CASE EXAMPLES

1. STRATEGY AT DELL AND MICROSOFT

Two world-class companies, Dell and Microsoft, lead in bringing new products to market with
quality and marketability. They share these five traits in doing so:

They focus on one business. For example, Dell makes only one product, personal computers,
i.e., deskjet and laptop computers. The focus is on developing new products to meet the needs of
the PC user.
They are global. Both Dell and Microsoft are so strong that they are able to compete globally.
And they pursue international markets that have stiff competition, which forces them to remain
world-class. Dell has become the leader in PC sales.

Their senior management is actively involved in defining and improving the product develop-
ment process. Microsoft’s Bill Gates, for example, keeps in contact with his engineers by
electronic mail memos, sometimes 30 in a day.

They recruit and retain the top people in their fields. Microsoft is always known for hiring the
best and brightest possible. Thousands have become millionaires by staying on and helping the
company grow.
They understand that speed to market reinforces product quality. Microsoft’s Windows NT,
with a staggering 4.3 million lines of code, almost the 200 programmers on the project in rushing
it to market in 1993. But it redefined the concept of network software and windows software by
marrying them. It also reflects Gates’ aggressive goals of continuous improvement.

2. JAPAN FLOCKS TO SOUTHEAST ASIA TO BUILD ITS PRODUCTS

Japan’s strategy, called the New Asian Industrial Development Plan, is to gather Asian
economies into an economic flock with Japan at the head. It is done so by targeting Indonesia,
Malaysia, the Philippines, Thailand, Vietnam, India, and Bangladesh not only as primary
suppliers of basic materials like rubber, oil and timber, but also as manufacturers of low-value-
added products.

Malaysia, for example, has been selected by Japanese investors to become the world’s largest
manufacturer of window unit air-conditioners for the global market. Sony uses Malaysia to build
its compact disc players. Overall, Japanese investment in Malaysia has ballooned with some 550
Japanese manufacturing and service businesses already in place. Thailand, with a population of
55 million, is even more dramatically affected, with $ 3.6 billion in Japanese investment in 1989
alone (compared to only $ 565 million from the United States). The Japanese have been opening
factories in Thailand at the incredible rate of one every three days. This boosts exports of
Japanese VCRs and color TVs to the U.S.A, while giving the impression of increased U.S. trade
with Thailand. Elsewhere in Southeast Asia, Sumitomo Electric is moving labor-intensive
assembly of auto-wiring systems to Indonesia; Suzuki has opened automobile plants in India;
and JVC has contracted with Hanoi Electronics in Vietnam to produce its TVs.
 3. PRICE LEADERSHIP STRATEGIES AT SAM’S, ALDI AND IKEA

The advent of the warehouse model for distributing food and dry goods provides a good example
of companies competing on a price leadership strategy.

Sam’s, the US based chain of outlets, and ALDI, the German-based food chain, provides
examples of how this has been successful because both companies have supported their chosen
price leadership strategy with a clear integration of marketing and operations that cooperate
rather than compete in providing this strategy. The basis of these retail offerings is a no-fuss
concept. The design is simple, making easy to shop. Wide gangways, bare floors, inexpensive
lighting (basic, bright and abundant), basic displays (often with the manufacturer’s original
packaging), comprising warehouse-style racking and sturdy wire mesh cages, and limited
support staff keep costs down. Of the product range on offer, Aldi keeps a limited (typically
about 25 per cent of the range offered by traditional supermarket competitors), mainly own-label
range of goods. Sam’s, on the other hand, matches its own market requirements for a one-stop
shopping experience, which constitutes customer expectations in the free-spending, low-price,
no-hassle US consumer market.

