This summary of International Business and Management (Kelly) was written in the 2013-2014.

Chapter A: Introduction

For many organizations, international business is a vast and significant source of opportunity. Due to labor that is becoming increasingly mobile, and ict that enables companies to overcome time barriers, organizations cannot remain ethnocentric. (in the belief that there home market is superior) For the growth of international business are many explanations; free trade has opened borders and barriers, there is more open information and communication. Liberalization resulted in mobility of people, goods, services and capital. Not only importing and exporting is simplified, also establishing businesses abroad has become more easy. This expansion is driven by a variety of factors: Market oriented factors and competitive pressures. Managers are also confronted with new challenges; local challenges and cultural differences.

International Organization

In economics, a business is a legally recognized entity, designed to provide services and goods. An international organization is any organization that engages in international trade.

Organizations can be classified in many ways. One of the most common is to classify them by focusing on their primary profit making activities: agriculture, manufacturer, service provider, retailer, real estate, etc. Another way to classify them is by where they do business, are they domestic, international or multinational companies? Further, they can be classified by ways in which they add value. Value is essential in production, because it is the extra consumers are willing to pay for. Three main factors influencing the value equation are the input costs, transformation costs and the amount consumers are willing to pay for this product. The value chain is a model that analyzes how activities of the supply chain can add value to products. It consists of five primary and four supporting activities. The chain of activities gives the product gains more value than the sum of all the parts solely. It sees the organization as a process.

Primary activities:

• Inbound logistics

• Operations

• Outbound logistics

• Marketing and sales

• Service

The support activities are

• Firm infrastructure

• Human resource management

• Technology development

• Procurement

The traditional theory of the firm assumes that profit maximization is the main goal of the organization. This is also a way to add value to customers. Companies can focus on reducing its costs or differentiating their product.

The triple bottom line, or people, planet, profit, demands that the organization should be responsible to its stakeholders; anyone who is influenced, directly or indirectly, by the actions of the organization.

Multinationals

To be a multinational company, three conditions need to be satisfied.

• Ownership advantage, specific knowledge that gives a competitive edge can be transported at low cost to foreign production facilities.

• Location advantage, accessing scarce resources that provide an advantage over others

• Internationalization advantage, undertake foreign production is more profitable than licensing

Not all multinationals are the same

• Global organization, promote convergence of consumers preferences and strives to maximize standardization of production, which makes centralization and integration profitable. A global organization possess firm-specific advantages and sees the world as a single market

• Multi-domestic organizations, develop strategies for national responsiveness. It character is determined by cultural and political characteristics.

• Transnational enterprise, balances the combination of convergence and responsiveness. Activities and resources may differ from country to country, they are coordinated globally.

Globalization

Globalization refers to the growing interdependency between nations and organizations through international trade and factor mobility. There are many forms of globalization

• Cultural globalization, the concept of converging cultures

• Economic globalization, increased interdependence of national economies and greater integration of goods

• Geographical globalization, reduced travel times between locations

• Institutional globalization, world bank and WTO which seek to make markets more flexible and demolish barriers to trade

Performance

Performance relates to the organizational purpose, its mission. It reflects achievements relative to the resources the organization uses, must be considered within the environment the organization operates. It must be integrated with the concepts of effectiveness and efficiency. Operational effectiveness and strategy are both essential to superior performance. A company can outperform others by creating greater value of comparable value at lower cost. Activities are the basic units of competitive advantage. Operational effectiveness refers to the better use of resources over others.

Competitive strategy is about being different and strategic positioning. Choosing a unique position, however, is not enough to guarantee a sustainable advantage. The drawback is that everything can be easily imitated by competitors. The key is to combine several attributes, a true competitive advantage grows out of the entire systems of activities.

Trade and Business

In the 18^th and 19^th century, theories or absolute and comparative advantage emerged. Absolute advantage is the ability of a country to produce goods more efficiently than any other country. It can produce a greater amount of goods with the same amount of resources. A country has got a comparative advantage when it is able to produce goods at a lower opportunity cost than other countries. It has to give up less resources or labor to produce a good. Comparative advantage results from different endowments of production factors. Not all countries have the same amount of labor or capital. The factor proportions theory by Heckscher Ohlin, suggest that countries will produce and export products that require resources that are most abundant and this cheapest in the country.

Michael Porter developed another theory, the theory of national competitive advantage (the Porter Diamond). This theory tries to explain why certain countries are leaders in producing certain products. The identified four elements that present the varying degrees that form the basis for national competitiveness

• Factor conditions, what products a country will produce and export

• Firm strategy, structure and rivalry,

• Demand conditions,

• Related and supporting industries,

Whereas international business focuses on economic activity, international management focuses on the productive and transformational activities of the international organization. It focuses more on achieving operational effectiveness and efficiency through the way resources are used, humans are motivated.

Leverage reflects which resources are utilized in the international business organization. Leverage is using given resources in such a way that the potential positive outcome is magnified. The resource based view (RBV) is the perspective on strategy stressing the importance of capabilities in determining a competitive advantage. It sees capabilities as the most important determinant of organizational performance. There are two fundamental categories of resources, tangible and intangible.

• Tangible resources

  • Financial and psychical assets

• Intangible assets

  • Intellectual property, reputational

  • Capabilities

The RBV does not see all resources as equally important, it describes resources in terms of their value, rareness, inimitability and non-substitutability. The most important resources score high on all these points.

Galbreath and Galvin discovered that the RBV sees intangible resources the most important determinant for organizational performance. However, they found that the strength of some resources largely depended on interactions and combinations with other resources.

Dynamic capabilities are the firm’s ability to integrate, build and reconfigure internal and external competences to address rapidly to changing environments. Agility is the ability to detect and seize opportunities for innovation by assembling necessary assets, knowledge and relationships with speed. The convergence of computing and communications offer organizations significant opportunities for enhancing agility.

Chapter B: Environment

An organization does not operate in a vacuum, factors outside the firm (external factors) influence the organization, its functions and strategy. The internal environment consists of all resources and capabilities which influence the organization’s ability to act. Analyzing the business environment is crucial to success. The external environment can be divided into different layers. The macro environment is the wider environment of social, legal, economic and political forces. These factors are more general factors, whereas the factors of the micro environment (industry environment) are more firm specific. It includes customers, suppliers, competitors and distributors.

The environment is constantly changing, yet some industries experience more change than others. The greater the pace of change, the more dynamic the environment. The ability to adapt to changing environmental circumstances is a key to organizational survival. Firms have little control over the external environment, so their success depends on how well they adapt to it.

Macro environment

There are several frameworks for analyzing the external or macro environment of a firm. One of them is the PESTEL framework. This model analyzes the political, economic, social-cultural, technological, environmental and legal aspects in a firms environment.

The political environment may be a source of opportunity and threat. All organizations are exposed to political risks and forces. Government can grant and restrict access to certain markets. Policies can intervene trade, or help competing abroad. Within the country, the political beliefs direct the actions of society. With a totalitarian regime, the power is centralized and authority imposed. In a democracy, there is conservatism, who seek to minimize government activities while maximizing private ownership of business, while liberals might prefer greater government involvement. Political risk may arise from a variety of forces, and managers need to be aware of how these risks can influence their organization. Managing these political risks can help to protect new and existing global investments and operating by helping management anticipate the business risk implications. In addition to this, monitoring these risk can help management hone in on political developments that reveal new opportunities.

The economic environment is usually analyzed by use of microeconomics and macroeconomics. Macroeconomics examines the economy as a whole to explain national income, unemployment, price inflation and their interactions top down. Economic systems are the set of methods and standards brought by which a society decides and organizes the ownership and allocation of economic resources. This can be capitalism, socialism, market-driven or centrally determined, private and public. Generally, the economic systems is a combination of these approaches.

The socio-cultural factors in the macro environment typically includes social values, attitudes and beliefs, demographic trends and lifestyle preferences. Organizations need to understand why and how people in other countries may differ.

The degree of difference between two countries impacts the extend of adaptation required by the organization. Hofstede had developed a model that identifies five primary dimensions to assist in analyzing a country’s culture, and differentiating. These five dimensions are:

• Power distance, the extent to which power and status is valued

• Uncertainty avoidance,

• Individualism vs collectivism

• Masculinity vs femininity

• Long vs short term (future) orientation

Another study after the socio cultural factors in the macro environment is the GLOBE framework. This framework identifies clusters of countries that share similar cultural values.

The technological environment is those forces that affect the technology used by the organization and which can create new product, new markets and new opportunities. Technological changes can affect the business in terms that due to new innovations, less labor is needed. (delayering and downsizing) But it can also feature within products and services. Creating new opportunities and innovative products. Technology also has its downsize, for example the competitive disadvantage for a firm when competitors acquire superior technology.

