Operations Strategy and the Key Operational Performance Objectives in Apple and Samsung - Case Study Example

Operations strategy and the key operational performance objectives in Apple and Samsung Place Executive summary In the modern competitive business environment, companies seek to secure themselves from intensified competition, short-ended product life cycle and industrial segmentation (Kim, 2007). The particular dynamics is noticeable in high technology sector, where such companies as Apple and Samsung are searching for the new competences that would enable them to obtain and sustain their competitive advantage. Apple Inc and Samsung Electronics Co are the main players in this area, hence the investigating of its operational strategic decisions is important for analyzing how these companies impact the global tech field. To undersstand the overall strategy and their operational performance objectives, it is essential to analyze the nature of operations management and understand the difference with the operations strategy. Moreover, while investigating the perspectives of Apple and Samsung operations strategy, it will be possible to speak about the main objectives of operational performance that Apple and Samsung follow. The nature of operations management and operations strategy Within the modern business environment, organizations are no longer observed as the stand-alone element in the processes, but they see themselves instead as a part of wider and extended enterprise (Brown, Bessant & Lamming, 2013). They are the network of collaborative partners who are connected with the common form and extended desire to make certain input and receive output from what they offer or produce. Hence the operations management model is no longer limited by the specific arena of organization. Moreover, as Brown, Bessant and Lamming (2013) state, the organizations want more inside themselves and develop strategic relationship that formerly views as competitive organizations. Slack (2005) explains operations strategy as the broad and long-lasting term, while operations are the detailed, complex and the day-to-day issues that can be carried out by the lowest levels of business hierarchy. While operations management refer to managing costs, operations strategy is about quality, variety, responsiveness and at the same time reducing costs as well. However, the operations management is the integral part of strategic vision of each organization. Hence, it influences the modern-day organizations’ ability to customize, produce, manufacture, provides customers with the best quality products and services and to reside everything within operations. Perspectives of operations strategy in Apple, Inc. and Samsung Electronics, Co Operations strategy, according to Slack and Lewis (2002), is concerned with the same set of resources as operations management. The difference here is only in perspective. While operations management refers to the immediate and specific issues, operations strategy is a broader term with more generalized and underlying principles (Slack & Lewis, 2002). The strategic principles of Apple, Inc, the American multinational corporation that specializes in design, developing and selling of consumer electronics, computer software, online services and personal computers, were formed during the last fifteen years and now has revolutionized into the set of global-known products integrated with customer experience (Heracleous, n.d.). It has developed its strategic operations capabilities, representing a considerable asset of its operations resources for the central and long-term strategic success. It also found the way to manage its operations in order to set the company apart from its competitors such as Samsung (Slack & Lewis, 2011). Identifying the main aspect of its strategy as the ability to balance between the efficiency in operations and its outstanding, serial innovation and addictive product design, Apple developed a command premium pricing that also enabled the company to redefine markets. Such combination brought company a competitive advantage based on the intense effectiveness and value of its products and services. In addition, Apple succeeded in cutting costs aligning it to the the value chain and thus to create its current strategy (Bets, 2002). Its main competitor, Samsung Electronics, South Korean multinational electronics company gained its success as the largest manufacturer of phones through deploying twofold strategy (Viardot, 2004). The company used new opportunities that the market discontinuity provided, while the new digital technology made consumers consider more about the new brands. In addition, Samsung determined marketing strategy in order to move up market in an aggressive way. Its strategic vision “Leading the Digital Convergence Revolution” carries the vision and mission of the whole company as its “digital-e company’. Since 1993 utilizing innovation, new global trends and digitalization, Samsung has transformed itself from the low cost manufacturer into a world class corporation that is now a strong brand and leading company in the Source: http://www.sersc.org/journals/IJSEIA/vol8_no12_2014/12.pdf 21st century. Its operations efficiency is best seen through value chain model, which includes the primary activities such as production, logistics, marketing, sales and service. To support these activities, the company uses its infrastructure, human resource management, technology development and procurement. Through improving of certain area of operations, Samsung it helps Samsung to perform its activities efficiently. Unlike Apple, Samsung’s operations is the most unusual segment for its where the company differs from its main competitor (Hwy-Chang, n.d.). Besides, from the strategic positioning point, Samsung has placed itself in the variety-based and needs-based position. While the company produces only a subset of the industry’s products, customers should search software needs in other companies. However, such condition is only another advantage for Samsung because it enables the company to position itself as the leader in the high-tech hardware industry (Jung, 2014). Nisen (2013) states that the company combines market research with implementation of innovation of its own. Along with its, Samsung runs its activities through use of cash in an aggressive way at that time when Apple has a huge cash pile, but does not use it. In addition, Samsung uses its chips, displays and other technology that brings its dividends and allows competing with Apple and increase its offering of features that Apple does not have. Finally, Samsung is a conglomerate that makes many components for its smartphones with the considerable cost advantage. It allows the company