Operations and Management Chapter 2: Operations Strategy

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What are six reasons why domestic business operations decide to change to some form of international operation?

(1) Reduce costs (labor, taxes, tariffs, etc.); (2) Improve the supply chain; (3) Provide better goods and services; (4) Understand markets; (5) Learn to improve operations; (6) Attract and retain global talent

maquiladores

Mexican factories located along the U.S. - Mexico border that receive preferential tariff treatment

WTO

World Trade Organization - an international organization that promotes world trade by lowering barriers to the free flow of goods across borders

NAFTA

North American Free Trade Agreement - a free trade agreement between Canada, Mexico, and the United States

EU

European Union - a European trade group that has 27 member states

improve the supply chain

The supply chain can often be improved by locating facilities in countries where unique resources are available.

provide better goods and services

Although the characteristics of goods and services can be objective and measurable, they can also be subjective and less measurable (e.g., sensitivity to culture). Improved understanding of different cultures as a result of a local presence and reduced response time to meet customers' changing product and service requirement are two ways companies provide better goods and services with international operations.

understand markets

Knowledge of international markets not only helps firms understand where the market is going, but also helps firms diversify their customer base, add production flexibility, and smooth the business cycle. Also, there could be an opportunity to expand the life cycle of an existing product. A product that is considered "mature" in the U.S. could be considered in the "introductory" stage in many developing countries, such as Albania, Vietnam, and Myanmar (Burma).

learn to improve operations

Learning does not take place in isolation. For example, GM found that it could improve operations by jointly building and running, with the Japanese, an auto assembly plant in San Jose, California. This strategy allowed GM to contribute its capital and knowledge of U.S. labor and environmental laws while the Japanese contributed production and inventory ideas.

attract and retain global talent

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.

In spite of __, we live in a period __

cultural and ethical differences; of extraordinary mobility of capital, information, goods, and even people.

mission

The purpose or rationale for an organization's existence.

strategy

How an organization expects to achieve its missions and goals.

supporting mission

Once an organization's mission has been decided, each functional area within the firm determines its supporting mission. By functional area we mean the major disciplines required by the firm, such as marketing, finance/accounting, and productions/operations. Missions for each function are developed to support the firm's overall mission.

lower-level supporting missions

Within functions (such as marketing or productions/operations) lower-level supporting missions are established for the OM functions.

Firms achieve missions in __

three conceptual ways: (1) differentiation, (2) cost leadership, and (3) response. This means that operations managers are called on to deliver goods and services that are (1) better, or at least different, (2) cheaper, and (3) more responsive.

What are three basic conceptual ways, or strategies that can be used to achieve a company's mission?

A company can be different, or better, it can be cheaper, and/or it can be more responsive.

competitive advantage

The creation of unique advantage over competitors.

Differentiation is concerned with __

providing uniqueness.

differentiation

Distinguishing the offerings of an organization in a way that the customer perceives as adding value.

experience differentiation

Engaging a customer with a product through imaginative use of the five senses, so the customer "experiences" the product

low-cost leadership

Achieving maximum value as perceived by the customer.

response

A set of values related to rapid, flexible, and reliable performance.

operating decisions

The strategic decisions of OM are goods and service design, quality, process design, location selection, layout design, human resources and job design, supply-chain management, inventory, scheduling, and maintenance.

Differentiation, low cost, and response can be achieved when __

managers make effective decisions in 10 areas of OM, or the operations decisions.

resources view

A method managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage, or ensuring that the potential strategy (dfferentiation, cost, or response) is compatible with the available resources.

value-chain analysis

A way to identify those elements in the product/service chai that uniquely add value.

Five forces analysis

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

In addition to the competitive environment, the operations manager needs to understand __

that the firm is operating in a system with many other external factors that range from political, legal, to cultural.

SWOT analysis

A method of determining internal strengths and weaknesses and external opportunities and threats.

KSFs

key success factors - activities or factors that are key to achieving competitive advantage, sometimes even necessary for a firm to achieve its goals

core competencies

A set of skills, talents, and activities in which a firm is particularly strong. For example, McDonalds KSFs are consistency and quality.

activity map

A graphical link of competitive advantage, KSFs, and supporting activities.

build and staff the organization

Once a strategy and KSFs have been identified, the second step is to group the necessary activities into an organizational structure. The third step is to staff it with personnel who will get the job done.

The operations manager's job is to __

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

MNC

Multinational corporation - a firm that has extensive involvement in international business, owning or controlling facilities in more than one country.

Operations managers of international and multinational firms approach global opportunities with one __

of four operations strategies: international, multidomestic, global, or transnational.

international strategy

An international strategy uses exports and licenses to penetrate the global arena. They can operate internationally easily, with little change to existing operations. Responsiveness is little because they are exporting or licensing goods from the home country. Also, the cost advantages may be few because they are using the existing production process at some distance from a new market.

multidomestic strategy

The multidomestic strategy has decentralized authority with substantial autonomy at each business (think subsidiaries, franchises, or joint ventures). This maximizes competitive response for the local market, however the strategy has little or no cost savings.

global strategy

A global strategy 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.

economies of scale

As production increases, so does efficiency, and the cost per unit also decreases.

transnational strategy

A transnational strategy 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, and such firms can be though of as "world companies" where their home country is not important, but rather its interdependent network of worldwide operations.

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