Patterns in Strategy Formation Essay

Patterns in Strategy Formation Essay.

A critical summary of the article “Patterns in strategy formation” written by Henry Mintzberg, published in Journal Management Science Vol. 24, No. 9, (1978)

A short overview

The paper,”Patterns in strategy formation”, outlines a new kind of description to the much misunderstood process of strategy formation in organizations. After giving a short summary of the theme, the author, Henry Mintzberg, describes the term “strategy” and shows how the definition leads to the choice of a research methodology. Following this, he details the four steps of research methodology.

With to completed, major studies about two organizations (Volkswagenwerk and the United States government in Vietnam) Mintzberg analyzes three central themes.

The first is that strategy formation can be viewed as the interplay between a dynamic environment and bureaucratic momentum, with leadership mediating between the two. Second, that strategy formation over periods of time appears to follow distinct regularities, for example life cycles or change-continuity cycles within life cycle. And third the study of the interplay between intended and realized strategies may be central to the strategy formation process.

Definition of strategy and the research methodology

In the first section of the paper, Mintzberg describes the term ”strategy”. Strategy is generally defined, whether in game, military or management theory, as a deliberate, conscious set of guidelines that determines decisions into the future. In common terminology, a strategy is a plan. Mintzberg illustrates that defining strategy as a plan is not sufficient, because if strategies can be intended, surely they can also be realized. A definition that encompasses the resulting behavior is therefore required.

The author proposes to define strategy in general as a pattern in a stream of decisions. To clarify this definition of strategy, he introduces a few illustrations. For example, when Picasso painted blue for a time, that was a strategy ”Blue Strategy”. This definition of strategy necessitated the analysis of decision streams in a organizations over time periods to detect the development and breakdown of patterns. Therefore Mintzberg subdivided the analysis of the studies into four central steps.

1st step: Collection of basic data.
2nd step: Inference of strategies and periods of change.
3rd step: Intensive analysis of periods of change.
4th step: Theoretical analysis.

After giving a brief review of the periods of strategy in two organizations, using the terminology of the research, the author comes to the core of the paper, which is the presentation of some theoretical conclusions about strategy formation.

Strategy formation as the interplay of environment, leadership and bureaucracy Mintzberg outlines strategy formation in most organizations as the interplay of three basic forces revolving around the dynamic environment that changes continuously but irregularly, organizational management or bureaucracy that attempts to stabilize the actions of the organizations whilst operating in the dynamic environment, and leadership of the organizations whose role is to mediate between the two forces.

From this point of departure, the author provides a definition of strategy and of strategic change. ”Strategy can then be viewed as the set of consistent behaviors by which the organization establishes for a time its place in its environment, and strategic change can be viewed as the organization’s response to environmental change, constrained by the momentum of the bureaucracy and accelerated or dampened by the leadership”.

Mintzberg illustrates, that the two organizations (Volkswagenwerk and U.S. government in Vietnam) are stories of how bureaucratic momentum constrains and leadership dampens strategic change. In 1965, for example, when the United States government escalated the Vietnam war in a way that made the escalation inevitable, the new leadership, named Johnson, dampened the strategic change, under the environmental and bureaucratic pressures. Also in 1960, when action was needed in the face of an increasingly changed environment, the central leadership of Volkswagenwerk was not forthcoming.

Patterns of strategic change

According to Mintzberg, patterns of strategic change are never steady, but rather irregular and ad hoc, with a complex intermingling or periods of change, continuity. Even so, he recognizes some patterns in strategy formation that may enable organizations to understand better their strategic situations. The first pattern is the life cycle of an overall strategy, based on four phases: conception, elaboration, decay and death. The author illustrates that the case of Vietnam represents the classic strategic life cycle. The second pattern is the presence of periodic waves of change and continuity within the life cycle.

This second pattern suggests that strategies do not commonly change incrementally. Rather, change takes place in spurts, each followed by a period of stability. Mintzberg notes, that nowhere is the change-continuity cycle better demonstrated than in the stepwise escalation of the Vietnam metastrategy. According to the author, the reason for the periods of change and continuity is that human do not react to phenomena continuously, but rather in discreet steps, when changes are large enough to be perceived.

In a similar manner, strategic decision processes in organizations are not continuous, but irregular. Based on both studies, Mintzberg notes, that there are dangers in incremental changes. He argues that strategy-makers seem prepared to assume positions in incremental steps that they would never begin to entertain in global ones. On the other hand, global change is very difficult to conceive and execute successfully. According to the author, this is perhaps the strategy-maker’s greatest dilemma. The danger of incremental changes versus the difficulty of global changes.

Interplay between intended and realized strategies

The author identifies two kinds of strategies: intended and realized. He illustrates, that these two can be combined in three ways: Intended strategies that get realized, which are called deliberate strategies (e.g. the Volkswagen strategy of 1948 to 1958). Intended strategies that do not get realized, which are called unrealized strategies (e.g. Kennedy’s intended strategy of 1961 of advising the Vietnamese). Realized strategies that were never intended, which are called emergent strategies (e.g. the U.S. strategy of finding itself in a fighting instead of advising role).

Furthermore, Mintzberg argues that it is possible to find a number of other relationships between intended and realized strategies, such as intended strategies that, as they get realized, change their form and become emergent; emergent strategies that get formalized as deliberate ones; or intended strategies that get overrealized. This view challenges the tenets of planning theory, which postulates that the strategy-maker formulates from on high while the subordinates implement lower down.

Mintzberg argues that this dichotomy between strategy formulation and strategy implementation is a false one under certain conditions – e.g. the formulator isn’t fully informed or the environment isn’t sufficiently stable -, because it ignores the learning that must often follow the conception of an intended strategy. According to Mintzberg, another important point is that the formalization of an emergent strategy as the new, intended strategy is hardly incidental to the organization.

The author states that the very act of explicating an implicit strategy changes fundamental the attitude of the bureaucracy and of the environment. He further argues that the very fact of making a strategy explicit provides a clear and formal invitation to the bureaucracy to run with it. But the author also notes that sometimes it can be risky to make strategy explicit, notably in an uncertain environment with an aggressive bureaucracy. He makes the point that the strategy-maker may awake one day to find that his intended strategy has somehow been implemented beyond his wildest intentions. It has been overrealized.

Conclusion and critique on the paper

In my estimation, the paper ”Patterns in strategy formation” is very well-written. The author, Mintzberg, first describes what the paper will be all about. After that, he introduces the theme, strategy as a pattern in a stream of decisions, and shows how this definition leads naturally to the choice of a research methodology. After that, he explains the four steps of the analysis he will use to reviews the major periods of two organizations (Volkswagenwerk and U.S. government in Vietnam).

By using these major studies he arouses the reader’s interest and creates a fundamental basis to examine and prove aspects, that strategy formation can be viewed as the interplay of environment, bureaucracy and leadership, that that strategy formation appears to follow distinct regularities and that the study of the interplay between intended and realized strategies may be central to the strategy formation process.

Furthermore, he admits that this studies constitute a limited data base, but they do call into question a number of assumptions about the process of strategy formation in organizations, e.g. that a strategy is not a fixed plan, that dichotomy between strategy formulation and strategy implementation is a false one under certain common conditions or that it can sometimes be risky to make strategy explicit. Some general conclusions suggested by these studies are complex and very difficult to understand but, nevertheless, the well-disposed reader understands the approach. This is mainly because, he explains his statements on this two studies closely. To sum up, the paper is well-structured and of a good concept. Furthermore, the paper ties in with very important and interesting research-fields in strategy management.

Patterns in Strategy Formation Essay

Porter’s generic strategies Essay

Porter’s generic strategies Essay.

Introduction

Porter’s generic strategies of cost leadership, differentiation and focus can be (and often are) adopted by competitors in any given industry and can be provably successful in 21st century business.

According to Porter:

Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target. . . . [These] generic strategies are approaches to outperforming competitors in the industry. Porter (1980: 35).

Furthermore, Porter argues that “the firm failing to develop its strategy in at least one of the directions–a firm struck in the middle–is in an extremely poor position” and is doomed to essentially low profitability.

Porter (1980: 41).

In cost leadership situation an organization sets out to be the low-cost producer in its industry. It caters for many industry segments. If an organization can achieve and sustain overall cost leadership then it will achieve superior performance. Cost leadership can be obtained by focusing on key accounts, reaping economies of scale, controlling costs” (Sultan Kermally; 2003, 66-67).

Main Body

In order to achieve an proper competitive positioning and above average performance, Porter has proposed the following strategies which are termed as generic strategies:

Cost leadership

A differentiation strategy

Focus strategy

Cost leadership (attaining the lowest cost position) is clearly not within every firm’s ability to strive toward and attain. In fact, not more than one or two firms in any industry can give value arising predominately from cost-effective operations. By far the majority of firms succeed through the implementation of one of the other two strategies. Even in the case of supposed commodities, companies strive to raise other dimensions of value given to consumers rather than seeking just to compete on a cost basis.

Mobil and Exxon are amongst the petroleum firms that attempt to position their gasoline as being superior in quality (anti-clog, non-freeze, etc.), additionally to which their service stations stock an increasing array of convenience items. Mercedes Benz focuses on the prestige and image-conscious end of the automobile market, while Toyota’s manufacturing efficiency gives it a cost and quality facilitator which is reinforced by its marketing wizardry. Combinations of these strategies are also probable, as when instant oil change (focus) specialists look to establish a low-cost position due to the high volume of business generated by a sensible response to customer’s minor automobile service needs.

The cost leadership strategy frequently requires a `lean’ culture and is usually perceived as `unattractive’ with the constant focus on cost management and efficiency. A leaning to be production or operations led therefore emerges. This produces a concentration on standardization of products, components as well as processes with the minimization of variations/derivatives. A fine balance needs to be attained between maintaining a contracted range of products/services and meeting the varying needs of diverse customer groups.

It is these tensions between either giving a differentiated approach to match customer require and gain competitive advantage, or pursuing cost leadership to gain profit margin and value advantage, that frequently leads in practice to a mixed approach. This means that the advantages of neither competitive position are attained. This being `stuck in the middle’ yields no competitive advantage and corrodes the position of the business unit.

Differentiation would involve an organization in providing something unique to its target customers. The uniqueness can be related to products, the way it delivers its goods and services, the way it markets its products or anything that shapes a customer’s perception in relation to differentiation. This could be the way products and services are branded or designed and the customers perceive such offerings as unique” (Sultan Kermally; 2003, 66-67).

The differentiation strategy is often the most `attractive’ in that it gives the opportunity for a more resourceful approach to the market. For this reason the organization tends to be marketing led. It is fundamental in these business units that the cost/benefit analysis of any new type of differentiation is thoroughly evaluated. In addition, sensitivity analysis should be used to look at the capability of the associated cost base at different levels of sales performance and in diverse market conditions.

The primary challenge with differentiation is one of competitor replication, where the benefit is temporary and, once replicated, becomes an increase in the industry/market cost base for all competitors. This growing migration of the cost base can over time destroy an attractive market segment.

According to Grant (1991):

“Differentiation is different from segmentation. Differentiation is concerned with how the firm competes — in what ways the firm can proffer uniqueness to its customers. Such exclusivity might relate to consistency (McDonalds), dependability (Federal Express), status (American Express), quality (Marks & Spencer), and innovation (Sony). Segmentation, in terms of market segment choices is concerned with where the firm competes in terms of consumer groups, localities and product types”.

Whereas segmentation is a feature of market structure, differentiation is a strategic choice by a firm. A segmented market is one that can be partitioned according to the characteristics of customers and their demand. Differentiation is concerned with a firm’s positioning within a market or a segment in relation to the product, service and image characteristics that influence customer choice…” (Sultan Kermally; 2003, 66-67). Michael Porter also has addressed the issues of competitive advantage in relation to the nations. In his book ‘The Competitive Advantage of Nations’ (1990), Porter’s view has an impact in relation to global competition and consequently global marketing.

