Chapter 4

Developing
Strategy,
Missions And
Competitiveness
 Introduction

• Corporate strategy - overall plan of a firm that

defines its specific businesses and how its
resources will be acquired and allocated
• Strategy relates to the plans that determine
the direction an organization takes in pursuing
its goals.
• A strategy is a “game plan” to attract
customers and distinguish firms from their
competitors.
• Strategies have long-term impact on the nature
and characteristics of the organization.
 Principles for Effective
Management
• A secure base/locating facility
• Establishing a winning strategy
• The need for a vision and goals
• Focusing on operational goal
• Initiating action (being innovative)
• Mobilization of resources
• Economy of resources
 Principles for Effective
Management
• Surprise response to customer needs and
wants
• Flexibility and adaptability
• Partnerships, cooperation and networking
• Building strong barriers of entry
• Pursuit of strong research and
development (i.e. new products, process
improvement)
• Branding and forming public opinion
Benefits of Effective Strategies
• Meeting challenges of increased
competition in a globalized business
environment.
• Keeping up with technology advances.
• Learning to do more with less -
(efficiency).
• Staying ahead of copycat competitors.
• Keeping an eye on the future.
 Strategic Business Units
An SBU is a stand-alone business
within a conglomerate (parent firm)
that operates like an independent
company. Business Strategy focuses
on how an SBU addresses the
specific markets it serves and
products it provides.
 Types of Business (Generic)
Strategy
Cost Leadership – Producing at the lowest cost
to provide affordable products to customers

Differentiation – Providing uniquely different

products usually for price insensitive
customers

Market Segmentation (Niche) – Satisfying the

needs of a smaller segment of the market
that has peculiar needs.
 Strategic Issues
Overall organizational game
plan - Captures broad
objectives (i.e. mission and
long term goals) - Could also
relate to the functions - Long-
term in nature - They
represent the road map
 Tactical Issues
Relate to formulation of methods
and actions (guidance and
direction) required to accomplish
organizational and functional
strategies - Usually cover
shorter time spans - Are more
specific in nature. They represent
‘how to’ travel the road map
 Operational Issues
Relate to the most specific and
detailed plans and decision
making. They represent the
‘doing’ or actual movement
along the road map.
 Models

To answer questions like: where, when, how,

by whom and what is required to design
and produce products, OM often rely on
models.

What is a Model?
• A model is a simplified representation of
something or reality. It has all the features
of what it represents, aiding an
understanding of the real thing or issue.
 Classes of Models
• Physical models – Look like their real-life
counterparts. Visually correspond with
the reality. E.g. miniature-model building,
toy car.

• Schematic models – Quite abtsract, i.e.

Have less resemblance to the physical
reality they represent. Are relatively
simple to construct and change. E.g.
graphs, charts, drawn plan of a building.
Classes of Models
• Mathematical models – Most
abstract. i.e. bear no
resemblance at all of realities
they represent. Easiest to
manipulate – inputs for
computers and calculators. E.g.
formulas, numbers.
 Importance of Using Models

• Enable managers to analyze ‘what if’ questions

• Require users to organize and sometimes quantify
information
• Often indicate areas where additional information is
needed.
• Are generally easy to use
• Are less expensive than dealing directly with the
actual situation
• Increase understanding of problems
• Serve as consistent tools for evaluation
• Provide standardized formats for analyzing problems
 Limitations of Using Models

• Quantitative information may be

emphasized at the expense of qualitative
information and vice versa
• Their use doesn’t guarantee good decisions
• Models may be incorrectly applied and the
results misinterpreted.
• Highly sophisticated models, particularly
computerized ones may be difficult to
comprehend and adapted by people with
insufficient knowledge
Modern Trends Affecting Operations Strategy Decisions

