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CHAPTER 2OP E R A T I O N S ST R A T E G Y I N A GL O B A LEN V I R O N M E N T9ScholarStockapproval of marketing and the capital constraints imposed by the accounting department.ETHICALDILEMMAHere is an interesting scenario. A firm can save $10 million in pro-duction costs per year. All it has to do is locate manufacturing in China, which is not a democracy and where some employees are exploited. Nike faced a similar dilemma in Vietnam, where it was accused of paying less than a livable wage ($1.60 per day). Students may be prepared to discuss this current and sensitive subject.END-OF-CHAPTER PROBLEMS2.1The three methods are cost leadership,differentiation, and response. Cost leadership can be illustrated by Walmart, with low overhead and huge buying power to pressure its suppliers into concessions. Differentiation can be illustrated by almost any res-taurant orrestaurant chain, such as Red Lobster, which offers a distinctmenu and style of service than others. Response can be illustrated by a courier service such as FedEx, that guarantees specific delivery schedules; or by a custom tailor, who will hand make a suitspecifically for the customer.2.2Cost leadership: institutional food services, such as Sodexho, provide meal service to college campuses and similar institutions. Such firms often get their contracts by being low bidderto provide service. Response: a catering firm (the customer picksthe menu, time,and date). Differentiation: virtually all restaurants seek diffe-rentiation in menu, in taste, inservice. This is particularly true of fine dining restaurants, but also true of fast food restaurants. For instance, Burger King likes totalk about meals ―anyway you wantthem,‖ and McDonald’s has a playground or seating area forchildren.2.3Students may find articles about German work rules or Latin American siestas that interfere with work schedules. Also, some Hindu workers will not touch metal objects, or touch objects touched by ―untouchables.‖ There are rules concerning kitchen equipment and ingredient mixing in kosher food preparation.Computer keyboards in English versus Chinese pose a serioustraining issue. There are many other possibilities.2.4Arrow; Bidermann International, FranceBraun Household Appliances; Procter & Gamble, U.S.Lotus Autos; Proton, MalaysiaFirestone Tires; Bridgestone, JapanGodiva Chocolate; Campbell Soup, U.S.Haagen-Dazs Ice Cream; great globalization discussion ex-ample: Haagen-Dazswas established in New York City; now owned by Pillsbury (U.S.A.) which is owned by GeneralMills (U.S.A.), but NestléSA(Switzerland) is li-censed to sell Haagen-Dazsin the U.S.Jaguar Autos; Tata, IndiaMGM Movies; Credit Lyonnais, FranceLamborghini; Volkswagen, GermanyGoodrich; Michelin, FranceAlpo Pet Foods; Nestlé, SwitzerlandBlackberry; Research in Motion; Canada2.5(a)The maturing of a product may move the OM functionto focus on more standardization, make fewer product changes, find optimum capacity, stabilize the manufac-turing process, lower labour skills, use longer produc-tion runs, and institute cost cutting and design compro-mises.(b)Technological innovation in the manufacturing process may mean new human resources skills (either new per-sonnel and/or training of existing personnel), and added capital investment for new equipment or processes.Prod-uct design, layout, maintenance procedures, purchasing, inventory, quality standards, and procedures may all need to be revised.(c)A design change will, at least potentially, require the same changesas noted in (b).2.6Specific answers to this question depend on the organization considered. Some general thoughts follow:(a)For a producer with high energy costs, major oil prices change the cost structure, result in higher selling prices, and, if the company is energy inefficient compared to other producers, result in a change in competitive posi-tion. Conversely, when oil prices dropitisa bonanza for heavy fuel users such as airlines.(b)More restrictive quality of water and air legislation in-creases the cost of production and may, in some cases, prohibit the use of specific technologies. The high cost of process modification to meet more rigid standards has resulted in the closing of numerous plants includingpaper mills and steel mills.(c)A decrease in the number of young prospective em-ployees entering the U.S. labour market can contributeto a tighter job market. High unemployment rates can have the opposite effect.(d)Inflation, especially at high or uncertain rates, makes it more difficult to predict both the cost of production and the market demand.(e)Legislation moving health insurance from a before-tax benefit to taxable income will reduce the take-home pay of employees by the amount of the taxes. This could have a significant effect on the income of employees in the lower pay classifications, putting substantial pres-sure on operations managers to increase wages in these classifications. (This does not mean that itis not a good idea for society—i.e., to make employees more sensitive to the cost of health insurance.)2.7The corruption perception index maintained by Transparency International (www.transparency.org)gives a 1-to-10scale (10being least corrupt to 1being most corrupt). Also see Chapter 8, Table 8.2.A lively class discussion can also take place regarding who pays bribes, as shown on the same website. Other perspectives of cultureare shown on the Asia Pacific Management Forum page (www.apmforum.com).2.8The Economistdoes an analysis similar to this on occasion but the ―GlobalCompetitiveness Index,‖ World Economic Forum, Geneva (www.weforum.org) does one every year. (Also see Table 8.1 in the text) For 2009–2010U.S.,2; Japan, 8; U.K.,13; Israel, 27; China, 29; Mexico, 60 are somerankings.
