Firms, in Seeking Competitive Advantage, Develop Operations Strategy - Assignment Example

QUESTION: Firms, in seeking competitive advantage, develop an operations strategy. Compare and contrast the operations strategy of two ‘manufacturing’ firms with two ‘service’ firms. 1. Evaluate the order qualifying and order winning criteria in the organisation’s industry. 2. Evaluate how these are met or exceeded by your selected firms through the management of process design, supply chain, capacity, human resources, innovation or quality. Firms under examination: Toyota, Dell – Easyjet, McDonalds Executive Summary The development of operations strategies within modern organizations depends on a series of criteria: the size of the firm and the needs of the specific industrial sector are the most usual elements on which each firm’s operations planning is based. The various parts of the operations management have been identified in the literature (as possible) trying to locate the most effective methods for the improvement of the firms’ productivity both in the short and the long term. Towards this direction it is noticed by Everett et al. (1989, 181) that ‘although much of the assessment and critique is directed at operations strategy, traditional operations management issues such as technology, productivity, and quality also come under scrutiny as to their role in strategy’. In other words, operations management can be expanded in many organizational sectors influencing the development of the firm’s daily activities in accordance with the trends of the market and the customer preferences. On the other hand, the operations plans chosen by firms have to respond primarily to the characteristics of the specific industrial sector; manufacturing firms have to apply different operational plans than the services firms; common elements between the operational frameworks applied on the firms of both the above categories may exist. In this paper, the effectiveness of the operations strategies chosen by four firms – Toyota, Dell, Easyjet and McDonalds – will be examined taken into consideration specific issues related with each particular industrial sector. A. Presentation of the firms’ operation strategies The effectiveness of the operation strategies followed by the four firms under examination will be examined in accordance with a series of criteria named as ‘order qualifiers’ and ‘order winners’. In order to understand the role of these criteria to the evaluation of the operation strategies of the specific firms it is necessary to describe the general characteristics of these criteria as they can be met in modern business environment. In accordance with a definition given by the Encyclopedia of Management (2006) ‘a qualifier is a competitive characteristic a firm or product must be able to exhibit to be a viable competitor in the marketplace; an order winner is a competitive characteristic of a product or service that causes a customer to choose this firms product or service rather than that of a competitor (distinctive competence)’. In the firms under examination the role of four specific criteria – using other as order qualifiers and order winners – will be explored tried to locate their influence on the development of the various operational activities of the particular firms. These criteria are the following ones: price/cost, quality, service, and flexibility. Specific figures will be used in each firm (acquired from each firm’s financial statements) in order to support the relevant arguments. A1. Toyota The operations management of firms operating in the automotive industry may be slightly differentiated from that applied on firms within other industrial sectors. The specific issue was examined by Lowe et al. (1997) who came to the conclusion – after made a research on the operations management practices followed by 71 firms that operate in the automotive industry around the world – that ‘tight process control and closely integrated operations are more productive; work organization and human resource policies associated with the lean production model do not represent a universal best way for achieving high manufacturing performance’ (Lowe et al., 1997, 783). In other words, the effectiveness of the operational strategies followed by firms within the automotive industry – as also in other industrial sectors – is not guaranteed; rather appropriate amendments should be made on any operational scheme chosen by firms operating in this sector in order to respond to the customers’ demands. The performance of Toyota seems to be increased continuously; in accordance the relevant figures published by the firm in its website in 2008 ‘the Toyota Division posted April sales of 194,350, a decrease of 2.7 percent from last April; Toyota Division passenger cars recorded April sales of 121,097 units, up 7.2 percent over the same period last year’ [1a]. It is clear that the global financial crisis do not affect the firm’s performance (at least up to now); the reasons for the continuous improvement of the firm’s profitability can be identified in the operations