Chapter Two

Operations strategy
and
Competitiveness
 Operations Strategy and competitiveness
• Competitive strategy is about
being different; i.e.
deliberately choosing a
different set of activities to
deliver a unique mix of value.
• The essence of strategy is in
business activities –choosing
to perform activities
differently than rivals;
otherwise a strategy is no
thing more than a marketing
slogan that will not withstand
competition.
Operations strategy and competitiveness cont’d…

• To maintain a competitive position in the

marketplace, a company must have a long-
range plan.
• This plan needs to include the company’s long-
term goals, an understanding of the
marketplace, and a way to differentiate itself
from its competitors.
 Cont’d…
• Strategy is how the mission of a company is
accomplished.
• It unites an organization, provides consistency in
decisions, and keeps the organization moving in the
right direction.
• The long-range plan of a business, designed to provide
and sustain shareholder value, is called the business
strategy.
• Operations strategy is a long-range plan for the
operations function that specifies the design and use of
resources to support the business strategy.
 Cont’d…
• The operations and other strategy must be
aligned with the company’s business strategy
and enable the company to achieve its long-
term plan.
 Cont’d…
• two companies can operate in the same industry,
but with very different business strategies; one
which has a strategy to compete on cost, while
the other may have a strategy to compete on
service.
• Operations strategy specifies the policies and
plans for using the organization’s resources to
support its long-term competitive strategy.
 Cont’d…

Relationship between the business strategy and the functional

strategy
 Cont’d…
• Is your company pointed in
one direction?
• Naturalists believe the
instinctive V-formation allows
the geese to follow one leader
and migrate in a cohesive unit
toward their destination.
• Having clear strategy helps
mobilize the organization
toward a common destination,
aligning all employees behind
a common goal.
Fig. Migrating Geese
 Developing a business strategy
• The three factors which are critical to the
development of the company’s long-range plan,
or business strategy are:
 the company’s mission - understanding of what
business the company is in,
 environmental scanning- analyzing and
developing an understanding of the market and
 core competencies- identifying the company’s
strengths
 Cont’d…

Three inputs in developing a business strategy

 Developing an operations strategy

 Once a business strategy has been developed, an

operations strategy must be formulated.
 The operations strategy relates the business
strategy to the operations function.
 It focuses on specific capability of the operation
that give the company a competitive edge.
 These capabilities are called competitive priorities.
By excelling in one of these capabilities, a company
can become a winner in its market.
 Cont’d…

Operations strategy and the design of the operations function

 Competitive Priorities
a) Competitive Priorities
• Operations managers must work closely with
marketing in order to understand the
competitive situation in the company’s
market before they can determine which
competitive priorities are important.
• There are of competitive priorities : four
broad categories
 Cont’d…
1. Cost - Competing based on cost means offering
a product at a low price relative to the prices of
competing products.
 The role of the operations strategy is to
develop a plan for the use of resources to
support this type of competition.
 a low-cost strategy can result in a higher profit
margin, even at a competitive price
 Cont’d…
• To develop this competitive priority, the operations
function must focus primarily on cutting costs in the
system, such as costs of labor, materials, and facilities.
• Companies that compete based on cost:
 study their operations system carefully to eliminate all
waste.
 offer extra training to employees to maximize their
productivity and minimize scrap.

 Cont’d…
 invest in automation in order to increase
productivity.
 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.
 Cont’d…
2. Quality -Many companies claim that quality is
their top priority, and many customers say that
they look for quality in the products they buy.
• it depends on who is defining it. For example,
quality could be -the product that lasts a long
time, such as with a Volvo, a car known for its
longevity; Or It might mean high performance,
such as a BMW.
• When companies focus on quality as a
competitive priority, they are focusing on the
dimensions of quality that are considered
important by their customers.
 Cont’d…
 Quality as a competitive priority has two
dimensions:
i) high-performance design -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.
ii) goods and services consistency- which measures how
often the goods or services meet the exact design
specifications, i.e. the same product every time at any
location.
 Cont’d…
• A company that competes on this dimension needs to
implement quality in every area of the organization.
• Operations function focus on two issues:
 product design quality- which involves making sure the
product meets the requirements of the customer.
 process quality, which deals with designing a process to
produce error-free products, i.e, the process must produce
the product exactly as it is designed.
 This includes focusing on equipment, workers, materials,
and every other aspect of the operation to make sure it
works the way it is supposed to.
 Cont’d…
Time or speed is one of the most important
competitive priorities today. Companies in all
industries are competing to deliver high-quality
products in as short a time as possible.
 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; on-time delivery refers to the number
of times deliveries are made on time.
 Cont’d…
• When time is a competitive priority, the job of
the operations function is:
 to critically analyze the system and combine or
eliminate processes in order to save time.
 use technology to speed up processes,
 rely on a flexible workforce to meet peak
demand periods, and
 eliminate unnecessary steps in the production
process.
 Cont’d…
Flexibility -the ability to readily accommodate rapidly
changing company’s environment, including customer
needs and expectations which 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
• flexible companies often offer greater customer service
and can meet unique customer requirements
 Cont’d…
• Operations focus in flexible companies :
 more general-purpose equipment that can be
used to make many different kinds of products.
 workers tend to have higher skill levels and can
often perform many different tasks in order to
meet customer needs.
 Trade-Offs
The Need for Trade-Offs
• Operations function needs to give special focus to
some priorities but not all. Aren’t all the priorities
important?
• As more resources are dedicated toward one
priority, fewer resources are left for others.
• The operations function must place emphasis on
those priorities that directly support the business
strategy.
• Therefore, it needs to make trade-offs between
the different priorities
 Cont’d…
 quality vs cost –trade off between quality and
price
 flexibility vs speed
 flexibility vs cost
• One way that large facilities with multiple
products can address the issue of tradeoffs is
using the concept of plant-within-a-plant
(PWP)
 Order Winners and Qualifiers
• A firm is in trouble if the things it does best are not
important to the customer.
• That’s why it’s essential to look toward customers to
determine what influences their purchase decision
• Order qualifiers are those competitive priorities that a
company has to meet if it wants to do business in a
particular market.
• Order winners are the competitive priorities that help a
company win orders in the market
• Note: Order winners and order qualifiers change over
time.
 Translating Competitive Priorities into Production
Requirements
• Once the competitive priorities have been identified, a
plan is developed to support those priorities.
• The operations strategy will specify the design and use of
the organization’s resources; that is, it will set forth
specific operations requirements.

• These can be broken down into two categories.

1. Structure—Operations decisions related to the design of
the production process, such as characteristics of facilities
used, selection of appropriate technology, and the flow of
goods and services through the facility.
 Cont’d…
2. Infrastructure—Operations decisions related to
the planning and control systems of the operation,
such as the organization of the operations
function, the skills and pay of workers, and quality
control approaches.
• The structure and infrastructure of the production
process must be aligned to enable the company to
pursue its long-term plan.
… END…