Wednesday, April 10, 2013

What differentiates the largest companies in the world ?? Marketing or Operations ?

How Operations differentiates major organisations of the world.

From an operations perspective I have to pose these questions to understand makes big organisations tick. How is Google different from Yahoo, or Toyota from General Motors or Walmart from Tesco, Alibaba from Amazon, Huawei from Siemens, Haier from Whirlpool ? All these companies are the market leaders in their own right and are some of the world's largest organisations.

Toyota has its characteristic Toyota Production System, which concentrates on lean methodologies, helping to reduce wastes and lower costs, Jidoka helping to increase quality by detecting and eliminating defects right at the point of occurrence.  GM on the other hand depends on the age old, redundant  Mass Production technologies. Having a knowledge of the modern and efficient technologies helps managers to choose what is best for their organisations.

Walmart's strength is its supply chain supported by a strong IT infrastructure. It has an effective and efficient supply chain with an equally strong Information System which differentiates it from Tesco or Carrefour. It is able to extract the Point of Sale data at different retail outlets and decide on lateral replenishment strategies to ensure effective service levels to customers at the right prices, handling order variance amplification (called  bullwhip effect) and the resultant inventory pileups, deploying the appropriate modes of transportation and storage points, deciding on cross docking, helping bring down operational costs, increasing the supply chain surplus and so on. These measures help it to retain its top spot as the worlds largest physical retailer.

Google is vastly successful because of its efficient, technically superior search heuristics and algorithms. How to churn out relevant search output than Yahoo to make it the darling of the Internet community is more of a technical issue than anything else.The optimal and effective use of processing hardware, search algorithms, right keywords, Internet bandwidth, Random access memory, retrieval and storage technologies play an important role in deciding on the superiority of Google over other search engines.

Alibaba, the largest e-commerce portal of the world from China (2.5 times Amazon and e-bay combined)  believes in volumes and is being served by 6 million vendors from within China. The complexity of inward logistics, outward logistics, order fulfilment, payment protocols, ensuring delivery and distribution within the promised time frame and handling returns is a nightmare in itself. Alibaba handles these by means of and with efficient processes and digital infrastructure. Handling all these operational nightmares efficiently makes it the world's largest e-commerce portal.

Haier is again a white goods giant of the world which dwarfs Whirlpool in its magnitude of operations. Huawei is again the world leader in networking technology and leads over the former world leaders Seimens and Ericsson both in terms of technology, service and low costs. The operational logistics of helping Huawei reach majority of Africa and middle east is stupendous.

Facebook has virtually no competition in the social networking space because of the cost and operational benefits of adopting Free and Open Source Software over proprietary software for its operating system and powering the backend databases, relational database Management system, MySQL, which allow one billion plus subscribers free use of its website to interact with friends and colleagues from across the world. Their decision to adopt free and open source software made a big difference to the social networking community.

By quoting these examples it is clear that Operations is a line function in the organisation. It plays a major role in deciding on the profitability and reach of the organisational to the population of the world. The Industry needs other disciplines throughout its lifecycle, but whether it is instrumental in the forward thrust of the company is open for academic debate. Their role as a maintenance function is an accepted truth.

It may be more than true to say that the survival of the company depends on its operations strategy. Operations strategy differentiates the winner and the second position holder. While it is easy to hire talent in other functions, it is difficult to hire hire people with a particular operations culture, it has to be relived and experienced.

What is happening to Apple which had some of the best marketing strategies in the IT world even though the all Apple products were China manufactured ? It is gradually losing to Samsung from South Korea and Huawei from China who are conquering market after market and emerging to the top spot of the world, on the quality of the products and their costs. Cost differentiation strategy is helping Huawei and Samsung conquer markets. Delayed product differentiation is an operations strategy which helped HP retain its lead over Canon in the inkjet printer market despite having Canon printer engines in HP printers. How Dell exploited the Internet to offer mass customised products to its customers  not compromising on the low costs is a characteristic operations decision textbooks speak of fervently. The right sourcing of the items is what decides retailers supply chain surplus.

How companies innovate on their operations strategies decides finally whether they remain at the top or not in the long run. Toyota finding that no other automobile manufacturer can match up with its top quality and costs, is now giving itself targets to attain, concentrating on increasing energy efficiency and lowering CO2 emissions as innovative operations which will help them remain competitive over their competitors in the long run.

In an emerging market, marketing does play a role but does it so in a saturated market, like for example mobile phones, where cost, performance and technical specs decides the customer purchasing preferences than the looks or brand image ?

While operations strive to reduce variance and keep it to the minimum in processes, quality, production and inventory levels, helping to keep costs low, Marketing strives to profit from variance, the variance in customer needs, behaviour and market dynamics, so that one can sell whatever to whomever who needs it, provided a segment exists or is created.

It makes sense to find whether effective Marketing would have made the difference to these organisations.


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