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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 35
PRODUCTION/OPERATIONS CONCERNS
WHEN IMPLEMENTING STRATEGIES
Learning objectives
The main objective of this chapter to enable to students about production and operation issue relating to
strategy implementation.
Production/Operations Concerns When Implementing Strategies
Strategy in action means implementation requires complete transparent process. Production/operations
department that mainly concern with the achievement of organization goals and targets. Production
processes typically constitute more than 70 percent of a firm's total assets. Production department plays a
crucial role for implemeting organization strategy. Production-concerned decisions on plant location, plant
size, , product design, choice of equipment, size of inventory, inventory control, quality control, cost
control, use of standards, shipping and packaging, and technological innovation, job specialization,
employee training, equipment and resource utilization. All these factors place an important impact on
success and failure of the strategy.
The following examples of adjustments in production systems that could be required to implement various
strategies are provided in Table for both for-profit and nonprofit organizations. For instance, note that
when a bank formulates and selects a strategy to add ten new branches, a production-related
implementation concern is site location.
Strategy Implementation and Production and Service Management
Type of
Strategy Being
System Adjustments
Organization
Implemented
Production
Hospital
Adding a TB center (Product
Purchase specialized equipment
Development)
and add specialized people.
Bank
Opening ten new branches (Market
Perform site location analysis.
Development)
Computer
Purchasing a retail distribution chain
Alter the shipping, packaging, and
company
(Forward Integration)
transportation systems.
Steel
Acquiring a fast-food chain
Improve the quality control
manufacturer
(Conglomerate Diversification)
system.
Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a
business by reducing in-process inventory and its associated costs. The process is driven by a series of
signals, or Kanban that tell production processes to make the next part. Kanban are usually simple visual
signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a
manufacturing organization's return on investment, quality, and efficiency when implemented correctly.
New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs.
However, one drawback of the JIT system is that the re-order level is determined by historical demand. If
demand rises above the historical average planning duration demand, the firm could deplete inventory and
cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of
demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until
trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted
a trailing 13 week average is a better predictor than most forecasters could provide.
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Strategic Management ­ MGT603
VU
Philosophy
Just-in-time (JIT) inventory systems are not just a simple method that a company has to buy in to; it has a
whole philosophy that the company must follow. The ideas in this philosophy come from many different
disciplines including; statistics, industrial engineering, production management and behavioral science. In
the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says
about the management within the company, and the main principle behind JIT.
First off inventory is seen as incurring costs instead of adding value, contrary to traditional thinking.
Therefore, under the philosophy businesses are encouraged to eliminate inventory that doesn't add value
to the product. Secondly, it sees inventory as a sign of sub par management as it is simply there to hide
problems within the production system. These problem are many, they include: backups at work centers,
lack of flexibility for employees and equipment, and inadequate capacity among other things.
In short, the just-in-time inventory system is all about having "the right material, at the right time, at the
right place, and in the exact amount."
Just in time (JIT) production approaches have withstood the test of time. JIT significantly reduces the
costs of implementing strategies. With JIT, parts and materials are delivered to a production site just as
they are needed, rather than being stockpiled as a hedge against later deliveries
The factors that must be study while pacing a pant are: transportation costs related to shipping and
receiving, the location of major markets, availability of major resources, availability of skilled labor , wage
rates, political risks in the area or country.
For high-technology companies, production costs may not be as important as production flexibility
because changes in a product are needed often. Industries such as biogenetics and plastics rely on
production systems that must be flexible enough to allow frequent changes and rapid introduction of new
products.
They too slowly realize that a change in product strategy alters the tasks of a production system. These
tasks, which can be stated in terms of requirements for cost, product flexibility, volume flexibility, product
performance, and product consistency, determine which manufacturing policies are appropriate. As
strategies shift over time, so must production policies covering the location and scale of manufacturing
facilities, the choice of manufacturing process, the degree of vertical integration of each manufacturing
facility, the use of R&D units, the control of the production system, and the licensing of technology.
Cross-training of employees, can facilitate strategy implementation and can yield many benefits.
Employees gain a better understanding of the whole business and can contribute better ideas in planning
sessions. It some time create problems both for manager and employee
1. It can necessitate substantial investments in training and incentives.
2. It can be very time-consuming.
3. Skilled workers may resent unskilled workers who learn their jobs.
4. It can thrust managers into roles that emphasize counseling and coaching over directing and
enforcing.
5. Older employees may not want to learn new skills.
Human Resource Concerns When Implementing Strategies
The other important concern while implementing the strategy is human resource. Human resource is the
backbone of any organization with out efficient human resource organization can not perform well and
fail to achieve the organizational strategy. Staffing need of the organization and its cost is an important
function of the human resource manager. The other main concerns include health, safety and security of
the workers. The plan must also include how to motivate employees and managers during a time when
layoffs are common and workloads are high.
The human resource department must develop performance incentives that clearly link performance and
pay to strategies. The process of empowering managers and employees through involvement in strategic-
management activities yields the greatest benefits when all organizational members understand clearly how
they will benefit personally if the firm does well. Linking company and personal benefits is a major new
strategic responsibility of human resource managers. Other new responsibilities for human resource
managers may include establishing and administering an employee stock ownership plan (ESOP), are
corporations owned in whole or in part by their employees. Employees are usually given a share of the
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Strategic Management ­ MGT603
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corporation after a certain length of employment or they can buy shares at any time. A corporation owned
entirely by its employees (a worker cooperative) will not, therefore, have its shares sold on public stock
markets. Employee-owned corporations often adopt profit sharing where the profits of the corporation
are shared with the employees. These types of corporations also often have boards of directors elected
directly by the employees.
A well-designed strategic-management system can fail
If insufficient attention is given to the human resource dimension. Human resource problems that arise
when businesses implement strategies can usually be traced to one of three causes:
(1) Disruption of social and political structures,
(2) Failure to match individuals' aptitudes with implementation tasks
(3) Inadequate top management support for implementation activities.
Inadequate support from strategists for implementation activities often undermines organizational success.
Chief executive officers, small business owners, and government agency heads must be personally
committed to strategy implementation and express this commitment in highly visible ways. Strategists'
formal statements about the importance of strategic management must be consistent with actual support
and rewards given for activities completed and objectives reached. Otherwise, stress created by
inconsistency can cause uncertainty among managers and employees at all levels.
Perhaps the best method for preventing and overcoming human resource problems in strategic
management is to actively involve as many managers and employees as possible in the process. Although
time-consuming, this approach builds understanding, trust, commitment, and ownership and reduces
resentment and hostility. The true potential of strategy formulation and implementation resides in people.
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning