Operations Management - How a Company Strategizes Its Policies to Sustain Their Business Presence - Term Paper Example

Operations management 1.0 Introduction The success of any business relates to the way strategies are formulated and executed. Strategies can be rational and deliberate, or can be those that are creative and emergent. Many companies stay with the first option, as they are time-tested and least risky. However with the changing global business scenario, this may not be very effective in distinguishing between the successful and the also ran. Globalization has made an impact in the way conglomerates attend to their business globally. Competition has never been so intense and consumers that much more demanding. This leads one to question the ideal strategy process to overcome this problem. Many companies are spending huge sum of money in their R&D and deriving benefits from it. Innovation is the name of the game. It’s true that not all innovations work well with the masses, but then again, one need to identify the root problem and then make adjustments to see that their targeted audience is covered through any creative or emergent technology. Telecommunication, transportation, banking, construction, and the list goes on and on have made tremendous progress over the last decade, and continues to do so. 2.0 Executive Summary In the context of this discussion, globalization plays an important role in the way a company strategize its policies to sustain their business presence. Globalization has opened up numerous possible avenues for large and mid-sized companies to promote their products and services abroad. This directly enhances their market value and contributes to their economic might. In such cases, the time-tested strategy of rational and deliberate policies remains, and their products receive further boost through unknown territorial clientele. The governments of the once reclusive economies of Asia; China and India opened their skies to transfer of technology and co-production. Many of the heavy-machinery manufacturers and automotive industries were able to benefit immensely through co-productions and tie-ups. Government subsidies, cheap labor, qualified personnel and abundant raw material supplies generated huge volumes of profits and that too by retaining their strategy of being rational and deliberate. However, with time comes monotony and weariness. The strategy process has to be reassessed and changes brought about. Changes are perennial and so too are strategic processes. 3.0 Literature Review The strategy process is quite intriguing, yet exhilarating. Every company has its share of researchers who respond to the strategy process challenge by identifying certain traits that can either bring moments of exhilaration or disillusion. Disillusion comes from the often grotesque outcome of their effort leading to an outcome that is far from impressive. A lot of empirical research goes into the strategy process; large, often heroic and distinctive, collection of data is required to explore the possibility of linking strategy process and decision-makings, and finally to performance. The potentially revealing and insightful information comes at a cost, a cost that can nip the career perspective of the researcher, if it crashes. However, the outcome, though comprehensive, can be complex, messy, and notoriously fragile. Nonetheless, a significant part of the research is characterized by controversial normative orientation; strategic change or protecting and extending existing strategies. As Chakravarthy and Doz (1992)1 suggests, strategy process research is based on how managers can influence the quality of their organisation’s strategic position through the use of appropriate processes and administrative systems. Such outcomes remain highly influential (if successful) until they are outdated, out fashioned, or shown to be hazardous. In short, a prescription that would guarantee supra-normal profits consistently would de-facto become the strategic management field’s own version of the proverbial money machine (Szulanski et al., 2006). Strategy process can be defined as the identification or uncovering of connections between the social, cognitive and political processes by which strategies can be formulated to make firms perform (Szulanski et al., 2006). Product development involves a lot of planning. There is no point in developing a product that may be highly technical, if there are no market for them or if the present market standing and reputation becomes obsolete in the near future. If true customer satisfaction is the company prerogative, hen there must be a serious debate on whether the company can and will invest in technological product development In order to do so, the first and foremost objective would be to analyze the organizational capability and resource availability to match customer demands. The strategy process group addresses the following issues before making their recommendations: 1. Understand the perceived strengths and weaknesses of the product in question 2. Weigh the customer’s options on why they will buy, or won’t buy 3. Assess the ability to produce and develop these products over a long period of time, keeping in mind the customer’s needs and demands 4. Factors that can hamper future sales, including political An organization must place its customers before self. It is therefore desirable to view the product in the context of what customers value rather than the organization. A reason why many reputed organizations fall by the wayside is due to their ineptness by ignoring customer needs, and engage in image changes to glamorize themselves and their products (Pettinger, 2004, p.215-217). 4.0 Analysis 4.1 Introduction The study of consumer buying behavior in the context of a product is synonymous to the product’s life cycle. This trend needs to be understood completely by marketer to develop a successful marketing plan. While business strategy is related to a specific product, market and business, designing strategy is based on Product Lifecycle. The lifecycle follows an initial curve, growing slowly, and then hits the fast track of consumption, before making a quick exit. Most products follow a similar lifecycle, with a few having the ignominy of a shorter life cycle. The early stage of the lifecycle is a period of testing. Only a handful of customers may venture (1-3 per cent of the population maybe) to experiment or experience an innovation. This is followed by an awareness drive, where more people come forward to try or experiment the new product, called the ‘also tried’ category of consumers (13-15 per cent maybe). It is this segment of consumers who are the opinion leaders or trendsetters. Word