management scheme applied on the firm’s branches worldwide – referring especially to the Orders Qualifiers and the Orders Winners – as elements of the firm’s success within its industry. The firm’s net revenues for the third quarter of 2007 have been increased to $ 26,489,240 instead of $23,948,091 of the same period in 2006 (see Figure 1). On the other hand, in the third quarter of 2007 the firm’s sales have been increased to $ 6,325,948 instead of $5,818,107 for the same period of 2006 (see Figure 2, Appendix). The increase of the firm’s productivity shows that the operations management techniques applied by the firm are quite effective and that no specific updates on the existed operations management plans are required – at least for now. A significant Order qualifier is the quality of the firm’s cars. In a relevant Survey published in October 2007 the specific firm was characterized as the ‘Most Reliable’ [1b]. Another Order qualifier that could be considered by any potential customer is the range of the firm’s products. Indeed, the models offered to the market by the specific firm are approximately 17 (see corporate website, 1b) which is the highest number of models produced by an automotive firm within the global market. A potential customer could think of the above two Order qualifiers and decide to proceed to the purchase of the firm’s products because of the relatively low price of these products (indicatively Yaris costs $11300, see corporate website). As for the service offered by the firm, this can be serve both as Order qualifier and Order Winner in accordance with the priorities set by each specific customer; the potential flexibility of the firm to respond to specific requirements (i.e. the delivery of the product before the standard period, specific characteristics of the product and so on) can be regarded rather as an Order qualifier for the formulation of the customer’s final decision. A2. Dell The development of a firm’s productivity can be achieved through the establishment of various operations management techniques; especially regarding the firms that operate in the manufacturing industry it has been proved that the update of existing processes may not have the expected results if not appropriately prepared. In accordance with the study of Lei et al. (1996, 501) ‘firms seeking to maximize economies of scope and the option value of advanced manufacturing technologies (AMT) need to recon figure their organizations into loosely coupled systems with a modular, open systems perspective’. Of course, other variables, like the firms’ financial strength and their priorities are taken into consideration for the development of a firm’s operational strategies. In accordance with the information provided through the corporate website, Dell is ‘the #1 systems provider in the U.S. and #2 worldwide’ [Dell, 2008, 2a]. It is also noticed that ‘about 140,000 systems shipped per day worldwide – more than one every second’ [Dell, 2008, 2a]. On the other hand, the customer support is also extremely good; indicatively it is noticed in the corporate website that ‘more than 5,000 accepted solutions, generated and confirmed by our customers’ [Dell, 2008, 2a]. A wide range of products is available to the firm’s customers; towards this direction, it is noticed that ‘the XPS M1330, one of the world’s thinnest 13.3 inch laptops’ (Dell, Financials, 2008, 2b). All the above information can be used in order to evaluate the potential role of a series of specific Order qualifiers and Order winners to the development of the decision of potential customers to purchase the firm’s products. The quality of the firm’s products has to be regarded as an Order qualifier. The flexibility of the firm to meet the customer’s demands regarding the form/ structure of a specific IT system should be also regarded as an Order qualifier. At a next level the cost of the firm’s products as well as the service provided to these products (guarantee) can be considered as Order winners. Even if the quality of the firm’s products is high the price of these products or the lack of appropriate support may lead a customer to prefer the products of a competitor. It seems that up to now the operational strategies followed by the firm have been successful; the firm’s revenues for 2007 were 57,420 slightly increased compared to the 55,788 of 2006 (see Figure 3, Appendix). Therefore no updates on existed operations strategies could be suggested. A3. Easyjet Firms that operate in the services industry need to revise their operations management strategies quite often in accordance with the customers’ satisfaction as it can be identified through the performance of the firm in its various departments; this is because services firms are closely related with the customer (more closely than the manufacturing firms where the contact point with the customer is identified to the point of selling – or of supporting in case that the firm’s support has been required after selling the product to the customer). The specific issue was examined by Pullman et al. (2003, 169) who noticed that ‘service managers face the problem of simultaneously developing and implementing both capacity and demand management strategies’. In Easyjet the customer satisfaction is one of the firm’s priorities. In accordance with the corporate website the firm’s mission is ‘to provide our customers with safe, good value, point-to-point air services’ [3a]. On the other hand, the firm managed to acquire GB Airways, which is considered to be a success for the firm’s management if taken into consideration the position of GB Airways in the international market. In accordance with the corporate website ‘the acquisition has enabled easyJet to improve its position at its largest base, Gatwick and has enhanced the Group’s platform in the north west of England with the opening of a new base at Manchester’ [3b]. By increasing the firm’s establishments in airports across UK, Easyjet can also achieve an increase of its customer base. Indeed, as the information provided by the corporate website proves the firm’s ‘in 2007 the total revenue per seat (excluding GB Airways and exchange movements) was increased up to 1.5% compared to last year’ (corporate website, see Figure 4). On the other hand the forward bookings remain at high levels (see Figure 4). It should be noticed that the number of the firm’s aircraft operated in 2008 has been estimated to 152 instead of 125 in 2007 which is a significant increase proving the continuous development of the firm’s performance (in accordance with all other figures and data revealed in Figures 4 and 5, Appendix). Customers of Easyjet are likely to take into account the quality of services provided by the firm and the flexibility of its schedule (Order qualifiers); the price of the firm’s products can be considered as an Order Winner; in case that potential customers cannot afford the price of the firm’s tickets they will choose another firm operating in the same industry. A4. McDonalds In the particular industrial sector (fast – food restaurants) the priorities of managers have to be differentiated compared to those of managers of firms that operate in other sectors of the services industry. A relevant survey – in which the profiles of customers ordering pizza were analyzed – it was found that ‘customers can trade off among different attributes when choosing a pizza delivery company; managers can use this information to position their operations according to customer needs’ (Verma et al., 1999, 262). In McDonalds the quality of food provided to its customers is one of the managers’ priorities. In accordance with the corporate website ’72 safety protocols are conducted every single day in McDonald’s restaurants’ (see Figure 6 corporate website). On the other hand, the firm cooperates only with certified suppliers (see Figure 6) a fact that is considered to be another positive element of the firm’s operations management. In 2007 the firm’s revenues were increased reaching the $22787 instead of $20895 in 2006 (Figure 7). Customers in McDonalds can choose among variety of products/ food combinations which are all based on thoroughly checked material (see Figure 6). In accordance with the above customers in McDonalds are likely to take into consideration the following elements when having to buy the firm’s products: the quality of the products is expected to be an Order qualifier; when having to buy the product in practice the customer will be influenced from the price of the product as well as the flexibility regarding its order (meals are standardized in the firm, a fact that could lead potential customers to choose the meals of another firm operating in the same industrial sector). B. Comparison of firms’ operation strategies based on their performance All firms presented above have developed appropriate operation management schemes in order to ensure the improvement of their performance both in the short and the long term. Moreover, it has been proved that the role of Order Qualifiers and Order Winners in the development of customers’ decisions regarding the products/ services of the specific firms can be significant. However, it seems that all these firms have taken the appropriate measures in order to guarantee the high quality of their products/ services, the low cost (as possible) as well as the flexibility in the delivery/ structure of their products/ services. Additional plans of actions would be necessary in any case in order for these firms to keep their competitiveness at high levels. References Encyclopedia of Management (2006) Operations Strategy, online, available at http://www.referenceforbusiness.com/management/Ob-Or/Operations-Strategy.html Everett, A., Swamidass, P. (1989) Assessing Operations Management from a Strategic Perspective. Journal of Management, 15(2): 181-203 Lowe, J., Oviver, N. (1997) High-Performance Manufacturing: Evidence from the Automotive Components Industry. Organization Studies, 18(5): 783-798 Lei, D., Hitt, M. (1996) Advanced Manufacturing Technology: Organizational Design and Strategic Flexibility. Organization Studies, 17(3): 501-523 Pullman, M., Thompson, G. (2003) Strategies for Integrating Capacity With Demand in Service Networks. Journal of Service Research, 5(3): 169-183 Verma, R., Thompson, G. (1999) Configuring Service Operations in Accordance with Customer Needs and Preferences. Journal of Service Research, 1(3): 262-274 Websites http://www.toyota.com/ [1] http://www.toyota.com/about/news/corporate/2008/05/01-1-sales.html [ 1a] http://www.toyota.com/about/news/product/2007/10/16-1-consumerreport.html [1b] http://www.dell.com/ [2] http://www1.euro.dell.com/content/topics/global.aspx/about_dell/company/leadership/collaborate_communicate?