He puts forward a view that national conditions influence a firm’s competitive advantage in globally competing industries.

Then comes focus strategy that “involves an organization being selective in terms of the segments it wants to serve and focusing on these segments to the exclusion of other segments. The focus strategy can either be cost focus or differentiation focus. If an organization does not choose generic strategies it wants to focus on then as Porter puts it, it will be ‘stuck in the middle’. The extent to which a generic strategy can be sustainable will depend on competitors’ behavior and action. The organization constantly has to be a step ahead of its competitors” (Sultan Kermally; 2003, 66-67).

Porter’s generic strategies are based on the competitive methods and possibility of the organization, both of which compromise its strategy. His recommendations have perceptive appeal. Unfortunately, Porter does not cite any contributing literature in the development of his typology. It is also unfortunate that Porter’s deductively derived typology was not convoyed by an attempt to validate its contents empirically. However, separate research efforts have been directed at subjecting Porter’s conceptualized typology to empirical verification.

One of the first empirical tests of Porter’s hypothesis was conducted by Dess and Davis, who examined 22 firms in the paint and related products industry (Dess and Davis, 1984).

A total of 78 executives from these firms completed questionnaires by representing the importance of 21 competitive variables (Woo and Cool, 1983).

The resulting correlation matrix of this distinctiveness was subjected to factor analysis to isolate the competitive dimensions linked with Porter’s three generic strategies. The principal factor solutions hold three elements that were matched against Porter’s generic strategies.

A panel of seven academicians was then surveyed to establish the importance of each competitive means for each of the generic strategies. Overall, general agreement was attained between the panel’s definition of cost leadership and differentiation and that resultant via the factor analysis. However, disagreement existed over the panel’s idea of focus strategy and that which was labeled through the beginning.

So as to differentiate firms according to discrete patterns of strategic behavior, Dess and Davis entered the factor scores of each firm into a group algorithm. Performance data (return on assets and annual sales growth) were provided for 15 of these firms. The authors observed four separate clusters, of which three were hold as pursuing distinct generic strategies (cost leadership, differentiation, or focus). They labeled the fourth cluster “stuck in the middle.”

Return on assets for both the cost leadership and differentiation strategies were considerably higher than that generated by the “stuck in the middle” strategy, lending some support to Porter’s argument that generic strategies produce superior performance. However, the focus cluster was also shown to have the lowest profitability, signifying that Dess and Davis’s results were not conclusive. The authors also raised questions concerning interpretation of factor scores, given concerns they had with the constancy of factor loading in the sample set. The study is also limited in that it implicated only one industry.

In a separate study, White examined 69 business units from 12 different businesses from the Profit Impact of Marketing Strategies (PIMS) data base in order to determine the “proper” organizational requirements approved for Porter’s three generic strategies (White, 1986).

A differentiation strategy was operationalized by high relative cost and price, whereas a cost leadership strategy was distinct by low relative price and cost. The organizational “context” of the business unit was operationalized along three dimensions: autonomy, frequency of reports/reviews, and functional coordination. Performance was determined according to return on investment (ROI), real sales growth, relative market share, and cash flow from investment.

By statistically comparing different organizational characteristics, White was capable to demonstrate that businesses within a common strategy class had similar organizational contexts within the overall corporation. For businesses that followed a cost leadership strategy, higher ROIs were linked with low autonomy and more frequent reviews and measures of performance. For businesses following differentiation strategies, higher ROIs were linked with an opposite set of interorganizational characteristics. These results were reliable with Porter’s contention (Porter, 1980).

However, when White employed other measures of performance (for instance, real sales growth), the previously mentioned relationships did not always hold. In addition, the combination strategy of both low cost and differentiation produced the highest overall ROI results and higher real growth consequences than a simple pure cost strategy. This suggests that, differing to Porter’s hypothesis, some successful businesses follow a combination of two or more “generic” strategies concurrently.

Another study based on testing Porter’s hypothesis was performed by Woo and Cool. The primary aim of this study was to contrast the performance of Porter’s differentiation and cost leadership strategies with non-generic strategies. The study concentrated on domestic manufacturing businesses over the period from 1976 to 1979 and used the PIMS data base. Woo and Cool chose relative price and cost as representative of the major dimensions that reflect Porter’s differentiation as well as cost leadership strategies.

Performance was represented by four factors: return on investment, real sales growth, relative market share, and cash flow to investment. An analysis of variance (ANOVA) procedure was performed that designated mixed results for the generic strategies.

According to Woo and Cool, “In all cases, non-generic strategies as a group seem to achieve as well as the generic strategies.” (Woo and Cool, 1983, 17).

These results seem to corroborate those findings of White. In addition, the use of discriminant analysis recognized differences in the functional components of Porter’s two generic strategies and revealed that (1) differentiation strategy was recognized with higher product quality and product R&D and (2) cost leadership was linked with lower discretionary spending and a heavy emphasis on forward integration. In all, Woo and Cool’s conclusions challenged two aspects of Porter’s hypothesis, namely, that generic strategies produce superior performance and that the useful components of particular generic strategies are static and deductively particular

The generic strategies make the postulation that the company intends to persist in a concentration mode, that is, limit its horizons to a single product/service or attain a predominant portion of its sales in one industry. Few large or medium size firms confine their product horizons. Characteristically it is small businesses that start with such a focus. With success and growth usually comes a desire to reduce dependence on any one product/market.

Diversified firms have more established sales and earnings. Risk reduction unquestionably helps improve shareholder value. Most firms have historically been uncomfortable about “sticking to their knitting” lest they knit a sweater that’s no longer in style or that someone else can make at half the price (perhaps with a machine they’ve just invented).

The unwillingness to place all one’s eggs in one basket is quite comprehensible since it could result in binding the company’s future to just one product, a product that might be rendered obsolete or alternated by alternate products. Also, competitors could prove to be more competent at value formation by identifying the desired components of value more accurately or delivering them more efficiently.

Continuous value enhancement in a single product area is positively laudable, but prudence dictates that other stakeholders’ needs (shareholders, employees, creditors, and suppliers, for instance) also be taken into thought. Diversification is an important strategy in assuring that the needs of a diversity of stakeholders are given careful enough attention to merit their strong support.

Moreover, expanding the product as well as market scope of the firm widens its range of customers, providing even more opportunities for delivering value in completely novel ways.

Diversification has, of late, come under fire for being the reason of many firms’ declining ability to compete with domestic and foreign rivals. It is, however, conglomerate diversification that distracts a firm from its work of value. When a firm has numerous product and service offerings, few of which have any association to each other, the objective becomes to exploit shareholder value (stock price and/or dividend).

Commitment to a product line or to its customers is noticeably absent at the corporate level. Conglomerates not simply keep their eggs in different baskets, they often forget where their baskets are! On the other hand, concentrically diversified firms–General Electric, Matsushita, Procter and Gamble, IBM, and Honda, to name a few–seek new product or market opportunities with a view to ongoing their prior success in value creation.

IBM, for instance, has excelled at providing engineering, installation, maintenance and other types of services to customers. This source of value has been deliberately developed and maximized regardless of whether the product is a mainframe computer, a microcomputer or peripheral equipment.

Procter and Gamble, whether in consumer non-durables or in its more recent food/pharmaceutical ventures has, certainly, always been known for its clear conceptualization and faultless construction of value? However, its capability to unerringly communicate the value inhabiting in its products–through timely and well-planned distribution, superb promotion, and rapid assimilation of customer comments-is what enables P & G to exploit value in its erstwhile as well as new product areas.

Thus, Porter three generic strategies are alternative, workable approaches to dealing with the competitive forces.”  However, the uniqueness of Porter’s cost, differentiation, and focus strategies has been empirically supported by Dess and Davis, White, and Woo and Cool.

These same researchers have also suggested that various combinations of these strategy taxa (cost, differentiation, focus) often result in superior performance. Here, the central matter is focused on the proper level of abstraction in conceptualizing generic strategies. As such, cost, differentiation, and focus (or their derivatives) have been equally viewed as representative of lower levels of concept and as such are more appropriately measured as strategy “types” or “strategic factors” that in combination make up the taxa or composite strategies.

Conclusion

Porter’s generic strategies can be linked directly to the competitive positioning strategy. Product specialization, high-quality offerings, and product innovation are all derivatives of Porter’s differentiation strategy; the combination strategy type recognized in this study relates to Porter’s cost and differentiation strategies.

Porter also suggests four strategic alternatives in global industries: broad line global competition, global focus, national focus, and protected niche. These broad patterns resemble aspects of the internationalization dimension. For instance, the domestic strategy type identified in this study is closely linked to Porter’s national focus strategy. Porter also does not mention either exporting or mixed international strategy types.

Porter has yet to differentiate fully his conceptualization of global strategy in terms of internationalization and competitive positioning. Indeed, his own perspectives of global strategy seem to have matured with time, perhaps as a consequence of mounting criticism leveled against his cost/differentiation generic strategies.

To Porter, the essence of a global strategy can be captured through strategic focus. Yet by defining global industries throughout international parameters, it becomes imperative to determine both whether and how member businesses are in fact competing internationally. Later Porter expands his earlier conceptualization of global strategy by defining it as “one in which a firm seeks to gain competitive advantage from its international presence through either concentrating configuration, coordination among dispersed activities, or both.” (Porter 1986a: 20)

With this definition, global strategy is no longer portrayed as just a function of the one-dimensional geographic experience captured by strategic focus. Rather, it is reflected in the essence of internationalization captured in this study.

Porter has always faced a complex challenge subordinating his own four–largely internationalization–strategy types to his leading generic strategies. Indeed, by identifying global strategies through predominantly internationalization, Porter is seen implicitly supporting an agreeing strategic emphasis on both competitive positioning and internationalization. For instance, a broad-line global competitor will compete either on the basis of low cost or differentiation. Thus, cost and differentiation are dimensions of a global strategy, and the same a global strategy is rooted in cost or differentiation advantages.

Work Cited

  • Dess G., and Davis P. ( 1984). “Porter’s (1980) generic strategies as determinants of strategic groups’ membership and organizational performance”. Academy of Management Journal, 27, 467-488.
  • Grant, R.M. (1991). The Resource-based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review, Spring, Vol. 33, No. 3, pp. 114-135.
  • Kim, Eonsoo, Dae-il Nam and J.L. Stimpert (2004) ‘The Applicability of Porters GenericStrategies in the Digital Age: Assumptions, Conjectures, and Suggestions’ Journal of Management, 30:5, 569–589
  • Millar, D. (1992), ‘The Generic Strategy Trap’, Journal of Business Strategy, 13, 37–41.
  • Parnell, John A. (2006) ‘Generic strategies after two decades: a reconceptualization of competitive strategy’, Management Decision, 44:8, 1139–1154
  • Parnell, John A. and Lewis Hershey ‘The strategy-performance relationship revisited: the blessing and curse of the combination strategy’, International Journal of Commerceand Management, 15:1, 17–33.
  • Porter M. ( 1986a). “Changing patterns of international competition”. California Management Review, 28, 9-40.
  • Porter M. E. ( 1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press.
  • Sultan Kermally; Gurus on Marketing Thorogood, 2003
  • White R. ( 1986). “Generic Business Strategies, organizational context and performance: An empirical investigation”. Strategic Management Journal, 7, 217-231.
  • Woo C., and Cool K. ( 1983). Porter’s (1980) generic competitive strategies: A test of performance and functional strategy attributes. Working paper, Purdue University.

Porter’s generic strategies Essay

Operations Strategy Essay

Operations Strategy Essay.