The ecological environment is concerned with the use of natural resources, global warming and pollution. When shareholders returns are the primary goal, the organization may be less likely to spend revenue in taking action to restrain environmental damage. Also, being environmental friendly often causes extra costs. To encourage organizations to act more responsible, the government can impose taxes, fines, legislation and regulations. Environmental standards can create barriers to entry but also create new opportunities and search for substitutes. Furthermore, organizations based in highly regulated countries can gain a competitive advantage, they gain from positive customer perception and accumulate experience.

Legal systems are the set of laws made and enforced to control the actions of people and organizations. Organizations are required to obey the law otherwise they are likely to incur costs. Legal systems may be categorized in a number of ways. The legal systems based on precedents is also known as the common law, civil law is based on written rules and theocratic law is based upon religious teachings. Compliance with law and regulations is not straightforward, especially for multinational enterprises, when their organizations are based in different regions and business cultures.

Micro environment

In the macro environment, not all factors are relevant, because not all factors impact the firm. The micro or industry environment contains factors that are in the immediate environment of the firm. The suppliers, customers, competitors and distributors. When analyzing competition, two types of industry are revealed. In the multidomestic industries competition in each country is independent of competition in other countries. In global industries the competitive position of an organization is influenced by its position in other countries.

The first stage of industry analysis is to identify the key elements of the industry’s structure. This can be done by the five forces framework developed by Michael Porter. This framework enables identifying sources of competition in an industry. The five forces an organization must confront are:

• Rivalry of competitors

• Threat of new entrants

• Threat of substitutes

• The bargaining power of customers

• The bargaining power of suppliers

McGahan argues that improved corporate performance hinges on understanding how industries evolve and that the main framework currently in use for this purpose is are the five forces and the product lifecycle model. The five-forces model provides an approach for determining the financial performance of an industry at a specific point in time. The product lifecycle framework (PLC) is based on the idea that industries move through periods of emergence, shake-out, maturity and decline. Analyzing the environment is necessary to anticipate when different kind of opportunities are likely to emerge. At the emergent phase, the company is born. Creativity and innovation of product development form the basis of this phase. In this phase the quality can be poor and it is more costly to produce products. There is low demand and need for a more specialized distribution channel. In the growth or shake-out stage, demand increases and more pressure is placed on the production process. More customers appear and the geographical scope expands. Than the industry comes in the maturity phase, customers are more knowledgeable and increased bargaining power. Lowered prices and commoditized products are the result. Mature industries tend to be more stable, bureaucratic and efficient through standardized routines and tight control. Finally the firm enters the decline phase where differentiation and innovation become unprofitable. Rivalry has increased and the firm faces more challenges.

Internal environment

The internal environment is also very important. Managers need to understand the strengths and weaknesses of their organization. The internal environment is made up of the organization’s resources, capabilities and competencies and reflects the organizations abilities. Organization’s resources include assets, capabilities, processes, information knowledge and etc. Intangible resources are non-physical assets and tangible resources are physical assets. Non-physical assets are distinct to the organization, like for instance specific routines. Capabilities refer to what the organization’s competencies, the activities and processes through which an organization deploys its resources effectively. Capabilities are in essence also routines, or a number of interacting routines. Core competence refers to the capabilities fundamental to the organization’s strategy and performance. Key resources are the key success factors of an organization.

Drawing on contingency theory, we consider the relationship between the two environments. What is important is the strategic fit, the match between the internal with the needs of the external environment. The contingency approach suggest that there is not one best way to manage. And to be effective planning and controlling must be tailored to the particular circumstances faced by an organization.

There are two views on how to compete in global markets. One looks outward the other looks inward. The positioning perspective describes the organization that focuses and emphasizes on the external environment and opportunity as the starting point for strategic development. Such organizations are market driven and through understanding the five forces, they find an successful position in the market. The resource based perspective emphasizes the internal environment, and see unique internal capabilities as the starting point for the development of strategy. This view stresses the uniqueness of the organization as a basis for sustainable competitive advantage.

