CHAPTER TWO

OPERATIONS STRATEGY AND

COMPETITIVENESS
By: Mr. Wendwesen Siyum (Asst.
Prof)

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 Learning objectives
At the end of this chapter you will be able to
 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 of the operations function.

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.
INTRODUCTION
 Companies must be competitive to sell their goods
and services in the market place.
 Competitiveness is an important factor in
determining whether a company prospers, or fails.
 Business organizations compete with one another
in variety of ways i.e. by identifying operating
priorities.

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Operations Strategy and Competitiveness
 Competitiveness:
How effectively an organization meets the wants
and needs of customers relative to others that
offer similar goods or services
Organizations compete through some
combination of their marketing and operations
functions
Basic Questions for Competitiveness
What do customers want?
How can these customer needs best be
satisfied?
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Competitive Priorities

 There are five Operations Performance

Objectives:
1)The Cost Objective
 The lower the cost of producing their goods and
services, the lower can be the price to their
customers. The ability to produce at low cost.
2) The Quality Objective
 The ability to produce in accordance with
specification and without error.
 Quality is consistent conformance to customers’
expectations, ‘doing things right’, but the things
which the operation needs to do right will vary
according to the kind of operation.
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3)The Speed Objective
The ability to do things quickly in response
to customer demands and thereby offer short
lead times between when a customer orders a
product or service and when they receive it.
4)The Dependability Objective
Dependability means doing things in time for
customers to receive their goods or services
exactly when they are needed, or at least
when they were promised.

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5) The Flexibility Objective
Ability to respond to changes. Changing what the
operation does, how it is doing it, or when it is
doing it.
 The better a company as able to respond to
changes, over another company that is not able to
respond. Such as:
Frequent new products/services
Wide range of products/services
Changing the volume of product/service deliveries
Changing the timing of product/service deliveries

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Operations Strategy
 Operations strategy is concerned with setting broad
policies and plans for using the resources of the firm to
best support the firm’s long-term competitive strategy.
 Operations strategy is the plan that specifies the design
and use of these resources to support the business
strategy.
 This includes the location, size, and type of facilities
available; worker skills and talents required; use of
technology.
 Strategies: - are plans for achieving goals.
Amazon.com has multiple strategies. Not only does it
offer low cost and quick, reliable deliveries, it also
excels in customer service.
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Organızatıon Strategy Vs Operatıons Strategy
 The organization strategy provides the overall
direction for the organization.
 It is broad in scope covering the entire organization
 Operations strategy is the approach consistent with
organization strategy that is used to guide the
operations function.
 Operations has a major influence on competitiveness
through product and service design, cost, location,
quality, response time, flexibility, inventory and
supply chain management, and service. It is
narrower in scope, dealing with the operations
aspect of the organization.

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Operations Strategy….
Operations Strategy relates to:
 products,
 processes,
 methods,
 operating resources quality,
 costs,
 lead times,
 and scheduling.

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 Strategıc Plannıng
Mission and
Vision

Voice of the Corporate Voice of the

Business Strategy Customer

Marketing Operations Financial

Strategy Strategy Strategy
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Operations Strategy Process
 How an organization sets about developing an
appropriate operations strategy.
A) Top-down
It is one in which the operations strategy is derived
from, and is supportive of the organization’s
business strategy; an operations strategy that the
organization uses to realize its business strategy.

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For example, if the organization’s business
strategy is one of offering low prices, then
the operation’s task should be one of
achieving low costs in operations.
 If the business strategy is based on offering
customers fast delivery, the operations task
should be one of achieving speed in
operations etc.
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B) Bottom-up
It sees operations strategy emerging through
a series of actions and decisions taken over
time within operations.
Organization learns from its experiences,
developing and enhancing its operational
capabilities as operations managers try new
things out in an almost experimental fashion
using their workplaces as a kind of ‘learning
laboratory’.

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C) Market-led
The operations strategy is developed in
response to the market environment in which
the organization operates.
Organization’ operations strategy should be
linked to its marketing strategy by
considering how its products and services
win orders in the market place.
The market requirements for the product or
service are analyzed in terms of various
competitive factors (cost, quality, reliability).
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D) Operations-led
It is one in which its excellence in
operations is used to drive the
organization’s strategy. It fits with the
resource-based view (RBV).
The premise of the RBV is that superior
performance comes from the way that an
organization acquires, develops and deploys
its resources/tangible& intangible and
builds its capabilities rather than the way it
positions itself in the market place.
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New Strategies Vs. Tradıtıonal Strategıes
Tradıtıonal Strategıes is based on :
1. Cost minimization and
2. Product differentiation
Cost minimization
 Eliminate all waste
 Invest in
 Updated facilities & equipment
 Streamlining/reform operations
 Training & development
Product differentiation
 by offering unique goods or services that make
customers feel special, superior;
o design, styling, functionality, features, after-sales
service, better branding, superior reliability.
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Operations Strategy….
New Strategies:
Many organizations are adopting new
strategies that are based on:
1) Quality Based Strategy
2) Time Based Strategy

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New Strategies….
1) Quality-based Strategy
 Strategy that focuses on quality in all phases of an
organization.
 Focuses on maintaining or improving the quality of an
organization’s products or services
 Understand customer attitudes toward and expectations of
quality
 Quality at the source
Pursuit of such a strategy is rooted in a number of factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
A part of a cost reduction strategy

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New Strategies….
2) Time-based Strategies
 It focus on the reduction of time needed to
accomplish tasks.
 Competing on speed: fast moves, fast
adaptations, tight linkages.
It is believed that by reducing time, costs are
lower, quality is higher, productivity is higher,
time-to-market is faster, and customer service is
improved.

