OPERATIONS STRATEGY AND COMPETITIVENESS

OPERATIONS STRATEGY
Operations strategy involves decisions that related to the specifications and design of the product or service, design of a production
process and the infrastructure needed to support the process, the role of inventory in the process, and locating the process. Operations
strategy decision is part of corporate planning process that coordinates the goals of operations with those of marketing and that of
larger organization. Specifically, an operations strategy must include at least the following:
1. The amounts of capacity required by the organization to achieve its aims;
2. The range and location of facilities;
3. Technology investment to support process and product developments;
4. Formation of strategic buyer-supplier relationships as part of the organization’s extended enterprise;
5. The rate of new product or service introduction;
6. Organizational structure – to reflect what the firm “does best”, often entails outsourcing of other documents.

Steven C. Wheelwright and Robert H. Haynes describe four generic roles that manufacturing can play within a company, from
strategic perspective. While they specifically discuss the manufacturing function, the term operations can be substituted with no less
in relevance. These generic roles are labeled stages 1 to 4, as explained below.

THE FOUR-STAGE MODEL OF THE STRATEGIC ROLE OF OPERATIONS

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Since most firms have the bulk of their labor force and assets tied to the operations function; it makes sense for the most firms to strive
for a position in Stage 3 or Stage 4. Firms can certainly progress from one stage to the next with few, if any, hopping stage. In reality,
the majority of exceptional firms are in Stage 3, since Stage 4 is very hard to attain.

Firms that fall short of fully taking advantage of the strategic power of operations will be hindered in their competitive abilities and
vulnerable to attack from those competitors who do exploit their operations strategy. In order to do this effectively, operations must
be involved throughout the whole business strategy. Corporate executives are inclined to presume that strategy has only to do with
marketing initiatives. They inaccurately create the assumption that operation’s role is strictly to act in response to marketing changes
rather than make inputs into them. In addition, corporate executives assume that operations have the flexibility to react positively to
changing demands.

STRATEGIC OPERATION DIMENSIONS

Operations management’s focus must increasingly be toward strategy. Operations strategies must complement with the fundamental
organizational strategies via the following ways:
1. Improved responsiveness in terms of:
a) Minimizing time to respond
b) Timely response
c) Accessibility through better locations, better geographical proximity, improved logistics and better systems of
communication
d) Wider product/service choice through flexible operations/manufacturing system, reduced throughput times, reduced
cycle times, reduced set-up I times, flexible manpower, better trained manpower, flexible machines and improved
product designs and processing capabilities
e) Increased proactivity

2. Reduced prices through:

a) Overall improvements in the production-delivery value chain
b) Better designs of products/services

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3. Improved quality through:
a) Better skills, better knowledge and better attitudinal orientation of all production and service providers
b) Improved technology
c) Reduced complexity and confusion d. Reduced problem generators

COMPETITIVE DIMENSIONS
Competitiveness is necessary for companies to sell their goods and services in the marketplace. It is an important factor in determining
the success or failure of Business. Firms often compete with its rivals in a number of ways.

There are five generic performance competitive dimensions that are particularly relevant to operations and supply chain activities.
They must be possessed by firms as operating advantages in order to outperform their competitors:
1. Quality is defined as the characteristics of a product or service that bear on its ability to satisfy stated or implied needs. An
alternative definition is features and freedom from defects.
a) Performance quality addresses the basic operating characteristics of the product or service.
b) Conformance quality addresses whether the product was made or the service performed to specifications.
c) Reliability quality addresses whether a product will work for a long time without failing or requiring maintenance.

2. Time refers to a number of different aspects of an organization's operations.

a) Delivery speed refers to how quickly the operations or supply chain function can fulfill a need once it has been
identified.
b) Delivery reliability refers to the ability to deliver products or services when fi promised.
c) Delivery window is the acceptable time range in which deliveries can be made.

3. Flexibility considers how quickly operations and supply chains can respond to the unique needs of customers.
a) Mix flexibility is the ability to produce a wide range of products or services.
b) Changeover flexibility is the ability to provide a new product with minimal delay.
c) Volume flexibility is the ability to produce whatever value the customer needs.

