Chapter Two
Operations Strategy
and Competitiveness
Operations strategy
What is strategy?
Strategy can be defined as the direction and scope of an
organization over the long term: ideally which matches its
resource to its changing environment and in particular its
markets, customers/clients so as to meet stakeholders’
expectations.’
Strategy can be seen to exist at 3 main levels of corporate,
operation and functional
Corporate strategy - Defines long range plan for the
organization.
Operations strategy
Operations strategy
Develop a plan for the operations function focusing on
specific competitive priorities.
Functional level strategy
Developed to focus on the identified competitive priorities.
Corporate (Business) Strategy
In any business organization, it is the responsibility of top
management to plan the organization’s long-term future.
In this regard therefore, corporate strategy defines the businesses
that the company will pursue, new threats and opportunities in the
environment, and the growth objectives that it should achieve.
Thus, corporate strategy provides an overall direction that serves
as the framework for carrying out all the organization’s functions.
Developing a business strategy (corporate strategy)
A company’s business strategy is developed after its managers
have considered many factors and have made some strategic
decisions.
These include developing an understanding of:
What business the company is in (the company’s mission),
Analyzing and developing an understanding of the market
(environmental scanning), and
Identifying the company’s strengths (core competencies).
These three factors are critical to the development of the
company’s long-range plan, or business strategy.
Three Inputs to a Business Strategy
Inputs to a Business Strategy
A. Mission
The mission is a statement that answers three overriding
(dominating) questions:
What business will the company be in?
Who will the customers be, and what is the expected
customer attributes?
How will the company’s basic beliefs define the business?
Example
Mission: Hawassa University- “Providing the community with
teaching and research products”
Inputs to a Business Strategy
B. Environmental Scanning
It is the monitoring of events and trends that present either
threats or opportunities for the organization.
Generally these include:
Competitors’ activities;
Changing consumer needs;
Legal, economic, political, and environmental issues;
The potential for new markets; and the like.
To remain competitive, companies have to continuously monitor their
environment and be prepared to change their business strategy in
light of environmental changes.
Inputs to a Business Strategy
C. Core competencies
The special attributes or abilities that give an organization a
competitive edge.
Core competencies could include special skills of workers, such
as expertise in providing customized services or knowledge of
information technology.
Therefore, to be successful, a company must compete in
markets where its core competencies will have value.
Developing an Operations Strategy
Operations Strategy is a plan for the design and
management of operations functions.
Operation Strategy is a plan to be developed after the business
strategy
The operations strategy focuses on specific capabilities of the
operation that give the company a competitive edge called
competitive priorities.
Operations strategy and the design of the
operations function
These competitive priorities and their relationship to the design
of the operations function are shown below.
Operations competitive priorities
Competitive priorities are the capabilities that the
operations function can develop in order to give a company a
competitive advantage in its market.
The major competitive dimensions that form the competitive
position of a company include the following.
1. Cost - “Make it Cheap”
2. Quality - “Make it good”
3. Time “Make it fast and deliver it when promised”
4. Flexibility “Change it”
Operations competitive priorities
[Link] - “Make it Cheap”
Competing based on cost means offering a product at a low
price relative to the prices of competing products.
Generally, companies that compete based on cost:
• Offer a narrow range of products and product features,
• Allow for little customization, and
• Have an operations process that is designed to be as
efficient as possible.
• Note: Low-cost strategy can result in a higher profit margin, even
at a competitive price. Also, low cost does not imply low quality.
Operations competitive priorities
2. Quality - “Make it good”
Quality is often subjective matter and can be defined differently
depending on who is defining it:
Quality as a competitive priority has two dimensions.
High performance design:
This means that the operations function will be designed to
focus on aspects of quality such as superior features, close
tolerances, high durability, and excellent customer service.
Product & service consistency:
measures how often the goods or services meet the exact
design specifications and Error free delivery.
Therefore, Companies that compete on quality must deliver not
only high-performance design but goods and services consistency as
well.
Operations competitive priorities
3. Time “Make it fast and deliver it when promised”
Time/speed is one of the most important competitive priorities today.
Today’s customers don’t want to wait, and companies that can meet their
need for fast service are becoming leaders in their industries.
Making time a competitive priority means competing based on all time-
related issues, such as rapid delivery and on-time delivery.
