy in which operating decisions are decentralized to each country to enhance local responsiveness. - has decentralized authority with substantial autonomy at each business. These are typically subsidiaries, franchises, or joint ventures with substantial independence. - advantage of this strategy is maximizing a competitive response for the local market; however, the strategy has little or no cost advantage. - The concept is one of "we were successful in the home market; let's export the management talent and processes, not necessarily the product, to accommodate another market." - when focus is local responsiveness/local customers - examples: Mcdonald's, Hard Rock Cafe

theory of comparative advantage

A theory which states that countries benefit from specializing in (and exporting) goods and services in which they have relative advantage, and they benefit from importing goods and services in which they have a relative disadvantage. - theory focuses on economic concept of relative advantage

value-chain analysis

A way to identify those elements in the product/service chain that uniquely add value. - These are areas where the firm adds its unique value through product research, design, human resources, supply-chain management, process innovation, or quality management.

low cost leadership

Achieving maximum value, as perceived by the customer. - requires examining each of the 10 OM decisions in a relentless effort to drive down costs while meeting customer expectations of value. - does NOT imply low value or quality

Key Success Factors (KSFs)

Activities or factors that are key to achieving competitive advantage. - can be so significant that a firm must get them right to survive - are often necessary, but not sufficient for competitive advantage

world trade organization (WTO)

An international organization that promotes world trade by lowering barriers to the free flow of goods across borders.

Understanding markets

Because international operations require interaction with foreign customers, suppliers, and other competitive businesses, international firms inevitably learn about opportunities for new products and services. - helps firms understand where the market is going but also helps firms diversify their customer base, add production flexibility, and smooth the business cycle. - helps expand the life cycle (stages a product goes through) of an existing product

differentiation

Distinguishing the offerings of an organization in a way that the customer perceives as adding value. - making a product different from other similar products - concerned with providing uniqueness. - A firm's opportunities for creating uniqueness are not located within a particular function or activity but can arise in virtually everything the firm does. - thought of as going beyond both physical characteristics and service attributes to encompass everything about the product or service that influences the value that the customers derive from it.

experience differentiation

Engaging a customer with a product through imaginative use of the five senses, so the customer "experiences" the product. - common in the service sector

attracting and retaining global talent

Global organizations can attract and retain better employees by offering more employment opportunities. - They need people in all functional areas and areas of expertise worldwide. - Global firms can recruit and retain good employees because they provide both greater growth opportunities and insulation against unemployment during times of economic downturn - During economic downturns in one country or continent, a global firm has the means to relocate unneeded personnel to more prosperous locations.

strategy

How an organization expects to achieve its missions and goals. - each functional area in an organization has one of these for achieving its mission and for helping organization reach its overall mission - these exploit opportunities and strengths, neutralize threats, and avoid weaknesses. - tells organization how to get there - action plan to achieve mission

improving products

Learning does not take place in isolation. Firms serve themselves and their customers well when they remain open to the free flow of ideas that can come from international operations

reducing cost and exchanging risk

Many international operations seek to reduce risks associated with changing currency values (exchange rates) as well as take advantage of the tangible opportunities to reduce their direct costs. - Less stringent government regulations on a wide variety of operations practices (e.g., environmental control, health and safety) can also reduce indirect costs.

Maquiladoras

Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment. - "free trade zones" - allows manufacturers to cut their costs by paying only for value added by Mexican workers

improving operations

Operations learn from better understanding of management innovations in different countries. - reduce response time to meet customers' changing product and service requirements.

competitive advantage

The creation of a unique advantage over competitors. - idea is to create customer value in an efficient and sustainable way. - achieved by: 1. differentiation 2. low cost 3. response

mission

The purpose or rationale for an organization's existence. - provide boundaries and focus for organizations and the concept around which the firm can rally. - economic success/survival is the result of identifying this to satisfy a customer's needs and wants - tells an organization where it is going

outsourcing

Transferring a firm's activities that have traditionally been internal to external suppliers.

straddling

When a firm seeks to match what a competitor is doing by adding new features, services, or technologies to existing activities. This often creates problems if trade-offs need to be made. - Occurs when company seeks to match benefits of a successful position while maintaining its existing condition - It adds new features, services, or technologies onto activities it already performs

transnational strategy

a strategy that combines the benefits of global-scale efficiencies with the benefits of local responsiveness - exploits the economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside in just the "home" country but can exist anywhere in the organization. - These firms have the potential to pursue all three operations strategies (i.e., differentiation, low cost, and response). Such firms can be thought of as "world companies" whose country identity is not as important as their interdependent network of worldwide operations. - focusing on both cost reduction and local responsiveness - move material, people, or ideas across national boundaries - example: Nestle

improving the supply chain

can often be improved by locating facilities in countries where unique resources are available. - These resources may be human resource expertise, low-cost labor, or raw material.

operations manager's job is to

implement an OM strategy, provide competitive advantage, and increase productivity

most common reason for outsourcing failure

insufficient analysis

outsourcing should focus only on ________ activities

non-core activities

the basis of outsourcing

the make or buy decision - concerning which products to make and which to buy

the motivation for international outsourcing comes from __________

the theory of comparative advantage