Globalization – with its hyper-

competition creates:
• Continuous I.T advances
• Lower trade barriers
• Lower transportation costs
• Emergence of newly industrialized
countries (NIC) with high-growth
markets and high standards of living –
(Demand opportunities)
 Modern Trends Affecting
Operations Strategy Decisions
• Technology connecting anyone,
anywhere, anytime.
• Technology and speed that ensure
instantaneous transactions
• Intangibility yet focus on innovative
services to gain competitive
advantage
• Simultaneous and multi-faceted
competition.
 The New Sources of
Competitive Advantage
1. The use of environmentally friendly
processes and production of
environmentally friendly products
2. The use of information given the
inexpensive nature of storing and
transmitting large amounts of data.
Developing Operations Strategies from Competitive Priorities

• ‘Focus and trade-offs’ as factories

cannot focus on all four competitive
priorities (cost, quality, delivery, and
flexibility). ‘Win some- Lose some’
• Plant-within-a-Plant (PWP) concept -
(Skinner) - Engage different locations
within a facility which would focus on
their own competitive priority.
 Strategy formulation – Key Steps

• Link strategy directly to vision or mission

statement

• Assess SWOT and identify core competence

• Identify order qualifiers and order winners

• Select one or two strategies such as low

cost, speed, high quality etc. to focus on
Formulating Effective n’ Successful Strategies

• Find out what competitors are doing

and planning to do.
• Critically conduct SWOT analysis: SW
(Internal) - typically evaluated by OM
managers. OT – typically evaluated by
marketing people.

SWOT analysis links organizational

strategy and operations strategy.
 Formulating Effective n’
Successful Strategies
• Identify Order Qualifiers - (minimum
acceptable standards in the eyes of potential
customers) and
• Order Winners – Qualities that potential
customers perceive as better than the
competition.
• Environmental Scanning - monitoring
events and trends that present either threats
or opportunities for your products. (PESTEL –
C factors) E.g. competitors’ activities,
changing consumer needs,.
 Major External Factors
P – Political: Favourable or unfavourable. Peaceful? Civil
War?
E – Economic: Economic – How healthy. Inflation? Utility
costs?
S – Social: Demographics, Lifestyles, Culture, Education. Etc.
T – Technology: – Level of innovation applied to production,
marketing etc. (equipment, materials, handling) and
design technology
E – Environmental: Sustainability and safety issues.
L – Legal: – Government regulations, trade restrictions,
standards etc.
C – Competition – Numbers and basis of competition – Price?
Quality? special features etc), Entry barriers?
 Major Internal factors

• Human resources – Skills, abilities,

creativity, experience of managers and
workers.
• Facilities and equipment – Capacities,
maintenance and replacement costs etc.
• Customers – ensuring understanding of
customer needs, loyalty issues etc
• Product and services – quality,
improvement to products and services
etc.
 Internal factors

• Suppliers – dependability of suppliers,

quality etc.
• Technology – integration of new with
existing technology, impact on present
and future operations.
• Financial resources – cash flow,
accessibility of extra funding, debts etc.
• Others - Product image, distribution
channels, etc.
 Focusing on Core Capabilities

• Core Capabilities -specific strengths to

achieve competitive priorities.
• Skills OM function develops to differentiate
products from that of competitors.

Focusing is achieved by:

• Divesting non-critical activities.
• Subcontracting /outsourcing ancillary
activities
 Integration of Mfg. & Services
• Adopt customer activity cycle: comprising
a) Pre-purchasing – Attending to customer
enquiries
b) Purchase Activities -Actual sale & delivery,
collecting payments
c) Post Purchase Activities: - After-Sales Service

• Demonstration of knowledge and expertise to

reassuring customers - by allowing them to view
the production process and have access to
production employees.
• Product Training for Customers - to build loyalty
and increased usage
 Missions & Mission
Statements
Mission
• The basis of the organization—the reason for its
existence. Vary depending on nature of business.
Tells where organization is going

Mission Statement
• This is a statement of purpose that serves as a guide
or directional tool for strategic decision making.
• Must be clear and simple, answering the question,
“What business are we in?” ‘What do we provide
society?’ where are we going?
• Provides organizational boundaries and focus
 Components of
Mission
• Philosophy and Values
• Environment
• Customers
• Public Image
• Profitability and Growth
• Technology
• etc
 Competitiveness

