Four Ps of Operations Planning and Management

Strategy

Plan for action developed by managers to attain one or more of the company’s goals

Key goal: COMPETITIVE ADVANTAGE (Superior performance relative to rivals)

Company

Collection of functions and/or departments

Work together

Bring a product or service to the market

Diverse products and/or services = duplication of functions

2. What is a competitive advantage? Provide hypothetical or real life examples.

• Possessing greater profitability than average profitability of all other firms in the industry

– Can be Sustained устойчивый Competitive Advantage

– No ‘best’ in strategic management

– Competitive advantage: a higher level of competency relative to the competency-levels of comparable companies/organisations, specifically

• Outstanding, distinct and/or desirable products and services

• Lower costs and reduced use of resources

3. How does effective operation differ from efficient operation? Provide hypothetical or real life examples.

The terms efficiency and effectiveness are often linked together but in reality the meaning of these terms are quite different. Efficiency can be defined as executing a process in the correct manner where as effectiveness is defined as the proper method of execution. Effective operation: sustain goals and operations. Efficiency производительность is not profitability; only goal-achievement

4. What are the ‘core functions’ and ‘supporting functions’ of the company?

Primary activities/Core functions
Research and Development (R&D) + Inbound logistics	Production	Outbound logistics + Marketing and sales	Customer services + Maintenance
Secondary activities/ Support functions
Procurement + Materials management	Information Technology (IT)	Administration + Company management	Human resources management

Core business functions are activities of an enterprise yielding income: the production of final goods or services intended for the market or for third parties. Usually the core business functions make up the primary activity of the enterprise, but they may also include other (secondary) activities if the enterprise considers these as part of its core functions.

Support business functions are ancillary (supporting) activities carried out by the enterprise in order to permit or to facilitate the core business functions, its production activity. The outputs (results) of support business functions are not themselves intended directly for the market or for third parties.

Основные функции бизнес-деятельность предприятия приносит дохода: производство конечных товаров или услуг, предназначенных для рынка или для третьих лиц. Обычно основных бизнес-функций составляющих основную деятельность предприятия, но они могут также включать в себя другие (вторичные) деятельности, если предприятие считает их как часть своих основных функций.

Функций поддержки бизнеса являются вспомогательными (поддерживающие) деятельность, осуществляемая предприятием для того, чтобы разрешать или для облегчения основных бизнес-функций, его производственной деятельности.Выходов (результатов) функций поддержки бизнеса сами по себе не предназначены непосредственно для рынка или для третьих лиц

5. SWOT analysis: identification and analysis of the internal and external characteristics of a company/organisation that has plans for strategic improvement

6 Provide examples of strengths in ‘core functions’ of the company. Provide examples of strengths in ‘supporting functions’ of the company.

Strengths in Core Functions: examples
Function: description	Strengths
Research and Development (R&D) + Inbound logistics: design of products and production processes	Lower costs, improved efficiency, improved desirability of products
Production: company operations	Consistency, zero resource wastage
Outbound logistics + Marketing and sales: product delivery, creation of a favourable image for company and product	Effective delivery, effective use of promotion and advertising, collection of customer-related data (especially data regarding product perceptions)
Customer services + Maintenance: post-delivery support	Provide additional product information, upgrades, replacement parts

Strengths in Support Functions: examples
Function: description	Strengths
Procurement + Materials management: transfer, storage and distribution of materials necessary for production	Speed, safety, high turnover of inventory
Information Technology (IT): communications systems; inventory, operations and customer-related data storage and retrieval	Reliability, speed, upgrades
Administration + Company management: intra-company communications, monitoring and control	Legal, clear and consistent communication
Human resources management: correct assessment of skills needed; training, motivation, compensation	Reliability and transparency

7 What is the difference between new company’s and existing company’s considerations for External (Opportunities and Threats) Analysis?