4. Cost refers to the ability to manufacture a product to a required cost. Typical cost management categories are labor, material,
engineering and quality related costs. Further, cost could also be failure costs, appraisal costs and prevention costs.
5. Product differentiation means any special features like design, cost, quality, ease of use, convenient location or warranty among
others that causes a product or service to be perceived by the buyer as more suitable than the competitor's product or service.

The Notion of Trade-Offs

A sustainable strategic position needs trade-offs. A trade-off is the decision by a firm to accentuate one performance dimension over
another, based on the recognition that superiority on some dimensions that may conflict with superiority on others. Firms must make
trade-offs or decisions to highlight some dimensions at the expense of others. For instance, in making decision concerning the amount
of inventory to stock, operations manager must take into consideration the trade-off between the increased level of customer service
that the additional inventory yield and the increased costs required to stock that inventory. Likewise, in choosing a piece of equipment,
a manager for operations must assess the qualities of extra features compared to the cost of those extra features. The employment of
overtime to enhance output is another example. Here the operations manager must evaluate the value of increased output versus the
increased costs of overtime such as lower productivity, higher costs of labor, lower quality and increased risks of accidents.

A strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs happens when activities are
incompatible. Simply put, a trade-off means that more of one thing necessitates less of another. An airline can choose to serve meals
adding cost and slowing turnaround time at the gate or it can choose not to, but it cannot do both without bearing major
inefficiencies.

Trade-offs takes place for three reasons. The first is inconsistencies in image or reputation. A company famous for delivering one
kind of value may credibility and confuses customers or even damages its reputation, if it delivers another kind of value or attempts to
deliver two not consistent things at the same time. For example, Ivory soap, with its position as a basic, reasonably priced everyday
soap would have a tough time reshaping its image to match Neutrogena's finest "medical" reputation. Efforts to produce a new image
typically cost tens or even hundreds of millions of money in a major industry, a dominant obstacle to imitation.

Second, and more vital, trade-offs arise from activities themselves. Different positions (with their tailored activities) entail different
product configurations, different equipment, different employee behavior, different skills, and different management systems. Many
trade-offs reflect inflexibilities in machinery, people, or systems. The more Ikea has configured its activities to lesser costs by having
its customers do their own assembly and delivery, the less able it is to satisfy customers` who need higher levels of service.

However, trade-offs can, be even more fundamental. In general, value is destroyed if an activity is overdesigned or under-designed for
its use. For example, even if a given salesperson were competent of providing a high level of assistance to one customer and none to
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another, the salesperson's talent (and some of his cost) would be wasted on the second customer. Furthermore, productivity can get
better when variation of an activity is restricted. Through providing a high level of assistance all the time, the salesperson and the
whole sales activity can frequently attain efficiencies of learning and scale.

Lastly, trade-offs arise from limits on internal coordination and control. By means of obviously preferring to compete in one way
and not another, senior management makes organizational priorities clear. Companies that try to be all things to all customers, in
contrast, risk confusion in the trenches as employees attempt to make day-to-day operating decisions with no a clear framework.

Plant-within-a-Plant (PWP)
The underlying logic was that a factory could not excel simultaneously on all four competitive priorities. Consequently, management
had to decide which priorities were critical to the firm's success, and then concentrate or focus the resources of the firm on those
particular characteristics. For firms that have numerous product lines or business units, they can employ a plant-within-a-plant (PWP)
concept where different locations within the facility are allocated to different product lines, each with their own operations strategy.

Each PWP has its own facilities in which it can focus on its particular manufacturing task, using its own work-force management
approaches, production control, organization structure, and so forth. Quality and volume levels are not combined; worker training and
incentives have an apparent focus; and engineering of processes, equipment, and materials handling are specialized as required.

