The impact of diversification in the operations strategy of capital goods companies

Scur, Gabriela; Queiroz, Ricardo Pessoa de

doi:10.1590/0104-530X1048-13

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Articles • Gest. Prod. 24 (2) • Apr-Jun 2017 • https://doi.org/10.1590/0104-530X1048-13 copy

The impact of diversification in the operations strategy of capital goods companies

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract:

Considering that the analysis of the specific areas technology and market is reported in the literature as the main elements in the decision making process of diversification and the operations strategy, these have to reconcile the technological base with the market demand. This paper examines the impact of diversification in operations strategy in 3 multinational leading capital goods companies. The main contribution of this study concerns the understanding that different processes of diversification can help to expand the share of the company in the same market with new products based on the same technology and can help the company to enter in a new market with new products, based on different technologies. Therefore, the process of diversification of firms should be analyzed from the perspective of a growth strategy based on knowledge, so that the management of this resource should occur in conditions of maximum efficiency.

Keywords:
Diversification; Specialization areas; Technological base; Operations strategy

Research context	Unit to be studied	Elements of Analysis
Three capital goods companies from the state of São Paulo. Sources of information: (a) consultation of documents from Abimaq and the companies. (b) face-to-face interviews with manufacture and sales executives	Unit of analysis: diversification process analyzed through the aspect of operations strategy of the companies.	(a) Types of occurrence: stretching of the product mix, market diversification or horizontalization. (b) Relation among areas of specialization, market base and technological base: products and operating markets. (c) Sources: areas of specialization, identification of opportunities, industrial research, sales efforts, evaluation of the technological base and acquisitions. (d) Performance objectives: quality, speed, reliability, flexibility and costs. (e) Categories of decision: capacity, installations, equipment and processes, vertical integration and relationship with suppliers, human resources, quality, new products, managerial systems and inter-funcionality. (f) Innovation and learning: sources and types of innovation, types of registrations and staff capacitation.

	Company A	Company B	Company C
Stretching of product mix	x	x	x
Market diversification	x	x	x
Horizontalization	x	-	x

Parent product	Company A		Company B			Company C
Parent product	Market	Technological	Market	Technological		Market	Technological
Water pumps	x	x	0	0		NA
Gear pumps	x	x				NA
Slurry pumps			-	x		-	x
Valves	x	x	-	x		-	x
Hydrocyclones			NA			NA
Mills	NA		NA			-	x
Mill liners	-	x	NA			-	x
Crushers	NA		NA			-	-
Sieves and screens	-	x	NA			-	x
Second crushers	NA		NA			x	x
Impact crusher	NA		NA			x	x
Ore conveyor	NA		NA			-	x
Metal grinder	NA		NA			x	x
Metal press	NA		NA			x	x
Recyclable materials separation	NA		NA			x	x
Dust protection	NA		NA			x	x
Spare parts	-	x	-	x
Rubber parts	x	x	-	x
Rubber liners	x	x	NA			x	x
Cast parts	NA		-		x

PARENT PRODUCT	COMPANY	DIVERSIFICATION SOURCES
PARENT PRODUCT	COMPANY	SA	SO	IR	SE	TB	AC
Bombas de água	A	-	-	-	x	x	x
Bombas de água	B	0	0	0	0	0	0
Bombas de engrenagens	A	-	-	-	x	-	x
Bombas de polpa	A	0	0	0	0	0	0
	B	x	x	-	x	-	x
	C	-	x	-	x	-	x
Válvulas	A	x		-	x	-	x
	B	x	x	x	x	x	-
	C	-	-	-	x	-	x
Hidrociclones	A	0	0	0	0	0	0
Moinhos	C	x	x	-	x	x	-
Revestimento de moinho	A	-	x	x	x	x	-
Revestimento de moinho	C	x	x	x	x	x	-
Britadores	C	0	0	0	0	0	0
Peneiras e telas	A	-	x	x	x	x	-
Peneiras e telas	C	-	x	x	x	x	-
Rebritadores	C	x	x	-	x	x	-
Impactadores	C	x	x	-	x	x	-
Transportadores de minério	C	x	x	-	x	x	-
Trituradores de metal	C	-	x	x	-	x	x
Prensas de metal	C	-	x	x	-	x	x
Separação de recicláveis	C	-	x	x	-	x	x
Proteção contra pó	C	-	x	x	-	x	x
Peças de reposição	A	x	x	-	x	x	-
	B	x	x	-	x	x	-
	C	0	0	0	0	0	0
Peças de borracha	A	x	x	x	x	x	-
	B	-	x	-	x	-	x
	C	0	0	0	0	0	0
Revestimento de borracha	A	x	x	x	x	x	-
Revestimento de borracha	C	x	x	x	x	x	-
Peças fundidas	B	x	x	-	-	-	x
Peças fundidas	C	0	0	0	0	0	0

