Operations

Management
Operations Strategy in a Global
Environment
Chapter 2
PowerPoint 2-1 © 2004 by Prentice Hall,
 Outline
 GLOBAL COMPANY PROFILE: BOEING
 DEVELOPING MISSIONS AND STRATEGIES
 Mission
 Strategy
 ACHIEVING COMPETITIVE ADVANTAGE
THROUGH OPERATIONS
 Competing on Differentiation
 Competing on Cost
 Competing on Response
 TEN STRATEGIC OM DECISIONS
PowerPoint 2-2 © 2004 by Prentice Hall,
 Outline - Continued
 ISSUES IN OPERATIONS STRATEGY
 Research
 Preconditions
 Dynamics

 STRATEGY DEVELOPMENT AND

IMPLEMENTATION
 Identify Critical Success Factors
 A Global view of Operations Cultural and Ethical
Issues
 Build and Staff the Organization
 Integrate OM with Other Activities
PowerPoint 2-3 © 2004 by Prentice Hall,
 Outline - Continued
 GLOBAL OPERATIONS STRATEGY
OPTIONS
 International Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy

PowerPoint 2-4 © 2004 by Prentice Hall,

 Learning Objectives
When you complete this chapter, you should
be able to :
Identify or Define :
 Mission
 Strategy
 Ten Decisions of OM
 Multinational Corporations

PowerPoint 2-5 © 2004 by Prentice Hall,

Learning Objectives - Continued
Describe or Explain :
 Specific approaches used by OM to
achieve strategies
 Differentiation
 Low Cost
 Response

 FourGlobal Operations Strategies

 Why Global Issues are Important

PowerPoint 2-6 © 2004 by Prentice Hall,

 Examples of Global Strategies
 Boeing – both sales and production are worldwide.
 Benetton – moves inventory to stores around the
world faster than its competitor by building
flexibility into design, production, and distribution
 Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world
 GM is building four similar plants in Argentina,
Poland, China, and Thailand

PowerPoint 2-7 © 2004 by Prentice Hall,

 Boeing Suppliers (777)
Firm Country Parts
Alenia Italy Wing flaps
AeroSpace Australia Rudder
Technologies
CASA Spain Ailerons
Fuji Japan Landing gear
doors, wing section
GEC Avionics United Kingdom Flight computers
Korean Air Korea Flap supports
Menasco Aerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
Singapore Singapore Landing gear doors
Aerospace
PowerPoint 2-8 © 2004 by Prentice Hall,
 The Role of

Maquiladoras
World Trade Organization (WTC)
North American Free Trade Agreement (NAFTA)
European Union (EU)

PowerPoint 2-9 © 2004 by Prentice Hall,

 Management Issues in
Global Operations
Global Strategic Context
 Differentiation
 Cost leadership
 Response

Supply Chain Location Decisions Logistics

Management Management

PowerPoint 2-10 © 2004 by Prentice Hall,

 Supply-Chain Management

Sourcing
Vertical integration
Make-or-buy decisions
Partnering

PowerPoint 2-11 © 2004 by Prentice Hall,

 Location Decisions

Country-related issues
Product-related issues
Government policy/political risk
Organizational issues

PowerPoint 2-12 © 2004 by Prentice Hall,

 Materials Management

Flow of materials
Transportation options and speed
Inventory levels
Packaging
Storage

PowerPoint 2-13 © 2004 by Prentice Hall,

 Defining Global Operations
 International business - engages in cross-border transactions

 Multinational Corporation - has extensive involvement in

international business, owning or controlling facilities in more
than one country

 Global company - integrates operations from different

countries, and views world as a single marketplace

 Transnational company - seeks to combine the benefits of

global-scale efficiencies with the benefits of local
responsiveness
PowerPoint 2-14 © 2004 by Prentice Hall,
Some Multinational Corporations
Company Home % Sales % Assets % Foreign
Country Outside Outside Workforce
Home Home
Country Country
Citicorp USA 34 46 NA
Colgate- USA 72 63 NA
Palmolive
Dow USA 60 50 NA
Chemical
Gillette USA 62 53 NA
Honda Japan 63 36 NA

IBM USA 57 47 51

PowerPoint 2-15 © 2004 by Prentice Hall,

Some Multinational Corporations
Company Home % Sales % Assets % Foreign
Country Outside Outside Workforce
Home Home
Country Country
ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38
Unilever Britain & 95 70 64
Netherlands

PowerPoint 2-16 © 2004 by Prentice Hall,

 Pontiac - the LeMans Included
the Following
 About $6,000 heads to South Korea for auto’s assembly
 $3,500 goes to Japan for engines, axles, and electronics
 $1,500 goes to Germany for design
 $800 goes to Taiwan, Singapore, and Japan for smaller parts
 $500 heads to England for marketing
 $100 goes to Ireland for information technology
 the rest  $7,600, goes to GM and its US bankers, insurance
agents, and attorneys.