IKEA, the Swedish firm that specializes in complete furnishings for the home from floor
coverings and curtains to tables, chairs, bookcases and bedroom suites, provides a further
example. In essence, IKEA is a chain of self-service warehouses with current annual revenues of
about $ 16 billion. Operations is clearly linked to the price leadership strategy of the business
and delivers a no-fuss, broad and easy-to-take-away range of products. The provision of play
areas and restaurant facilities as part of the service delivery system reflects and encourages the
concept of the family-based shopping expedition that characterizes these outlets.

4. OPERATIONS DEVELOPMENTS AT BENETTON

In the mid-1960s, Luciano Benetton and his sister Giuliana started designing and making
brightly colored clothes. With cutting-edge designs, the company grew sales and profits year on
year. An integral part of the success story has been the company’s operations developments to
support the whole supply chain.
Information system and manufacturing process investments – in fashion markets, forecasting
which styles and colors would be best is difficult. An integrated information system to provide
feedback on current actual sales at each retail outlet, coupled with a manufacturing process that
makes woolen garments and then dyes them in line with actual sales, led to major gains for
Benetton. Inventory and consequently the size of retail outlets was cut and the products that sold
well were the ones that manufacturing made. This fast feedback, short manufacturing lead times
and quick deliveries better meet market needs while cutting inventory and asset investments.
Modern manufacturing facilities – the late 1990s saw the opening of Benetton’s state-of–the-
art manufacturing plants in Castrette, north of Venice. The latest developments are part of a $
350 million investment to make tailored apparel, skirts, jeans and cotton garments. These plants
have been integrated with the woolen plant built in 1986 and the automated warehouse handles
all the storage, invoicing, pick-up and shipment of garments to the 7000 points of sale around the
world. The aim of the latest investments was to reduce staff in the existing cutting and packing
operations as a way of matching unit costs from alternative suppliers in the Asia Pacific and
other low-cost areas of the world, while maintaining Benettons’ local subcontractors’ base
comprising 200 companies and their 30,000 employees. While many competitors now outsource
from countries such as Indonesia and Turkey, Benetton has continued to develop its local supply
base while achieving its essential cost reductions through combined investments in operations. In
this way it is able to reflect the short lead time requirement of its markets with its in-house and
outsourcing policies. High investment in the front and back end of garment making, with local
subcontractors providing a short response service – a manufacturing sandwich with advanced
technology encasing a more labor-intensive filling – provides low costs and fast response
advantages in a competitive, fashion-led market.

5. AMERICAN EXPRESS’S DIFFERENTIATION STRATEGY

American express is able to charge a price premium for its card, both to its customers and the
businesses that accept it for payment, by differentiating itself from other credit cards. Support for
this differentiation strategy has, in part, been provided by operations – replacing lost cheques
anywhere in the world, immediate use if cards have been lost, mislaid or stolen (with 24-hour
replacement to follow) and year-end summaries of card use.

6. KOMATSU DRESSER MODIFIES ITS STRATEGY

TO OBTAIN COMPETITIVE ADVANTAGE

Komatsu, a long-time Japanese manufacturer of construction and mining equipment, competes

worldwide in some very competitive markets. Like other organizations, Komatsu must constantly
review how to organize its resources for maximum benefit. This review and change of resource
allocation means modification in Komatsu’s strategy. Over the years, these modifications have
taken many forms.

In the 1960s, Komatsu augmented its product line and reduced development costs by licensing
designs and technology from others such as Cummins Engine and International Harvester. This
period also saw a strategic move towards improved quality.