Chapter C: Strategy

One of the basic questions faced by a profit making organization is; how do we make money, or how can we create value? Organizations must determine what their business is and what they are trying to achieve. To answer these and other fundamental questions can be found through strategic problem solving activities. Strategy is concerned with how the international organization will achieve its aims and goals. Andrews’ defined strategy as the match between what a company can do within the universe of what it might do. Porter build further on this approach, providing a framework with the essence that the structure of an industry determines the state of competition within that industry and sets the organizations strategy. This approach focuses more on the industry characteristics, and not the organization’s core competencies and internal factors. The resource base looks more at the last perspective it sees capabilities and resources at the heart of a company’s competitive position.

Mintzberg investigated the process of strategy, what it is and how they are formed. He summarized three popular views of strategy:

• Planning mode, highly ordered process. Strategy is designed by the top and implemented lower down. (strategy is intended, and a determined plan)

• Adaptive mode, through conflicting goals and bargaining processes strategy is formulated. (strategy emerges in a stream of decisions, the realized strategy)

• Entrepreneurial mode, a powerful leader takes bold and risky decisions toward its vision of the organization’s future.

Generally, strategy formation is influenced by the interplay of three basic forces:

• An environment that changes continuously and irregularly

• The organization’s operating systems and how they seek to stabilize the environment

• Leadership that mediates between these two forces to maintain the stability of the environment

Strategy is a device that unifies, coordinates and motivates the members of an organization. It determines how it deploys it resources, when and how to compete. Strategy is about how to be different, how to create an competitive advantage. It is the long-term scope of the organization.

Intended and realized strategy can be combined in three ways

• Deliberate strategy, intended strategies that are realized

• Unrealized strategy, intended strategies that are not realized

• Emergent strategy, realized strategies that were never intended

In planning a strategy, many factors should be included. Bourgeois considers the following to be very important; the environment, setting goals and targets, selection of distinct competences, the distribution of power, the allocation of resources and the monitoring of control of outcomes.

The three basic levels of strategy are

• Corporate strategy, defining scope – where to compete, which activities to perform, and which products to sell. It considers industry attractiveness.

• Business, how specific parts compete and add value

• Departmental, how to organize and structure departments, functional

An organization is a coordinated social unit, created by groups in society to achieve specific outcomes. The purpose of the organization is shaped by its leaders, stakeholders, the vision and ethics delivered through their activities. These activities are guided by the organization’s mission. Developing a mission statement is a useful starting point in the development of a strategy. It provides a sense of direction and focus for the organization.

Effective mission statements contain the following attributes:

• It has to be simple

• Realistic

• Define the goal but also the path to get there

Michael Porter describes three general types of strategy that are commonly used by companies. These are

• Cost leadership

• Differentiation

• Market segmentation

Corporate strategy

The corporate strategy identifies the industry in which an organization participates, what product range the organization is going to apply, the geographical spread and scope, the vertical range of activities it is going to perform (vertical scope) and the boundaries of the firm. The geographical scope describes the multinationality of the organization. Where it purchases its inputs, where it finds intellectual capital and where it locates it value adding activities. Vertical integration is the extent to which an organization owns vertically related activities either upstream or downstream in the value chain. This can be in the form of a partnership. Horizontal integration is through ownership, joint ventures or in the form of mergers and acquisitions. Scope expansions may be beneficial and make an industry more attractive. Corporate strategy must focus on the creation of value that is independent of business unit value. This means that with horizontal integration the sharing of of resources and skills must be encouraged and new capabilities must be developed. The success of resource sharing depends on two things; the selection of activities where resource sharing occurs and the realization of potential opportunities.

International strategy is concerned with choices about what the organization offers in products and services and where it locates value adding activities. Internationalization offers several advantages; broaden the market size, produce more and enable economies of scale, and the scale benefits to replicate knowledge and technology within the organization.

There are two broad international strategies:

• Global strategy, a single market and standard products (cost leadership, economies of scale) Integration

• Multidomestic strategy, variance in customers, adapt strategy to unique local requirements. Differentiation.

Market entry

There are many ways for an organization to enter a foreign market. Factors determining the entry mode are the availability of resources, risk factors, environmental factors and attributes of the market. The main ways are direct or indirect, through marketing only or production.

Alternative ways to enter the market are:

• Products are supplied through domestic operations, by indirect or direct exporting

• Products are supplied through overseas operations; by foreign manufacturers, cooperative strategies and direct investment.

The mode of entry or extent of internalization is a reflection of the value chain activities. Each market entry method reflects a different level of involvement.