PowerPoint 2-17 © 2004 by Prentice Hall,

 Reasons to Globalize Operations
Tangible
Reduce costs (labor, taxes, tariffs, etc.)
Improve the supply chain
Provide better goods and services
Attract new markets
Learn to improve operations
Attract and retain global talent
Intangible

PowerPoint 2-18 © 2004 by Prentice Hall,

 Trade and Tariff
Maquiladoras - Mexican factories located along
the U.S.-Mexico border that receive preferential
tariff treatment
GATT - an international treaty that helps
promote world trade by lowering barriers to the
free flow of goods across borders
NAFTA - a free trade agreement between
Canada, Mexico, and the United States

PowerPoint 2-19 © 2004 by Prentice Hall,

 Trade Pays
GDP (PPP*) per Person
1990 Growth Rates, %
5 *PPP – Purchasing Power Parity
4

-1 More globalized Rich Less globalized

poor countries countries poor countries

PowerPoint 2-20 © 2004 by Prentice Hall,

 Free trade may
take us into the era of the floating factory - a six
person crew will take a factory from port to port
in order to obtain the best market, material, labor
and tax advantages

PowerPoint 2-21 © 2004 by Prentice Hall,

 Achieving Global Operations
-Four Considerations-

Global product design

Global process design and technology
Global factory location analysis
Impact of Culture and Ethics

PowerPoint 2-22 © 2004 by Prentice Hall,

 Global
Product Design

Remember social and cultural differences

 packaging and marketing can help make product seem
“domestic” but -
 “liter” versus “quart”
 “sweetness” and “taste”

PowerPoint 2-23 © 2004 by Prentice Hall,

 Global
Process Design and Technology
Information technology enables management of
integrated, globally dispersed operation
Texas Instruments: 50 plants in 19 countries
Hewlett-Packard - product development teams in
U.S., Japan, Great Britain, and Germany
Reduces time-to-market

PowerPoint 2-24 © 2004 by Prentice Hall,

 Global
Facility Location Analysis
Using CSFs for Country Selection
Select CSFs based on parent organization;’s
strategic or operations objectives
Obtain country-specific information on the CSFs
Evaluate each country’s CSFs using a 1 (bad) to
5 (good) rating scale
Sum the ratings

PowerPoint 2-25 © 2004 by Prentice Hall,

 You May Wish To Consider

 national literacy rate  work ethic

 rate of innovation  tax rates
 rate of technology change  inflation
 number of skilled workers  availability of raw materials
 stability of government  interest rates
 product liability laws  population
 export restrictions  number of miles of highway
 similarity in language

PowerPoint 2-26 © 2004 by Prentice Hall,

 Global
Impact of Culture and Ethics

Cultures differ! Some accept/expect:

 variations in punctuality
 long lunch hours
 expectation of thievery
 bribery
 little protection of intellectual property

PowerPoint 2-27 © 2004 by Prentice Hall,

 Ranking Corruption
1. Finland 9.7
2. Denmark & New Zealand (Tie) 9.5
7. Canada 9.0
10. United Kingdom 8.7
16. United States 7.7
18. Germany & Israel (Tie) 7.3
20. Japan 7.1
31. Italy 5.2
59. China 3.5
62.
… Egypt 3.4
71.
… India & Russia (Tie) 2.7
101. Nigeria 1.6
102. Bangladesh 1.2

PowerPoint 2-28 © 2004 by Prentice Hall,

 To Establish Global Services

Determine if sufficient people or facilities exist to

support the service
Identify foreign markets that are open - not
controlled by governments
Determine what services are of most interest to
foreign customers
Determine how to reach global customers

