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2The Global Environment and Operations Strategy

PowerPoint presentation to PowerPoint presentation to accompany accompany Heizer, Render, and Al-Zu’biHeizer, Render, and Al-Zu’biOperations Management, Operations Management, Arab World EditionArab World EditionOriginal PowerPoint slides by Jeff Heyl, Adapted by Zu’bi Al-Zu’bi

OutlineOutline

• Company Profile: Emaar Properties

• A Global View of Operations

• Cultural and Ethical Issues

• Developing Missions And Strategies

• Mission

• Strategy

Outline – ContinuedOutline – Continued

• Achieving Competitive Advantage Through Operations - Competing On Differentiation - Competing On Cost - Competing On Response• Ten Strategic OM Decisions• Issues in Operations Strategy

• Strategy Development and Implementation

• Key Success Factors and Core Competencies

• Build and Staff the Organization

• Integrate OM with Other Activities

• Global Operations Strategy Options

- International Strategy

- Multidomestic Strategy

- Global Strategy

- Transnational Strategy

Learning ObjectivesLearning Objectives

1. Define mission and strategy2. Identify and explain three strategic

approaches to competitive advantage

3. Identify and define the 10 decisions of operations management

When you complete this chapter you When you complete this chapter you should be able to:should be able to:

Learning ObjectivesLearning Objectives

4. Understand the significance of key success factors and core competencies

5. Identify and explain four global operations strategy options

When you complete this chapter you When you complete this chapter you should be able to:should be able to:

Some EMAAR contractors in the Burj Khalifa projectSome EMAAR contractors in the Burj Khalifa project

Firm Country ComponentSkidmore, Owings U.S.A. Architecture & Merrill LLP

Besix Belgium Construction

Samsung Engineering South Korea Engineering& Construction

Arabtec U.A.E. Construction

Turner U.S.A. Construction

Hyder UK Consulting

Grocon Australia Construction

Some EMAAR contractors in Burj Khalifa projectSome EMAAR contractors in Burj Khalifa project

Firm Country ComponentOtis U.S.A. Elevators and escalators

Lerch Bates from U.S.A. Consulting

Far East Aluminum Hong Kong Glazing

Arabian Aluminum U.A.E. Aluminum

White Aluminum U.A.E. Insulation

Bauer AG Germany Foundations

Middle East Foundations U.A.E Geo-technical services

Cox Australia Window Cleaning

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Global StrategiesGlobal Strategies

• Saudi Oger Ltd – carries out complex and technologically advanced construction projects all over Europe, Middle East, Asia, and Africa, driven from their focus on global operations and expertise.

• Almarai plc – moves inventory to stores around the Middle East faster than its competition by building flexibility into design, production, and distribution.

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Global StrategiesGlobal Strategies

• Patchi – purchases components from suppliers in Côte d’Ivoire, Brazil, Indonesia, and elsewhere around the world to produce the finest chocolates.

• Free Trade Zones encourage firms from around the world to relocate their operations to that area by offering a wide range of facilities provided by the local authorities.

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Reasons to GlobalizeReasons to Globalize

Reasons to GlobalizeReasons to Globalize1. Reduce costs (labor, taxes, tariffs, etc.)2. Improve supply chain3. Provide better goods and services4. Understand markets5. Learn to improve operations6. Attract and retain global talent

Tangible Reasons

Intangible Reasons

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Reduce CostsReduce Costs

• Foreign locations with lower wage rates can lower direct and indirect costs

- World Trade Organization (WTO)

- North American Free Trade Agreement (NAFTA)

- European Union (EU)

- Gulf Cooperation Council (GCC)

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Improve the Supply ChainImprove the Supply Chain

• Locating facilities closer to unique resources

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Provide Better Goods Provide Better Goods and Servicesand Services

• Objective and subjective characteristics of goods and services

• On-time deliveries

• Cultural variables

• Improved customer service

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Understand MarketsUnderstand Markets

• Interacting with foreign customers and suppliers can lead to new opportunities- Cell phone design from