At the business level the organization is concerned with how it might obtain and achieve sustainable competitive advantage. It must compete for its business. Advantages have two sources from which they can emerge. Internal sources, the specific actions of the organization and external sources, changes in the external environment. Two internal sources of competitive advantages are cost and differentiation. Cost leadership needs sources of cost advantage, standardized products, efficient manufacturing and tight cost controls. Differentiation is more about understanding customers and how the organization can meet their needs. Companies have to provide unique and valuable product.

Through the value chain competitive advantages can be identified. This can be price or differentiation, but also responsiveness. Speed of response is a source of competitive advantage because these companies are earlier and faster to adapt to sudden changes in the market environment. Responsiveness is enabled through resources (information) and capabilities (flexibility). However, once established, competitive advantage does not always remain advantageous. Competitors are fast in adapting and imitating. Companies should have a constant drive for change and value creation. Unique capabilities may derive from unique resources and deliver sustainable competitive advantage when they are based on competencies that are rare and difficult to imitate, and embedded in routines and practices in the organization.

Implementation

The prime aspect of implementing strategy is to deliver the mission and objectives of the organization. Implementing strategy usually involves changing the business, to be able to realize specific goals. Implementation also requires control and monitoring. To turn the intended strategy into action is a challenge, however a variety of frameworks are created to assist in this task. Strategy is typically turned into action through tactical or operational decision-making and choices, creating a proper organizational structure, adopting supporting business processes, systems, the allocation of resources and mechanisms that ensure performance.

Although theory can state that strategy is planned and coordinated, it is incorrect to believe that the whole process developing and implementing strategy is conducted in an ordered sequence of action and that the intended strategy is always realized. This is most often not the case.

Chapter D: Processes

The process view

To reinvent an organization, one of the ways is to focus on processes rather than functions. A process enterprise is the organizational form for a world in constant change. It is seen as a flexible group of intertwined works and information flows. Reengineering programs are implemented to operate faster and more efficiently, use technology more productively and improve jobs. The difference between a process enterprise and a traditional organization is the existence of process owners, senior managers with end-to-end responsibility for individual processes. The process owner has responsibility for the design of the process, but the people who perform the process report to unit heads.

Style and structure are of equal importance. Managers have to control, negotiate and collaborate. Furthermore, the key structural issue is no longer centralization versus decentralization, it is process standardization versus process diversity. Process standardization offers many benefits:

• Cost reduction, economies of scale, reducing transaction costs

• Organizational flexibility, same way of processing, more plastic structure

Process diversity offers also advantages; it allows different customers to be served in different ways. This to meet more demands and often creates a stronger relationship between company and customers.

Global business processes

The challenge of the global external environment, drive organizations to search new ways to reduce costs, deliver products and serve customers. This forces a focus on efficiency and effectiveness. Processes are the essential link between customers requirements and the delivery of products. They are the means whereby the organization and its employees fulfill their purpose. Davenport defines a process as a structured set of activities designed to produce a specified output for a particular customer or market, how to produce value for its customers. It is a structure for action. It has performance dimensions such as cost, time, output quality and customers satisfaction, that can be measured and improved. Processes can be categorized in several ways, but there are four core types:

• Product design processes

• Sales and marketing processes

• Supply chain processes

• Enabling processes

For the essential basis of the process is no widespread consensus, but the most frequently mentioned elements are:

• Agent, actor who performs a process element

• Role, a coherent set of process elements to be assigned to an agent as unit of responsibility

• Artifact, product created, modified or used by the enactment of a process element.

Four of the most commonly aspects of the process model are

• Functional aspect, the process elements being performed and the flows of informational entities relevant

• Behavioral aspects, when the process elements are performed and how they are performed

• Organizational aspects, where and by whom the elements are performed, the communication methods and physical media used

• Informational aspects, the informational entities produced or manipulated by a process, like data, artifacts and products

The goal of a process is usually the transformation of a set of inputs into a set of outputs. Processes are systematic, actions are performed in a predefined sequence. The most common tool used is a flowchart, which clearly indicates the types of actions and the performance. Processes define the way resources of an organization are used in a reliable, repeatable and consistent way to achieve its goals.

Managing processes

Managing processes involves establishing ownership, boundaries, identifying control point and monitoring. However, prior to this, the process must be understood and documented. For every process the beginning and end points should be visible, the key customers, suppliers, resources and activities. An important aspect of process management is integrating the process into the organizational structure.

Companies that shift to a process enterprise should examine the basic elements of their organizational infrastructure. Process owners should measure performance through metrics, but also through circulating and reinforcing people’s awareness and sharpen their focus.