Considerations for New companies/organisations/producers

– Loyalty/Brand Loyalty - customers’ preference for products/services of well-established producers; associated with the high cost and/or long time needed to alter customer preferences

– Cost Advantages of existing companies

• Usually due to superior core/support functions, control of production inputs, access to capital and credit

– Economies of scale: well-established production = large production volume = lower cost structure

– Government regulation: industrial laws are generally based on existing products/services and processes; long, difficult and expensive lobbying process

Considerations for Existing companies/organisations/producers

– Industry competitive structure: either fragmented (large number of small & medium companies) or consolidated (dominated by monopoly, oligopoly)

– Industry Demand: increase/decrease in demand of products/service from industry as a whole

• Growing demand = moderation of rivalry = profit without alteration of market share (increase in volume of consumption)

– Exit Barriers: prevent a company from leaving an industry

Considerations for both New and Existing companies/organisations/producers

– Bargaining Power of Buyers/Customers: Ability to demand for lower prices or for better products/services

– Bargaining Power of Suppliers: Ability of suppliers to raise input prices or lower input quality

– Substitute products, services, industries: similarly satisfy customer needs

– Complement products, services, industries: add value to existing products, services, industries

8 What are the four main competencies, which are essential to any operation? Provide examples.

Four Ps of Operations Planning and Management

9 What is ‘inertia’? And why is it considered a ‘generic weakness’ of the company?(это я не знаю)

Inertia: inability to change policies, operations and personnel that do not improve competencies

Includes protection of inefficient and non-productive VIPs, low R&D funding and support, slow promotion of productive personnel, management scandals and other non-productive arguments

Inertia = obsolescence = company failure

10 What is a ‘poor strategic commitment’? What is an ‘Icarus Paradox’? What is ‘brand loyalty’? Provide examples..

Poor strategic commitment: adjustments in core and support functions do not match the real operating environment of the company

Usually due to limitations or errors in information (technical, time, administrative, and/ or personnel factors) например форд

Icarus paradox: Initial success has led to overconfidence and complacency, which in turn have led to low innovation and to unresponsiveness, which likely lead to irrelevance and operational failure (Very closely related to ‘Inertia’ problems)

«Парадокс Икара» — это модель развития предприятия, введенная Дэнни Миллером в его книге «Парадокс Икара» (1990). «Парадокс Икара» выражается как капкан успеха, то есть большой успех компании может привести их же к собственной гибели. Выглядит нестандартно, в этом и парадокс.

По каким причинам может произойти такое явление — успех привел к гибели? Например, зачастую компании, выбрав себе направление, развивают и достигают успех… но с течением времени, потребности окружающего мира меняются и это направление может стать менее популярным, а иногда и вовсе ненужным. А самоуверенность руководителей или работников отдела по развитию компании в их почти абсолютном успехе не позволяет увидеть возможные опасности, которые могут грозить их компании. Таким образом, организации попадают в порочный круг, в котором успехи и победы становятся слабостью и ведут к падению организации.

Одим словом, главной причиной возникновения «Парадокса Икара» является узость взгляда. Она выражается в привычных образах мыслей и действий и является ловушкой, мешающей возникновению новых направлений для деятельности.

Зацикливаясь на одном успешном проекте, они становятся невосприимчивыми к переменам, не выпускают новые виды продукции. Ну и соответственно прогорают. Хороший пример — Rolls Royce, Polaroid.

Loyalty/Brand Loyalty - customers’ preference for products/services of well-established producers; associated with the high cost and/or long time needed to alter customer preferences

11. What does ‘economy of scale’ and ‘diseconomy of scale’ mean?

Economies of scale: well-established production = large production volume = lower cost structure

Economies of Scale: unit cost reductions associated with a large-scale output

a. Spread fixed costs across a large production volume

b. Fixed costs = initial capital outlay (remains the same regardless of output

c. Presumes small incremental increase in production costs after creation of first production model

d. Produce in large volumes to have:

e. Division of labour: less work-load on employees

f. Specialisation: focused skill for repeatable tasks

Diseconomies of scale: an increase in production costs associated with an increase in output. Always a bureaucratic cost, managerial inefficiency.

Examples: Tap Water – High Fixed Costs of a national network.

To produce tap water, the water companies had to invest in a huge network of water pipes stretching throughout the country. The fixed cost of this investment is very high. However, since they distribute water to over 25 million households it brings the average cost down. However, would it be worth another water company building another network of water pipes to compete with the existing company? No, because if they only got a small share of the market, the average cost would be very high and they would go out of business. This is an example of a natural monopoly – most efficient number of firms is one.