Rapid delivery refers to how quickly an order is received;
• shortening the time between order placement and delivery
On-time delivery refers to how often deliveries are made on time.
• Deliver product exactly when needed every time
Operations competitive priorities
4. Flexibility “Change it”
• A company’s environment changes rapidly, including customer needs
and expectations, the ability to readily accommodate these changes can
be a winning strategy.
There are two dimensions of flexibility.
• Product flexibility:
The ability to offer a wide variety of goods or services and
customize them to the unique needs of clients.
• Volume flexibility:
The ability to rapidly increase or decrease the amount produced in
order to accommodate changes in the demand.
Companies that compete based on flexibility often cannot compete based on
speed because it generally requires more time to produce a customized
product.
The Need for Trade-Offs
The operations functions must place emphasis on those priorities that
directly support the business strategy.
Trade-offs is the need to focus more on one competitive priority than on
others.
It is important to know that every business must achieve a basic level of
each of the priorities, even though its primary focus is only on some.
• E.g: Even though a company is not competing on low price, it still
cannot offer its products at such a high price that customers would
not want to pay for them.
Order winners and order qualifiers
To help a company decide which competitive priorities to focus on, it is
important to distinguish between order winners and order qualifiers.
qualifiers
• Order qualifiers are those characteristics that potential customers
perceive as minimum standards of acceptability for a product to be
considered for purchase.
• However, that may not be sufficient to get a potential customer to
purchase from the organization.
• Order winners are those characteristics of an organization’s goods
or services that cause them to be perceived as better than the
competition.
Order Qualifiers Vs Order Winners
• Order Qualifiers • Order Winners
• Those competitive priorities that a • The competitive priorities that
company has to meet if it wants to help a company win orders in the
do business in a particular market. market.
• Consider a simple restaurant that • The order winners may be “fresh
makes and delivers ‘beyeaynet’. ingredients” and “home-made
• Order qualifiers might be deliver taste.” These characteristics may
with “enjera” and having varieties, differentiate the restaurant from
because this is a standard that has all the other “beyeaynet”
been set by competing “beyeaynet” delivering restaurants.
restaurants.
Strategic Role of Technology
Technology refers to the application of scientific discoveries to the
development and improvement of goods and services.
Operations management is primarily concerned with three kinds of
technology:
– Product and service technology refers to the discovery and development
of new products and services. E.g: Teflon, CD’s, fiber optic cable
– Process technology refers to methods, procedures, and equipment used
to produce goods and provide services. E.g: flexible automation, CAD
– Information technology (IT) refers to methods, procedures, and
equipment used to produce goods and provide services. E.g: MIS, AIS,
B2B etc.
Technology for Competitive
Advantage
Technology has positive and negative potentials
Positive
Improve processes
Maintain up-to-date standards
Obtain competitive advantage
Negative
Costly
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Service and Manufacturing Strategies
Service Strategies
Standardized-Service Strategy:
Processes that provide services with little variety in high volumes.
Typical competitive priorities are consistent quality, on-time
delivery, and low cost.
Assembly-To-Order Strategy:
processes devoted to producing a set of standardized services and a
standardized offerings for a specific customer needs.
Typical competitive priorities are customization and fast delivery
time.
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Service Strategies
Customized Services Strategy:
Process designed to provide individualized services tend to
use a customized service strategy.
Typical competitive priorities include high performance
design and customization.
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Manufacturing Strategies
Make-to-stock Strategy:
used by manufacturing firms that hold items in stock for
immediate delivery, thereby minimizing customer delivery
time.
feasible for standardized products with high volumes and
reasonably accurate forecasts.
applicable to situations in which the firm is producing a
unique product for a specific customer if the volumes are
high enough.
Examples include electronic components, soft drinks, and
chemicals.
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Manufacturing Strategies
Assembly-to-order Strategy:
an approach to producing customized products from relatively few
assemblies and components, after customer orders are received.
typical competitive priorities are customization and fast delivery time.
involves assembly process and fabrication processes.
Once the specific order from the customer is received, the assembly
processes create the product from the standardized components and
assemblies produced by the fabrication processes.
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Manufacturing Strategies
Make-to-order Strategy
used by manufacturers that make products to customer
specifications in low volumes.
provides a high degree of customization, which is a
major competitive priority for these manufacturers.
Because most products, components, and assemblies
are custom-made; the manufacturing process must be
flexible to accommodate the variety. 26