~ck=ln&c=uk&l=en&lnki=0&s=corp [2a] http://www1.euro.dell.com/content/topics/global.aspx/about_dell/investors/financials/index?~ck=ln&c=uk&l=en&lnki=0&s=corp#intro [2b] http://www.easyjet.com/ [3] http://www.easyjet.com/EN/About/index.html [3a] http://www.mcdonalds.com/ [4] Appendix Figure 1 – Toyota, financial results (source: http://www.toyota.com/about/our_business/investor_relations/financial_data/2008/20080508_finresults.pdf) Figure 2 – Toyota, 2008, quarter’s results (source: http://www.toyota.com/about/our_business/investor_relations/financial_data/2008/20080205_finsummary.pdf) Financial Data Table FY07 FY06 Change Revenue 57,420 55,788 3% Gross Margin 9,516 9,891 -4% Operating Income 3,070 4,382 -30% Diluted EPS 1.14 1.47 -22% Cash Flow Per Share 1.75 1.94 -10% Cash and Investments 12,445 11,756 6% Figure 3 – Dell, financial results (source: http://www1.euro.dell.com/content/topics/global.aspx/about_dell/investors/financials/index?~ck=ln&c=uk&l=en&lnki=0&s=corp#future) Interim results for the six months to 31 March 2008 STRONG REVENUE GROWTH, PROGRESS ON COSTS BUT FUEL IMPACTS MARGINS Highlights Total revenue up 24% to £892.2 million with underlying pre tax margin in line with expectations Passenger numbers up 15% to 18.9 million Load factors at 81% in line with the prior year Total revenue per seat (excluding GB Airways and exchange movements) up 1.5% compared to last year Cost per seat (excluding fuel, GB Airways and exchange movements) down by 0.9% compared to last year Unit fuel costs up 24% per seat compared to last year Mainland European expansion continued with a new base opened at Paris Charles de Gaulle and at Lyon GB Airways successfully integrated both commercially and operationally Forward bookings remain robust Figure 4 – Easyjet, Financial Results (source: http://www.easyjet.com/en/investor/interim_results_statement_2008.html) Financial Review . 2008 2007 Change incl. GB Airways % Change excl. GB Airways % Key performance indicators . . . . Return on equity (headline) (3.7%) (1.3%) (2.4pp) (2.2pp) Seats flown (millions) 23.2 20.2 14.7 12.5 Passengers (millions) 18.9 16.4 14.7 12.2 Load factor 81.2% 81.2% - (0.2pp) Available seat kilometres (“ASK”) (millions) 23,442 19,108 22.7 17.5 Revenue passenger kilometres (“RPK”) (millions) 19,300 15,790 22.2 17.0 Average sector length (kilometres) 1,009 944 6.9 4.5 Sectors 149,927 131,167 14.3 12.3 Block hours 275,673 233,496 18.1 14.2 Number of aircraft owned/leased at end of period 157 127 23.6 11.8 Average number of aircraft owned/leased during period 143.2 122.1 17.3 13.2 Number of aircraft operated at end of period 152 125 21.6 9.5 Average number of aircraft operated during period 137.8 115.2 19.6 15.3 Operated aircraft utilisation (hours per day) 10.9 11.1 (1.5) (1.2) Number of routes operated at end of period 351 265 32.5 n/a Number of airports served at end of period 96 71 35.2 n/a Per seat measures (underlying) . . . . Loss before tax per seat (£) (2.08) (0.85) (146.5) (115.0) Revenue per seat (£) 38.40 35.51 8.1 6.3 Cost per seat (£) 40.48 36.36 (11.3) (8.8) Cost per seat excluding fuel (£) 29.12 27.18 (7.1) (4.7) Per ASK measures (underlying) . . . . Loss before tax per ASK (pence) (0.21) (0.09) (130.5) (105.8) Revenue per ASK (pence) 3.81 3.76 1.1 1.7 Cost per ASK (pence) 4.01 3.85 (4.2) (4.1) Cost per ASK excluding fuel (pence) 2.89 2.88 (0.2) (0.2) Figure 5 – Easyjet, Financial Results (source: http://www.easyjet.com/en/investor/interim_results_statement_2008.htm Figure 6 – Facts on McDonalds (source: http://www.mcdonalds.com/corp/about/factsheets.RowPar.0001.ContentPar.0001.ColumnPar.0002.File1.tmp/Facts%20Summary.pdf ) DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA 2007   2006 Company-operated sales $16.611 15.402 Franchised and affiliated revenues $6.176 5.493 Total revenues $22.787   20.895 Operating income $3.879 -1 4.433 Income from continuing operations $2.335 (1,2) 2.866 Net Income $2.395 (1,2,3) 3.544 Cash provided by operations $4.876 4.341 Cash used for investing activities $1.150 1.274 Capital expenditures $1.947 1.742 Cash used for (provided by) financing activities $3.996 5.460 Treasury stock repurchased $3.949 3.719 Common stock cash dividends $1.766   1.217 Financial position at year end: Total assets $29.392 28.974 Total debt $9.301 8.408 Total shareholders equity $15.280 15.458 Shares outstanding IN MILLIONS 1.165   1.204 Figure 7 – McDonalds Financial Highlights for 2007 (source: http://www.mcdonalds.com/corp/invest/pub/2007_interactive_financial.html) Read More