spreads around and slowly but surely, a larger section of society takes a liking for this innovation, and the product move into the mainstream. The product is suddenly acceptable to the masses, and just when everything seems to be in order, consumers are faced with the prospect of testing a new product. The existing product begins to decline in demand and face the fate of its predecessors, become obsolete. The following figure No.2 shows the typical s-shaped value curve synonymous to innovation. The rise of the curve represents the unique value generated by innovation over time. Figure Courtesy: CBI Journal 8: Connected Innovation, www.leader-values.com There are four major stages in the life of an innovation (R&D): Idea Generation is the stage where ideas are created. Scanning, analysis, and insight are envisaged here. At this stage, even those concepts destined for greatness are just barely recognizable. Development of Idea is where the generated idea is into practice developing the product, service, process, or business. The development of the prototype, testing and analyzing the results occurs here. Adoption & Diffusion of the concept or product or service is marketed to its targeted audience. It is here that the innovation gets acceptance and starts to add value. Diffusion represents the acceptance of the product or service with the masses. The hard work is ultimately paid of here. End Game is the sad decline of the popularity or acceptance of product for change. The product or service has come to a stagnation point. The desire for change becomes strong and takers are a rarity. It is at this point that companies strive to add new features to existing products or bring about complete changes. This is where R&D is helpful (Ruggles, 2002). 4.2 Cadbury’s vs. Birmingham International Airport The case of Cadbury’s and Birmingham International Airport is quite similar. Both the institutions need to expand their production and efficiency to beat competition as well as the projected growth of their respective markets shortly. The current practice may not be sufficient to provide the required growth expected in the coming year, and thus the introduction of new technological machine or service space is warranted. While Birmingham expects the volume of traffic to increase and considers the current infrastructure and service to be insufficient to take on the traffic in the next few years and sets to strategize their future plans. In the case of Cadbury’s, the board meeting sought to improve the current production capacity in the face of expected growth in demand for its Dairy Milk Chocolates. The members had difference of opinion on the way the company should precede and the decision was taken based on a detailed study after two weeks of testing. The board found that the best possible solution to the problem was to introduce new machinery that reduced production time, decreased lose of waste, operated in limited space, and produced a similar product that found favor with its customers. Birmingham Airport In 2000, Birmingham International Airport handled 7.6 million passengers and this was set to continue, and grow to 10 million passengers by 2005. This, when interpreted in financial terms, works up to a capital plan of about 50 million pounds a year over the next 15 years. This is all very much driven by operational needs, and will be a huge challenge. Expansion does not only mean infrastructural, it also has to consider environmental concerns. Though airport operations are a collective effort of different agencies and services, the current situation is one of unity and togetherness. There is a clear understanding of each others operational problems and there is a collective spirit of cooperation. This has been a very positive development within the airport. Operational planning is done on an annual basis, and it is during this time that efficiency and suggestions about existing infrastructure and future requirements are made. Operational plans can go wrong at times when schedules fall apart because of plane delays or mechanical problems. In such a contingency, the airport staff needs to clear bottlenecks of more passengers in lesser space, creating chaos and confusion. The duty manager has to coordinate all operational activities to ensure that passengers are not put to unnecessary hardship. Security has to be guarded, and flight operations maintained. Considering the limited infrastructure available and the operational hazards faced by the choking space, with increased flights to and from Birmingham, the current facilities may not be able to service the quantum leap of traffic and passengers. The current operational standards are too weak and have to be looked into for a long-term goal. In order to make Birmingham the best regional airport in Europe, there has to be definite improvements in both, service and infrastructure. The only possible way would be to look at the feasibility of operating a new airport which is larger and is more customer-friendly. True, it would cost a fortune to construct another airport with better and more infrastructural facilities, but given the volume of traffic expected in the next 5 years, and the depth of services available to the traveling passenger, profits will increase sizably to make the investment viable and smart. Cadbury’s In the case of Cadbury’s, there were two schools of thoughts to improve their performance and production output to meet the expected demand. Daniel Manuel, Manufacturing Director and Mark Mitchell, Marketing director didn’t find Chris English, Director of Engineering Development’s proposal to introduce the ‘new technological conch’ for the company. They both felt that the new machinery would take a minimum of 6 months gestation period before it could contribute to the company’s production line, and the taste would differ making sales difficult to their niche customers. They argued that the new machine would require new recruitment drive, hours of training, occupy further space than available, and also be a period of trial and error, with high risk and huge investment. However, the board put on hold any decision making till Chris and his team could prove their theory. The project was tested over two weeks and the following results obtained: The tasting panel reported no detectable changes in taste, texture or aroma. There were at least six advantages obtained through the introduction of the new technology, which included: 1. Fat Content: Trials indicated that about half of the recipes fat content could be reduced by up to 1 % without significant changes to flavor or texture. As cocoa butter was expensive, the savings for some products was significant. 