10CHAPTER 2OP E R A T I O N S ST R A T E G Y I N A GL O B A L EN V I R O N M E N TScholarStock1CASESTUDYMR. LUBE1.What constitutes the mission of Mr. Lube?To provide economical preventative maintenance, primarily to vehicles owned by indi-viduals (as opposed to businesses), in Canada.2.How does the Mr. Lubestrategy provide competitive advantage?This case is a good way to get the student thinking about the 10 decisions around which the text is organized. Mr. Lube’sapproach to these 10 decisions includes:Product design: A narrow product strategy could be de-fined as ―lubricating automobiles‖ (more in Chapter 5).Quality strategy: Because of limited task variety, high re-petition, good training, and good manuals, quality should be relatively easy to maintain.Process strategy: The process strategy allows employees and capital investment to focus on doing this mission well, rather than trying to be a ―general purpose‖ garage or gas station.Location strategy: Facilities are usually located near resi-dential areas.Layout strategy: The bays are designed specifically for the lubrication and vacuuming tasks to minimize wasted move-ment on the part of the employees and to contribute to the speedier service.Supplychain strategy: Purchasing is facilitated by negotia-tion of large purchases and custom packaging.Human resources strategy: Human resources strategy fo-cuses on hiring a few employees with limited skills and training them in a limited number of tasks during the per-formance of which they can be closely supervised.Inventory: Inventory investment should be relatively low, and they should expect a high turnover.Scheduling: Scheduling is quite straightforward with simi-lar times for most cars. Once volume and fluctuation in vo-lume are determined, scheduling should be very direct—assisting both staffing and customer relations.Maintenance: There is relatively little equipment to be main-tained, therefore little preventive maintenance required. With multiple bays and multiple systems, there is backup available in the case of failure.3.Specialization of personnel and facilities should make Mr. Lube more efficient. Jobs/tasks accomplished per man hourwould be a good place to start.VIDEOCASESTUDIESSTRATEGY AT REGAL MARINEThere is a short video (7 minutes) available from Prentice Hall and filmed specifically for this text that supplements this case. 1.Regal Marine’s mission is to provide luxury performanceboats to the world through constant innovation, unique features,and high quality that will differentiate the boats in the market-place.2.A strength of Regal Marine is continued innovation that isbeing recognized in the marketplace. One current weakness ismaintaining an effective, well-trained labour force in a tight Florida labour market. The opportunitiesfor Regal include an increase in boat sales brought about through the reduction of the luxury taxand Regal Marine’s increasing market presence in the world boat market. The threatsto Regal are a huge number of small competi-tors going after various parts of the market. Brunswick goes afterthe mass market, and hundreds of small boat manufacturers goafter various niche markets.3.Regal Marine’s strategy is to focusonconstant innovation, high quality, and good value for the money with sales through effective dealers.4.Each of the 10 operations management decisions is important to Regal’s success.Product: Must be unique, full of features, and richly ap-pointed, which puts constant pressure on the design, styl-ing, andappointmentsQuality: Because the typical Regal Marine customer is inter-ested in exceptional quality for his/her substantial investmentProcess selection and design:Because of the large number of boats and custom features, building via repetitive pro-cesses in a modular way has proven to be an effective and efficient process.Inventory: Regal tries to drive down finished goods inven-torybut must maintain inventory ofpurchased parts to meet changing production schedules. Additionally, the tool-ing inventory,that is the various molds, create an inventory problemall their own. This is a good point for class discus-sion, as most students may not be familiar with the process.Scheduling: Regal tries to move the components from workstation to workstation on a one-day JIT basis. Good, reliable schedules are necessary to get the job done.Supply-chain management: Of course suppliers are impor-tant because of many of the appointments—from galley features through engines, and hardware make a huge dif-ference in the perceptions and performance of marine craft. Consequently, the selection of these suppliers and their performance is critical to Regal.Maintenance: Much of Regal’s maintenance hinges on keeping fiberglass guns and molds ready for use.Location: Because Florida is one of the major markets for boats in America, Regal is positioned to supply this large market rapidly and economically.Layout: Because of the bulkiness of the product, the layout must be designed, as it is, to minimize loads times the dis-tances times the difficulty factor. There is a clean logical flow of material through the plant.Human resources: Is important because boat hulls, decks, assembly, and finishing out the boats have a high labour con-tent. Additionally, the current diverse labour market in Flori-