Specialisation – Car Production

Another economy of scale is in the production of a complex item such as a motor car. The production process involves many different complex stages. Therefore to produce a car you should split up the process and have workers specialise in producing a certain part. e.g. a worker may become highly specialised in the design of a car; another in testing e.t.c. Specialisation requires less training of workers and a more efficient production process. However, if you have several distinct production processes it is most efficient to have a large output.

12. What is ‘International Strategy’ and ‘Multi-domestic Strategy’? Provide examples.

International Strategy: Transfer of competencies and products to foreign markets, where local competitors do not have equivalent competencies and products

Head office has tight control over product and marketing strategy

Local subsidiaries have limited customisation and marketing functions

Useful where there are weak local pressures for responsiveness and cost reduction

Not useful for locally-based manufacturing companies that well products locally: high responsiveness and cost pressures

Multi-domestic Strategy: Allow all foreign-country operations to act fairly independently

Design, produce, and market goods that respond directly to local preferences (tend to be high-value products)

Useful for where local subsidiaries have high competencies

Not useful where cost pressures can be great

13. What is ‘Global Strategy’ and ‘Transnational Strategy’ (or so-called ‘Global learning’)? Provide examples.

Global Strategy: Low-cost strategy on a global scale, standardised products

Concentration of production and R&D in scale-economies locations

Marketing limited to selected firms and formats

Useful where cost-reduction is possible, low need for local responsiveness

Not useful for operating in consumer goods markets, or where there is a high demand for responsiveness

Transnational Strategy: ‘Global Learning’

Simultaneous attempts to lower costs, improve local responsiveness, and transfer competencies

Continuous innovation, and communication of ideas across entire network of operations

14. What is ‘offshoring’ and ‘outsourcing’? Provide examples.

15. What is ‘direct selling’ or ‘exports’ as a type of international business? What are the advantages and disadvantages of exports as type of international business? Provide examples.

Export

Advantages

Avoids costs linked to establishing overseas manufacturing operations

Utilises existing cost economies and location economies

Disadvantages

Home-base manufacturing may be expensive

Transport costs to target markets may be expensive

Tariff and non-tariff barriers may be substantial

Local subsidiaries may be unreliable

16. What is ‘licensing’ as a type of international business? What is ‘franchising’? What are the advantages and disadvantages of ‘licensing’ as a type of international business? Provide examples.

Licensing: A foreign licensee buys the rights to produce or to sell a company’s products overseas (in licensee’s country) for a negotiated fee; licensee raises necessary capital

Advantages

• Revenues collected as royalties

• Cheaper than export-operations

• Low risk to licensor capital

Disadvantages

• Loose control over manufacturing, marketing and strategic functions of licensee

• Poor coordination risk, esp. local competition

• Loose control over intellectual property (IP) and proprietary technology

Examples: Microsoft Office

Franchising is the practice of using another firm's successful business model:

ü an enhanced Licensing agreement

ü franchisee must follow strict rules regarding business operations franchiser must give regular assistance to franchisee, esp. in value-chain operations

ü franchiser must give regular assistance to franchisee, esp. in value-chain operations

Examples: Subway (Sandwiches and Salads | Startup costs $84,300 – $258,300 (22000 partners worldwide in 2004).

McDonald's | Startup costs in 2010, $995,900 – $1,842,700 (30,300 partners in 2004)

7-Eleven Inc. (Convenience Stores) | Startup Costs $40,500- 775,300 in 2010,(28,200 partners in 2004)

17. What is a ‘joint venture’ as a type of international business? What are the advantages and disadvantages of ‘joint venture’ as a type of international business? Provide examples.

Joint Venture: ownership and management responsibilities are shared on a (nearly) equal basis

Advantages

• Quick integration of competencies and capital

• Broad distribution of costs (capital) and roles (operations)

• Politically-beneficent high-profile cooperation

Disadvantages

• Low control over proprietary technology and IP

• Low bureaucratic control = low control over experience-curve

Examples: Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson

18. What is ‘Intellectual Property Right’? Why are they considered to be ‘legal issues’ in international business? Provide examples.

Intellectual Property Rights (IPR):

1) Given to originators.

2) Determine use and duplication.

3) Legally-enforceable limited monopoly.

4) Protection of IPR = protection of incentives.

They are considered to be legal issues because IP difficult to produce and easy to copy. For instance, if u create an mechanism, for which u have used ur creativity, time, money; but u should protect it, otherwise ur intellectual property will be cheated.

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