Page 37 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes A business must adopt a strategy that enables it to secure the resources needed to effectively
remain at the cutting edge of technological advances in the pursuit of creating and retaining the
customers the firm wants. This is the first requirement. History is rife with firms that failed to
see new technologies coming. In his book, The Innovator’s Dilemma, Professor Clayton Christensen
helps explain why first rate companies that listen to their customers are not able to respond to
new competitors who use “disruptive” technologies.

Christensen uses the example of the diesel locomotive to illustrate how disruptive technologies
“sneak up” until it is too late for the previously dominant firms to respond. When the diesel
locomotive was introduced, it did not match the performance of the steam locomotive. Baldwin,
the leading locomotive manufacturer, scoffed at this upstart and proclaimed, “They will never
replace the steam locomotive”! This was true for some time, but little by little, diesel locomotives
improved and before Baldwin knew it, by 1950 diesels had the lion’s share of the market. By
then, it was too late for Baldwin to respond.
Second, ‘competitive advantage’ is also created when resources and capabilities owned exclusively
by the organization can generate unique core competencies. This advantage is sustainable due
to the lack of substitution and imitation capacities by the organization’s competitors. As the core
competencies are unique, the benefits derived from these advantages are retained inside the
organization—they are not appropriated by others.
Finally, competitive advantage can come from a strong and supportive value chain. The members
of the chain look at the benefits that accrue to the entire value chain. Such cooperation is possible
and often seen in such value chains, e.g., increasing productivity, reducing stocks at different
levels, or process improvements, etc., are undertaken by members of the value chain and the
advantages that accrue benefit all members of the value chain. In addition, it is able to provide
greater value to the customer.
TI Cycles and Hero Cycles: Before, we discuss competitive strategies let us review the strategies
adopted by TI Cycles and Hero Cycles. TI Cycles looked at itself basically as manufacturer of
bicycles. In 1962, TI Cycles had a capacity to manufacture 300,000 bicycles and Hero Cycles had
a capacity of 25,000. In 1999, TI Cycles had increased its capacity to 25,20,000 bicycles while the
capacity of Hero Cycles had increased to 47,00,000. Both companies followed concentration
strategy. While Hero Cycles invested in assembly plants, TI Cycles manufactured all or most of
the components in-house. The investments that TI Cycles made were large in comparison to
Hero Cycles. The risks involved in building of additional capacity were much higher for TI
Cycles.

However, TI Cycles created for itself a high level of competency in R&D, quality and design in
the manufacture of bicycles. Due to this, their product development focus was on internal
developments, while Hero Cycles used a strategy of collaborative development for its new
products. The result was that they were faster to market in bringing new products, which gave
them a competitive advantage.
TI Cycles adopted a strategy of concentric diversification and vertical and backward integration.
It invested in steel tubes and strips, cycle chains, and its own components. It also invested small
amounts in related businesses like door frames for cars, shutter products and auto components.
Unlike TI Cycles, the Hero Cycle considered itself in the transportation business. Therefore, it
diversified into other areas in the automotive space. This can be seen from listing of its group
companies; Hero Honda Motors Limited, Hero Cycles Limited, Hero Auto Limited, Munjal
Showa Limited, Majestic Auto Limited, Hero Exports, Munjal Auto Industries Limited, Sunbeam
Auto Limited, Munjal Castings, Highway Industries Limited, Rockman Cycle Industries Limited,
Hero Cycles Cold Rolling Division, Munjal Auto Components, Satyam Auto Components

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