CHAPTER Two

Operations Strategy
and Competitiveness

What is the use of running if you are not on the right track?
German proverb
Learning objectives

• Define the role of Business Strategy

• Explain how a Business strategy is developed
• Explain the role of Operations Strategy in the organization
• Explain the relationship between business strategy and operations strategy
• Describe how an operations strategy is developed
• Identify competitive priorities for of the operations function
• Explain the strategic role of technology
 Mind gymnastic

• Assume XYZ company produces a given product which are similar to

others. Recently, the company has faced intensive competition in the
market. As a result, its is obvious that, it should design sound strategy
to compete and survive in the market. Please advice the company how
to be a competent in an operation.

Cost/Price
Quality
Time
Flexibility
Introduction

• Productivity: relates to effective use of resources

• Competitiveness: relates to how effective an organization is in the

marketplace compared with other organizations that offer similar
products or services

• Strategy: relates to the plans that determine the direction an

organization takes in pursuing its goals
Introduction

• Companies must be competent to sell their products and services.

• Competitiveness determines company’s

• Prospers

• Barely gets by/survive or

• Fails
Operations strategy
• An organization’s operations strategy provides an overarching framework
for determining how it prioritizes and utilizes its resources to gain a
competitive advantage in the marketplace.

• An organization’s operations function is concerned with getting things

done; producing goods and/or services for customers.

• The relationship between an organization’s strategy and its operations is a

key determinant of its ability to achieve long-term success or even survival.
The Role of Operations Strategy

• Provide a plan that makes best use of resources which;

• Specifies the policies and plans for using organizational resources

• Supports Business Strategy as shown on next slide

 Business/Functional Strategy
Business strategy
• Defines long-range plans for
company

Operations strategy
Marketing strategy Finance strategy
• Develops a plan for the
• Defines marketing plans • Develops financial plans
operations function to
to support the business to support the business
support the business
strategy strategy
strategy
Importance of Operations Strategy

• Essential differences between operational efficiency and strategy:

• Operational efficiency is performing tasks well, even better than competitors

• Strategy is a plan for competing in the marketplace

• Operations strategy ensures all tasks performed are the right tasks
 To Develop a Business Strategy

• Consider these factors and strategic decisions:

• What business is the company in (mission)

• Analyze and understand the market (environmental scanning)

• Identify the company strengths (core competencies)

 Three Inputs to a Business Strategy
Mission
Environmental scanning
• Statement that defines Core competencies
• Monitoring the business
what’s our business; • Unique strengths that
environment for market
what are our clients; can help us win in the
trends, threats, and
and how our values market
opportunities
define our business

Business strategy
• Defines the long-range
plan for the company
Key Examples

• Mission: Dell Computer - “to be the most successful computer

company in the world”

• Environmental Scanning: political trends, social trends, economic

trends, market place trends, global trends (PESTLED)

• Core Competencies: strength of workers, modern facilities, market

understanding, best technologies, financial know-how, logistics
Developing an Operations Strategy

Operations Strategy: a plan for the design and management of

operations functions
• is developed after the business strategy

• focuses on specific capabilities which give it a competitive edge – competitive

priorities
Operations Strategy – Designing the Operations Function

Business strategy
• Defines the long-range plans for the company

Operations strategy
• Develop a plan for the operations function focusing on specific
competitive priorities in order to meet the long-range plan
o Competitive priorities
✓ Cost; Quality; Time; flexibility

Design of the operations function

• Developed to focus on the identified competitive priorities.
• Structure: planning and control system, workers, pay, quality
• Infrastructure: facilities, flow of goods, technology
Competitiveness

Logical answer; customer want value

Competitive Priorities- The Edge
• Four Key Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
• All of the above? Some? Tradeoffs?
Competing on Cost
• Offering product at a low price relative to competition
• Typically high volume products
• Often limit product range & offer little customization
• May invest in automation to reduce unit costs
• Can use lower skill labor
• Probably uses product focused layouts
• Low cost does not mean low quality
Competing on Quality
• Quality is often subjective
• Quality is defined differently depending on who is defining it
• Two major quality dimensions include
• High performance design:
• Superior features, high durability, & excellent customer service

• Product & service consistency:

• Meets design specifications
• Close tolerances
• Error free delivery
• Quality needs to address
• Product design quality – product/service meets requirements
• Process quality – error free products
Competing on Time
• Time/speed one of most important competition priorities
• First that can deliver often wins the race
• Time related issues involve
• Rapid delivery:
• Focused on shorter time between order placement and delivery
• On-time delivery:
• Deliver product exactly when needed every time
Competing on Flexibility
• Company environment changes rapidly
• Company must accommodate change by being flexible
• Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific requirements of a customer

• Volume flexibility:
• Ability to ramp production up and down to match market demands
The Need for Trade-offs
• Decisions must emphasize priorities that support business strategy

• Decisions often required trade offs

• Decisions must focus on order qualifiers and order winners

• Which priorities are “Order Qualifiers”?

Must have excellent quality since everyone expects it

• Which priorities are “Order Winners”?

• Dell competes on all four priorities

• Southwest Airlines competes on cost

• McDonald’s competes on consistency

• FedEx competes on speed

• Custom tailors compete on flexibility

 Strategy Formulation Characteristics that customers
perceive as minimum
➢Effective strategy formulation requires taking standards of acceptability to
into account: be considered as a potential
• Core competencies for purchase.
• Environmental scanning (PESTL)
• Considering of events and trends presents i.e. Threats
and opportunities
• SWOC/T
• Order qualifiers Characteristics of an
• To provide qualifiers, they need to be as good as organization’s goods or
their competitors
• To stay in the market, services that cause it to be
• G&S qualify to be purchase by a customer perceived as better than the
• Order winners competition.
• G&S chose by a customer
• Competitive advantage for the firm
• To outwit competitors
Terry Hill
Translating to Production Requirements

• Specific Operation requirements include two general categories

• Structure – decisions related to planning and control systems of operations

• Infrastructure – decisions related to the production process, such as

characteristics of facilities used, selection of appropriate technology, and the
flow of goods and services
Translating to Production Requirements

• Dell Computer example – structure & infrastructure

• They focus on customer service, cost, and speed
• ERP system developed to allow customers to order directly from
Dell
• Product design and assembly line allow “make to order” strategy –
lowers costs, increases turns
• Suppliers ship components to a warehouse within 15 minutes of the
assembly plant - VMI
• Dell set up a shipping arrangement with UPS
Strategic Role of Technology
• Technology should support competitive priorities
• Three Applications: product technology, process technology, and information
technology
• Products - Teflon, CD’s, fiber optic cable
• Processes – flexible automation, CAD
• Information Technology – POS, EDI, ERP, B2B
Technology for Competitive Advantage
• Technology has positive and negative potentials
• Positive
• Improve processes
• Maintain up-to-date standards
• Obtain competitive advantage
• Negative
• Costly
• Risks such as overstating benefits
Technology for Competitive Advantage

• Technology should:
• Support competitive priorities

• Can require change to strategic plans

• Can require change to operations strategy

• Technology is an important strategic decision