Operation Strategy in Global

Environment
Some Multinational Corporations

 % Sales % Assets

 Home Foreign

Company Country Country

Nestle Switzerland 98 95
Philips Netherlands 94 85
Electronics
Microsoft USA 74 58
 Reasons to Globalize
 Reduced cost
 Lower wage rates, latest technology of production
 Less stringent government regulations
 Shifting low skilled jobs to other countries
 Improved Supply Chain
 By locating facilities in the countries where resources
are available. Such as facilitating chips, circuit board
production to China by Intel, Microsoft etc.
 Provide better goods and services
 Knowledge about culture and ways in which business is
handled globally in different countries.
 It helps in the customization of products and services to meet customer’s changing
products and services. Mc Donald, Google India.
 Reduce response time to meet customer’s changing habits for products and services. e. g
: Honda Motors.
 Understand Market
 Europe lead market – with cell phone innovation
 Japanese lead with the latest cell phone fashion.

 Attract and retain global talent

 Relocate unneeded personals to more prosperous
locations.

 Learn to improve operations

 Remain open to the free flow of ideas
 Developing Mission Vision and Strategy

 Mission
 It is the purpose or rational for the existance of
organisation. As Aditya Birla Group : mission is to
deliver superior services to the customers,
shareholders, employees and society.
 Vision
 An aspiration description of what an organization would
like to achieve or accomplish in the mid-term or long-term
future. It is intended to serves as a clear guide for
choosing current and future courses of action.
 Strategy
 It is a unified, comprehensive and integrated plan that is
designed to ensure that basic objectives of the enterprise
are achieved through proper implementation process. i.e.
how to get there.
Strategies for Competitive
Advantage

 Differentiation
 better, or at least different from competitors (USP)
 Cost leadership
 cheaper
 Response Time
 rapid response to changing customer needs and
prefernces
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage
Product
FLEXIBILITY:
Quality Samsung's constant innovation
of new products………………………………....Design
HP’s ability to lead
Process the printer market………………………………Volume

Location Jet Airlines economy service……..…..LOW COST

Layout DELIVERY: Differentiatio

Pizza Hut’s 5-minute guarantee n
at lunchtime…………………..…..………………….Speed
Human Federal Express’s “absolutely, (Better)
resource positively on time”………………………..….Dependability
Response
Supply chain QUALITY: (Faster)
Intel Processors ………………………..….Performance
Cost
Inventory leadership
Toyota ‘s after-sale service
on vehicles…………….... After-sale Service (Cheaper)
Scheduling
Maruti ‘s broad product
Maintenance line of cars………… .Broad Product Line
10 Strategic OM Decisions

1. Goods and 6. Human

service design resources and
2. Quality job design
3. Process and 7. Supply chain
capacity design management
4. Location 8. Inventory
selection
5. Layout design 9. Scheduling
10. Maintenance
Difference between Goods and Services
influence how the 10 OM Decisions

Operations
Decisions Goods Services
Goods and Product is usually Product is not
service tangible tangible
design
Quality Many objective Many subjective
standards - TQM standards
Process Customers not Customer may be
and involved directly involved
capacity Capacity must
design match demand

Table 2.1
Goods and Services and
the 10 OM Decisions
Operations
Decisions Goods Services
Location Near raw Near customers
selection materials and
labor
Layout Production Enhances product
design efficiency and production
Human Technical skills, Interact with
resources consistent labor customers, labor
and job standards, output standards vary
design based wages
Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Supply Relationship Important, but
chain critical to final may not be
product critical
Inventory Raw materials, Cannot be stored
work-in-process,
and finished
goods may be
held
Scheduling Level schedules Meet immediate
possible customer demand
Goods and Services and
the 10 OM Decisions

Operations
Decisions Goods Services
Maintenance Often preventive Often “repair” and
and takes place takes place at
at production site customer’s site
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp. xyz
Ciphla
Competitive
Advantage Product Differentiation Low Cost

Product Heavy R&D investment; Low R&D investment;

Selection and extensive labs; focus on focus on development
Design development in a broad of generic drugs
range of drug
categories
Quality Major priority, exceed Meets regulatory
regulatory requirements requirements on a
country by country
basis

Table 2.2
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive Product Differentiation Low Cost
Advantage
Process Product and modular Process focused;
process; long general processes; “job
production runs in shop” approach, short-
specialized facilities; run production; focus
build capacity ahead of on high utilization
demand
Location Still located in the city Recently moved to low-
where it was founded tax, low-labor-cost
environment

Table 2.2
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage Product Differentiation Low Cost