Improvement

Organizations should seek continuously to improve business processes in order to enhance firm’s performance and stay competitive. Two fundamental ways to conduct continual process improvements:

• Breakthrough projects which either lead to revision and improvement of existing processes or the implementation of new processes. (more significant redesign of existing processes)

• Small step, continuous and ongoing improvement activities

Continuous process improvement is synonymous with total quality management (TQM). TQM also emphasizes on a continuous process of improvement through the involvement of people.

Business process management is an approach to change that embraces both types of change, continuous and break through change. It is dependent upon strategic and operational elements, use of modern tools and techniques, people involvement and on a horizontal focus to best suit and deliver customer requirements in an optimum and satisfactory way. With horizontal focus is meant the integration between different parts of the organization, different departments.

Process alignment is the concept which focuses on how well the organization manages to fit between its process and its institutional elements. Organization theory sees organizations as requiring their structures and systems to align the contingencies of environment, strategy, technology and etc. for survival and success.

A selection of methodologies, techniques and tools for conduction business process change projects are the following:

• Cause-and effect diagram, facilitate problem solving, used for thinking through and displaying relationships between given a effect and its potential causes

• Flow chart, to describe an existing or design a new process. A flow chart illustrates the steps in a process

• Brainstorming, identify possible solutions, tapping into creative thinking

• Scatter diagram, discover and confirm the relationship between two sets of associated data

• Pareto diagram, displays in order of importance the contribution of each item to the total effect

• Histogram, display the pattern of variation of data

• Benchmarking, compare a process against those of recognized leaders to identify opportunities for quality improvement.

Chapter E: Managing resources

Ensuring the free flow of qualitative data and information within the value system of the organization and using these resources to compete, add value and operate is one of the primary goals of an organization. Technology is used to enable the sharing of information resources by providing collection, storage and dissemination capabilities. Technology represent hard resources and information soft resources. Together, technology and information systems can be a source of competitive advantage. They can reduce uncertainty and improve the quality of managerial activities.

Having the right information at the right place and time is another goal the organization is pursuing. Information resources management (IRM) is an emerging discipline that help managers assess and exploit their information assets. Organizations must identify information resources and establish responsibility for their maintenance.

Data and information

Data is the raw facts representing events occurring in organizations or the physical environment. Data is generated during business or collected from external sources. Information is data that has been processed so that it is meaningful for people. Information increases knowledge, reduces uncertainty and may therefore improve decision-making. Information is the heart of the management information systems (MIR), these systems are designed to provide past, present and future routines appropriate for planning, organizing and controlling operations and functions. These systems provide feedback and support managerial decision making. Data mining is searching organizational databases in order to uncover hidden patterns through statistical tools.

The communication process is the transmission of information between entities. The transmitter and receiver are entities, and the message may be communicated verbally or non-verbal. Feedback is used to detect how the message has been received. Technology is used to enhance the speed and efficiency of the transfer of information. The collected and processed data must also be made available. Dissemination means the transmission of information. This to assure that information is useful in reaching decision or making changes. However, due to new technologies, the information exchange has become more open and cost-free.

There are many factors influencing the dissemination of information;

• culture and structure of the organization,

• geographical and time barriers,

• language and technology barriers

• legal constraints

• power distances.

Knowledge and wisdom

Knowledge is that people understand as a result of what they have been taught or have experienced. Knowledge contributes to the understanding and solving of problems. The sources of knowledge are divided into two classes

• explicit knowledge, knowledge and understanding which is codified, expressed and available to everyone

• tacit knowledge, know-how, sticky knowledge. Intangible knowledge in the domain of cognitive and experimental learning

knowledge comes from learning. The learning cycle model by Kolb visualizes the way we learn and develop our knowledge. This cycle includes the following points:

• Concrete experience

• Observation and reflection

• Forming abstract concepts

• Testing in new situations

Knowledge management systems are systems that facilitate knowledge management by ensuring knowledge flow from those who know to those who need to know throughout the organization. Technology is a fundamental aspect to the success of knowledge management systems (KMSs). KMSs are developed using three sets of technologies:”

• Communication

• Collaboration

• Storage

Wisdom can only be found in people. Judgment is a cognitive process of reaching a decision or drawing conclusions. Sound judgments can be based on special knowledge or common sense. Good and proper judgment is often seen as wise behavior or wisdom. It is often considered to be a trait that can be developed through experience and not by thought.