to be more flexible regarding to what to produce and when (Nisen, 2013). Apple on the contrary has a diverse and well-managed supply chain, but it relies on the external partners mostly, which can cause different delays and difficulties. Kim and Mauborgne (2009) state then when developing corporate strategy, organizations should take into account the industry conditions in which they operate. The strategy’s success depends on the alignment of a value proposition that attracts buyers, a profit proposition that gives the company possibility make money out of the value proposition and people proposition that motivates those working Source: https://hbr.org/2009/09/how-strategy-shapes-structure for or with the company to execute the strategy. This alignment enables a company to open new market space through breaking the existing value-cost trade-off and leads to more sustainable strategy (Kim & Mauborgne, 2009). While the company fails to align the three stategy proposition, it risks losing its sustainability within business. If to take Apple’s iTunes, it offered a strong value proposition for online music store that allowed customers to freely browse more than two hundred songs with the guaranteed high sound quality and other useful functions. Such approach helped Apple to build an attractive people proposition for the major music companies such as BMG, EMI Group, Sony, Universal and Warner Bros. The alignment across iTunes’s value, profit, and people propositions became a considerable advantage for Apple, since other companies felt lack of resources to create similar idea. Requirements of the market and operations resources With the notion that operations strategy combines the requirements of the market with the capabilities of operations resources, Samsung successfully uses such approach through chasing the patens in the areas where its competitors have protection (Shaughnessy, 2013). It is also oriented on innovation efforts that enable it to search for the better ideas than its competitor like Apple has. Samsung operations resources are composed of the systematic approach of innovation and that is what promises Samsung its success. The other operations resources such as close relationship with Russian Academy of Science has brought Samsung agreement under which it funds Korean small business and develops projects on the back of Academy research. Here the company obtains cheap fundamental science from Russia. As Forbes (2013) informs, in terms of requirement of market, the agreement with the Academy helped Samsung to develop the image-processing chips in its digital TVs and refine its technology that reduced noise on its now-ubiquitous handsets. However, the company also suffered from its missteps, when its mobile division underestimated the projections for order of its flagship smartphones (Cheng, 2014). According to Wall Street Journal article (2014), the company produced twenty per cent more devices in expectation of Asian market to be friendlier to Samsung products. However, the demand was predicted in the wrong way and that led to merchandise pilling up in warehouses that forced Samsung to enhance expenditures for marketing in order to unload the devices. For companies that are capable to organize its assets within the ecosystem create a favourable condition for earning profit. Here the Apple Company holds forty per cent of the gross profits from the entirety of the value chain on its hard drive with the basis of iPods and despite manufacturing no part of the product itself (Teece, 2011). Such operations resources as developing of iPod along with the revenue from licensing makers of iPod accessories and sales from the iTunes Music Store provided Apple with dynamic capabilities for transforming its products in the markets. In addition, Apple’s ability to identify and use new asset combinations bring it wealth in the global economy (Teece, 2011). Operations strategy implementation For modern organizations, strategy implementation is the main challenge, since the process requires dynamic, iterative and complex actions, comprised of a series of decisions by all the involved into business people. However, due to a number of interrelated internal and external factors, implementation of strategy can be influenced and strategic plans can be turned into complications of reality such as inability to achieve strategic objectives (Li, Gouhui & Eppler, 2008). According to Decision support tools (n.d.), there can be five different definitions of strategy that enable an organization decide what direction it should choose in pursuing its activities. These are the strategy as a plan, as a ploy, intended strategy, a means of locating an organization and strategy as the perspective. Thus, on the face of implementation of its strategy, Apple should remove the innovation problem or other words, the company should develop new product as strong as iPhone. According to Forbes (2013), Apple has its lean innovation programs, however, its narrow product and brand does not allow the company to implement its operations strategy. However, employing its “Blue Ocean” business strategy, the company centred its vision on a culture of Disruptive Innovation, which is characterized with the totally new products in the market. Such strategy made Apple a market leader in the smart mobile market until it faced the othe competitor- Samsung. Since Apple’s culture fosters development of creativity within the company, its employees believe they have no limits in producing new products and there is boldness and ambition that enable them to create innovative goods. The company sustains its image through involvement of people from varied backgrounds in order to ensure diversity of ideas, which such people can bring (Mwingu, 2013). Despite the longer history, Samsung obtains an image of a company that uses a strategy of a fast market follower with its careful study of the market and quick following of an innovative product than appear in the market. It also takes the market by releasing its own version of the product adding higher quality to its. Mwingu (2013) states that Samsung follows the strategy where culture of operational excellence takes the first place. However, the company was not always delivering superior quality of its products. Thus, in 1995, the Board’s Chairman of Samsung has burnt a hundred and fifty thousand pieces of inoperable smart phones in front of factory’s employees with the purpose to reinforce the message that superior quality is a must to the company. Besides, the fast market follower strategy is not appropriate for the long-term success and thus the company needs to be more innovative with its products. It is Samsung’s strategy of developing disruptive products that support its