The statement that “operations strategy is the total pattern of decisions which shape the long term capabilities of any type of operation and their contribution to overall strategy, through the reconciliation of market requirements with operations resources”, is true. First, define the words operations strategy, and operations strategy. Operations is what a company “does”. It is how it delivers its products or services to its customer.

Operations is the case of a company’s business i. e. hatever that is, for example hospitality companies offer service, manufacturing companies make products, stockholders, purchase, store and distribute, which retailers procure, stock and supply the public with the goods.

This definition can be applied to almost any organization. Strategy is a deliberate search for a plan of action that will develop a business’s distinctive competence and compound it. Organizations strategy describes how it intends to create value for its shareholders, customers, and the citizens.

Operations strategy consists of a sequence of decisions that over time enables the business unit to achieve a desired operations, structure, infrastructure and set of specific capabilities in support of the competitive priorities.

Operations strategy is concerned with matching characteristics of operations function with the requirements of the market in order to fulfill needs of the business. A proper approach of this process requires not only understanding of the ideas and methods used to develop operations systems but also knowledge of the techniques and principles involved in its implementation.

Implementation requires knowledge of operations system and policies including those that relate to resource planning and activity control, quality, motivation and organization of people, performance metrics and continuous improvement. Operations strategy has several components that range from structure decision, categories to others. Decision strategies includes such things as capacity, which defines the size of the organization. Facilities available in the business unit also forms part of the structural decision categories of the operations strategy.

Vertical integration is another aspect of the structural decision category. Technological trends in the organization is also part of the structural decision category. Infrastructural decision categories includes things like work place, organization, information and control systems. The conditions of the work place affect the infrastructure of the business unit. Information and control systems defines the infrastructure of the organization. Capabilities are also a component of operations. Each business has unique capabilities.

For example a firm A may have the capability of providing higher levels of services than firm B. Competition priories are also part of the components of operations strategy. In this category cost is an important aspect and determines the competitiveness of a business organization. The other aspect in this category is quality. Here higher performance decisions are made and also maintaining consistence in quality. Time is also critical and on it emphasis is on fast delivery, on-time delivery of services and products and also the development sped. Flexibility is another aspect in the category of competitive priorities.

There should be customization of services and also volume flexibility meaning that the business unit should be ready to serve even increased volume of clients. Operations is what a company does to achieve a set of four objectives. These are increasing customer satisfaction, increasing financial performance, increasing employee satisfactions and creating value for the citizens. Customer satisfactions levels is determined by the levels an quality of services, the value for their money, the speed of service, the behavior of the service staff, the atmosphere and theme of service.

Customer satisfaction leads to increase in business hence margins go up. Financial performance as mentioned above depends on the sales volumes that depend on customer satisfaction. This is determined by checking the profit margins and the costs involved in doing a business. The task of the business is to gain more margins while minimizing the costs. Employee satisfaction results from the way the employees are treated by management. This treatment is based on the nature o work being performed and also the way the workers are enumerated.

Employees’ satisfaction depends on levels of motivation that they get at the work place i. . being given challenging job tasks, being rewarded for excellent performance etc. Businesses should also create value for the citizens and this is mainly through practicing social responsibility. This involves giving back something to the community as an appreciation for benefits derived from doing business in that community. Example of this include building hospitals, homes for orphans and supporting other disadvantaged people in the community. It is through the operations of work done in the various functions or departments in a business unit that the above objectives can be met.

There are three levels of strategy in an organization. These are the corporate level, business or divisional level and operations the functions level. Operations strategy ultimately contribute to the overall strategy key functional areas with an organization include the finance, human resources, marketing, product development among others. In each category there are several challenges encountered in achieving and maintaining a suitable operations strategy. Marketing of hospitability services is complicated by several features or characteristics of services marketing.

First the services are intangible meaning that they cannot be displayed for customers. There the market has to use great skills to convince a customer to buy the service. The aspect of inseparability of services also complicates the marketing task. This means that the services also produced and consumed simultaneously. The other characteristic of services marketing is perishability meaning that services are perishable if not used at the time they are available e. g. a hotel room goes wasted if it is not used on a particular night. Variability is another characteristic of services.

A service given to a guest in a restaurant may vary with similar service provided to the guest by another employee at the same restaurant. In the case of Wynn Macau’s casino and resort that is to open September this year the general manger of Wynn Resort Macau confessed that they faced some challenges in their marketing plan. First, they want to set up a gaming facility yet it is illegal to advertise and promote gaming in China. To counter this situation the company is trying to hook up customers with high growing levels of disposable income and who travel a lot.

It is targeting people living on the eastern seaboard of China who represent 80% of Chinas wealth belt. Another challenge is that Macau receives few people from the western countries (who are more interested in gaming) Macau being a one-day trip market poses another challenge for marketers. This will call for targeting of people with high spending power. Another challenge facing the marketing staff as they try to develop operations strategy is the aspect of seasonality of the hospitability business. In this case you find different approaches being used at different times of the year.

There is also the problem of money laundering in Macau among the agents poses yet another challenge. For this problem, Wynn Macau has created their own investigation team to look at the matter. In Macau most gaming revenues come from the VIP market yet, Wynn Macau is targeting the mass market. This means more marketing is to be done to attract the mass market in the gaming business. The finance function is also faced with several challenges in the hospitability industry. Finance department is involved in looking for or designing ways of getting money to do business.

It is also involved in establishing the way revenue is generated or not generated in the organization. Finance function makes investment and diversification decision. Challenges may arise when a business opts to do diversity its operations in that you may find that revenue contribution from one kind of business e. g. gaming may differ from place to place. In the case of Macau, it is believed that the non-gaming assets are going to change the hotel chains penetration into the market. This will be finding more people interested in gambling and other activities that go together.

Organizations have different ways of financing business. Among these is ploughing back some of the profits realized and this may conflict with the shareholders who want to be paid their dividends. These banks which fund hotels and other hospitability organizations sometimes ask for high interest in loans and give conditions that are too hard to abide by. These problems bring challenges to the hospitability businesses when they require funds for more investments. Other challenges like disperanities in revenues from similar businesses at different parts of the world also comes as a challenge to organization.

It becomes difficult to predict the expected revenue fro the whole business chain. The issue of cost doing business varying in different parts of the world poses challenges to organizations wishing to go global. As in the case with Wynn Macau, the staff needs is not uniform. Higher-skilled workers are asking for more wages thus filling more pressure on the organization. It is also evident that the staff needs vary for those of the skilled employees to those of that at the introductory level who need to be trained. Salary scales are also different in different part of the world.

As in the case of Wynn Macau, salaries in China are higher than is the case in Las Vegas and this has some financial implications. With increase in business more employees will be required thus building more pressure for wages. Although, diversification has succeeded for some organizations, it also involves a lot of risk taking. This is so because the organizations are venturing in unfamiliar grounds hence being in a position to face many challenges. The challenges may include issues of recession in such part of the country and also political instability, which can affect the financial well being of the business.

Some examples of successful diversifications in the hospitability industry include that of Hilton hotels co-operation that went into a merger with the Grand casinos. In this case the Grand Casinos were given an excellent strategies opportunity to diversify their operations. Product development in hospitality industry means the process of coming up with new products or services. This has impacts on operations strategy in that, it is through the process new products and service come into being and helps in raising the customer’s satisfaction.

New services or products development serves as a challenge to the employees hence raise their motivation. Challenges common in this function include lack of resources i. e. both material and human resources. Failure by management to encourage or recognize employee’s ideas may act as a hindrance to the development of new services or products. Another challenge comes from the customers who are not familiar with unusual quality of services. These customers are likely to avoid the services hence keeping the business low in terms of sales volumes.

New products and services may sometime help in increasing customer satisfaction by giving a variety of services/products to the customer. The new products and services may also possess higher quality than similar services and products. Maintaining the new set standards may prove to difficult and expensive since it may call for more training of the staff. Another challenge facing product/service development is that some customers could be alienated by an unusual quality of service. This is due to conservations among some clients meaning they will be unwilling to accept new products.

The human resources in any organization form the backbone to its success. Operations strategy poses a key challenge due to its symbiotic dependence on the organization structure. The organization is made up of human beings who are living things aggregating the skills complexities and the drivers of the people within them (the organization). These aspects impact and constrain operations strategy. In many cases organizations evolve rather than being designed and changes become adaptation of the former structure without revisiting the underlying strategy and operations (Schroeder Roger 1989).

Comparing recruiting and training of workers in has Vegas and Macau you find that these processes are not different. Although these processes may not differ for two locations, culture differences pose major challenges for Wynn Macau Resorts and any other gaming companies planning to operate in Macau. Human resource recruiting has gone online with many applications for jobs at Wynn Macau being generated from an online service. This is a new trend which may mean that those who have started using it will benefit by getting a large pool of applicants and get the best candidates.

Those who fail to adopt this may not benefit from getting high quality staff. Training materials for people in foreign places with different languages have to be translated into language of the targeted group. There are also hiring and work differences between different places in different parts in the world e. g. Las Vegas and Macau. This is a challenge for Hospitality Company like Wynn Macau which is planning to offer its services in the two different places of the world. Another challenge facing hiring of staff for a company like Wynn Macau is Chinese government’s tough immigration rules.

This means neatly all management and staff at Wynn Macau will be Chinese. In some countries there no industrial or trade unions and this is a challenge to the human resources welfare. Although there may be strong governmental regulations related to employment, employees in such places are likely to be treated unfairly in organizations. Employee performance in a place with culture they are not used to may be another challenge facing the human resources function. As for Wynn Macau and Hilton Hotels Corporation venturing into overseas business, the way they perform in a different setting is critical to their survival in such places.

This means they have to put a lot of efforts in staffing and training of their staff to cope up with challenges associated with the new locations. Another challenge facing human resources for Wynn Macau is the fact that workers are not used to working in hotels offering the level of service Wynn customers expect. Were it not for the Chinese government’s tough immigration policy, the company could import professionals who are familiar with the level of service of Wynn customers.

Motivation of staff is one of the roles of human resource management; motivation among the staff can be achieved through giving challenging tasks, employee recognition for good work done, good enumeration among other things. Highly motivated employees will perform their duties well which in turn leads to high customer satisfaction. Employees being human beings can do a very bad job if they are not motivated. Keeping the employees highly motivated is a challenge to the organization since motivation comes as a result of mixing several variables (Schroeder Roger 1989).

Employee turn-over is the other critical challenge to the human resources function in any business unit. Lack of motivation is the main reason for employee turn-over in organizations. Employee retention is an operation strategy that relates to the human resources function and therefore organization should endeavor to satisfy their employees and ultimately retain them. Remember employees are the implementers of any strategy in the organization and as such they should be rated as the most important component of the organization. Operations process also includes the functions of the purchasing and supplies department.

This department is expected to develop and sustain supplier relationships. Companies enjoy significant competitive advantage from their established networks of superb supplier relationships. The objective is to lower the total “cost ownership” i. e. the cost of acquiring goods, materials and services. Challenges facing the purchasing and supplies function include competition in business. A business organization competing with another may go to the supplier of the latter and get a better deal for materials from the same supplier thus affecting supply to the former business organization.

Instability of prices for materials and services poses some challenges to the purchasing and supplies function of the organization. Capacity is another dimension to the operations strategy. It entails growth as needed through additional business units, but capacity added carefully. An example of building a business capacity is that of McDonald’s that planned to add more stores its chain. The challenge is that increasing the capacity should be done carefully and in a calculated manner otherwise it may end up adding costs of business without or with little margins being recognized.

Process/informative technology is a new age in business organization are forms an important part of its functions. Strategies relating to this include having a high degree of understanding of the latest advances in it (process/information technology). Another strategy for process information technology is that organizations seek to be leaders in IT in their specific industry. Challenges could include high costs of acquisition and maintenance of the information systems. IT is also viewed by conservative people as way of reducing staff from organizations and as such it is likely to face resistance from some employees.