Europe- Cell phone fads

from Japan- Extend the

product life cycle

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Learn to Improve OperationsLearn to Improve Operations

• Remain open to the free flow of ideas

• General Motors partnered with a Japanese auto manufacturer to learn new approaches to production and inventory control

• Equipment and layout have been improved using Scandinavian ergonomic competence

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Attract and Retain Global TalentAttract and Retain Global Talent

• Offer better employment opportunities

• Better growth opportunities and insulation against unemployment

• Relocate unneeded personnel to more prosperous locations

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Cultural and Ethical IssuesCultural and Ethical Issues

• Cultures can be quite different

• Attitudes can be quite different towards

• Punctuality

• Lunch breaks

• Environment

• Intellectual property

• Thievery

• Bribery

• Child labor

• Wasta

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Companies Want To ConsiderCompanies Want To Consider

• National literacy rate

• Rate of innovation

• Rate of technology change

• Number of skilled workers

• Political stability

• Product liability laws

• Export restrictions

• Variations in language

• Work ethic

• Tax rates

• Inflation

• Availability of raw materials

• Interest rates

• Population

• Number of miles of highway

• Phone system

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Match Product & ParentMatch Product & Parent

• Braun Household Appliances• Manchester City FC• Godiva Chocolate• Haagen-Dazs Ice Cream• Harrods• MGM Movies• Lamborghini Autos• Alpo Petfoods

1. Volkswagen2. Abu Dhabi Group3. Campbell Soup4. Qatar Investment5. Proctor and Gamble6. Nestlé7. Pillsbury8. Sony

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Match Product & ParentMatch Product & Parent

• Braun Household Appliances

• Manchester City FC• Godiva Chocolate• Haagen-Dazs Ice

Cream• Harrods• MGM Movies• Lamborghini Autos• Alpo Petfoods

1. Volkswagen2. Abu Dhabi Group3. Campbell Soup4. Qatar Investment5. Proctor and Gamble6. Nestlé7. Pillsbury8. Sony

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Match Product & CountryMatch Product & Country

• Braun Household Appliances• Manchester City FC• Godiva Chocolate• Haagen-Dazs Ice Cream• Harrods• MGM Movies• Lamborghini Autos• Alpo Pet Foods

1. UAE2. Germany3. Japan4. United States5. Switzerland6. Qatar

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Match Product & CountryMatch Product & Country

• Braun Household Appliances

• Manchester City FC• Godiva Chocolate• Haagen-Dazs Ice

Cream• Harrods• MGM Movies• Lamborghini Autos• Alpo Pet Foods

1. UAE2. Germany3. Japan4. United States5. Switzerland6. Qatar

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Developing Missions and StrategiesDeveloping Missions and Strategies

MissionMission statements tell an organization where it is going

The strategystrategy tells the organization how to get there

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MissionMission

Mission - where are you going?

- Organization’s purpose for being

- Answers ‘What do we provide society?’

- Provides boundaries and focus

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AramexAramex

To be recognized as one of the top five global logistics and transportation

companies by enabling and facilitating regional and global trade and commerce.

Figure 2.1

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University of JordanUniversity of Jordan

The provision of quality education at both the undergraduate and graduate levels through the adoption of the principle of

democracy in the education and decision-making processes whilst encouraging

interaction among students with the local community, and at the international level

to support goal-oriented research.

Figure 2.1

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Burj KhalifaBurj Khalifa

To be the world’s most luxurious hotel with a team dedicated to

outstanding personalized service, surpassing guest expectations by

providing the ultimate Arabian hospitality experience

Figure 2.1

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Benefit to Society

Mission

Factors Affecting MissionFactors Affecting Mission

Philosophy and Values

Profitability and GrowthEnvironment

Customers Public Image

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Sample MissionsSample Missions

Sample Company Mission

To manufacture and service an innovative, growing, and profitable worldwide microwave communications business that exceeds our customers’ expectations.