Each PWP gains experience readily by focusing and concentrating every element of its work on. those restricted essential objectives
which comprise its manufacturing task. Since a manufacturing task is a brood of a corporate strategy and marketing program, it is
susceptible to either gradual or sweeping change, The PWP approach makes it easier to perform realignment of essential operations
and system elements over time as the task changes.

Straddling Defined
Straddling is an effort by one manufacturer to copy the activities or the features of another organization or its products. Straddling may
entail the addition of new features, technologies or services to the business's own existing activities. Often, straddling takes place in a
haphazard manner and is considered to be something of a hasty reaction to a competitor's introduction of a product or a process which
is deemed by the outside organization to be capable of giving the competitor an edge. For the most part, straddling may well cause
many problems than it solves, as new processes which had not been developed within the organization are squeezed into the
operations. This, in turn may cause other conflicts which are not wanted and had not been anticipated.
Order Qualifiers and Winners
Order qualifiers and order winners were terms coined by Terry Hill. Order qualifiers are criteria that situate a company's products in
consideration for purchase. Simply, these are factors that the firm needs to be able to attain in order to compete at all in the market-
place. In the absence of these capabilities the firm will lose orders. In fact, order qualifiers may turn into order losers for the firm.
Order-qualifying criteria must not therefore be sighted as less essential than order-winning criteria because failure to achieve these
will be the reason for the firm to decline. If order qualifiers are not present in a company's product they do not enter the purchase
evaluation process of significant number of customers. Order winners are those factors that win orders in the market-place over other
competitors. Order winners are given as basis for purchase by the buyers from among the choices considered for purchase. Order
winners are the features which result in orders.

An order qualifier must take in up-to-date technology because without this the firm cannot hope to compete and will decline. Low cost
is an obvious one, but delivery requirements are important too. In addition, the ability to configure to customer requirements (due to
mass customization) is also important.

Order winners and qualifiers are both market-specific and time-specific. They work in different combinations in different ways on
different markets and with different customers. While, some general trends exist across markets, these may not be stable over time.
For example, in the late 1990s delivery speed and product customization were common order winners, while product quality and
price, which previously were frequent order winners, tend to be order qualifiers. Hence, firms need to develop different strategies to
maintain different marketing needs, and these strategies will change over time. Also, since customers' stated needs do not always
reveal their buying habits, Hill recommends that firms study how customers behave, not what they say.

When a firm's perception of order winners and qualifiers match the customer's perception of the same, there exists a "fit" between the
two perspectives. When a fit exist, one would expect a positive sales performance.

THE CORPORATE STRATEGY DESIGN

The strategic perspective that Kaplan and Norton have developed is very valuable. Before Kaplan and Norton, most academic strategy
courses were dominated by the thinking of Michael Porter, who began by highlighting the "Five Forces Model" that recommended
what external, environmental factors would alter an organization's competitive situation, and then focused on improving the value
chain.

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By comparison, Kaplan and Norton have put a lot more emphasis on measures and alignment, which has certainly led to a more
comprehensive approach to strategy. During the Nineties the prime concern was with horizontal alignment. Companies tried to
eradicate operational and managerial problems that arose from silo thinking and see how a value chain linked all activities, from the
supplier to the customer. Today, most companies seem to have moved on to vertical alignment, seeking to organize the way strategies
align with measures and how processes align to the resources that implement them. In the shift, it was believed that something very
valuable from the horizontal perspective has been lost.

The focus now is on alignment without simultaneously maintaining the Kaplan and Norton claim that this generic map reflects a
generalization of their work with a large number of companies for whom they have developed specific Strategy Maps. Notice that the
four sets of Balanced Scorecard measures are now arranged in a hierarchical fashion, with Financial Measures at the top, driven by
Customer Measures, which are, in turn, the result of Internal (Process) Measures, and are supported, by Innovation and Learning
Measures.

