The management and operation of any business or organization requires establishedstandards of performance objectives that guide the different tasks performed by them. As an essential tool for any high performing organization, management performance objectives are a prerequisitefor all organizations seeking to stay relevant in the current competitive global environment (Pulakos 2004). In this regard, management operation objectives, are not only necessary, but also help organizations achieve low cost operations as evidenced by Hon Hai.
Hon Hai and Low Costs
Hon Hai’s minimal operating cost has been the most important competitive advantage the company has had, leading to its phenomenal growth (Slack, Stuart and Robert 2010). One of the ways the company has driven down its cost of operations is through its frugality in real estate. Thus, instead of renting an imposing complex for its headquarters, the company operates from a grimy suburb (Slack, Stuart and Robert 2010). Such a move ensures that the company saves on rent or construction of an expensive office complex. Moreover, instead of taking its annual meetings to resorts or expensive hotels, Hon Hai uses the five-storey complex at the staff canteen for its annual meetings (Slack, Stuart and Robert 2010).
Hon Hai’s core function is the manufacture of electronic products for some of the world’s largest consumer electronics and communication products including Apple, Dell and Sony. Most of the consumer electronics require different components, which the company (Hon Hai) purchases from the components’ manufacturers. However, given the economies of scale that the company has achieved, it started self-production of some of the components used in making the products (Slack, Stuart and Robert 2010). Manufacturing its own components means that Hon Hai significantly improves its supply chain, which leads to reduction its production and delivery costs.
Hon Hai’s best cost saving move is perhaps the movement of the bulk of its manufacturing to China as well as other low-cost regions. Among the regions, the company has moved its manufacturing functiontoSouth-East Asia, Eastern Europe and Latin America (Slack, Stuart and Robert 2010). One of the most significant factors of its move to have the manufacturing in low-cost regions is the fact that average wage rates in such areas are considerably low. In China for example, the wages are one-fifth of those in Taiwan, ensuring the company operates with minimal labor costs as it increases its profits (Nordmeyer 2016; Slack, Stuart and Robert 2010).
Hon Hai’s Competitors
The low cost operations strategy is one of Hon Hai’s competitive advantages. The strategy sets it apart from its competitors. The strategy is similar to KPC’s (Kuwait Petroleum Corporation) strategy, which has helped it remain relevant even in the face of fluctuating oil prices (Steven 2008). Although moving to China as part of its cost-cutting measure has been especially effective, many of Hon Hai’s competitors are catching up to the strategy and moving to the low-cost areas (Slack, Stuart and Robert 2010). The move threatens Hon Hai’s competitive advantage, as any replication of the advantage by its competitors nullifies the strategy as a financial advantage.
However, while the competitors may be able to copy Hon Hai’s strategy by moving to low-cost areas, they may not be able to copy other strategies such as running their companies from simple buildings (Slack, Stuart and Robert 2010). Moreover, the competitors may not have the economies of scale and the capital necessary to start their own production of components as Hon Hai does. This means that the competitors may not be wholly capable of copying Hon Hai’s methods of keeping its costs low.
Performance objective are the resources an organization uses to achieve corporate strategy (Nordmeyer 2016). The objectives include quality, speed, dependability, flexibility, and cost. As a performance objective, quality refers to the ability of a product or service to meet not only the specifications issued by the customer, but also perform the intended function and be desirable (Nelly 2007). Speed on the other hand, is the ability to do things in a way that there is timely delivery of goods and services.
Dependability as a performance objective refers to timely delivery of goods and services, paying attention to detail and therefore delivering the goods not only at the agreed place and time, but also at the agreed cost. In relation to dependability, flexibility is the fourth objective. Flexibility refers to the ability of organizational adaptation to market demands (Nelly 2007). This means that a company is able to comfortably adjust to surges in the market, as well as appropriately satisfying different customers’ demands.
As the last objective, cost refers to being able to run an organization with minimal operatingcosts. Using minimal costs to run an organization is vital as the savings help in increasing profits, in addition to reducing the cost of production for the company, and the overall cost of the product for the consumer (Nordmeyer 2016). The cost of producing a product is an important factor for consideration. Producing quality products has a cost component, as it requires the use of quality raw materials. Therefore, such a move not only increases the cost of the product, but also the cost to the customer.
Additionally, the cost of products and services depends on the speed of production. Speed in the production process reduces risks and losses due to delays intime in marketing the product. For instance, any delays in production in the ever-changingfashion industry could cost a company millions in inventory if the company delays in releasing the right fashionin season to the market (Denning 2013; Weinswig 2015).
Management performance objectives are a necessity for any organization to perform in the current competitive global economy. Hon Hai’s low cost has given it a competitive advantage over its competitors, and while the competitors may copy some of its low cost strategies, its economies of scale are still an advantage. The company has shown its ability to produce quality products at the lowest price, a fact that will ensure that it remains ahead of its competition.
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