Sample Operations Management Mission

To produce products consistent with the company’s mission as the worldwide low-cost manufacturer.

Figure 2.2

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Figure 2.2

Sample OM Department MissionsProduct design To design and produce products and services with outstanding

quality and inherent customer value.

Quality management To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production, and field service operations

Process design To determine, design, and produce the production process and equipment that will be compatible with low-cost product, high quality, and good quality of work life at economical cost.

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Figure 2.2

Sample OM Department Missions

Location To locate, design, and build efficient and economical facilities that will yield high value to the company, its employees, and the community.

Layout design To achieve, through skill, imagination, and resourcefulness in layout and work methods, production effectiveness and efficiency while supporting a high quality of work life.

Human resources To provide a good quality of work life, with well-designed, safe, rewarding jobs, stable employment, and equitable pay, in exchange for outstanding individual contribution from employees at all levels.

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Figure 2.2

Sample OM Department Missions

Supply-chain management

To collaborate with suppliers to develop innovative products from stable, effective, and efficient sources of supply.

Inventory To achieve low investment in inventory consistent with high customer service levels and high facility utilization.

Scheduling To achieve high levels of throughput and timely customer delivery through effective scheduling.

Maintenance To achieve high utilization of facilities and equipment by effective preventive maintenance and prompt repair of facilities and equipment.

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Strategic ProcessStrategic Process

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission

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StrategyStrategy

• Action plan to achieve mission

• Functional areas have strategies

• Strategies exploit opportunities and strengths, neutralize threats, and avoid weaknesses

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Strategies for Competitive AdvantageStrategies for Competitive Advantage

• Differentiation – better, or at least different

• Cost leadership – cheaper

• Response – rapid response

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Competing on DifferentiationCompeting on Differentiation

Uniqueness can go beyond both the physical characteristics and service

attributes to encompass everything that impacts customer’s perception of value

Safeskin gloves – leading edge products

Ferrari World Abu Dhabi – experience differentiation

TcheTche Cafe – dining differentiation

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Competing on CostCompeting on Cost

Provide the maximum value as perceived by customer. Does not imply low quality.• Air Arabia – no frills service, efficient utilization of equipment

• Lulu Hypermarkets – small overhead, shrinkage, distribution costs

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Competing on ResponseCompeting on Response

• Flexibility is responding to the rapidly changing market needs with high-quality solutions

– Rubicon-Jordan• Reliability is meeting schedules

• German machine industry• Timeliness is quickness in design,

production, and delivery• Apple, Tazaj, Motorola

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OM’s Contribution to StrategyOM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

DIFFERENTIATIONInnovative design … Burj Khalifa Broad product line … Arab Bank’s Financial

Services After-sales service …Petra’s heavy equipment

service Experience … Ferrari World

COST LEADERSHIP Low overhead …Great stores, Saudi

Arabia Effective capacity use … Air Arabia

Inventory management …Carrefour, Saudi Arabia

RESPONSE Flexibility … Rubicon’s response to

different market needs Reliability … Arab Bridge Ferries Quickness … Aramex Express

Figure 2.3

10 Operations CompetitiveDecisions Approach Example Advantage

Response(faster)

Cost leadership(cheaper)

Differentiation(better)

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10 Strategic OM Decisions10 Strategic OM Decisions

1. Goods and service design

2. Quality 3. Process and

capacity design4. Location

selection5. Layout design

6. Human resources and job design

7. Supply-chain management

8. Inventory

9. Scheduling

10. Maintenance

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Goods and Services and Goods and Services and the 10 OM Decisionsthe 10 OM Decisions

OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesGoods and service design

Product is usually tangible

Product is not tangible

Quality Many objective standards

Many subjective standards

Process and capacity design

Customers not involved Customer may be directly involved

Capacity must match demand

Table 2.1

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OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesLocation selection