innovative culture and despite the high regard for hierarchy and seniority in South Korea that puts certain limits on company’s innovative capabilities, Samsung follows its strong innovative culture. Moreover, as Mwingu (2013) states, the company follows its innovative strategy through employing people from around the world to pursue the company’s Creativity Institute in South Korea. In 1993, the company presented its blue print for the global success that needed a considerable change of the organization work. The implemented strategy was called “New Management” and following it, all Samsung employees were given a new way of life (Payne & Frow, 2013). The key objectives of operational performance of Apple and Samsung In order to be achievement-oriented, companies like Apple and Samsung should bring new strategic directions about their future moves. Thus, Apple’s CEO during his speech at the Technology Conference, according to Forbes (2012) discussed company’s strategy for the future, outlining the desire to expand products of Apple into the emerging markets. One of the strategic objectives of Apple is to keep the iPhone and iPad central to business plan since these products showed its popularity which is still strong (Mobiledia, 2012). In developing broad strategic objectives for the operations, Apple takes into account all stakeholder groups, such as customers, suppliers, employees and the community in general. To start with planning certain strategic moves, the company ensures the dedication of its employees and suppliers to the Code of Conduct that each of these groups should follow. Thus, according to Apple Supplier Code of Conduct (n.d.), the company is committed to the highest standards of social and environmental sustainability, thus, it requires all the suppliers to provide safe working conditions, treat employees with respect and act ethically in case of issues. Besides, Apple strives that its suppliers to operate in accordance with the Apple main principles and paid much attention to all applicable laws and regulations. Moreover, Heineman (2011) states that since the purpose of the company is to develop products and services that are important to customers, Apple should do that with efficiency, risk management and integrity. Customers’ loyalty, their satisfaction and positive market perception are strategic objective for Apple, since only through loyalty customers the company has it products and services in demand and these are the customers that require the company to be more focused on the knowledge how to create further popular Apple products (Apple, Inc., n.d.). The objectives of minimizing procurement costs have already received the deserved recognition in the academic literature (Wallace, 2011). For Apple, such approach associated with the acquisition of its products and services started in 1997, when former CEO transported all the products via air to avoid possible delay of the goods during the Christmas time. The option cost fifty million dollars but brought the company those earnings to the company. With the same approach used in 2001, when the iPods were shipped from China, the era of new procurement mentality started and is now one of the benefits of Apple. According to Samsung sustainability report (2012), the question of sustainability of climate and energy consumption is among the top priorities for Samsung. Hence, the company sets as its objective to establish the mid-term green management objective that will enable the company to develop greenhouse gas emission management system that will be utilized during manufacturing, producing, logistic and in employees’ work-related areas. The company also strives to improve its working processes, setting an objective toward a Culture of “Work Smart” (Communicating sustainable growth, 2014). This objective will help the company to identify the work processes to be done more effectively and boost productivity of Samsung. The company’s broad strategic objectives are applied to the customers as well. Thus, one of the objectives that refer customers of Samsung products is the development of strategies that will address customer feedback on the product. Thus, the company sets th objective to create qualitative and quantitative growth of its products. In addition, it wants to deliver competitive value to all stakeholders, including customers, partners and shareholders (Yun & Chua, 2002). Competitive factors that impact performance objectives Performance objectives are those aims of the company that enable one to plan its production, manufacturing and distribution of goods with regard to its competitors (Operations, n.d.). If organization defines factors that influence these objectives, it will be possible to adjust necessary changes to the products and services. These five competitive objectives are the cost, dependability, speed, quality and flexibility. Excelling at one or more of them enables an organization to pursue its business strategy (Bellgran & Safsten, 2009). Production system requires low cost and productivity to be supplemented with the quality and reliable delivery of the products. Barnes (2008) defines performance objective of the ability to produce the low cost products, of good quality, those that respond the customers’ needs and offer short lead times between the order and the receive and with flexibility in operations change. Applied toward such manufacturers as Apple and Samsung, Chen (2013) states, that Samsung makes higher profits utilizing cost competitive factor. Apple in turn stakes its success on creating new markets, using flexibility and speed factors toward the customers’ needs. Samsung, however, is also fast in answering consumers’ tastes, thus invests in studying of the existing markets and implementing innovative products there. According to Economic Times (2014), Samsung should be afraid of Apple’s new device that the company is going to represent and not only the iPhone 6, but also the smartwatch as well. Apple’s awareness of the flexibility factor creates an advantage for its customers in making purchases in stores (6 reasons why Samsung should fear the Apple iPhone 6, 2014). Conclusion The main challenge for Samsung is in its ability to become dominant in delivering products that can truly change the business game (Nisen, 2013). Therefore, to tap customers from Apple products, Samsung would need to differentiate its products beyond marketing and a bigger screen. Due to the increasing number of new competitors such as Xiaomi and Sony in the biggest markets of China, U.S. and India, both Apple and Samsung should define new ways of attracting consumers and new devices that would be able stand in such a competitive environment. 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