2-1 Competitiveness, Strategy, and Productivity

Operations Management

William J. Stevenson
 2-2 Competitiveness, Strategy, and Productivity

CHAPTER
2

Competitiveness and
Operations Strategy

McGraw-Hill/Irwin
2-3 Competitiveness, Strategy, and Productivity

Competitiveness:

How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services
2-4 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

 Identifying consumer wants and needs

 Pricing

 Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Product and service design

 Cost
 Location
 Quality
 Quick response/speed
2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Flexibility
 Inventory management

 Supply chain management

 Service
2-7 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

 Too much emphasis on short-term financial

performance
 Failing to take advantage of strengths and
opportunities
 Failing to recognize competitive threats

 Neglecting operations strategy

2-8 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

 Too much emphasis in product and service

design and not enough on improvement
 Neglecting investments in capital and human
resources
 Failing to establish good internal
communications
 Failing to consider customer wants and needs
2-9 Competitiveness, Strategy, and Productivity

Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
2-10 Competitiveness, Strategy, and Productivity

Strategy
 Mission
 The reason for existence for an organization
 Mission Statement
 Answers the question “What business are we in?”
 Goals
 Provide detail and scope of mission
 Strategies
 Plans for achieving organizational goals
 Tactics
 The methods and actions taken to accomplish strategies
2-11 Competitiveness, Strategy, and Productivity

Operations Strategy
 Decision Making Levels
 Strategic
 Long-term
 Broad in scope; lowest level of detail
 Traditionally -- top management
 Tactical
 Intermediate term
 Resource acquisition (suppliers, employees, ...)
 Middle management
 Operational
 Day-to-day
 Scheduling (shifts, purchases, customers, ...)
 First-line supervisors (team leaders)
2-12 Competitiveness, Strategy, and Productivity

Planning and Decision Making

Figure 2.1

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
2-13 Competitiveness, Strategy, and Productivity

Strategy Example
Example 1
Rita is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably
Mission: Live a good life
 Goal: Successful career, good income
 Strategy: Obtain a college education
 Tactics: Select a college and a major
 Operations: Register, buy books, take
courses, study, graduate, get job
2-14 Competitiveness, Strategy, and Productivity

Examples of Strategies

 Low cost
 Scale-based strategies

 Specialization

 Flexible operations

 High quality

 Service
2-15 Competitiveness, Strategy, and Productivity

Strategy and Tactics

 Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
 Price
 Quality
 Time
 Flexibility
 Service
 Location
2-16 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Citibank

Location Convenience Banks, ATMs

2-17 Competitiveness, Strategy, and Productivity

Strategy and the Internet

 Internet can be used to create a distinctive

business strategy
 eBay, Lelong, Mudah
 unlimited capacity and a huge market
 all work is done by buyers and sellers and
there is no marginal cost
2-18 Competitiveness, Strategy, and Productivity

Strategy and the Internet (cont.)

 Internet can be used to strengthen existing

competitive advantages by integrating new and
traditional activities
 Online Banking
 Intel
 sells $2 billion a month over the Internet
 purchases 80% of its direct materials online
 replaced 19,000 sales-order faxes received daily
2-19 Competitiveness, Strategy, and Productivity
Operations Strategy:
Products and Services
 Make-to-Order
 products and services are made to customer
specifications after an order has been received
 Make-to-Stock
 products and services are made in anticipation
of demand
 Assemble-to-Order
 products and services add options according to
customer specifications
2-20 Competitiveness, Strategy, and Productivity

Product Strategy

Brand portfolio?
2-21 Competitiveness, Strategy, and Productivity

Types of Strategy

 Competitive Advantage – something which gives

the organisation some advantage over its rivals
 Cost advantage – A strategy to seek out and
secure a cost advantage of some kind - lower
average costs, lower labour costs, etc.
2-22 Competitiveness, Strategy, and Productivity

Types of Strategy

 Market Dominance:
 Achieved through:
 Internal growth
 Acquisitions – mergers and takeovers
 New product development: to keep ahead of
rivals and set the pace
 Contraction/Expansion – focus on what you are
good at (core competencies) or seek to expand into a range
of markets?
2-23 Competitiveness, Strategy, and Productivity