Near raw materials and labor

Near customers

Layout design Production efficiency Enhances product and production

Human resources and job design

Technical skills, consistent labor standards, output- based wages

Interact with customers, labor standards vary

Table 2.1

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OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesSupply chain Relationship critical to

final productImportant, but may not be critical

Inventory Raw materials, work-in-process, and finished goods may be held

Cannot be stored

Scheduling Level schedules possible

Meet immediate customer demand Table 2.1

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OperationsOperationsDecisionsDecisions GoodsGoods ServicesServicesMaintenance Often preventive and

takes place at production site

Often “repair” and takes place at customer’s site

Table 2.1

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Managing Global Service OperationsManaging Global Service Operations

Requires a different perspective on:Requires a different perspective on:

• Capacity planning

• Location planning

• Facilities design and layout

• Scheduling

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Process DesignProcess Design

Low Moderate HighVolume

Moderate

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,

fine-diningrestaurant)

Repetitive (modular) focus

ASSEMBLY LINE(Cars, appliances,

TVs, fast-food restaurants) Product focused

CONTINUOUS(Steel, paper,

bread, institutional kitchen)

Mass CustomizationCustomization at high

volume(Dell Computer’s PC,

cafeteria)

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Operations Strategies of Two Drug Operations Strategies of Two Drug CompaniesCompanies

Brand Name Drugs, Inc.Brand Name Drugs, Inc. Generic Drug Corp.Generic Drug Corp.

Competitive Competitive AdvantageAdvantage Product DifferentiationProduct Differentiation Low CostLow Cost

Product Selection and Design

Heavy R&D investment; extensive labs; focus on development in a broad range of drug categories

Low R&D investment; focus on development of generic drugs

Quality Major priority, exceed regulatory requirements

Meets regulatory requirements on a country-by-country basis

Table 2.2

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Process Product and modular process; long production runs in specialized facilities; build capacity ahead of demand

Process focused; general processes; “job shop” approach, short-run production; focus on high utilization

Location Still located in the city where it was founded

Recently moved to low-tax, low-labor-cost environment

Table 2.2

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Human Resources

Hire the best; nationwide searches

Very experienced top executives; other personnel paid below industry average

Layout Layout supports automated product-focused production

Layout supports process-focused “job shop” practices

Table 2.2

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Supply Chain Long-term supplier relationships

Tends to purchase competitively to find bargains

Inventory High finished goods inventory to ensure all demands are met

Process focus drives up work-in-process inventory; finished goods inventory tends to be low

Table 2.2

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Scheduling Centralized production planning

Many short-run products complicate scheduling

Maintenance Highly trained staff; extensive parts inventory

Highly trained staff to meet changing demand

Table 2.2

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Issues In Operations StrategyIssues In Operations Strategy

• Resources view

• Value-chain analysis

• Porter’s Five Forces model

• Operating in a system with many external factors

• Constant change

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Product Life CycleProduct Life Cycle

Best period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Figure 2.4

Internet search engines

Drive-through restaurants

CD-ROMs

Analog TVs

Boeing 787

LCD & plasma TVs

Twitter

Avatars

Xbox 360

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Product Life CycleProduct Life Cycle

Product design and development criticalFrequent product and process design changesShort production runsHigh production costsLimited modelsAttention to quality

Introduction Growth Maturity Decline

Forecasting criticalProduct and process reliabilityCompetitive product improvements and optionsIncrease capacityShift toward product focusEnhance distribution

StandardizationFewer product changes, more minor changesOptimum capacityIncreasing stability of processLong production runsProduct improvement and cost cutting

Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returning good marginReduce capacity

Figure 2.4

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Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

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Strategy Development ProcessStrategy Development Process

Determine the Corporate MissionState the reason for the firm’s existence and identify the

value it wishes to create.

Form a StrategyBuild a competitive advantage, such as low price, design, or

volume flexibility, quality, quick delivery, dependability, after-sale service, broad product lines.

Analyze the EnvironmentIdentify the strengths, weaknesses, opportunities, and threats.

Understand the environment, customers, industry, and competitors.