Financial Perspective
Building a strategy map typically starts with a financial strategy for increasing shareholder value. Nonprofit and government units
often place their customers or constituents not the financial at the top of their strategy maps. Companies have two basic levels for their
financial strategy: revenue growth and productivity. The former generally has two components: build the franchise with the revenue
from new markets, new products, and new customers; and increase value to the existing customers by deepening relationships with
them through expanded like cross-selling products or offering bundled products instead of single products. The productivity strategy
also usually has two parts: improve tile company's cost structure by reducing direct and indirect expenses, and use assets more
efficiently by reducing the working and fixed capital needed to support a given level of business.

In most cases, the productivity strategy yields result sooner than the growth strategy. But one of the principal contributions of a
strategy map is to emphasize the opportunities for enhancing financial performance through revenue grow ill, not just by cost
reduction and improved asset utilization: Also, balancing the Iwo strategies helps to guarantee that cost and asset reductions do not
compromise a company's growth opportunities with customers.

Customer Perspective
The center of any business strategy is the customer value proposition, which illustrates the unique mix of product and service
attributes, customer relations, and corporate image that a company offers. It defines how the organization will differentiate itself from
competitors to attract, retain, and deepen relationships with targeted customers. The value proposition is critical because it helps an
organization connect its internal processes to improved outcomes with its customers.

Usually, the value proposition is chosen from among three differentiators: operational excellence (for example, McDonald's and Dell
Computer), customer intimacy (for example, Home Depot and IBM in the 1960s and 1970s), and product leadership (for example,
Intel and Sony). Companies struggle to excel in one of the three areas while maintaining threshold standards in the other two. Through
identifying its customer value proposition, a company will then recognize which classes and types of customers to target. In research,
it was found that although a comprehensible definition of the value proposition is the single most important step in developing a
strategy, approximately three-quarters of executive teams do not have consensus about this fundamental information.

Specifically, companies that pursue a strategy of operational excellence need to excel at competitive pricing, product quality and
selection, speedy order fulfillment, and on-time delivery. For customer intimacy, an organization must stress the quality of its
relationships with customers consisting of exceptional service and the completeness of the solutions it offers. And companies that
pursue a product leadership strategy must concentrate on the functionality, features, and overall performance of its products or
services.

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 Source: https://www.researchgate.net/figure/Strategy-map-template-for-product-leadership-Kaplan-and-Norton-2004-p-
327_fig4_255430269

Internal Process Perspective

Once an organization has a understandable picture of its customer and financial perspectives, it can then establish the means by which
it will realize the differentiated value proposition for customers and the productivity improvements to get to its financial objectives.
The internal process perspective captures these vital organizational activities, which fall into four high-level processes: build the
franchise by innovating with new products and services and by penetrating new markets and customer segments; increase customer
value by deepening relationships with existing customers; achieve operational excellence by improving supply chain management, the
cost, quality, and cycle time of internal processes, asset utilization, and capacity management; and become a good corporate citizen by
establishing effective relationships with external stakeholders.

An important caution to remember here is that while many companies espouse a strategy that calls for innovation or for developing
value-adding customer relationships, they mistakenly choose to measure only the cost and quality of their operations and not their
innovations or their customer management processes. These companies have an absolute disconnect between their strategy and how
they determine it. Not to my surprise, these organizations normally have great difficulty implementing their growth strategies.

The financial benefits from improved business processes typically disclose themselves in stages. Cost savings from increased
operational efficiencies and process improvements create short-term benefits. Revenue growth from enhanced customer relationships
accrues in the intermediate term. And increased innovation can produce long-term revenue and margin improvements. Thus, a
complete strategy should involve generating returns from all three of these internal processes.

Learning and Growth Perspective

The foundation of any strategy map is the learning and growth perspective, which defines the core competencies and skills, the
technologies, and the corporate culture needed to support an organization's strategy. These objectives enable a company to align its
human resources and information technology with its strategy. Specifically, the organization must decide how it will satisfy the
requirements from vital internal processes, the differentiated value proposition, and customer relationships. Although executive teams
readily acknowledge the importance of the learning and growth perspective, they generally have trouble defining the corresponding
objectives.