2. Viscosity: The new process gave much greater control over viscosity, allowing more precise coating of biscuits and fondants. This reduced rejects on all coated products considerably; the chocolate could be used immediately without adjustments, thereby eliminating the need for ‘in-line viscositising’. 3. Change-over Time and cost: Conventional coaches take eight hours to clear of material during a recipe change, during which, only a mixture of two recipes can take place; used on the lower quality specification product. The new conch in comparison fully clears all the material in less than an hour, reducing the cost of materials. 4. Variety Capability: The new conching process allows a much wider range of chocolates to be produced, as it can produce to a higher viscosity and to tighter tolerance. 5. Scalability: The new technology will work at any size from one-tenth to double the size of conventional conches, and can be custom-built to meet any specific needs. 6. Reduced Size: The new conch occupies 150m2 on one level, whereas a similar-sized conventional machine occupies 200 m2 on three levels. The saved space would provide opportunities for further expansion. When interpreted in figures, the amount of savings was extremely good and the project most feasible. Chris English’s strategy to introduce new technology seems to be the right step for Cadbury’s for its future expansion plans, and this was proved beyond doubt by the test undertaken. An additional benefit the company derived from the test was that some of its employees were able to get hands-on experience in running these machines, thus saving precious time in change-over to the new technology. Material saving: From reduced scrap/rework, the savings were expected to be in the range of £100,000 per year. From the introduction of the new technology the company could save £140,000 per year. Thus, we get to see that despite limitations, instead of continuing with the current structure and proven methods, Cadbury’s found, through Chris of course! That, by introducing new technology, the company could benefit immensely and this was proven by the two week test period. Similarly, Birmingham Airport was about to burst with the size of traffic at the airport, and despite cooperation among the various agencies operating within the airport, the increase in traffic would have been far too difficult for the airport, with its current infrastructure to handle. Since the airport had used up all possible space for operations, the need to expand at the current location was impractical. Thus, considering the volume of traffic anticipated and the volume of people traveling to and from the new airport, it was ideal to plan ahead and develop a new airport that could consider not just the immediate future requirement, but plan ahead for the next 10-15 years when the flow of traffic would be much higher than the expected volume. Considering these facts, it is indeed a wise decision to invest in the future by both Cadbury’s and Birmingham International Airport. Glastonbury Festival Michael Eavis has quite a bit of work before the festival starts and he takes on the responsibility of getting the license from the local district council, to planning the size and features of the festival for that year. The festival has been gathering momentum and popularity as can be seen from the growth of visitors on a year-to-year basis. Since most of the money from tickets and traders fees go to conducting the festival and 10% to charity, Michael, who conducts the festival on his farm, and spends a lot of money on temporary infrastructure development each year the festival is held, it would be advisable for him to seek a permanent place for the festival, avoiding unnecessary expenses on construction and removal of the temporary structures, labor, and also maintain the environmental balance that is of prime importance. This way, he can minimize overheads every year and contribute more liberally to the charitable cause. Besides, Michael can use the additional income to improve the infrastructure to accommodate further visitor facilities, making the festival far more attractive and demanding. 5.0 Conclusion The failure to make appropriate changes at the right time can harm a company no ends. A company needs to innovate and investigate for survival, otherwise it can become competitively obsolete in its products, services, and value to customers. Change requires the ability to anticipate or forecast external dynamics of the environments in which the company operates, such as its markets, competition, innovation, government regulation, economic conditions, globalization, and so on. Such a change also requires the ability to change the company’s directions like its products, production process, marketing strategies, organizational skills, personnel, businesses and so on. Lowell Steele summarized the emphasis of change as the focus of strategic thinking: Strategy is concerned overwhelmingly with questions of change. How much must the enterprise change in order to survive and to continue to prosper? How much change can it finance and manage? How fast can it change? These are profoundly difficult questions. —Steele, (1989, p. 178)2 Change is imperative for growth, and this comes about with quality strategy process. Unless strategy process is successful, companies will end up on the wrong side. It takes a lot of planning, plodding, probing, and execution before a strategy can become successful. The trend to be rational and deliberate is successful in many areas, however, it’s the creative and emergent mode that is paving the way for many companies to compete and sustain their market presence today. 6.0 References Pettinger R, 2004, Contemporary Strategic Management, Palgrave Macmillan, ISN 1-4039-1327-7, China Szulanski G, Porac J, and Doz Y, Strategy Process: Introduction to the Volume, The Challenge of Strategy Process Research, 2006, http://www.rotman.utoronto.ca/~baum/v22_intro.pdf Rudy Ruggles, CBI Journal 8: Connected Innovation, Connectivity Reinvents the Rules of Innovation, 2002, Leader Values, http://www.leader-values.com/content/detail.asp?ContentDetailID=40 CBI Journal 8: Connected Innovation, www.leader-values.com Steele, 1989, Strategy Process, p.4, http://media.wiley.com/product_data/excerpt/2X/04713840/047138402X.pdf Chakravarthy, B. and Doz, Y. (1992) Strategy Process Research: Focusing on Corporate Self-Renewal. Strategic Management Journal, Vol. 13 Special Issue: Strategy Process: Managing Corporate Self Renewal Chakravarthy B and Doz Y, 1992, in Alin P, 2007, Workshop 4: Leading in a Multi-Sector Environment: Managing Risk in a Public-Private Social Services Network: A Strategy Process Approach, http://www.ipa.udel.edu/3tad/papers/workshop4/Alin.pdf Read More