• Competitiveness relates to how effectively

an organization meets the wants and
needs of customers relative to others that
offer similar goods or services.
• A company’s position in the marketplace
relative to its competitors.
• Determines whether a company prospers,
survives or fails.
• Firms compete through combination of
their marketing and operations functions.
Competing through Marketing
• Identifying consumer wants and or
needs: The ideal is to achieve a perfect
match between those wants and needs
and the firm’s products.
• Price and quality: Firms must understand
the trade off decision consumers make
between price and quality.
• Advertising and promotion: To inform
potential customers about features of
products and attract buyers.
Competing through Operations
• Product and service design
• Cost
• Location
• Quality
• Quick response time
• Flexibility
 Competing through
Operations
• Inventory management
• Supply chain management
• Service.
• Managers and workers

Competitive priorities include low cost,

high quality, fast delivery, flexibility,
and service.
Competitive Priorities
1. Low cost – check costs. Sell ‘low-
priced’
2. Quality – Producing and providing
quality
3. Delivery – Reliable and quick
delivery
4. Flexibility – Provide choice, innovate
quick
5. Service – Provide quality in every
non- product interaction
 Why Some Businesses Fail

• Emphasis on short-term financial

performance at the expense of R & D
• Not harnessing strengths; exploiting
opportunities.. not recognizing
competitive threats.
• Neglecting operations strategy.
• Emphasizing product n’ service
design; ignoring process design and
improvement.
 Why Some
Businesses Fail
• Neglecting investments in capital
and HR
• Failing to ensure good internal
communication and inter-functional
cooperation.
• Ignoring pertinent customer needs.
• Lack of needed support from
executive management.
Introducing & Implementing New &
Special Projects - Issues
With new projects, you usually find:
• Lack of user involvement
• Inexperienced project or product
manager
• Lack of skilled supervision personnel
• Lack of clear business objectives
• Lack of standard infrastructure
• Lack of formal methodology/process
• Unrealistic and unreliable estimates
 Primary Ways Firms Compete

To be competitive, firms must

develop solid and winnable
strategies for dealing with issues of:
• Better quality
• Higher productivity
• Lower costs
• Quick response to customer needs
and wants
 Specific Competitive
Tactics
• Price: Implies settling for lower profit margins –
so focus on lowering production costs.
• Quality: Buyer’s perception of fitness of a
product for its purpose. Depends on materials,
workmanship n’ design.
• Differentiation: Features that buyer perceives
as making a product more desirable than a
substitute. (e.g. design, cost, quality, ease of use,
convenient location)
• Flexibility: is the ability to respond to changes in
demand regarding volume, design, services etc.
 Specific Competitive
Tactics
• Time: Speed of - new product development;
product improvements, production processes
and delivery
• Service: Customers’ perception of ‘during’
and ‘after-sale’ activities such as: delivery,
setup, warranty work, technical support,
courtesy, attention to little details.
• Managers and workers: Skills and
creativity in: E.g. Manner in which customer
‘phone-in’ complaints are handled – rudely?
Cheerfully?
 Customer Value Propositions

It connotes giving customers a reason to

choose one’s products over others and that
spells the essence of business strategy.
Three broad categories.
Customer: Understanding and responding to
customer needs better.
Operational excellence: Delivering products
faster, more conveniently and cheaper.
Product leadership. Offering higher quality
products than competitors”
 Self Assessment questions

1. Identify and explain four reasons why some business organizations

suddenly fail in today’s competitive global market.
2. Explain four factors to consider when formulating an effective and
successful business strategy
3. Write short note on the following term
Order winners
Order qualifiers
Customer value proposition
4. Explain the various ways firm compete to gain competitive
advantage in the growing market
5. Differentiate between mission and vision; suggest four factors that
would affect the mission of an organization.
6. Identify five principles that in the current spate of business dynamic
when followed would help guarantee successful business operations.