Figure 2.5

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Strategy Development and ImplementationStrategy Development and Implementation

• Identify key success factors and core competencies• Build and staff the organization• Integrate OM with other activities

The operations manager’s job is to implement an OM strategy, provide competitive advantage, and increase productivity

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Key Success FactorsKey Success Factors

Production/Operations

Figure 2.6

Marketing

ServiceDistributionPromotionChannels of distributionProduct positioning (image, functions)

Finance/Accounting

LeverageCost of capitalWorking capitalReceivablesPayablesFinancial controlLines of credit

Decisions Sample Options Chapter

ProductQualityProcessLocationLayoutHuman resourceSupply chainInventoryScheduleMaintenance

Customized, or standardizedDefine customer expectations and how to achieve themFacility size, technology, capacityNear supplier or near customerWork cells or assembly lineSpecialized or enriched jobsSingle or multiple suppliersWhen to reorder, how much to keep on handStable or fluctuating production rateRepair as required or preventive maintenance

7, S789

1011, S11

12, 14, 1613, 15

Support a Core Competence and Implement Strategy by Identifying and Executing the Key Success Factors in the Functional Areas

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Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing

737 Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

Activity Mapping atActivity Mapping atSouthwest AirlinesSouthwest Airlines

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Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

Automated ticketing machines

No seat assignmentsNo baggage transfersNo meals (peanuts)

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Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

No meals (peanuts)Lower gate costs at secondary airports

High number of flights reduces employee idle time

between flights

Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

High number of flights reduces employee idle time between flights

Saturate a city with flights, lowering administrative costs per passenger

for that cityPilot training required on only one

type of aircraftReduced maintenance inventory

required because of only one type of aircraft

Competitive Advantage:

Low Cost

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Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

Pilot training required on only one type of aircraftReduced maintenance

inventory required because of only one type of aircraftExcellent supplier relations

with Boeing has aided financing

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Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

Reduced maintenance inventory required because of only one type of

aircraftFlexible employees and standard planes

aid schedulingMaintenance personnel trained only one

type of aircraft20-minute gate turnarounds

Flexible

union contra

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Service

737 Aircraft

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Figure 2.7

Automated ticketing machinesEmpowered employees

High employee compensationHire for attitude, then train

High level of stock ownershipHigh number of flights reduces

employee idle time between flights

Competitive Advantage:

Low Cost

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Four International Operations StrategiesFour International Operations StrategiesC

HighLowLocal Responsiveness Considerations

(Quick Response and/or Differentiation)

Figure 2.8

Import/export or license existing product

Examples:Jordan’s CementMorocco's Phosphates Co.

International Strategy

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Examples:Jordan’s CementMorocco's Phosphates

Figure 2.8

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ExamplesU.S. SteelHarley Davidson

Figure 2.8

Standardized product Economies of scale Cross-cultural learning

Examples:Petra IndustriesAl Zamil GroupAramex

Global Strategy

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Examples:Petra IndustriesAl-Zamil GroupAramex

Global Strategy

Examples:Jordan Cement

Morocco’s Phosphates Co.

Figure 2.8

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Examples:Texas InstrumentsCaterpillarOtis Elevator

Global Strategy

Figure 2.8

Use existing domestic model globally

Franchise, joint ventures, subsidiaries

Examples:TazajTcheTcheAfia

Multidomestic Strategy

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Global Strategy

Examples:Jordan CementMorocco’s Phosphates Co.

Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

Examples:TazajTcheTcheAfia

Figure 2.8

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Global Strategy

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe

Figure 2.8 Move material,

people, ideas across national boundaries

Economies of scale Cross-cultural

learning

Examples:AlmaraiRani Beverage’s

Transnational

Strategy

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Examples:Petra IndustriesAl Zamil GroupAramex

Global Strategy Transnational Strategy Move material, people, ideas

across national boundaries Economies of scale Cross-cultural learning

Examples:AlmaraiRani Beverages

Examples:Jordan CementMorocco’s Phosphate Co.

subsidiaries

Examples: Tazaj TcheTche Afia

Figure 2.8

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