In the 1970s, Komatsu’s strategy was to become an international enterprise and build export
markets, while reducing costs because of the increasing value of the Yen. It expanded into the
Eastern Block countries and established subsidiaries in Europe and America, as well as service
departments in newly industrializing countries.
In the 1980s, Komatsu responded to an even stronger Yen through joint ventures with Dresser
Industries (to form the Komatsu Dresser Company) and manufacturing outside of Japan. By the
1990s, the strategy includes the latest in manufacturing technology to improve quality and drive
down costs, as well as added focus on electronic engine controls for environmentally friendly
engines.
The battle for construction equipment is fierce. World-class competitors such as Caterpillar, John
Deere, Champion, and Ingersoll-Rand fight for these markets. But Komatsu’s strategic
adjustments to its environment have allowed Komatsu to be number one or two in a variety of
markets throughout the world.
 7. RESTRUCTURING WITHIN THE HEALTHCARE INDUSTRY

Restructuring within the healthcare industry grew apace in the 1990s, with worldwide annual
mergers and acquisitions into four figures and over $ 60 billion. Delivering the potential is
proving harder to bring about. Those that have are looking to changes in delivering care and the
operations support involved.

Quantum Health Resources, an Indianapolis-based firm specializing in the treatment of

haemophiliacs, reduced by over 20 per cent the typical annual patient bill of $ 100,000 by
assigning ‘personal care managers’. In this way, drugs are managed, hospitalization due to lack
of personal care is cut and drug regimes are under constant review, improving fit and eliminating
waste.
ParadigmHealth is a California-based company specializing in caring for people with
catastrophic injuries such as brain damage and serious burns. Annual patient care costs can run as
high as $ 2 million but this has been cut by half through specializing support for patients, treating
more people at home and assigning support teams to sets of patients, thereby improving
operational support and lowering costs.

The growing need to control and reduce the operational costs of delivering healthcare has led, in
the USA, to a spurt of vertical integration by insurance companies moving into the management
of hospitals and health clinics. In that way, they recognize that the essential need to link sales and
operations can be made, enabling business to grow, deliver a better service and become more
profitable.

Questions for Cases 1 to 7

Review the above examples and consider the following questions.

1. Identify the key way in which operations supports each company’s markets.

2. Now compare each review with one another and table the similarities and differences
involved.
 MARKET POSITIONING OF BOTTLED WATER

Look at a bottle of mineral water and consider that your company provides the label on the
outside of this bottle. Now, in which segment would your sales and marketing department place
this customer – the one who produces and sells the bottles of mineral water?
The likelihood is that this customer would be placed in the ‘beverage’ or ‘soft drinks’ segment
(that is, the sector in which your customer operates). From an operations point of view, however,
on which product a customer attaches the label it provides is of little consequence. The key
issues for operations concern factors such as level of price sensitivity, the length of delivery lead
times and the size of demand peaks throughout the year. By segmenting markets, in this instance,
by the sector in which a company’s customers operate, the implication is that all customers in
this beverage segment (our example here) are equally price-sensitive, require similar delivery
lead times and have similar demand profiles throughout the year. As you can see, taking only one
function’s view gives insufficient insight and leads to unfounded assumptions that would result
in inappropriate strategic decisions.
Case Questions

1. Why would marketing place this customer in a ‘beverage’ or ‘soft drinks’ market
segment?
2. Why is operations view of customers to do with criteria such as price sensitivity, length
of delivery lead times and the size of demand peaks?
3. How would you use both perspectives to arrive at an overall strategy?

CUSTOMER SEGMENTATION IN THE ELECTRICITY INDUSTRY

A major UK electricity distributor segmented its customers into large businesses, small and
medium-sized enterprises (SMEs) and residential customers. The basis for the segmentation was
the relative size of sales revenue per customer account. The initial marketing strategy was to
grow sales revenue and, as a consequence, its efforts were directed towards increasing its large
business customer portfolio as the best way of meeting this objective. However, a noticeable
decline in profits as a percentage of sales led to a review. Operations data revealed that profit
margins in the large business segment were, on average, more than 40 per cent lower than for
SME customers. Marketing’s successful drive to increase sales revenue had also led to a lack of
efforts to retain, let alone grow, SME customers. The outcome was an increase in overall sales
revenue but a decrease in profit percentages.

Case Questions
1. List side by side the market dimensions used by marketing and operations above.

2. How would you use both perspectives to arrive at an operations strategy?