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Tıme-based Strategıes….
Areas where organizations have achieved
time reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints

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Order Winners and Qualifiers Strategies
Order Qualifiers are those competitive priorities
that a company has to meet if it wants to do
business in a market.
Characteristics that potential customers perceive as
minimum standards of acceptability for a product to
be considered for purchase.
E.g. Order qualifiers might be: low price, quality &
quick delivery
 Therefore, firms must provide the qualifiers in order
to get into or stay in a market.
 To provide qualifiers, they need only to be as good
as their competitors.
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Order Winners and Qualifiers Strategies …
 Order winnersare the competitive priorities that help a
company win orders in the market/other competitors.
 Are the criteria that differentiate the products and services
of one firm from another.
 Toprovide order winners, firms must be better than their
competitors
• Example: Pizza, order qualifiers might be low price (less
than 50.00 birr) and quick delivery (say, under 15 minutes),
because this is a standard that has been set by competing
pizza restaurants. Order winner may be “fresh ingredients”
and “home-made taste.” This may be what makes different
from all the other pizza restaurants.
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Operations Strategy in Manufacturing
It must be linked vertically to the customer
and horizontally to other parts of the
enterprise.
E.g. financial ,human resources …
manufacturing operations, relate enterprise
resource capabilities to satisfy those needs
Its framework is senior management's
strategic vision of the firm.

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Operations Strategy in Manufacturing….
The vision identifies, in general terms, the target
market, the firm's product line, and its core
enterprise and operations capabilities to achieve
operations strategy .
Core capabilities are those skills that differentiate
the manufacturing (or service firm) from its
competitors.
 
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Organizational Core Competencies
1. Workforce:
o Highly trained & responsive in meeting customer needs
o Strong technical capability
o Creative in product design
2. Facilities
o Flexible in producing a variety of products
o Technologically advanced & efficient distribution system
3. Market Understanding:
o Understanding customer wants and predicting market
4. Financial Know-how
o Skilled in attracting and raising capital
5. Technology
o Use of latest production technology
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Developing a Manufacturing Strategy
Objectives

To translate required priorities into specific

performance requirements for 'operations
To make the necessary plans to assure that
operations (and enterprise) capabilities are
sufficient to accomplish them.

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Developing a Manufacturing Strategy …
The steps for developing priorities are
1. Segment the market according to the
product group.
2. Identify the product requirements,
demand patterns, and profit margins of
each group.
3. Determine the order winners and order
qualifiers for each group.
4. Convert order winners into specific
performance requirements.
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 Operations Strategy in Services
The 21st century has placed immense
importance on the service operations
industry.
B/c it's no longer good enough to have a
solid product if the consumer is unhappy
with the services.
Therefore, a service operations manager
ensures that customers feel respected by the
company and
Company itself feel respected and
empowered while doing their job. 29
Operations Strategy in Services….
Any service organization depends upon its
operations staff to deliver quality service to
both its customers and internal employees.
Operations strategy in service firms is
generally inseparable from the corporate
strategy.

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Steps in Developing a Service Strategy
1. Segment the market according to the
product/service group
 E.g. A person interested in buying a sedan
car(seats with five people) would rarely show
interest in buying SUV(Sport Utility Vehicle) car,
the market segmentation should be just and
careful.
2. Identify product/service requirements, demand
patterns, and profit margins of each group
 ( Market research department should be able to
capture these with the help of MIS systems)

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Steps in Developing a Service Strategy…

3.Determine order qualifiers and winners for

each group
 (Order Qualifiers should meet customer
requirements and
 Order Winners would satisfy customers)
4. Convert order winners into specific
performance requirements
 Continuous improvement always helps
 E.g. it is what the Japanese has perfected
through KAIZEN)
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Current Trends Affecting Operations
Strategy Decisions
Two major trends that have significantly
impact on role of operations strategy within
an organization are:
Globalization and
Advances in technology, especially
information technology.

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 .
Globalization
Bring s hyper-competition
Provides new opportunities for
companies in the form of new, untapped
markets
New sources for raw materials and
components at significantly lower costs.

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Technology
 Help to improve processes and maintain up-to-
date standards.
Can improve quality, reduce costs, and improve
product delivery
Help to support the company’s chosen competitive
priorities
Replace traditional ways of doing business
specially IT
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Operations Strategy and Productivity
Operations management is responsible for
managing the transformation of many inputs
into outputs, such as products or services.
 Productivity is a measure of how efficiently
inputs are being converted into outputs.
How a country, region, industry, company,
business unit, department, ... uses its
resources (relative to others).
Broadly defined as the ratio of OUTPUTS
to INPUTS
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 The End

Thank you!

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