Scheduling Centralized production Many short-run

planning products complicate
scheduling

Layout Layout supports Layout supports

automated product- process-focused “job
focused production shop” practices

Table 2.2
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage Product Differentiation Low Cost

Human Hire the best; Very experienced top

Resources nationwide searches executives; other
personnel paid below
industry average

Supply Chain Long-term supplier Tends to purchase

relationships competitively to find
bargains

Table 2.2
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Inc. Generic Drug Corp.
Competitive
Advantage Product Differentiation Low Cost

Inventory High finished goods Process focus drives up

inventory to ensure all work-in-process
demands are met inventory; finished
goods inventory tends
to be low
Maintenance Highly trained staff; Highly trained staff to
extensive parts meet changing demand
inventory

Table 2.2
 Elements of Operations
Management Strategy

 Low-cost product
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to consumers
 Engineering research development
 Location
 Scheduling
Product Life Cycle

Introduction Growth Maturity Decline

Best period to Practical to Poor time to Cost control
Company Strategy/Issues

increase market change price or change image, critical

share quality image price, or quality

R&D engineering Strengthen niche Competitive costs

is critical become critical
Defend market
position
CD-ROMs
Internet search
engines Analog TVs
Drive-
LCD & plasma TVs through
restaurants
Sales iPods

3 1/2”
Smart Floppy
Phones disks

Figure 2.5
Strategic issues in Product Life
Cycle
Introduction Growth Maturity Decline
Product design Forecasting Standardizatio Little
and critical n product
development Product and Less rapid differentiat
critical process product ion
OM Strategy/Issues

Frequent reliability changes – Cost

product and Competitive more minor minimizatio
process design product changes n
changes improvements Optimum Overcapaci
Short and options capacity ty in the
production Increase Increasing industry
runs capacity stability of Prune line
High Shift toward process to
production product focus Long eliminate
costs production items not
Enhance returning
Limited models distribution runs
good
Attention to Product margin
quality improvement
and cost Reduce
cutting capacity
Figure 2.5
 Strategy Options in Global
Environment
 Strategy Options
1. International Strategy
2. Multi domestic Strategy
3. Global strategy
 The plans developed by an organization to target growth
on a global level for sales of products or services.
4. Transnational strategy
 Four International Operations
Strategies
International
High
Strategy
Cost Reduction Considerations

 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies
High
Cost Reduction Considerations

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies Global
High Strategy
 Standardized
Cost Reduction Considerations

product
 Economies of
scale
 Cross-cultural
learning
International Strategy
 Import/export or
Examples
license existing
product

Examples Chevrolet
Caterpillar
U.S. Steel
Harley Davidson

Low Otis Elevator

Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies
High
Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy
 Import/export or
license existing
product

Examples
U.S. Steel
Harley Davidson

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies Multidomestic
Strategy
High
 Use existing
Global Strategy
 Standardizeddomestic model
Cost Reduction Considerations

product
 Economies of scale
globally
 Cross-cultural learning

Examples
 Franchise, joint
Texas Instruments
Caterpillar
Otis Elevatorventures,

subsidiaries
International Strategy
Examples
 Import/export or

Heinz
license existing
product

Examples McDonald’s
U.S. Steel
The Body Shop
Harley Davidson

Low Hard Rock Cafe

Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies
High
Global Strategy
Cost Reduction Considerations

 Standardized product
 Economies of scale
 Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies Transnational
High Strategy
 Move material,
Global Strategy
Cost Reduction Considerations

 Standardized product
people, ideas
 Economies of scale
 Cross-cultural learning

Examples across national

Texas Instruments
Caterpillar boundaries
Otis Elevator
 Economies of
scale
International Strategy Multidomestic Strategy
 Cross-cultural
 Import/export or
 Use existing
domestic model globally
productlearning
license existing  Franchise, joint ventures,
subsidiaries
Examples Examples
Examples
U.S. Steel
Harley Davidson
Heinz The Body Shop
McDonald’s Hard Rock Cafe

Low Coca-Cola
Low Nestlé High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
 Four International Operations
Strategies
High
Global Strategy Transnational Strategy
 Move material, people, ideas
Cost Reduction Considerations

 Standardized product
 Economies of scale across national boundaries
 Cross-cultural learning  Economies of scale
 Cross-cultural learning
Examples
Texas Instruments Examples
Caterpillar Coca-Cola
Otis Elevator Nestlé

International Strategy Multidomestic Strategy

 Use existing
 Import/export or domestic model globally
license existing  Franchise, joint ventures,
product subsidiaries
Examples Examples
U.S. Steel Heinz The Body Shop
Harley Davidson McDonald’s Hard Rock Cafe

Low
Low High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)