	Company A	Company B	Company C
Quality	1.º	1.º	1.º
Speed	3.º	3.º	3.º
Dependability	-	-	2.º
Flexibility	-	-	-
Cost	2.º	2.º	4.º

Performance Objectives	Market Requirements	Company’s position
Quality	Qualifying criterion.	Defined by construction regulations and standardized tests, equally for all competitors.
Speed	Immediate for standard pumps and up to 45 days for special ones.	Produces all pumps by request, with delivery times which vary from 60 days for standard pumps and 120 days for special pumps.
Dependability	High. Generally, these are reposition purchases (scheduled maintenance stops or due to break) or installation in new projects, with deadline for conclusion.	Low, as it produces by request, without keeping stocks of pieces or subset, subject to variations from its suppliers and production uncertainties.
Flexibility	Moderate, both for product configuration (materials and assembly) and delivery.	Presents low flexibility.
Cost	Low. Due to the increasing offer of similar pumps, the market is able to find offers with lower prices.	High, as it manufactures individually, losing scale gains. It is more prone to variations generated by the demand for producing by request.

Performance Objectives	Market Requirements	Company’s position
Quality	Criterion attributed by the client and related to the reliability and durability of the equipment, measured by application references.	Difficulty to create the application references, invests in technical quality to overtime said difficulty.
Speed	Standard pumps in 60 days and special days in 120.	Produces standard pumps in 60 days and special pumps in 120-180, due to the importation of components for the latter.
Dependability	High. Generally, these are reposition purchases (scheduled maintenance stops) or installation in new projects, with deadline for conclusion.	Medium, because it is necessary some imported special items.
Flexibility	Medium, in terms of product configuration (materials and assembly) and delivery.	Low flexibility due to imported special items and restrictions imposed by headquarter (holder of the techonology).
Cost	Low due to the increased competition in the slurry pump market.	Low for standard pumps produced in Brazil and medium/high in imported equipment (because of fluctuations in exchange).

Performance Objectives	Market Requirements	Company’s position
Quality	Criteria given by the client and related to the reliability and durability of the equipment, measured by application references.	It presents as references its mining equipment and invests in technical quality.
Speed	Standard pumps in 60 days and special days in 120.	Produces standard pumps within 50 days and special pumps within 120, due to import program.
Dependability	High. Generally, these are reposition purchases (scheduled maintenance stops) or installation in new projects, with deadline for conclusion.	High. There is a specific area for production of domestic item and an efficient import program.
Flexibility	Medium, in terms of product configuration (materials and assembly) and delivery.	Medium, due to the limitated special imported items.
Cost	Low due to the increased competition in the slurry pump market.	Low. The company do not indicate if it is because of the others subsidized imported equipment.

MANUFACTURING DECISIONS	ADAPTATION OF TECHNOLOGICAL BASE
Capacity	Revaluation of the capacity of installation, quantity and types of equipment.
Facilities	New installations with the project of the new factory, bearing in mind improvements of the productive process, lay out planning.
Equipment and technology process	Change in the productive process and variation of the production method according to the type of pump produced, as well as the adaptation of equipment consistent with each type produced.
Vertical Integration and Supplier Relationship	Vertical integration with regard to casting, contemplated in the new factory, as well as the definition of supply contracts for parts and machining of non-technologically strategical parts.
Work Force	Integration of all operations in the new factory, with the identification and implementation of peculiar “best practices” for each type of equipment.
Quality	Quality system implemented and certified.
Scope and New products	Implementation of a multifunctional team to define the scope of new products or diversify in order to improve products, as well as the evaluation of the current product mix.
Managerial Systems	Managerial support to implement operational strategy, with a system of planning, control, establishment of well-established operational policies and responsibilities.
Cross-functionality	Review of departmental procedures to clearly define its interfaces, in order not to present gaps which generate doubt regarding authorship and responsibility in the execution of the tasks.