PowerPoint 2-29 © 2004 by Prentice Hall,

 Managing Global Service
Operations

Must take a different perspective on

Capacity planning
Location Planning
Facilities design and layout
Scheduling

PowerPoint 2-30 © 2004 by Prentice Hall,

 Some Definitions

International business
 A firm that engages in cross-border
transactions.
Multinational Corporation (MNC)
 A firm that has extensive involvement in
international business, owning or controlling
facilities in more than one country

PowerPoint 2-31 © 2004 by Prentice Hall,

 Some Global Strategies
 International Strategy: uses exports and licenses to
penetrate the global area
 Multidomestic Strategy: uses decentralized authority with
substantial autonomy at each business
 Global Strategy: Uses a high degree of centralization, with
headquarters coordinating to seek standardization and
learning between plants
 Transnational Strategy: Exploits economies of scale and
learning, as well as pressure for responsiveness, by
recognizing that core competencies reside everywhere in the
organization

PowerPoint 2-32 © 2004 by Prentice Hall,

 Match Product & Parent
 Arrow shirts 1. Volkswagen
 Braun Household Appliances 2. Bidermann International
 Burger King 3. Bridgestone
 Firestone Tires 4. Campbell Soup
 Godiva Chocolate 5. Credit Lyonnais
 Haagen_dazs Ice Cream
6. Ford Motor Company
 Jaguar Autos
7. Gillette
 MGM Movies
 Lamborghini Autos 8. Grand Metropolitan
 Goodrich Tires 9. Michelin
 Alpo Petfoods 10. Nestlé

PowerPoint 2-33 © 2004 by Prentice Hall,

 Match Product & Country
 Arrow shirts 1. France
 Braun Household Appliances 2. Great Britain
 Burger King 3. Germany
 Firestone Tires 4. Japan
 Godiva Chocolate 5. United States
 Haagen_Dazs Ice Cream
6. Switzerland
 Jaguar Autos
 MGM Movies
 Lamborghini Autos
 Goodrich Tires
 Alpo Petfoods

PowerPoint 2-34 © 2004 by Prentice Hall,

 Developing Missions and
Strategies

PowerPoint 2-35 © 2004 by Prentice Hall,

 Mission

 Mission - where are you

going?
 Organization’s purpose for being
 Provides boundaries & focus
 Answers ‘What do we provide
society?’

© 1995 Corel Corp.

PowerPoint 2-36 © 2004 by Prentice Hall,

 Mission of FedEx
FedEx is committed to our People-Service-Profit philosophy. We
will produce outstanding financial returns by providing total
reliable, competitively superior, global air-ground
transportation of high priority goods and documents that
require rapid, time-certain delivery. Equally important, positive
control of each package will be maintained using real time
electronic tracking and tracing systems. A complete record of
each shipment and delivery will be presented with our request
for payment. We will be helpful, courteous, and professional
to each other and the public. We will strive to have a
completely satisfied customer at the end of each transaction.

PowerPoint 2-37 © 2004 by Prentice Hall,

 Sample Mission - Merck

The mission of Merck is to provide society with superior

products and services - innovations and solutions that
improve the quality of life and satisfy customer needs - to
provide employees with meaningful work and
advancement opportunities and investors with a superior
rate of return

PowerPoint 2-38 © 2004 by Prentice Hall,

 Mission of the Hard Rock Café

To spread the spirit of Rock ‘n’ Roll by delivering an

exceptional entertainment and dining experience. We are
committed to being an important, contributing member of
our community and offering the Hard Rock family a fun,
healthy, and nurturing work environment while ensuring
our long-term success.

PowerPoint 2-39 © 2004 by Prentice Hall,

 Factors Affecting Mission

Philosophy &
Values

Profitability
Environment
& Growth
Mission

Customers Public Image

Benefit to
Society

PowerPoint 2-40 © 2004 by Prentice Hall,

 Mission/Strategy

Mission - where you are going

Strategy - how you are going to get there; an

action plan

PowerPoint 2-41 © 2004 by Prentice Hall,

 Strategy

 Action plan to achieve

mission
 Shows how mission will be
achieved
 Company has a business
strategy
 Functional areas have
strategies © 1995 Corel Corp.