In the hospitality industries introduction of automated machines is a challenge in that it affects the “human” aspect of service. Customers prefer to be served by people and thus be able to enjoy the human contact created by the employee’s presence. Another dimension of operations strategy is the vertical integration. This focuses on partnership arrangements with other organizations. It also focuses on maintaining long-term relationship with suppliers in order to promote innovation and quality improvement.

Some organizations may fear partnering with the others thinking that the other organization has intentions of “stealing: their business ideas. Operations strategy can be evaluated using two different approaches. One is checking its internal and external consistency. It entails consistency between the operations strategy and overall business strategy, between operations strategy and other functional strategies within the business among decision categories that make up operations strategy, and between operations strategy and business environment (resource available, competitive behavior, government restraints).

The other approach to operations strategy evaluation is looking at contribution to competitive advantage. It involves making trade-offs explicit, and enabling operations to set priorities that enhance competitive advantage. It also involves directing attention to opportunities that complement the business strategy. The other thing is promoting clarity regarding the operations strategy throughout the business unit to realize its potential.

Lastly it involves providing operations capabilities that will be required business in the future. Conclusion Looking at the operations strategy along the various dimensions discussed in this paper, it can be concluded that they are support the operations mission and ultimately contribute to the overall business strategy of the organization. This is so because all aspects of the operations strategy work together in a complex mix to give the overall results expected by an organization.

Operations Strategy Essay

Tyco International Organizational Structure Essay

Tyco International Organizational Structure Essay.

The organizational structure for Tyco International can be described as a functional structure that is organized along functional lines, where there is a chairman and CEO (Edward Breen), and directly reporting to him are the most senior people of all the functions (finance, general counseling, strategy and investment, accounting, flow control, taxation, treasurer, safety, human resources, internal communications and procurement). All areas of the business are therefore represented at a senior level. Employees are grouped according to their specialization and skill and are managed by someone who has knowledge of their specialization or skill.

             As compared to the organizational structure of Intel Corporation which is an example of a matrix structure, Tyco also staffed their departments with people from the basic functional groups. However, in contrast to Intel, Tyco did not organize their company around product groups. Thus, individual workers were members of only functional groups and not product groups as well like Intel. The latter organization, being in an industry characterized by a sequence of new products, chose the matrix structure because it is important for the firm members to communicate together and work closely.

Managers of Tyco focus on managing their particular function across products, while product managers of Intel focus on managing particular products across functions.

Procter & Gamble (P&G) has a geographic deign for their organizational structure.

In comparison with Tyco, their structure also typically has functions beneath the geographic level. However, in contrast with P&G, Tyco does not organize their fir by regions. Tyco instead created functional divisions across the organization. The premise of P&G’s structure is organized around physical locations because they have a high cost of transport since they are a consumer goods company. This does not apply for Tyco, who manufactures security, medical and engineered products that can be sold at higher margins.

REFERENCES FOR POWERPOINT

  1. Brickley, J., Smith, C., Zimmerman, J. & Willett, J. (2002). Designing Organizations to Create Value: From Strategy to Structure. New York: McGraw-Hill.
  2. Campbell, D. & Craig, T. (2005). Organizations and the Business Environment. Burlington, Massachusetts: Butterworth-Heinemann.
  3. Marras, W. & Karwowski, W. (2006). The Occupational Ergonomics Handbook. Boca Raton, Florida: CRC Press.

Tyco International Organizational Structure Essay

Corporate Strategy – Zara Essay

Corporate Strategy – Zara Essay.

The core concept of Zara’s business model is they sell “medium quality fashion clothing at affordable prices”, and vertical integration and quick-response is key to Zara’s business model. Through the entire process of Zara’s business system: designing, sourcing and manufacturing, distribution and retailing, they presented four fundamental success factors: short cycle time, small batches per product, extensive variety of product every season and heavy investment in information and communication technology. These four elements are involved in every aspect of the business.

Zara’s Business Model Zara’s business model can be broken down into three basic components: concept, capabilities, and value drivers. Zara’s fundamental concept is to maintain design, production, and distribution processes that will enable Zara to respond quickly to shifts in consumer demands. Jose Maria Castellano, CEO of Inditex stated that “the fashion world is in constant flux and is driven not by supply but by customer demand. We need to give consumers what they want, and if I go to South America or Asia to make clothes, I simply can’t move fast enough.

This highlights the importance of this quick response time to Zara’s operations. Capabilities of Zara, or the required resources needed to exploit the opportunities and execute this conceptual strategy, are numerous for Zara. Zara maintains tight control over their production processes keeping design and manufacturing in-house or with some strategic partnerships located nearby Headquarters. Currently, Zara maintains 80% of its production processes in Europe, 50% in Spain which is very close to La Coruna headquarters.

They have strategic agreements with local manufacturers that ensure timely delivery and service. Through these strategic partnerships and the benefits brought by this proximity of manufacturing and operational processes, Zara maintains the flexibility necessary to design and produce over 12000 new items annually. This capability allows Zara to achieve their strategy of expedited response to consumer demand. Competitive Advantage Fundamental to Zara’s success is their commitment to rapid response in customer trends in fashion, producing clothing often and with short life spans (10 wears).

Their commitment to this goal and the capabilities that they have developed to achieve it, have provided significant competitive advantage to Zara especially in the areas of product development, strategic partnerships and cost of production, advertising and marketing, and information technology infrastructure. The efficiencies and processes developed in these four functions differ significantly from their competitors and stand out in providing additional value and profitability to Zara. Product Development

Zara’s unique approach to product development is instrumental to their success. Zara gives store managers significant autonomy in both determining the products to display in their stores and which to place on sale, and relaying market research and store trends back to their headquarters in La Coruna. At headquarters there are teams of commercials who take this information into account to design and effectively plan and produce all of Zara’s products. Zara maintains a design team of 200 people, all of which produce approximately 12,000 new styles per year for Zara.

The process of obtaining market information and relaying it to design and production teams expedites product development by shortening the throughput time of a product to 3-4 weeks from design to distribution. This process is very different from its competitors. Many competitors rely on a small elite design team that plans both design and production needs well in advance. Stores have little autonomy in deciding which products to display or put on sale because Headquarters plans accordingly and ships quantities as forecasted. Zara’s speed to market in product development exceeds the capabilities of its competitors.

This in itself provides additional value to stakeholders, customers, and stores in producing quality clothing at affordable prices . Zara’s product development capabilities are essential to Zara’s business strategy and future success. Strategic Partnerships and Cost of Production In comparison to competitors, Zara’s business strategy, in regards to strategic partnerships and cost of production, provide for a strategic competitive advantage. Zara, unlike its competitors such as Gap, Benetton, and H&M, does not use Asian outsourcing.

Eighty percent of Zara’s materials are manufactured in Europe, with 50% made in Zara controlled facilities in the Galicia region of Spain near headquarters. Most of Zara’s competitors have 100% outsourcing to cheap Asian countries. Though the cost of production in Spain is 17-20% more expensive than Asia, Zara does have a competitive advantage over its competitors in regards to operations. The local strategic partnerships that Zara maintains with manufacturers in Europe allow for a product throughput time of 3-4 weeks from conception to distribution.

To make this happen, the company designs and cuts its fabric in-house and it acquires fabrics in only four colours to keep costs low. The proximity of these suppliers gives Zara great flexibility in adapting their product lines based on up to date market trends and consumer behaviour. It also decreases costs of holding inventory. Zara’s competitors, through outsourcing to Asian countries such as China, sacrifice the benefits of proximity for low labour and production costs.

Though there is a cost advantage in their approach in regards to labour, the lack of flexibility in changing orders based on current trends hinders their operational efficiencies. Inventory costs are higher for competitors because orders are placed for a whole season well in advance and then held in distribution facilities until periodic shipment to stores. This proximity effect and the flexibility that it gives Zara is fundamental to their basic concept to respond quickly to shifts in consumer demand and has provided them with a competitive edge in comparison to their peers.

The striking thing is that Zara has found differences that matter to customers and differentiated itself from its competitors by performing key activities [in its supply chain] differently. It is this that sets challenges for competitors because they will not find it easy to imitate or equal Zara’s positioning and it is this achievement that has given Zara sustainable competitive differentiation and positioning. Through a clear focus and vision, Zara has tapped into the power of fashion. It has shortened conventional supply chain response from 5-7 month down to 2-2? onths and their customers are eagerly awaiting next week’s—take note, not next season’s new fashion! Zara maintains a strong relationship with their contractors and suppliers—viewing them as part of the company. Small and frequent shipments keep product inventories fresh and scarce—compelling customers to frequent the store in search of what’s new and to buy now because it will be gone tomorrow. To successfully react to consumers demands, design decisions are delayed as long as possible.

In today’s competitive environment, Zara has shown that fine tuning the supply chain is no longer a strategic tool, but a necessity. It has shown that supply chain management can be managed provide sustainable competitive differentiation and positioning on the one hand and increase throughput, reduce inventories and operating expenses on the other. Decision-making is encouraged and bad decisions are not severely punished. Designers are trained to limit the number of reviews and changes, speeding up the development process and minimizing the number of samples made.

Corporate Strategy – Zara Essay

Process Strategy and Analysis: Toyota Motors Case study Essay

Process Strategy and Analysis: Toyota Motors Case study Essay.

Toyota Motor Corporation, Japan’s largest and the world’s #4 carmaker by 2003 sales (after General Motors, Ford, and Daimler Chrysler), had a wide range of products and strong brand names with high quality image. Toyota’s growing reputation for quality and very small numbers of technical problems in its vehicles generated interesting customer loyalty and a growing demand for its products. Toyota management was managing the company’s inventory, costs and capacity very successfully and was applying cost reduction programs very well.

Toyota had riving ambition to become greener. The company made a hybrid-powered (gas and electric) sedan- the prius- that had already being snapped up in U.S. and European markets.

Toyota also made huge investments in developing fuel-cell technology for its vehicles. Its gas-powered cars, pick-ups, minivans, and SUVs included such models as the Camry, Celica, Corolla, 4Runner, Echo, Land Cruiser, Sienna, the luxury Lexus line, and a full-sized pick-up truck, the v-8 Tundra. Toyota also was making forklifts and manufactured housing, and was offering consumer financial services.

With its wide distribution channels, strong channel efficiency and effectiveness, Toyota was both successfully competing with the world’s upper three auto makers and poised to replace GM in the top spot this decade.

Toyota was known world-wide for its up-to-date vehicles, strong vehicle design, comfortableness, safety, strong resistance to wind and rollover, low fuel consumption, presence of electronic and other devices in the vehicles, and strong reputation for luxury. Surveys, however, rated the attractiveness and comfort of its passenger cars as mediocre. Also rated mediocre was the off-road excellence of its SUVs. Toyota was a leader in technological improvements, such as drive, production and vehicle construction technology and had a solid ability to design and innovates new products, to differentiate its products, to innovate new vehicle lines, or to extend existing vehicle lines.

Global sales of Toyota vehicles were increasing every year beginning in 2001. Toyota showed a growth of 20% in its sales from March 2002 to March 2003 and growth of 49.6% in its net income for the same period. This increase reflected not only the quality of its vehicles, but also Toyota’s strong efficiency in sale operations, applying one-to-one marketing, entering into partnership and joint ventures with other companies world-wide, being price competitive, strongly applying sales incentives such as warranty extensions, and applying advertisement tools such as TV commercials, ads in magazines and newspapers and exhibition presentations. Toyota needed little use of financing packages and radio commercials in its sale incentive programs. Also, Toyota was known for strong after-sale services that helped the company to strengthen relationships with its customers and quality of service provided to them.

Toyota had a strong, unique corporate culture that helped the company remain very well organised and highly competitive. Toyota also had strong co-operation with its partners and among its divisions that allowed Toyota to further co-ordinate interdivisional operations.