Types of Strategy

 Price Leadership – through dominating the

industry – others follow your price lead
 Global – seeking to expand
global operations
 Reengineering – thinking outside the box –
looking at news ways of doing things to leverage
the organisation’s performance
2-24 Competitiveness, Strategy, and Productivity

Types of Strategy

 Internal business level strategies –

 Downsizing – selling off unwanted parts of the
business – similar to contraction
 Delayering – flattening the management structure,
removing bureaucracy, speed up decision making
 Restructuring – complete re-think of the way the
business is organised
2-25 Competitiveness, Strategy, and Productivity

Strategy Formulation

 Distinctive competencies
 Environmental scanning

 SWOT

 Order qualifiers

 Order winners
2-26 Competitiveness, Strategy, and Productivity

Strategy Formulation

 Order qualifiers
 Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
 Order winners
 Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competition
2-27 Competitiveness, Strategy, and Productivity

Key External Factors

 Political conditions
 Economic conditions

 Social conditions

 Technology

 Competition

 Markets

 Legal environment
2-28 Competitiveness, Strategy, and Productivity

Key Internal Factors

 Human Resources
 Facilities and equipment

 Financial resources

 Customers

 Products and services

 Technology

 Suppliers
2-29 Competitiveness, Strategy, and Productivity
Operations Strategy:
Capacity and Facility
 Capacity strategic decisions include:
 When, how much, and in what form to alter
capacity
 Facility strategic decisions include:
 Whether demand should be met with a few
large facilities or with several smaller ones
 Whether facilities should focus on serving
certain geographic regions, product lines, or
customers
 Facility location can also be a strategic decision
2-30 Competitiveness, Strategy, and Productivity

Operations Strategy: Human Resources

 What are the skill levels and degree of autonomy
required to operate production system?
 What are the training requirements and selection
criteria?
 What are the policies on performance evaluations,
compensation, and incentives?
 Will workers be salaried, paid an hourly rate, or
paid a piece rate?
 Will profit sharing be allowed, and if so, on what
criteria?
2-31 Competitiveness, Strategy, and Productivity

Operations Strategy: Human Resources (cont.)

 Will workers perform individual tasks or work in

teams?
 Will they have supervisors or work in self-
managed work groups?
 How many levels of management will be
required?
 Will extensive worker training be necessary?
 Should workforce be cross-trained?
 What efforts will be made in terms of retention?
2-32 Competitiveness, Strategy, and Productivity

Operations Strategy: Quality

 What is the target level of quality for our
products and services?
 How will it be measured?
 How will employees be involved with quality?
 What will the responsibilities of the quality
department be?
2-33 Competitiveness, Strategy, and Productivity

Operations Strategy: Quality (cont.)

 What types of systems will be set up to ensure
quality?
 How will quality awareness be maintained?
 How will quality efforts be evaluated?
 How will customer perceptions of quality be
determined?
 How will decisions in other functional areas affect
quality?
2-34 Competitiveness, Strategy, and Productivity

Operations Strategy: Sourcing

 Vertical Integration
 degree to which a firm produces parts that go
into its products
 Strategic Decisions
 How much work should be done outside the
firm?
 On what basis should particular items be made
in-house?
 When should items be outsourced?
 How should suppliers be selected?
2-35 Competitiveness, Strategy, and Productivity

Operations Strategy: Sourcing (cont.)

 What type of relationship should be maintained
with suppliers?
 What is expected from suppliers?
 How many suppliers should be used?
 How can quality and dependability of suppliers
be ensured?
 How can suppliers be encouraged to
collaborate?
2-36 Competitiveness, Strategy, and Productivity

Operations Strategy: Operating Systems

 How will operating systems execute strategic
decisions?
 How does one align information technology and
operations strategic goals?
 How does information technology support both
customer and worker demands for rapid access,
storage, and retrieval of information?
 How does information technology support
decisions making process related to inventory
levels, scheduling priorities, and reward
systems?
2-37 Competitiveness, Strategy, and Productivity

Operations Strategy
 Elements of OM Strategy
 Inputs
 Add/remove capacity; outsourcing issues
 Skills/flexibility of workforce
 Safety/environmental commitment
 Transformation process
 Product/process development investment
 Commitment to standardization
 Control systems and automation
 Outputs
 Line of goods/services
 Focus on customer
2-38 Competitiveness, Strategy, and Productivity

Strategic Planning

Mission
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