CHAPTER 2OP E R A T I O N S ST R A T E G Y I N A GL O B A LEN V I R O N M E N T11ScholarStock2da creates special challenges for operations managers at Regal.HARD ROCK CAFE’S GLOBAL STRATEGYThere is a short video (9 minutes) available from Prentice Hall and filmed specifically for this text that supplements this case. 1.Identify the strategic changes that have taken place at Hard Rock Cafe. What we want to do here is help the student under-stand that an optimum mix of internal strengths and opportunities drives strategies in a changing environment.–Initially, Hard Rock was a London cafeserving classic Ameri-can food.–Then it became a ―theme‖chain with memorabilia in tourist destinations.–Then it added stores.–Thenit added live music and a rock concert.–Then it became an established name and began opening hotels and casinos.–Then it upgraded its menu.–Then it moved into cities that are not the typical tourist destination.2.As these strategic changes have taken place—the 10 decisions of OM change:–Location:From a London cafe, to tourist destinations, to non-tourist locations.–Product design: New menu items–Quality: The entire evaluation of quality and qualitycontrol got much more complex.–Process: The kitchen process changed when Hard Rock went from hamburgers to lobster and additional changes were made as the firmmoved to retail merchandising.–Layout:Added retail stores, added live music facilities.–Supply chain: Purchase memorabilia and lobsters—new expec-tations of the supply chain.–Inventory: From food to clothing to memorabilia, to expanded food items in inventory—how do you keep lobsters alive and how long?–Human resources:The range of talents needed keeps expanding; from cooks ofclassic American fare and wait staff and bartenders,to merchandisers, to cooks for a wider more expensive menu, to coordinators and performers for the live music facilities.The case says little about scheduling and maintenance, but every change in product (food or merchandise) and every change in equipment and processes changes scheduling and maintenance.3.Hard Rock fits in the multidomestic strategy, which uses the existing domestic model globally.ADDITIONALCASESTUDY*MOTOROLA’SGLOBALSTRATEGYThis case examines Motorola’s strategy in the cellular telephone and pager market. Motorola’s strategy is based on Japanese-style techniques and continuous improvement of quality.Key PointsMotorola has been a leader in microchip and semiconductor production for years. It also established itself as a leader inmobile communication technology. However, Motorola has not achieved this leadership position without a fight.*This case appears on www.myomlab.com.
12CHAPTER 2OP E R A T I O N S ST R A T E G Y I N A GL O B A L EN V I R O N M E N TScholarStockMotorola’s initial reaction to the invasion of Japanese produc-ers in the cellular telephone and pager market in 1980s was slow and uncertain. Eventually, Motorola decided to fight the Japanese using a two-pronged strategy, first by learning from them and then by competing with them.Motorola was committed to lowering costs, improving quality, and regaining market share. To that end, managers studied Jap-anese operations and learned how to compete more effectively. Motorola simultaneously increased its R&D and employee train-ing budgets. In fact, a total reengineering of the company took place.The turnaround at Motorola was hugely successful. The company won the prestigious Malcolm Baldrige National Quality Award and is currently the number three producer of pagers and cellular telephones for the Japanese market. On a worldwide scale, Moto-rola controls some 15 percent of the market for these products and is the number two producer of semiconductor chips. In addi-tion, the company is rapidly introducing new products.Motorola is working to avoid the complacent position it found itself in during the early 1980s and has set enormously chal-lenging goals of continuous improvement for itself. In addition, it has decided that more than three-quarters of its revenues should accrue from foreign sources.1.What are the components of Motorola’s international strategy?The basic components of international strategy are scope of operations, resource deployment, distinctive competence, andsynergy. Motorola’s scope of operations, or where it is going to conduct business, can be defined geographically as a worldwide operation. In terms of its resource deployment strategy, or how it allocates resources, Motorola initially abandoned some areas and then began to concentrate on cellular telephones, pagers, and semi-conductors. It has also devoted considerable resources to R&D and new product development. Motorola’s distinctive competence, or what it does exceptionally well, clearly revolves around its commit-ment to quality. Finally, Motorola is able to achieve synergy in its operations as the different elements of its operation benefit others.2.Describe how Motorola might have arrived at its current strategy as a result of a SWOT analysis.A SWOT analysis is an assessment of a firm’s strengths, weaknesses, opportunities, and threats. Agood SWOT analysis should provide the basis for strategy development that allows afirm to exploit strengths and opportunities, neutralize weaknesses, and minimize threats. Clearly Motorola identified the Japanese as a threat in the early 1980s, but also saw an opportunity in the world marketplace. Motorola at the time was weak in the areas of costs and quality, but exceptional leadership and R&D were able to neutralize the weaknesses and turn the company around.3.Discuss Motorola’s primary business strategy.Motorola’s primary business strategy is one of differentia-tion. The company has committed to distinguishing its productsfrom those of competitors on the basis of quality. In fact, the com-pany currently has a perfection rate of 99.9997 percent buthas set an even loftier goal for the future.Sources: Adapted from R.W. Griffin and M.W. Pustay, Inter-national Business, Addison-Wesley Longman, Reading, MA, 1996, pp. 373–374; updated with company data from www.motorola.com.