In comparison to its big three competitors, Toyota had strong manufacturing operations with the ability to produce highly innovative products, taking advantage of low cost structures, ability to open new manufacturing plants, benefiting from economies of scale. Transplant assembling. Availability of technology for its production, and availability and standards of sources, the ability to enter new markets, and the like, Also, Toyota had strongly balanced its activities both domestically and internationally.

There are five basis ways in approve: (1) reduce resources, (2) reduce errors, (3) meet or exceed expectations of downstream customers, (4) make the process safer, and (5) make the process more satisfying to the person doing it.

First, a process that uses more resources than necessary is wasteful. Reports that are distributed to more people than necessary wastes copying and distribution time, material, user read time, and, eventually, life space.

Second, for the most part, errors are a sign of poor workmanship and require rework. Typing errors that are detected after the computer printout require opening the file, making the correction, and printing the revised document.

Third, meeting or exceeding expectations of downstream customers improves the process. For example, the better the weld, the less grinding required, making the appearance of a finish paint more

The fourth way a process can be improved is by making it safer. A safer workplace is a more productive one with fewer lost-time accidents and less workers compensation claims.

The fifth way to improve process is to increase the satisfaction of the individual performing the process. Sometimes a little change, such as an ergonomically

Make a substantial change in a person’s attitude toward their work.

Manufacturing cycle

The manufacturing cycle typically occurs at the distributor/manufacturer for retailer/ manufacturer) interface and includes all processes involved in replenishing distributor (or retailer) inventory. The manufacturing cycle is triggered by customer orders or by the forecast of customer demand and current product availability in the manufacturer’s finished-goods warehouse.

One extreme in a manufacturing cycle is an integrated steel mill that collects orders that is similar enough to enable the manufacturer to produce in large quantities. In this case, the manufacturing cycle is reacting to customer demand (referred to as a pull process). Another extreme is a consumer products firm that must produce in anticipation of demand. In this case the manufacturing cycle is anticipating customer demand (referred to as a push process). The processes involved in the manufacturing cycle

  • Order arrival from the finished-goods warehouse, distributor, retailer, or customer
  • Production scheduling
  • Manufacturing and shipping
  • Receiving at the distributor, retailer, or customer

Order arrival

During this process a finished- goods warehouse or distributor sets a replenishment order trigger based on the forecast of future demand and current product inventories. The resulting orders are then conveyed to the manufacturer. In some cases the customer or retailer may be ordering directly from the manufacturer. In other cases a manufacturer may be producing to stock a finished products warehouse. In the latter situation, the order is triggered based on product availability and a forecast of future demand. This process is similar to the retail order trigger process in the replenishment cycle.

Production scheduling

This process is similar to the order entry process in the replenishment cycle where inventory is allocated to an order. During the production scheduling process, orders (or forecasted orders) are allocated to a production plan. Given the desired production quantities for each product, the manufacturer must decide on the precise production sequence. If there are multiple lines, the manufacturer must also decide which products to allocate to each line. The objective of the production scheduling process is to maximise the proportion of orders filled on time while keeping costs down.

Manufacturing and Shipping

This process is equivalent to the order fulfilment process described in the replenishment cycle. During the manufacturing phase of the process, the manufacturer produces to the production schedule. During the shipping phase of this process, the product is shipped to the customer, retailer, distributor, or finished-product warehouse. The objective of the manufacturing and shipping process is to create and ship the product by the promised due date while meeting quality requirements and keeping costs down.

Distribution

Toyota used the traditional distribution channels; vehicles from the production places were distributed to national or regional distribution, which then distributed the vehicles to the local dealers. The three units of Toyota that produced passenger cars, SUVs, light trucks, and mini vans. Toyota was also entering into partnerships with other carmakers world-wide, such as South Korean Hyundai and Chinese carmakers, and used their distribution channels to enter the markets where these partners were predominant. With these activities, Toyota was trying to balance its distribution channels world-wide and to increase the efficiency and effectiveness of their distribution channels.

Manufacturing

Toyota had manufacturing facilities in 37 countries and sold its products in 200 countries around the world. As the situation deteriorated in 2003, manufacturers were increasingly experiencing inventory problems as they were unable to shift their growing stockpile of cars into the saturated fleet market. With the increasing costs of product storage and reduced retail revenues, coupled with relaxed consumer demand, production cuts was likely to occur in the company. Also, Toyota was looking for ways to open production places in regions like China and Mexico, in order to benefit from cheap labour force and gain competitive advantage.

In this process the product is received at the distributor, finished-goods warehouse, retailer, or customer and inventory records are updated. Other processes related to storage and fund transfers also take place.

Few companies in the world excel at continuous improvement on a corporate-wide basis like Toyota Motor

Corporation. Toyota is perhaps best known for its highly effective production system, dubbed “lean manufacturing” by an MIT study in the 1980’s (Womack et. Al, 1990). But interestingly, history’s most efficient method of production was not born from a sudden brainstorm by an ingenious individual (although Toyota has had plenty of those over the years). Rather, it evolved into its present state over decades of sustained, high level of continuous improvement activity (Cusumano, 1985).

Toyota’s efficiency extends not only to the production floor, but also to product development, prototyping, testing, and all other business operations. Manufacturers the world over have been emulating Toyota’s practices, and have done so with much success (Liker, 1998). However, unlike Toyota, much of the success has been confined to the production floor and little success elsewhere.

Toyota’s product development system, the first author found this tool to be used pervasively and with incredible power and effectiveness (Sobek, 1997). Toyota uses it to systematically guide problem-solvers through a rigorous process, document the key outcomes of that process, and propose improvements. The tool is used so pervasively that it forms a keystone in Toyota’s world-famous continuous improvement program. Toyota calls this tool the A3 report.

The A3 Problem-Solving Report

The A3 report is so named because it is written on an A3 sized paper (metric equivalent of 11” x 17”). Toyota has developed several kinds of A3 reports for different applications.

Every report starts with a “theme” or title. The theme indicates the problem being addressed, and is fairly descriptive. The theme should focus on the problem, and not advocate a particular solution

Theme:

Every report starts with a “theme” or title. The theme indicates the problem being addressed, and is fairly descriptive. The theme should focus on the problem, and not advocate a particular solution

As Spear and Bowen (1999) elucidate, Toyota indoctrinates its people with its own version of the scientific method—every improvement is designed as an experiment. The A3 problem-solving process is a structure to implement the scientific method. The current condition and root cause constitutes the necessary background research, the target condition and implementation plan outline the experimental design and the follow-up plan states the hypothesis.

TQM is based on a number of ideas. It means thinking about quality in terms of all functions of the enterprise and is a start is a start-to-finish process that integrates interrelated functions at all levels. It is a systems approach that considers every interaction between the various elements of the organisation. Thus, the overall effectiveness of the system is higher than the sum of the individual outputs from the subsystems. The subsystems include all the organisational functions in the life cycle of a product, such as (!) design, (2) planning, (3) production, (4) distribution, and (5) field service.

The management subsystems also require integration, including (1) strategy with a customer focus, (2) the tools of quality and (3) employee involvement (the linking process that integrates the whole). A corollary is that any product, process, or service can be improved, and a successful organisation is one that consciously seeks and exploits opportunities for improvement at all levels. The load-bearing structure is customer satisfaction. The watchword is continuous improvement. (Ross, 2)

Hence TQM requires six basic concepts:

  1. A committed and involved management to provide long-term top-to bottom organisational support.
  2. An unwavering focus on the customer, both internally and externally.
  3. Effective involvement and utilisation of the entire work force.
  4. Continuous improvement of the business and production process.
  5. Treating suppliers as partners.
  6. Establish performance measures for the processes. (Besterfield, Michna, Besterfied & Sacre, p.2)

(Crosby, 1979) presented the following steps in order to undertake TQM effectively.

  1. Management Commitment: Top management must become convinced of the need for quality and must clearly communicate this to the entire company be written policy, starting that each person is expected to perform according to the requirement or cause the requirement to be officially changed to what the company and the customers really need.
  2. Quality improvement team: From a team composed of department heads to oversee improvements in their departments and in the company as a whole.
  3. Quality measurement: Establish measurements appropriate to every activity in order to identify areas in need of improvement.
  4. Cost of quality: Estimate the costs of quality in order to identify areas where improvements would be profitable.
  5. Quality awareness: Raise quality awareness among employees. They non-conformance.
  6. Corrective action: Take corrective action as a result of steps 3 and 4.
  7. Zero defects planning: From a committee to plan a program appropriate to the company and its culture.
  8. Supervisor training: All levels of management must be trained in how to implement their part of the quality improvement program.
  9. Zero defects day: Schedule a day to signal to employees that the company has a new standard.
  10. Goal setting: Individuals must establish improvement goals for themselves and their groups.
  11. Error causes removal: Employees should be encouraged to inform management of any problems that prevent them from performing error free work.
  12. Recognition: Give public, non-financial appreciation to those who meet their quality goals or perform outstandingly.
  13. Quality councils: Composed of quality professionals and team chairpersons, quality councils should meet regularly to share experiences, problems, and ideas.
  14. Does it all over again: Repeat steps 1 to 13 in order to emphasise the never-ending process of quality improvement. (Ross, p. 6-7)

Management must participate in the quality program. A quality council must be established to develop a clear vision, set long-term goals, and direct the program. Quality goals are included in the business plan. An annual quality improvement program is established and involves input from the entire work force. Managers participate on quality improvement teams and also act as coaches to other teams. TQM is a continual activity that must be entrenched in the culture- it is not just a one-shot program. TQM must be communicated to all people. The key to an effective TQM program is its focus on the customer. An excellent place to start is by satisfying internal customers. We must listen to the voice of the customer and emphasise design quality and defect prevention.

Do it right the first time and every time, for customer satisfaction is the most important consideration. TQM is an organisation-wide challenge that is everyone’s responsibility. All personnel must be trained in TQM, statistical process control (SPC), and other appropriate quality improvement skills so they can effectively participate on project teams. Including internal customers and, for that matter, internal suppliers on project teams are an excellent approach. They understand the process better than anyone else does. Changing behaviour is the goal. People must come to work not only to do their jobs, but also to think about how to improve their jobs. People must be empowered at the lowest possible level to perform processes in an optimum manner.

There must be a continued effort to improve all business and production processes. Quality improvement projects, such as on-time delivery, order entry efficiency, billing error rate, customer satisfaction, cycle time, scrap reduction, and supplier management, are good places to begin technical techniques such as SPC, benchmarking, quality function deployment, and designed experiments are excellent for problem solving. On the average 40% of pounds is purchased product or service; therefore, the supplier quality must-be outstanding.

A partnering relationship rather than an adversarial one must be developed. Both parties have as much to gain or lose based on the success or failure of the product or service. The focus should be on quality and life-cycle costs rather than price. Suppliers should be few in numbers so that true partnering can occur. Performance measures such as uptime, percent non-conforming, absenteeism, and customer satisfaction should be determined for each functional area. These measures should be posted for everyone to see. Quantitative data are necessary to measure the continuous quality improvement activity. (Besterfield, Michna, Besterfied & Sacre, p.3)

The purpose of TQM is to provide a quality product and/or service to customers, which will, in turn, increase productivity and lower cost. With a higher quality product and lower price, competitive position in the marketplace will be enhanced. This series of events will allow the organisation to achieve the objectives of profit and growth with greater case. In addition, the work force will have job security, which will create a satisfying place to work. As previously stated. TQM requires a cultural change. The change is substantial and will not be accomplished in a short period of time. Small organisations will be able to make the transformation much faster than large organisations. (Besterfield, Michna, Besterfied & Sacre, p.3)

Hence summarising the key points discussed above, productivity is a major concern of managers. It implies measurement, an essential step in the control process. The productivity measurement of skill workers is generally easier than that of knowledge workers such as managers. Yet managerial productivity is very important, especially for organisations operating in a competitive environment.