MANUFACTURING DECISION	ADAPTATION OF TECHNOLOGIVAL BASE
Capacity	Capacity adapted to the market, confirmed by the condition of delivery of standard items, manufactured in Brazil.
Facilities	Installations suited to the market, confirmed by the condition of delivery and cost of standard items, manufactured in Brazil.
Equipment and technology process	Equipment and processes suited to the market, confirmed by the condition of delivery, cost and technical quality of standard items, manufactured in Brazil.
Vertical Integration and Supplier Relationship	The company vertically integrated cast and has contracts with sub-suppliers to acquire accessories for their equipment, which aim at obtaining more competitive prices and conditions, as well as assured quality.
Work force	Contemplated item, once it establishes policies and work procedures for each new process, as well as offering financial incentive and career plan possibilities to drive motivation for strategic positions, especially in new challenges.
Quality	Quality system implemented and certified.
Scope and New products	Contemplated item, as it verifies the commercial or technical compatibility with the current products, in order to verify synergies, avoid cannibalization of products or classify them to meet specific markets more competitively.
Managerial Systems	Solid managerial system, with planning, control, establishment of well-defined operational policies and responsibilities.
Cross-functionality	Presents clear definition of departmental interfaces, its procedures determine the responsibility in planning, execution and control of the tasks.

MANUFACTUIRNG DECICIONS	ADAPTATION OF THECNOLOGICAL BASE
Capacity	Contemplated item, i.e. capacity is in accordance with the requirements of the market.
Facilities	Contemplated item, i.e. installations support the operations of the company.
Equipment and technology process	Contemplated item, as it usually verifies the current structure and the need to develop a new productive process or merge with a new one. In its diversification planning, several processes were developed and implemented, as well as the construction of new areas within its plant.
Vertical Integration and Supplier Relationship	Contemplated item, as the company has sought the integration of several processes in its diversification process, in order to consolidate control over technologies that are primordial to maintain its competitive advantage. Among these processes, it is possible to highlight casting, technology to develop wear materials, production of rubber parts, pilot plant with analysis laboratory and test center.
Work force	Contemplated item, once the company verifies the needs to train staff or hire qualified resource in the market, as well as offering qualified staff to operate in the new challenge, professional growth opportunity. This motivates both the current teams and those created to meet the diversification process.
Quality	Quality system implemented and certified.
Scope and New products	Contemplated item, as the company verifies the viability of introducing new products, whether they be: for changes in equipment and processes, for having sufficient similar products, for not having competitive conditions for the new product compared to its competitors. It also evaluates the maintenance of manufacturing old products, their synergy with specific markets, as well as the synergy of the processes of manufacture, distribution and sales.
Managerial Systems	Contemplated item, as the company has a managerial support team for implementation, responsible for planning, development of control system and establishment of operational policies with well-defined responsibilities.
Cross-functionality	Presents clear definition of departmental interfaces, as its procedures determine the responsibility in the planning, execution and control of the tasks.

INNOVATION SOURCES	Type	Company A	Company B	Company C
Suggestions from staff	PROCESS	x	-	x
Continuous improvement		x	x	x
Relationship with suppliers		-	-	x
Customizations	PRODUCT	x	-	x
Suggestions from clients		x	-	x
Solutions of problems of equipment		x	x	x
Solutions of problems of the client		x	x	x
Development team		-	x	x
Other units of the group		x	x	x
Description in the company values		-	-	x
R&D Laboratory		-	-	x
Partnership with universities and research centers		-	-	x
Growth policy		-	-	x

Company	SA	SO	IR	SE	TB	AC
A	28.6	22.7	33.3	38.1	31.6	25.0
B	28.6	22.7	8.3	19.0	10.5	25.0
C	42.8	54.6	58.4	42.9	57.9	50.0

Universidade Federal de São Carlos Departamento de Engenharia de Produção , Caixa Postal 676 , 13.565-905 São Carlos SP Brazil, Tel.: +55 16 3351 8471 - São Carlos - SP - Brazil
E-mail: gp@dep.ufscar.br

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