STRATEGIC FIT - FITTING OPERATIONAL ACTIVITIES TO STRATEGY

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The extent to which the activities of a single organization or of organizations working in partnership complement each other in such a
way as to contribute to competitive advantage. The benefits of good strategic fit include cost reduction, due to economies of scale, and
the transfer of knowledge and skills.

Strategic fit exists when value chain of different business are related. When these different value chains allow transferring skills and
expertise from one business to other, and their combined performances work to reduce cost. Operational fit arises when different
businesses work along in order to explore opportunities for cost-sharing or skill transfer. This fit includes the following:
1. Procurement of purchased inputs
2. R&D/technology
3. Manufacture & assembly
4. Administrative support functions
5. Marketing & distribution

Types of Strategic Fit

There are three types of fit, although they are not mutually exclusive. First-order fit is simple consistency between each activity
(function) and the overall strategy. Vanguard, for example, aligns all activities with its low-cost strategy. It minimizes portfolio
turnover and does not need highly compensated money managers. The company distributes its funds directly, avoiding commissions
to brokers. It also limits advertising, relying instead on public relations and word-of-mouth recommendations. Vanguard ties its
employees' bonuses to cost savings.

Consistency ensures that the competitive advantages of activities cumulate and do not erode or cancel themselves out. It makes the
strategy easier to communicate to customers, employees, and shareholders, and improves implementation through single-mindedness
in the corporation.
Second order fit occurs when activities are reinforcing. Neutrogena, for example, markets to upscale hotels eager to offer their guests
a soap recommended by dermatologists. Hotels grant Neutrogena the privilege of using its customary packaging while requiring other
soaps to feature the hotel's name. Once guests have tried Neutrogena in a luxury hotel, they are more likely to purchase it at the
drugstore or ask their doctor about it. Thus Neutrogena's medical and hotel marketing activities reinforce one another, lowering total
marketing costs.

Third-order fit goes beyond activity reinforcement is called optimization of effort. The Gap, a retailer of casual clothes, considers
product availability in its stores a critical element of its strategy. The Gap could keep products either by holding store inventory or by
restocking from warehouses. The Gap has optimized its effort across these activities by restocking its selection of basic clothing
almost daily out of three warehouses, thereby minimizing the need to carry large in-store inventories. The emphasis is on restocking
because the Gap's merchandising strategy sticks to basic items in relatively few colors. While comparable retailers achieve turns of
three to four times per year, the Gap turns its inventory seven and a half times per year. Rapid restocking, moreover, reduces the cost
of implementing the short model cycle, which is six to eight weeks long.

In all three types of fit, the whole matters more than any individual part. Competitive advantage grows out of the entire system of
activities. The fit among activities substantially reduces cost or increases differentiation. Beyond that, the competitive value of
individual activities—or the associated skills, competencies, or resources— cannot be decoupled from the system or the strategy. Thus
in competitive companies it can be misleading to explain success by specifying individual strengths, core competencies, or critical
resources. The list of strengths cuts across many functions, and one strength blends into others. It is more useful to think in terms of
themes that pervade many activities, such as low cost, a particular notion of customer service, or a particular conception of the value
delivered. These themes are embodied in nests of tightly linked activities.

Activity-System Maps Defined

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Activity-system maps, such as this one for Ikea (see Figure 3), show how a company's strategic position is contained in a set of
tailored activities designed to deliver it. In companies with a clear strategic position, a number of higher-order strategic themes (in
blue) can be identified and implemented through clusters of tightly linked activities (in gray).
Source: https://www.b2binternational.com/publications/differentiation/

Focusing on Core Capabilities

In order to successfully put into practice an operations strategy, be it within a manufacturing firm or within a service, certain core
capabilities must be recognized. These core capabilities let the firm to set up its competitive priorities in the marketplace. Core
capabilities can thus be described as that skill or set of skills that the operations management function has developed that permits the
firm to differentiate itself from its competitors. Similar core capabilities need to be identified in the other functional areas too, and
each of these functional capabilities should be aligned to meet the overall goals of the organization.