Production management refers to those activities necessary to manufacture products; it may also include purchasing, warehousing, transportation, and other operations. Operations management has a similar meaning, referring to activities necessary to produce and deliver a service as well as a physical product.

The operations management systems model show inputs, the transformation process, outputs, and the feedback system. A variety of tools and techniques make operations more productive. Seven steps are often involved in planning and designing a product and its production. Companies can choose from six different kinds of production layouts. In order to operate the system, the managerial functions of organising, staffing, and leading must be carried out effectively. Controlling requires an information system often supported by computers. (Koontz and Weihrich, 1994; p.653)

Among the various tools for planning and controlling operations is operations research, which is the application of scientific methods to the study of alternatives in a problem situation to obtain a quantitative basis for arriving at the best solution. The operation research procedure consists of six steps. Examples of tools are linear programming, inventory planning and control, the just-in time inventory system, and distribution logistics. Other tools and techniques are time-event inventory system, engineering, work simplification, quality circles, total quality management, and a variety of computer-aided approaches. (Koontz and Weihrich, 1994; p.653)

References

Besterfield, D. H., Michna, C. B., Besterfied, G., H.,  & Sacre, B.  S., (no date available). Total Quality Management, Third Edition, pp. 1-3.

Crosby, P., (1979). Quality is Free, New York: McGraw-Hill, 1979.

Cusumano, M.A., 1985, The Japanese Automobile Industry: Technology and Management at Nissan and

Toyota, Harvard University Press, Cambridge, MA.

Koontz, H., and Weihrich, H., (1994). Management: A Global Perspective, Tenth Edition, McGraw-Hill, International Editions, pp.633-653

Ross, J. E., (no date available). Total Quality Management: Text, Cases and Readings, Second Edition, Florida Atlantic University, Boca Raton, Florida, pp. 1-3

 Liker, J.K. (ed.), 1998, Becoming Lean: Inside Stories of U.S. Manufacturers, Productivity Press, Portland, OR.

Sobek, II, D.K., 1997, Principles that Shape Product Development Systems: A Toyota-Chrysler Comparison, Ph.D. dissertation, The University of Michigan, Ann Arbor.

Spear, S. and H.K. Bowen, 1999, “Decoding the DNA of the Toyota Production System,” Harvard Business Review, Sept.-Oct., 77(5), 97-106.

Womack, J., D.T. Jones, and D. Roos, 1990, The Machine that Changed the World: The Story of Lean

Production, HarperPerennial, New York.

 

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Process Strategy and Analysis: Toyota Motors Case study Essay

Process Strategy and Analysis For Toyota Motors Corporation Essay

Process Strategy and Analysis For Toyota Motors Corporation Essay.

Introduction

When organizations seek to improve or transform their resources into goods and services, they are, in a way, developing their process strategy in producing their customer and product specifications at lower costs and less managerial constraints. As companies are targeting global markets at present, each organization needs to decide on long-term competitive goals that are strategic in nature.

In making these process decisions, managers need to focus on controlling competitive priorities like quality, flexibility, time, and cost to meet the global demand for their products.

In having a look at Toyota Motor Corporation’s process strategy, it will be helpful to realize why their decisions for both service and manufacturing processes are successful. By determining the processes that comprise their operations, we will be able to assess if their value chains are managed efficiently and effectively.

According to Krajewski et al. (2007), a process strategy specifies the pattern of decisions made in managing processes so that they will achieve their competitive priorities.

Also, a “process strategy guides a variety of process decisions, and in turn is guided by operations strategy and the organization’s ability to obtain the resources necessary to support them”. Thus, a process strategy consists of decisions that help define the value chain. Usually these decisions seek the improvement of processes and they are done most likely when:

  • A gap exists between competitive priorities and competitive capabilities.
  • A new or substantially modified service or product is being offered.
  • Quality must be improved.
  • Competitive priorities have changed.
  • Demand for a service or product is changing.
  • Current performance is inadequate.
  • The cost or availability of inputs has changed.
  • Competitors are gaining by using a new process.
  • New technologies are available.
  • Someone has a better idea.

As a leading auto manufacturer in the world, Toyota Motor Corporation sells its vehicles in more than 170 countries and regions worldwide. Toyota’s primary markets for its automobiles are Japan, North America, Europe and Asia. Employing nearly 300,000 people, its headquarters is located in Toyota City, Japan. Their products include passenger cars, recreational and sport-utility vehicles; minivans and trucks. Toyota’s subsidiary, Daihatsu Motor Company, also produces and sells mini-vehicles and compact cars. While another brand, Hino Motors produces and sells commercial vehicles. More importantly, Toyota manufactures automotive parts, components and accessories for its own use and for sale. Toyota has 52 manufacturing facilities in 27 countries and regions (Toyota Website).

Process Strategies in Toyota

One of the most notable processes that Toyota Motor Corporation had made famous is the Toyota Production System (TPS). At present, TPS is also known for a variety of terms like lean systems or just-in-time (JIT) manufacturing, lean production, stockless production and zero inventories. Cox and Blackstone (1998) defined lean systems as “a philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise …” Lean systems thinking was initiated and developed as the TPS.

It was Toyota’s vice president Taiichi Ohno who pushed for the TPS beginning in 1937 when he discovered that labor at American manufacturers was nine times more productive than labor at Japanese manufacturers (Monden 1983, p. v). Since there was a pressure to improve after World War II because capital was restricted and production volumes were low, Ohno researched on some methods they can adopt in Toyota to make their production system work better. However, it was not until the 1973 oil crisis that most Japanese manufacturers became interested in TPS and it was not until the end of the 1970s that a significant number of U.S. manufacturers began to investigate TPS.

The Toyota Production System became widely known in the United States in 1983 when a book of that title was published. During the 1980s, the popular term in the United States for the TPS system was “just-in-time manufacturing”. At the beginning of the 1990s, the term lean systems became popular because of a series of books and articles by U.S. consultants and researchers in which they referred to TPS as “lean systems,” because they allow more and more to be done with less and less. Fact is that Ohno only borrowed important roots of lean systems from two distinct American institutions: Henry Ford’s mass production system and the supermarket.

Lean Systems That Sparked More Process Strategies

In the book by Womack and Jones (1996), entitled Lean Thinking, they simplified Ohno’s lean systems approach. As it is not just a set of techniques but a management philosophy, this means managers must have a different mental model or perspective of managing the manufacturing process. The five steps or principles to develop this mental model are:

  1. Precisely specify value for each specific product.
  2. Identify the value stream for each product.
  3. Make value flow without interruptions.
  4. Let the customer pull value from the producer.
  5. Pursue perfection.

During the 1980s, some U.S. companies have adopted lean systems successfully. But many more failed or even refused to take action. Many managers are skeptical that TPS could not succeed in the United States or it provided no real benefits. However, the publication of a book titled The Machine That Changed the World (Womack, Jones & Roos, 1990) ended the debate about whether lean systems created real, lasting benefits. The book presented the results of a three-year study of automobile manufacturing throughout the developed world.

They found that in 1990 a Japanese plant in Japan took 16.8 hours to build an auto, while a U.S plant in the United States took 25.1 hours per car. Not only did a Japanese plant produce cars faster, its cars had fewer defects per hundred vehicles, lower space requirements, and lower inventories than their competitors. Their findings also indicate that it is the management system and not the country’s culture that is responsible for the success of lean companies, since Japanese plants in the United States performed better than U.S. plants on all criteria.

Aside from the TPS, Toyota pursued total quality management or “kaizen”, a change strategy that involves a continuous incremental improvement of work procedures. Using kaizen, production-line employees are made responsible for finding ways to improve work procedures to drive down costs and drive up quality. Individually, and in quality groups or circles, employees suggest ways to improve how a particular Toyota car model is made. Over time, from their thousands of suggestions, incremental innovations made to the car assembly process result in major improvements to the final product. Employees receive cash bonuses and rewards for finding ways to improve work procedures, and the result has been a continuous increase in car quality and reduced manufacturing costs.

In the 2000s, under the leadership of Toyota’s new president, Jujio Cho, the company sought to increase the speed of change to further improve its efficiency and quality to gain an edge over its major competitors such as GM, Ford, and Daimler-Chrysler. It has begun a series of new kinds of change programs, each directed at improving some aspect of its operations, which Toyota hopes will bring both incremental and radical changes to the way it operates.

Some incremental change programs involve strengthening its kaizen program, such as “pokayoke,” or mistake-proofing. This initiative concentrates on the stages of the assembly process that have led to most previous quality problems; employees are required to double- and triple-check a particular stage to discover defective parts or to fix improper assembly operations that lead to subsequent customer complaints.

Another program is Construction of Cost Competitiveness for the 21st Century program or “CCC21,” which involves working with the company’s suppliers to find ways to reduce the costs of Toyota’s car components by 30 percent—something that will result in billions of dollars in savings. Toyota has also introduced a new manufacturing process called “GBL,” which uses a sophisticated new assembly process to hold a car body firmly in place during production.

This allows welding and assembly operations to be performed more accurately, resulting in better-quality cars. GBL has also enabled Toyota to build factories that Toyota to build factories that can assemble several different kinds of models on the same production line with no loss in efficiency or quality. This is a major competitive advantage. The company’s global network of plants can now quickly change the kinds of cars they are making depending on buyers’ demands for various models at different points in time (Dawson, 21 February 2005).

Other radical change efforts have focused on revamping Toyota’s development and design process to keep up with changing customer needs and demographics. In the 1990s, for example, the age of the average Toyota car buyer steadily rose. Despite Toyota’s climbing global sales (which exceeded $203 billion in 2006), the company was criticized for failing to understand how the market was changing. Some blamed the problem on centralized decision making at the company and a culture that had long been dominated by Toyota’s cautious and frugal Japanese designers. Rather than designing innovative, flexible vehicles customers were increasingly demanding, Toyota continued to focus on cutting costs and increasing the quality of its vehicles.

To quickly get an improved design process into gear, President Cho bolstered two new change techniques to radically alter the design process: PDCA and “obeya”. Obeya is based on frequent brainstorming sessions among engineers, designers, production managers, and marketers designed to speed new model cars to the market. PDCA (“plan,” “do,” check,” “action”) is a program designed to empower the company’s designers outside of Japan to intervene in the car development process and champion designs that meet the needs of local customers.

The results of promoting a flexible, decentralized car design process were the speedy introduction of the rugged eight-cylinder Tundra pickup truck and the angular, ScionxB compact in the United States, as well as the Yaris, Toyota’s best-selling European car. The Yaris was designed in Europe, and its success there led to its subsequent introduction in Japan where it also sold well (Hill, 2004).

Conclusion

Throughout its existence, we could see that Toyota has managed their process strategies effectively as they root everything out from the TPS. Through the TPS, they continued to change and improve their processes to lessen production time, lessen the wastes and make production efficient to the benefit of both the company and its employees. Also, it is important to note that, despite all these changes, their customers remain at the core of their focus as Toyota seeks to meet all their demands.

As for their management, the decisions are translated into actual process designs or redesigns. This matches the complementary philosophies for process design: (1) process reengineering and (2) process improvement (Krajewski et al., 2007). In this regard, we could say that Toyota Motors Corporation has an excellent decision patterns to further improve their manufacturing processes in the future.

The Process Analysis of the Toyota Motor Corporation

Introduction

In the book The Toyota Way, Liker (2003) claimed that Toyota has the fastest product development process in the world. In analyzing their manufacturing process, Liker found that new cars and trucks take only 12 months or less to design in Toyota, while competitors typically require two to three years.