Supporting business

To function properly, an organization needs information flows. There are many examples of information flows within and between functions and other groups in the organization. The information flow diagram (IFD) is a simple diagram showing how information is routed between different parts of an organization. Historically each function developed its own information system, but since organizations have become more integrated and divisions boundaries less strict, the creation of one information systems is necessary.

Decision making is the process of making choices from among several options. To make successful decisions, good information is necessary. Classical decision theory assumes that decision makers are objective, have complete information and consider all possible alternative and consequences before deciding. The rational economic model assumes that decision making is and should be a rational process, and that desired outcome can be achieved.

Structured decisions are decisions where only part of the problem has a clear-cut answer. Structured decisions are repetitive, routine and have a procedure for handling them. Unstructured decisions involve complex situations, where the rules governing the decision are complicated or unknown. These decisions are made infrequently and rely heavily on the experience and know-how of the decision maker.

Strategic decisions are unstructured, made less frequently and may use more information sources from outside the organization. They occur in an uncertain and ambiguous environment. Operational decisions are more structured, and rely more on information and data from within the organization. Decision making is difficult, since managers are not able to have perfect knowledge. The only thing we can do about this is to increase our knowledge and reduce imperfections.

To compete with information resources, organizations must find systems that are difficult to imitate and create a sustainable advantage. To compete effectively in global markets, exporters must develop the capabilities to produce high value added products and to target the market more closely. This way of thinking is like the resource based view, information processes help creating value that enable the development of a competitive advantage.

The other view, the market based view, focuses more on how information supports positioning strategies. Information resources and technology may determine the industry structure. They can increase buyer power, lower barriers to enter and make it easier to create substitutes. For instance online shops. They are lower at costs, have a further reach, have less employment costs and are always open.

Chapter F: Enterprise management

Operations

In an organization, operations are the collection of people, knowledge, technology and systems within the organization that are primarily responsible for producing and providing the organization’s products or services. Operations management (OM) is the planning, scheduling, control and coordination of the activities that transform inputs into outputs. The traditional view of IM takes an internal perspective, focus on the organization’s own value adding activities. More recently, the supply chain is considered to be important as well. International OM is concerned with the transformation of inputs into goods or services by the international firm-creating value.

Operations constitute a primary function within the organization, and the primary internal activity of the value chain. Operations have to work closely with marketing, product and service development, HRM and technical function of the organization. Internationalization, globalization and increasing competition has increased the importance of OM to managing with international organizations. The fundamental role of operations is to implement corporate strategy. The operations and supply chain strategy is a functional strategy that indicates how structural and infrastructural elements within the organization will be acquired and developed. It is important for the organization to align the corporate, operations, marketing and information systems strategies.

History

Operations and manufacturing strategies have evolved with changes in technology, customer requirements, competitive pressures and changing mobility. The dominant influences in the first half of the century were scientific management and Taylorism. When technology became more significant, scale based strategies, high productivity and low costs became more important. This lead companies to a new source of competitive advantage, the focused factory (1960s). This is a type of factory that not focuses on how to increase productivity, but on a narrow product mix for a particular market niche. Two broad categories came about in manufacturing, cost responding to volume or scale and those driven by variety. When the markets are good, companies tend to lean towards increased variety, and when times are tough, companies cut variety to reduce costs. In the late 1970s, variety became a competitive weapon, due to the Japanese companies that exploited flexible manufacturing. The main advantage of flexible manufacturing is that the costs are lower and increase more slowly that in a traditional factory. This lead to the advent of just in time (JIT) production. In the 1980s, time became a critical source of competitive advantage. Whereas traditional factories are organized by process, time-based factories are organized by product.

In the 1960s and 1970s the prime strategic focus was to find an attractive industry position, offer the lowest costs or the highest quality. A good manufacturing strategy had a focused set of capabilities that defended the company’s strategy. Production costs is always a concern for organizations. In today’s turbulent environment, companies need a kind of competitive advantage, it is the key to long-term success.

Infrastructure

Facilities decisions are of significant importance to the international organization and the operations functions. Three key aspects of infrastructure development are the location and layout of production facilities and the selection and application of technology.