In order to focus on these core capabilities, firms, both in manufacturing and services, have begun to dissociate themselves from those
activities that are not considered being vital to their success. In manufacturing, more and more components and subassemblies that
were formerly built in-house are now being subcontracted or outsourced to suppliers. As a consequence, the material cost in most
manufacturing companies, as a percentage of total manufacturing costs, has significantly increased in recent years. On the other hand,
the labor cost, as a percentage, has been significantly reduced, often to less than 5 percent of total costs.

This focus on core capabilities also has impacted services. More and more service operations are now subcontracting out
supplementary support services that were formerly provided in-house. Once more, this strategy has allowed these services to focus on
improving their core capabilities. For instance, some universities subcontract bookstore operations to retailers. In many instances, the
companies that have subcontracted support services have revealed that the subcontractors can execute them better and at a lower cost
than when they were done within. This focus on core capabilities further supports the concept of a value chain. Here each company
focuses on its core capabilities, thereby permitting it to exploit its value contribution to the end product that is provided to the
customer.

Integration of Manufacturing and Services

Many firms are currently looking.to incorporated and user-friendly service as a means of obtaining a competitive advantage in the
marketplace. In so doing they are recognizing the need to align and integrate the products that are being offered. This is true for both
manufacturing and service operations. Xerox Canada, customarily a manufacturer of copiers and printers, at present calls itself the
"document company." In order to improve their competitiveness, they have moved from providing only hardware to offering solutions
that can improve the customer's processing of information, which involves a considerable value-added service aspect. As another
illustration, SKF in Sweden no longer produces Only ball bearings for its after-market or replacement business. It also provides advice
to customers on spare parts management, training, and installation, and suggests good preventative maintenance practices that will
extend the life of the bearings.

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These services can range from activities in the pre-purchase to purchase and post -purchase phases and even activities downstream
from production such as distribution. Hendrix Voeders, traditionally a feed supplier to pig farmers • Holland, now provides a wide
range of services including consulting on pig breeding, nutritional management, and logistics. Coca-Cola has taken over some of the
bottling and distribution of Coke products, downstream activities that were previously done by independent bottlers.

Some manufacturers offer extensive customer training to accompany the purchase of products. Customers become familiar with the
products and learn to use them optimally. In addition, this training can act as a competitive barrier. The Foxboro Company uses
training to distance itself from the competition. Before its process control products are delivered, customers are invited to Foxboro's
manufacturing facility, where their equipment is set up and they learn how to use it under the guidance of Foxboro instructors. This is
one of the reasons Foxboro experiences a very high percentage of repeat business from existing customers.

By integrating goods and services into a total package, or a "bundle of benefits," companies are better able to address the overall needs
of their customers.

ATTACKING THROUGH OPERATIONS

All these successful attacks were based primarily on the kind of operations-based advantages. Indeed, that operations advantage was
the key to the sustainability of the attacker's success. None were built around a new product or service, a unique technology, or a
marketing or financial advantage. Nor did the attackers do anything that could not have been copied by any of their competitors, had
they reacted in time. But, over time, the attackers became so effective at implementing their strategies, and extending them into new
areas, that the approaches they employed were no longer easily replicable.

There are two ways in which these successful attackers created and exploited their operating advantage. First, they adopted an
operations strategy that gave them a competitive advantage along dimensions or in locations that, although valued by certain subsets
of their customers, were not being emphasized by competitors. This is what is sometimes referred to as a differentiating competitive
position. Often, the operating capabilities they developed were cultivated in other countries or different industries. Second, they
reinforced this alternative way of appealing to customers with the development of a tightly integrated system of supporting values,
skills, technologies, supplier/customer relationships, human resources, and approaches to motivation that were neither easily copied
nor transferable to other organizations.

The key to the successful counterattacks was that the incumbents either persuaded customers that their own competitive advantage
was more desirable than the attacker's; they exploited the inherent weaknesses in the attacker's specialized operating systems; and/or
they emulated its strategy so quickly that the attacker never had enough time to develop a superior operating effectiveness.

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