Also, Toyota has been benchmarked to be the best in its class by all of its peers and competitors throughout the world. This is because Toyota maintains high quality, high productivity, faster manufacturing speed and flexibility in processing their products (p. 5). All these successes are due to the TPS that Liket (2003) summarized into 4 Ps (Problem-Solving, People and Partners, Process and Philosophy (see Figure 1).

Figure 1. 4Ps That Comprise the Toyota Production Systems (Source: Liker, 2003).

Analyzing the TPS

In the process part of the TPS, we can see at its core is the goal of eliminating waste. For example, in the manual assembly operation of a truck chassis assembly line (see Figure 2). The operator takes many individual steps, but generally only a small number of the steps add value to the product, as far as the customer is concerned. In this case, only the three steps identified add value.

Although some of the non value-added steps are necessary (for example, the operator has to reach to get the power tool), the point here is to minimize the time spent on non-value-added operations by positioning the tools and material as close as possible to the point of assembly. Toyota has identified seven major types of non-value-adding waste in business or manufacturing processes:

  1. Overproduction. Producing items for which there are no orders, which generates such wastes as overstaffing and storage and transportation costs because of excess inventory.
  2. Waiting (time on hand). Workers merely serving to watch an automated machine or having to stand around waiting for the next processing step, tool, supply, part, etc., or just plain having no work because of stockouts, lot processing delays, equipment downtime, and capacity bottlenecks.
  3. Unnecessary transport or conveyance. Carrying work in process (WIP) long distances, creating inefficient transport, or moving materials, parts, or finished goods into or out of storage or between processes.
  4. Overprocessing or incorrect processing. Taking unneeded steps to process the parts. Inefficiently processing due to poor tool and product design, causing unnecessary motion and producing defects. Waste is generated when providing higher-quality products than is necessary.
  5. Excess inventory. Excess raw material, WIP, or finished goods causing longer lead times, obsolescence, damaged goods, transportation and storage costs, and delay. Also, extra inventory hides problems such as production imbalances, late deliveries from suppliers, defects, equipment downtime, and long setup times.
  6. Unnecessary movement. Any wasted motion employees have to perform during the course of their work, such as looking for, reaching for, or stacking parts, tools, etc. Also, walking is waste.
  7. Defects. Production of defective parts or correction. Repair or rework, scrap, replacement production, and inspection mean wasteful handling, time, and effort.
  8. Unused employee creativity. Losing time, ideas, skills, improvements, and learning opportunities by not engaging or listening to your employees (Liker 2003, p. 28-29).

Figure 2. Waste in a Truck Chassis Assembly Line (Source: Liker, 2003).

Figure 3. Timeline of Waste in a Value System (Source: Liker, 2003).

TPS: A Goal Driven Process

Like any system, the TPS is a goal-driven set of interrelated or linked activities. Managers who recognize that they are managing a system are aware of two main points: (1) the system reacts to any solution and (2) the system controls the behavior of those individuals who operate within it. The first point means that there are often unintended consequences when a solution to a problem in a system is introduced.

To avoid unintended consequences, managers must fully understand the system. The second point means that managers must avoid attributing the problems in a system to the character of the individuals within the system. The manager must instead identify how the structure of the system is shaping the choices of the individuals within the system. By understanding these two points, the manager can now redesign the system to increase the system’s performance.

The incorrect use of performance measures can prevent the successful introduction of lean systems. For example, a performance measurement system that encourages high equipment and high labor utilization often discourages production at the rate demanded by the customer. Indeed, these performance measures actually encourage large-batch production, thus creating the waste of overproduction and decreasing the system’s ability to respond to the customer.

Firms that implement lean systems often use a performance measure called overall equipment effectiveness (OEE). Soiichi Nakajima (1988) first formulated this performance measure to assess how effectively equipment is maintained and operated. Figure 4 shows six types of capacity losses in the right-hand column (breakdown losses, setup and adjustment losses, idling and minor stoppages, speed losses, quality defects, and start-up and yield losses). These capacity losses are organized into three categories: downtime losses, speed losses, and quality losses.

Figure 4. Six Probable Causes For Equipment Losses (Source: Masaji & Goto, 1992).

Knowing performance measurements are an important part of any manufacturing system, thus TPS support the elimination of possible waste. The operations manager must select the performance measurements that will encourage behaviors that lead to the desired business performance. In TPS, the desired business performance is shorter flow time, reduced costs, and faster response to the customer.

Another advantage of the TPS is its support towards employee empowerment as a means for continuous improvement. Toyota empowers its employees by training them to use the scientific method to continuously improve processes. The scientific method involves four elements: theory, hypotheses, data, and verification.

In the research of Spear and Bowen (1999) they indicated that the scientific method is integrated into the Toyota Production System so that every time a job is performed is an experiment. This creates a system where all the work processes are very specified and structured, but the system itself is very flexible and responsive. Toyota implements the scientific method as part of four unspoken rules that everyone in the organization must learn and practice:

  1. Highly Specified Work – Toyota’s first rule requires that managers, engineers, and line workers fully understand how a job is to be done and its relationship to other jobs. By ensuring that every job has a very clearly defined set of steps, it is obvious when the correct process is not being followed and it is also obvious when more training is needed or when the job definition needs to be changed. This allows quick identification and correction of any problems that occur. This first rule reduces variance in how work is done. By creating a highly specified sequence of steps to perform the job, Toyota is actually proposing a theory that this procedure is the best way to do the job. Given this theory, two implicit hypotheses in every standard job specification are first that each person doing the activity is capable of performing it correctly and second that performing the activity as specified actually creates the expected outcome.
  2. Direct Connections – Toyota’s second rule states that there must be direct, unambiguous communication between each customer and supplier. Direct, unambiguous communication means that each customer and each supplier know the exact form and quantity of goods and services to be provided. The theory implicit in this second rule is that the supplier has the capacity to meet the customer’s needs as they are communicated. This theory leads to two hypotheses: (1) the customers’ requests will be for goods and services in a specific mix and volume and (2) the supplier can respond to the customers’ requests. The production process generates data through the observation of the customer-supplier interactions.
  3. Simple Direct Pathways – Toyota’s third rule is that all pathways must be simple and direct. This means that goods and services must flow to a specific person or machine. The underlying theory in this rule is that having simple and direct pathways will quickly reveal any source of variances in the flow of goods and services. This rule suggests two hypotheses: (1) every supplier is necessary and (2) any supplier not connected to the pathway is not necessary. Each day of production provides data to analyze the hypotheses. Was there a supplier who was not connected to a pathway? Obviously any supplier or activity not connected to the flow pathway can be eliminated. This rule eliminates noise from the system and means that there are no pooled queues of completed work from suppliers waiting for the customers to use. Instead, completed work leaves one activity and goes to the next activity. If one supplier has a high variance in deliveries, their variance will not be hidden by the deliveries of the other suppliers.
  4. Scientific Method – Toyota’s fourth rule requires that employees be trained to formulate and test hypotheses about how they can improve their job activities. Toyota constantly encourages its workers to conduct experiments trying to identify a better method of performing their job activities.

Conclusion

In analyzing the Toyota Production System, we can deem that the company seeks to benchmark their operations to become more efficient. This is the reason why that the TPS is highly regarded among all companies in the world because it focuses on setting quantitative goals for improvement. TPS seeks to make Toyota’s manufacturing processes to be made simple and they are utilizing a scientific model that goes one step further it transforms their processes to be more dynamic. The Toyota management is also constantly gathering ideas for reengineering or improving a process become apparent after documenting the process.

They are carefully examining the areas of substandard performance, efficient interaction between departments and finally making customers’ preferences a prime priority. The ultimate goal of TPS is to apply the ideal of one-piece flow to all Toyota’s business operations, from product design to launch, order taking, and physical production by eliminating the unnecessary waste.

Thus, the TPS is an all-encompassing philosophy that includes product design, process design, equipment and facilities design, supply chain coordination, job design, and productivity improvement. If there is one “key” to successful implementation of TPS, it’s adopting a holistic approach. This is probably the reason why Toyota remains to be one of the most admired companies in the world because they implemented a system that cut all the unnecessary costs and produced faster results without compromising the product expectations of their stakeholders.

References

Cox, J.F. & Blackstone, J.H. Jr. (Eds). (1998). APICS Dictionary, 9th ed. Alexandria, VA: APICS.

Dawson, C. (2005, Feb 21). A China Price for Toyota.  Business Week, 3921, 50-51.

Hill C.W.L. (2004). Toyota, in C. W. L. Hill & G. R. Jones, Strategic Management: An Integrated Approach, Boston: Houghton Mifflin.

Krajewski, L.J., Ritzman, L.P. & Malhotra, M.K. (2007). Operations Management: Processes and Value Chains, 8th  ed. NJ: Prentice-Hall.

Liker, J. (2003). Toyota Way. Blacklick, OH: McGraw-Hill Professional Publishing.

Monden, Y. (1983). Toyota Production System, Norcross, GA: Industrial Engineering and Management Press.

Nakajima, S. (1988). TPM: Introduction to TPM, Total Productive Maintenance Cambridge MA: Productivity Press.

Spear S. & Bowen, H. K. (1999, Sept-Oct). Decoding the DNA of the Toyota Production System, Harvard Business Review, pp. 96–106.

Tajiri, M. & Gotoh, F. (1992). TPM Implementation: A Japanese Approach, New York: McGraw-Hill.

Toyota Website. (2007). Retrieved November 10, 2007, from

Womack, J.P. & Jones, D.T. (1996). Lean Thinking: Banish Waste and Create Wealth in Your Corporation, New York: Simon and Shuster.

Womack, J.P. Jones, D.T. & Roos, D. (1990). The Machine That Changed the World, New York: Rawson Associates

Process Strategy and Analysis For Toyota Motors Corporation Essay

Corporate Strategy and Foreign Direct Investment in Developing Countries Such as India Essay

Corporate Strategy and Foreign Direct Investment in Developing Countries Such as India Essay.

Foreign direct investment (FDI), in its simplest term, is when a company from one country makes an investment into building a facility in another country, or when investments are made in order to acquire a certain stake in enterprises operating outside the economy and country of the investor. FDI plays an extraordinary role for firms wanting to operate and compete in a global business. It can provide a firm with new markets to penetrate, cheaper production facilities, access to new technologies, skills, and financing.

For a host country or the foreign firm receiving the investment, it can provide many opportunities that are necessary for economic growth and development. FDI can also come in many different forms, such as direct acquisition of a foreign firm, setting up a facility in a foreign country, or investing in joint ventures and/or strategic alliances with local and foreign firms (Kim & Kim, 2006). In the past decade, due to a dramatic change in the way businesses are conducted, combined with loosening of governments’ regulations on foreign investments, FDI has increased dramatically on a global scale.

When companies make decisions regarding FDI, this process require the efficient allocation of funds to investment opportunities, which often require large amounts of money that will hopefully bring greater returns to its investors. With foreign investments being far riskier than domestic investments, the effective and efficient use of funds is critical for the future performance of a multinational company.

Multinational companies that engage in FDI provide a range of potential benefits that extend to the actual investors as well as the host country that is receiving the investment which are quite apparent. An example within many of these advantages include, increased profits for the industry or the firm due to lower costs of resources abroad, and increase in jobs provided in the host country. However, despite the positive arguments for FDIs there are still also many reasons how or why these type of investments can prove to be harmful.

Domestic firms may consider these investments as unfair competition because the home-market is losing jobs that are instead being set-up abroad. Also, the host country may feel that they are losing their national identity due to foreign cultures and influences being imposed on them. Despite the many benefits that FDIs have provided both companies and host-countries, it is still unsure that such activities will not extend harmful effects to either participant due to the various reasons mentioned above.