PowerPoint 2-42 © 2004 by Prentice Hall,

 Strategy Process
Company
Mission

Business
Strategy

Functional
Functional Area
Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

PowerPoint 2-43 © 2004 by Prentice Hall,

 Strategies for Competitive
Advantage

Differentiation

Cost leadership

Quick response

PowerPoint 2-44 © 2004 by Prentice Hall,

 Competing on Differentiation

Uniqueness can go beyond both the physical

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

PowerPoint 2-45 © 2004 by Prentice Hall,

 Competing on Cost

Provide the maximum value as perceived by

customer

Does not imply low value or low quality

PowerPoint 2-46 © 2004 by Prentice Hall,

 Competing on Response

Flexibility
Reliability
Timeliness

Requires institutionalization within the firm of the

ability to respond

PowerPoint 2-47 © 2004 by Prentice Hall,

Competing, Regardless of the Basis,

Requires the institutionalization within the firm of

the ability to change, and to adapt

PowerPoint 2-48 © 2004 by Prentice Hall,

 OM’s Contribution to Strategy
Operations Examples Specific Competitive
Decisions Strategy Used Advantage
Quality
FLEXIBILITY

Product Sony’s constant innovation of new products Design

HP’s ability to follow the printer market Volume
Process Southwest Airlines No-frills service LOW COST

Location DELIVERY
Pizza Hut’s five-minute guarantee at lunchtime Speed
Layout Federal Express’s “absolutely, positively on time” Dependability Differentiation
(Better)
Human Resource
QUALITY
Motorola’s automotive products ignition systems Conformance Response
Supply Chain Cost (Faster)
Motorola’s pagers Performance leadership
Inventory (Cheaper)

IBM’s after-sale service on mainframe computers AFTER-SALE SERVICE

Scheduling
Fidelity Security’s broad line of mutual funds BROAD PRODUCT LINE
Maintenance

PowerPoint 2-49 © 2004 by Prentice Hall,

 10 Strategic OM Decisions
 Goods & service design
 Quality
 Process & capacity design
 Location selection
 Layout design
 Human resource and job design
 Supply-chain management
 Inventory
 Scheduling
 Maintenance

PowerPoint 2-50 © 2004 by Prentice Hall,

 Goods & Services and the 10 OM
Decisions
Operations Goods Services
Decisions
Goods & Product is usually Product is usually
services tangible intangible
decisions
Quality Objective quality Subjective quality
standards standards
Process Customer not involved Customer may be directly
and in most of process involved in process.
capacity Capacity must match
design demand to avoid lost sales
PowerPoint 2-51 © 2004 by Prentice Hall,
 Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Location May need to be near raw Product is usually
Selection materials or labor force intangible
Layout Layout can enhance Subjective quality
Design production efficiency standards
Human Workforce focused on Customer may be directly
Resources technical skills. involved in process.
and Job Labor standards consistent. Capacity matches
Design Output-based wage system. demand to avoid lost
sales

PowerPoint 2-52 © 2004 by Prentice Hall,

Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Supply chain Supply-chain Supply-chain relationships
management relationships critical to important, not necessarily
final product critical
Inventory Raw materials, work- Most services cannot be
in-process, and stored
finished goods
Scheduling Ability to convert Primarily concerned with
inventory may allow meeting the customer's
leveling of production immediate schedule
rates
PowerPoint 2-53 © 2004 by Prentice Hall,
Goods & Services and the 10 OM
Decisions – Continued
Operations Goods Services
Decisions
Maintenance Maintenance is often Maintenance is often
preventive and takes "repair" and takes place at
place at the production the customer's site
site

PowerPoint 2-54 © 2004 by Prentice Hall,

 Process Design
Customization at high
High Process-focused Volume
Job Shops Mass Customization
(Print shop, emergency
(Dell Computer’s PC)
room , machine shop,
Repetitive (modular)
fine dining
focus
Variety of Products

Assembly line
Moderate (Cars, appliances, TVs,
fast-food restaurants) Product-focused
Continuous
(steel, beer, paper,
bread, institutional
kitchen)
Low
Low Moderate High
Volume
PowerPoint 2-55 © 2004 by Prentice Hall,
 Operations Strategies for Two
Drug Companies
Brand Name Drugs, Generic Drug Corp.
Inc.
Product Heavy R & D; Low R & D investment; focus on
Selection Extensive labs; focus development of generic drugs
and Design on development in
broad range of \drug
categories
Quality Quality is a major Meets regulatory requirements on
priority; a country-by-country basis as
Standards exceed necessary
regulatory
requirements