The first and most important strategic decision for organizations is where to locate their operations. Location has a major impact upon the overall risk and profit of the company. In some cases the organization already has an existing location, and is looking for outsourcing places. This is termed the fragmentation process, different parts of the goods are provided in different countries before they are combined into the final good. For the international organization the critical success factors needed to achieve competitive advantage will be identified (PESTEL framework). There are several factors influencing the choice of location, wage rates, productivity, ethical norms and beliefs and location and nature of competitors.

Once the location has been selected, the layout must be made. The layout of the organization will depend on the type of process employed. Frequently occurring layout types include:

• The fixed-position layout, the position of the product is fixed, materials and equipment are transported to and from the product.

• Process layout, similar transforming resources are located together, so that the products have to take a route through the operation

• Cellular layout, transforming resources with a common purpose are located together

• Functional layout, a layout where resources are physically grouped by function

The choice of technology and supporting systems are also an important decision, because they are costly and will influence human resources. It also depend on where they will be employed for. Some different systems are:

• Inventory management systems

• Materials requirements planning software

• Just-in-time systems

• Work management systems

• Computer aided designs, avoid the time and expense of paper-based drawing and physical prototypes

• Enterprise resource planning

• Computer aided manufacture, use of computers to control production equipment and indirectly to support manufacturing operations

• Computer aided engineering

• Flexible manufacturing systems

• Computer integrated manufacturing, implementation of various integrated computer systems in factory automation

Production related processes

Another essential part of business is the new-product or service development part. The design activity itself is an process. There are several phases of product development. The first phase is most often the concept development phase, where new ideas are identified and generated. The second phase is screening and planning, seeing whether the operation is able to produce the product, the acceptability of the product and the associated risks. The next stage is the preliminary design. In the fourth phase the organization invests in operations and supply chain resources needed to support the new product. The final phase is the launch phase.

The production process is the way that organizations create products and services. The ultimate objective of the production process is to create goods and services to meet customer requirements. The production process is concerned with transforming a range of inputs into required outputs. In this process there are two sets of resources needed, the transforming resources and the raw material inputs. At each stage value is added in the course of production. There are several key types of production process

• Project processes, discrete highly customized products

• Jobbing processes, high variety and low volume

• Production line, set of sequential operations established in a factory whereby materials are transformed to produce an end product or components of the final article

• Continuous flow process, similar to the production line process, but the main difference is that the form of the product cannot be broken into discrete units

• Mass processes, high volume and low variety

• Batch manufacturing, items are moved through different manufacturing steps in groups.

Production and capacity

Planning of productions relies upon the forecast of demand. However the environment is constantly changing, and therefore very uncertain which makes planning and control more difficult. Certain organizations will only produce when they received an order, this is called resource to order. In other cases, organizations are able to maintain inventory, but will only produce when received an order. Finally, the organization that faces the least uncertainty may produce before orders are received. Planning and control requires the reconciliation of supply and demand in terms of volumes, timing and quality

• Loading, the amount of work allocated to a work centre

• Sequencing, the order in which the work is performed

• Scheduling, some organizations depend on detailed timetables

Organizations typically operate below capacity because of lack of demand or so that they can react more quickly to orders. Capacity planning is the task of setting the effective capacity of the operation so that it can respond to the demands placed upon it.

Capacity planning and control activities are typically decomposed into three steps

• Forecast demand

• Identify alternative capacity strategies

• Select most appropriate strategy

There are three common capacity strategies

• Lead capacity strategy, capacity is added in anticipation of demand

• Lag capacity strategy, capacity is added only after demand has materialized

• Match capacity strategy, a capacity strategy that strikes the balance between lead and lag strategies by avoiding periods of high under or over utilization.

Sourcing, logistics and inventory

Insourcing concerns the use of resources within the organization to provide products or services, outsourcing is when supply chain partners provide products or services. There are several sourcing strategies

• Single sourcing, one single suppliers is relied upon

• Cross sourcing, the company uses a single supplier for certain part in one part of the business, and another single supplier for another part

• Dual sourcing is when two suppliers are used for the same purchased product

The management of the physical flow of products from the point of origin to the end-users is called logistics. It covers transportation, warehousing, packaging and inventory.

Inventory management is controlling stock levels within the physical distribution function to balance the needs for products availability against the needs for minimizing the stock holding and handling costs. Safety stock is a buffer of stock to counter uncertainties in supply or demand. It is a sort of anticipation inventory. Cycle stock is the stock that is ordered from a supplier to meet the demand for a certain period of time. Just in time inventory is that goods arrive when needed for consumption to minimize inventory costs.