A reasonable outline for investments should be set-out in order to allow investors reap the benefits of their investments, while simultaneously contributing positively towards the growth and development of the host-country. The following sections of this report will attempt to analyze FDI effects on developing countries, the means available for companies to invest in foreign markets, mergers and acquisitions, and other issues related to the field of foreign direct investment. Foreign Direct Investment in Developing Countries

Foreign direct investments initiated by MNCs occur primarily because in most cases these type of activities aim to fulfill all MNC’s primary objective; to maximize shareholder value (stock price) by “taking-on” various value-adding activities or investments. As such they are considered as being major contributors to economic growth for developing countries. A host country will usually want to attract foreign investors in order to acquire additional resources such as capital, new technologies, knowledge, as well as increased job opportunities for its population.

Over the past decade globalization has increased dramatically, which has also sparked increasing flows of FDI in developing countries as governments begin to ease up on their regulations. According to publications from the Institute for International Economics, FDI in developing countries, and countries who are in a transition phase of their economy (i. e. China) grew dramatically during 1990-1998, from $24 billion per annum to approximately $120 billion per annum.

Mentioned in the previous section, FDI in theory, as well as in practice, has proved to offer several gains to developing host countries who accept MNC’s investment efforts. From these gains, the major ones that are usually more specific to developing host countries include the transfer of technology that couldn’t otherwise be acquired through investments or trade, development of human capital through employee training, and gains in profits resulting from corporate tax revenues in the host country (Loungani and Razin, 2001).

The fact is that the impact of FDI in a certain country may vary from one country to another country, therefore the degree of FDI impact really depends on the government policies and regulations that are set forth in order to either attract or deter FDI inflows. Therefore, we could concur that government policymakers have the most important role when it comes to FDI decisions. They should be aware of the different methods that could be used to promote FDI and how each of these means would affect the development and growth of the local economy.

Often, policymakers seem to rush into FDI liberalization policies without considering the pros and cons of such actions. However, as the South East Asian economies have well proven to the rest of the world, if FDI can be used strategically, it can be an extremely useful tool for emerging economies and developing countries. FDI in India India’s recent liberalization of its foreign investment regulations has generated strong interest by foreign investors, turning India into one of the fastest growing destinations for global FDI.

Foreign firms are setting up joint ventures in several of India’s fastest growing sectors such as telecommunications, computers software, financial services, tourism, etc. According to a global survey conducted by KPMG International on corporate investment plans in June 2008, India is expected to experience the largest overall growth in its share FDI, and will most likely become a haven for investments within the manufacturing industries. It’s true that India is becoming one of the most favored investment destinations for many developed countries as well as countries whose economies are in a transition phase.

The following diagram shows how GDP per capita growth, trade volumes, and FDI inflows have surged over the years 2001-2006. Within the past few years, Japanese firms are increasingly purchasing various amounts of equity ventures in Indian firms, particularly within the automobile, electronics, and IT sectors. FDI is now recognized as one of the most important drivers of economic growth for India, and as such, the Indian government is making all efforts to attract and facilitate FDI and investment from foreign investors.

India’s liberalization efforts have not only removed national barriers towards foreign investments, but have also made the process of investment activities much easier by establishing various measures. According to India Business Directory (IBD, 1999-2009), some of these implemented measures include:

•Loosening of foreign exchange controls in order to promote greater tradebetween India and other countries •Companies now have significant amount of freedom to raise funds from foreign markets in order to invest and expand their foreign operations in India •Trade between countries is subject to fewer trade restrictions; i. . decreasing tariff levels •Foreign investors can pass on earnings from Indian operations with relative ease As India and its industries continue to develop and expand, more and more investors are attracted to its market with hopes of experiencing great returns. The possibilities of foreign investment in India seem endless with the combination of incentives and benefits that the Indian government offers to foreign investors.

Some of these incentives include tax exemptions due to the various tax treaties that India has with 40 other countries, as well as investment incentives offered by the Indian government and the state (IBD, 1999-2009). One of the major reasons why India has attracted vast amounts of FDI in recent years is due to its FDI policies. According to the Embassy of India website (2009), FDI up to 100 percent is allowed under the “automatic route” in all sectors and activities except for those that are otherwise stated.

Some of these sectors that don’t permit full ownership by the foreign investor include such items that require special licensing; i. e. alcoholic drinks, cigarettes and tobacco products, electronic aerospace and defense equipment, explosives, and hazardous chemicals. There are also other sectors of the economy that are prohibited from receiving ANY form of FDI, which include atomic energy, railway transport, ammunition and defense equipment, and mineral oils. However, most of the sectors fall under the “automatic route” for FDI, which basically implies that FDI can take place without the approval of the central government.

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Corporate Strategy and Foreign Direct Investment in Developing Countries Such as India Essay

Pricing Strategy of Soft Drinks Today Essay

Pricing Strategy of Soft Drinks Today Essay.

We will basically focus on the pricing strategies adopted by these two affluence companies, how the change in the strategy of one of them reflects in the strategy of the other. {text:bookmark-start} Entry barriers in soft drink Market: {text:bookmark-end} The several factors that make it very difficult for the competition to enter the soft drink market include: Network Bottling: Both Coke and PepsiCo have franchisee agreements with their existing bottler’s who have rights in a certain geographic area in perpetuity.

These agreements prohibit bottler’s from taking on new competing brands for similar products.

Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product. The other approach to try and build their bottling plants would be very capital-intensive effort with new efficient plant capital requirements in 2009 being more than 0 million.

The advertising and marketing spend in the industry is very high by Coke, Pepsi and their bottler’s.

This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility. Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customer’s all over the world. This makes it virtually impossible for a new entrant to match this scale in this market place. Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 15-20% on these soft drinks for the shelf space they offer. These margins are quite significant for their bottom-line.

This makes it tough for the new entrants to convince retailers to carry/substitute their new products for Coke and Pepsi. To enter into a market with entrenched rival behemoths like Pepsi and Coke is not easy as it could lead to price wars which affect the new comer. {text:bookmark-start} SWOT Analysis: {text:bookmark-end} Strength: Weakness: Opportunities: Threats: {text:bookmark-start} Various cola brands products Available: {text:bookmark-end} {text:bookmark-start} Pricing Strategy: {text:bookmark-end} {text:bookmark-start} Coke – Price {text:bookmark-end}.

{text:bookmark-start} Pepsi – Price {text:bookmark-end} {text:bookmark-start} Pricing strategy for Buyer and Suppliers: {text:bookmark-end} Suppliers: The soft drink industry have a negotiating advantage from its suppliers as most of the raw materials needed to produce concentrate are basic commodities like Color, flavor, caffeine or additives, sugar, packaging. The producers of these products have no power over the pricing hence the suppliers in this industry are weak. This makes the soft drink industry a cheap input industry which helps in increasing their gross margin. Buyers:

The major channels for the Soft Drink industry are food stores, Fast food fountain, vending, convenience stores and others in the order of market share. The profitability in each of these segments clearly illustrate the buyer power and how different buyers pay different prices based on their power to negotiate. These buyers in this segment are somewhat consolidated with several chain stores and few local supermarkets, since they offer premium shelf space they command lower prices, the net operating profit before tax (NOPBT) for concentrate producer’s is high. This segment of buyer’s is extremely fragmented and hence has to pay higher prices.

This segment of buyer’s are the least profitable because of their large amount of purchases they make, it allows them to have freedom to negotiate. Coke and Pepsi primarily consider this segment “Paid Sampling” with low margins. NOPBT in this segment is very low. Vending: This channel serves the customer’s directly with absolutely no power with the buyer. {text:bookmark-start} Effect of competition and Price War on Industry profits: {text:bookmark-end} In the early 1990’s Coke and Pepsi employed low price strategy in the supermarket channel in order to compete with store brands.

Coke and Pepsi however in the late 90’s decided to abandon the price war, which was not doing industry any good by raising the prices. Coke was more successful internationally compared to Pepsi due to its early lead as Pepsi had failed to concentrate on its international business after the world war and prior to the 70’s. Pepsi however sought to correct this mistake by entering emerging markets where it was not at a competitive disadvantage with respect to Coke as it failed to make any heady way in the European market.

{text:bookmark-start} Pricing Strategy used for market capitalization: {text:bookmark-end} Price is a very important part of the marketing mix as it can affect both the supply and demand for soft drinks. The price of soft drinks products is one of the most important factors in a customer‘s decision to buy. Price will often be the difference that will push a customer to buy our product over another, as long as most things are fairly similar. For this reason pricing policies need to be designed with consumers and external influences in mind, in order to effectively achieve a stable balance between sales and covering the production costs.

Till the late 1980s, the standard SKU (Stock Keeping Unit) for a soft drink was 200 ml. In 1989, when Indian government opened the market to multinationals, Pepsi was the first to come in. Thums Up (a product of Parle) went up against the international giant for an intense onslaught with neither side giving any quarter. Around 1989, Pepsi launched 250 ml bottles and the market also moved on to the new standard size. When Coke re-entered India in 1993, it introduced 300 ml as the smallest bottle size. Soon, Pepsi followed and 300 ml became the standard.

With large population and low consumption the rural market represented a significant opportunity for penetration and market dominance. Competitive pricing was the key. Then the capacity went from 250ml to 300ml, aptly named MahaCola. This nickname gained popularity in smaller towns where people would ask for “Maha Cola” instead of Thums Up. The consumers were divided where some felt the Pepsi’s mild taste was rather bland. In 1993 Coca-Cola re-entered India after prolonged absences from 1977 to 1993. But Coca-Cola’s entry made things even more complicated and the fight became a three-way battle.

That same year, in a move that baffled many, Parle sold out to Coke for a meager US$ 60 million (considering the market share it had). Further, as the demand changed, both Pepsi and Coke introduced 1 liter returnable glass bottles. RGB 250ml 1989 Rs 8 RGB 300ml 1993 Rs 9 RGB 300ml, 1994 Rs 9 RGB 300ml 1996 Rs 11 Pet bottles 1 liter, 2 liter 1996 Rs 25, Rs 42 RGB 300ml 1997 Rs 7 Pet bottles 1 liter, 2 liter 1997 Rs 20, Rs 38 RGB 200ml, 300ml (negligible) 2002-03 Rs 5, Rs 11 Pet bottles 500ml, 1 liter, 1. 5 liter, 2 liter 2002-03 Rs 18, Rs 25 Can 330ml 2002-03 Rs 35.

{text:bookmark-start} Penetration pricing: {text:bookmark-end} In the past (in 2002-03), Coke had already targeted rural consumers by bringing down the entry price (Rs 5 a bottle) for its product. Now, it has stepped up distribution of its 200-ml (priced at Rs 7 and Rs 8) returnable-glass-bottles. To surmount the penetration policy of Coke, Pepsi too came up with the same Price penetration policy by launching products like “Chota Pepsi” with the price of Rs 5 to challenge the coke product. The small size was basically used to target rural market to make new customer habitual to it. {text:bookmark-start} Conclusion: {text:bookmark-end}.

Pricing Strategy of Soft Drinks Today Essay

Role of Chief Executive Officer in Strategic Process Essay

Role of Chief Executive Officer in Strategic Process Essay.

Chief executive officer is the most important figure in strategic management process.

S/he plays many roles in an organization. Planning, organizing,leading, and controlling are the major parts of management activities that amanager performs. Actually, strategic management is the top-levelmanagement. It covers all the management functions because it starts fromplanning such as environmental analysis and strategic choice, associated withorganizing and leading in implementation phase, and lastly also evaluates andcontrols the results. Similarly, CEO also uses his or her conceptual, humanrelation, and technical skills in strategic management process.

CEO is the head of employees and major executive representative of board ofdirectors. He or she plays vital role to make amicable relationship withcustomers, competitors, suppliers, and other stakeholders on the behalf oforganization. Generally there are many other titles used for this position suchas managing director, executive chairman, vice chairman, and executivedirector.

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Role of Chief Executive Officer in Strategic Process Essay