PowerPoint 2-56 © 2004 by Prentice Hall,

 Operations Strategies for Two
Drug Companies - Continued
Brand Name Drugs, Generic Drug Corp.
Inc.
Process Product & modular Process focused
production processes General production processes;
Long product runs in “Job Shop” approach, short run;
specialized facilities Focus on high utilization
Build capacity ahead of
demand
Location Still located in city in Recently moved to low tax, low labor cost
which it was founded environment
Scheduling Central production Many short run products complicate
planning scheduling

PowerPoint 2-57 © 2004 by Prentice Hall,

 Operations Strategies for Two
Drug Companies - Continued
Brand Name Drugs, Generic Drug Corp.
Inc.
Human Hires the best; nation- Very experienced top executives
Resources wide searches provide direction; other
personnel paid below average
Supply Long term supplier Tends to purchase competitively
Chain relationship to find bargains
Inventory Maintains high finished Process focus drives up WIP
goods inventory, inventory.
primarily to ensure all Finished goods inventory tends
demands are met to be low

PowerPoint 2-58 © 2004 by Prentice Hall,

 Operations Strategies for Two
Drug Companies - Continued
Brand Name Generic Drug Corp.
Drugs, Inc.
Maintenance Highly trained staff; Highly trained staff to meet
Extensive parts challenging demands
inventory

PowerPoint 2-59 © 2004 by Prentice Hall,

Characteristics of High ROI Firms

High quality product

High capacity utilization
High operating effectiveness
Low investment intensity
Low direct cost per unit

From the PIMS study of the Strategic

Planning Institute

PowerPoint 2-60 © 2004 by Prentice Hall,

Strategic Options Managers Use
to Gain Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
 4% - Financial resources
 3% - Other

PowerPoint 2-61 © 2004 by Prentice Hall,

Strategic Options Managers Use
to Gain Competitive Advantage
28% Operations Management
 Low- cost product
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to consumers
 Engineering research development
 Location
 Scheduling

PowerPoint 2-62 © 2004 by Prentice Hall,

 Preconditions -
To Implement a Strategy
One must understand:
 Strengths & weaknesses of competitors and new
entrants into the market
 Current and prospective environmental, legal, and
economic issues
 The notion of product life cycle
 Resources available with the firm and within the OM
function
 Integration of OM strategy with company strategy and
with other functions.

PowerPoint 2-63 © 2004 by Prentice Hall,

 Impetus for Strategy Change

Changes in the organization

Stages in the product life cycle
Changes in the environment

PowerPoint 2-64 © 2004 by Prentice Hall,

 Stages in the Product Life Cycle

Introduction
Growth rate

Growth

Maturity

Decline

PowerPoint 2-65 © 2004 by Prentice Hall,

Strategy & Issues During Product Life
Introduction
 Company Best period to increase market share
Strategy & R&D engineering are critical
Issues
Product design and development are critical
Frequent product and process design changes
Over-capacity
Short production runs
 OM Strategy High skilled-labor content
& Issues High production costs
Limited number of models
Utmost attentions to quality
Quick elimination of market-revealed design defects

PowerPoint 2-66 © 2004 by Prentice Hall,

Strategy & Issues During Product Life
Growth

Company Practical to change prices or quality image

Strategy Marketing is critical
Strengthen niche
& Issues
Forecasting is critical
Product and process reliability
OM Strategy Competitive product improvements and options
& Issues Shift toward product oriented
Enhance distribution

PowerPoint 2-67 © 2004 by Prentice Hall,

Strategy & Issues During Product Life
Maturity
Poor time to increase market share
Company Competitive costs become critical
Strategy Poor time to change price, image, or quality
Defend position via fresh promotional and distribution
& Issues approaches

Standardization
Less rapid product changes and more minor annual model
changes
OM Strategy Optimum capacity
Increasing stability of manufacturing process
& Issues Lower labor skills
Long production runs
Attention to product improvement and cost cutting
Re-examination of necessity of design compromises
PowerPoint 2-68 © 2004 by Prentice Hall,
Strategy & Issues During Product Life
Decline

Company Strategy Cost control critical to market share

& Issues

Little product differentiation

OM Strategy Cost minimization
& Issues Overcapacity in the industry
Prune line to eliminate items not returning
Good margin
Reduce capacity

PowerPoint 2-69 © 2004 by Prentice Hall,

 Strategy and Issues During a
Product’s Life

PowerPoint 2-70 © 2004 by Prentice Hall,

 Strategy Development and
Implementation

Identify critical success factors

Build and staff the organization

PowerPoint 2-71 © 2004 by Prentice Hall,

 SWOT Analysis Process

 Environmental Analysis

 Determine Corporate Mission

 Form a Strategy

PowerPoint 2-72 © 2004 by Prentice Hall,

 SWOT Analysis to Strategy
Formulation

Mission

Internal External
Strengths Opportunities
Strategy

Internal External
Weaknesses Threats
Competitive
Advantage

PowerPoint 2-73 © 2004 by Prentice Hall,

 Identifying
Critical Success Factors
Marketing Finance/Accounting Production/Operations
Service Leverage
Distribution Cost of capital
Promotion Working capital
Channels of distribution Receivables
Product positioning Payables
(image, functions) Financial control
Lines of credit

Decisions Sample Option

Chapter
Product Customized, or standardized
5
Quality Define customer expectations and how to achieve them 6,
S6
Process Facility size, technology, capacity
7, S7
Location Near supplier or customer
8
Layout Work cells or assembly line
9
PowerPoint
Human resource 2-74
Specialized or enriched jobs © 2004 by Prentice Hall,
10, S10
Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service

Short haul, point-to-point

Lean, productive
routes, often to secondary
employees
Competitive Advantage: airports
Low Cost
High aircraft Frequent, reliable
utilization schedules
Standardized fleet of
Boeing 737 aircraft

PowerPoint 2-75 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service

No seat assignments
No baggage transfers
Automated ticketing machines
No meals

PowerPoint 2-76 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

Lower gate costs at

secondary airports Short haul, point-to-point
routes, often to secondary
High number of flights,
airports
reduces employee idle
time between flights

PowerPoint 2-77 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

High number of flights reduces

employee idle time between
flights
Saturate a city with flights
lowering administrative costs Frequent, reliable
per passenger for that city schedules

PowerPoint 2-78 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one type
of aircraft
Excellent supplier relations with
Boeing has aided financing

Standardized fleet of
Boeing 737 aircraft

PowerPoint 2-79 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

Flexible employees and

standard planes aids scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
High aircraft
utilization

PowerPoint 2-80 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage

High level of stock ownership

Hire for attitude, then train
High employee compensation
Lean, productive Empowered employees
employees Automated ticket machines

PowerPoint 2-81 © 2004 by Prentice Hall,

Activity Mapping: Southwest Airline’s
Low Cost Competitive Advantage
Courteous, but limited
passenger service

Lean, productive Short haul, point-to-point

employees routes, often to secondary
Competitive Advantage: airports
Low Cost

High aircraft Frequent, reliable

utilization schedules
Standardized fleet of
Boeing 737 aircraft

PowerPoint 2-82 © 2004 by Prentice Hall,

 Southwest Airline’s Low Cost
Competitive Advantage

PowerPoint 2-83 © 2004 by Prentice Hall,

 Vanguard’s Activity System
A broad array of mutual
funds excluding some fund
categories
Very low
Efficient investment
expenses
management approach
passed on to
offering good consistent
client
performance
Strict cost
control

Direct Straightforward client

distributions communication and
education

PowerPoint 2-84 © 2004 by Prentice Hall,

 How It Works

If competitive Distinctive
advantage, leads to Company
competencies affect
achieving Mission

Business
Strategy

Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

PowerPoint 2-85 © 2004 by Prentice Hall,

 Four International Operations
Strategies

PowerPoint 2-86 © 2004 by Prentice Hall,

 Multidomestic Strategy

Operating decisions are decentralized to each

country to enhance local responsiveness

PowerPoint 2-87 © 2004 by Prentice Hall,

 Global Strategy

Operating decisions are centralized and

headquarters coordinates the standardization
and learning between facilities

PowerPoint 2-88 © 2004 by Prentice Hall,

 Transnational Strategies

Combines the benefits of global-scale efficiencies

with the benefits of local responsiveness

PowerPoint 2-89 © 2004 by Prentice Hall,

 International Strategy

Global markets are penetrated using exports and

licenses

PowerPoint 2-90 © 2004 by Prentice Hall,