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    Chapter 2: Strategy: Part I: Attacking and Defending Through Operations (Not From The Textbook)

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    1. Operations-based strategies can allow companies to successfully attack larger competitors by differentiating themselves, being difficult to imitate, and remaining less visible. 2. Several case studies are described where companies used operations-based strategies like low costs (Walmart, Southwest), superior design/customization (Crown Equipment, Japanese auto manufacturers), and faster response (Australian Paper Manufacturers) to gain market share from larger competitors. 3. Defending against such attacks requires quickly reacting to neutralize a competitor's gains, exploiting one's own strengths while attacking their weaknesses, and advancing one's capabilities faster than others can learn.

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    Chapter 2: Strategy: Part I: Attacking and Defending Through Operations (Not From The Textbook)

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    1. Operations-based strategies can allow companies to successfully attack larger competitors by differentiating themselves, being difficult to imitate, and remaining less visible. 2. Several case studies are described where companies used operations-based strategies like low costs (Walmart, Southwest), superior design/customization (Crown Equipment, Japanese auto manufacturers), and faster response (Australian Paper Manufacturers) to gain market share from larger competitors. 3. Defending against such attacks requires quickly reacting to neutralize a competitor's gains, exploiting one's own strengths while attacking their weaknesses, and advancing one's capabilities faster than others can learn.

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    1. Operations-based strategies can allow companies to successfully attack larger competitors by differentiating themselves, being difficult to imitate, and remaining less visible. 2. Several case studies are described where companies used operations-based strategies like low costs (Walmart, Southwest), superior design/customization (Crown Equipment, Japanese auto manufacturers), and faster response (Australian Paper Manufacturers) to gain market share from larger competitors. 3. Defending against such attacks requires quickly reacting to neutralize a competitor's gains, exploiting one's own strengths while attacking their weaknesses, and advancing one's capabilities faster than others can learn.

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    136 views8 pages

    Chapter 2: Strategy: Part I: Attacking and Defending Through Operations (Not From The Textbook)

    Uploaded by

    rssarin
    1. Operations-based strategies can allow companies to successfully attack larger competitors by differentiating themselves, being difficult to imitate, and remaining less visible. 2. Several case studies are described where companies used operations-based strategies like low costs (Walmart, Southwest), superior design/customization (Crown Equipment, Japanese auto manufacturers), and faster response (Australian Paper Manufacturers) to gain market share from larger competitors. 3. Defending against such attacks requires quickly reacting to neutralize a competitor's gains, exploiting one's own strengths while attacking their weaknesses, and advancing one's capabilities faster than others can learn.

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    of 8

    Chapter 2: Strategy

    Competitive strategy is about being different to deliver more unique and better value to
    the customer. Please read the example of Timbuk2 on page 50-51 of the textbook.
    A strategy that is sustainable needs to create value for the firms shareholders (equity
    owners) and stakeholders (individuals and organizations that are affected by the firms
    actions). Thus, a firms strategy must not only focus on economic viability, but also the
    environment and social impact of its actions.
    The operations and supply-chain strategy coordinates operational goals with the higher
    goals of the organization. Besides the basic competitive dimensions of cost, quality,
    delivery speed (response time), and flexibility mentioned in Chapter 1, other competitive
    dimensions are reliability, changes in volume, new product introduction speed, and other
    product-specific criteria. Usually, there are trade-offs that need to me made among
    these dimensions.
    Operations and supply-chain strategies need to be evaluated relative to their riskiness.
    Supply-chain disruptions are unplanned and unanticipated events that disrupt the normal
    flow of goods and materials. Risks can be categorized along two dimensions: supplychain coordination risks and disruption risks.
    One must identify the potential
    interruptions, assess the potential impact of the risk, and develop plans to mitigate the
    risk.
    Part I: Attacking and Defending through Operations (not from the textbook)
    Consider the following questions:

    Why are small companies sometimes able to come out of nowhere and, without the
    benefit of economies of scale and market power, successfully attack large,
    entrenched competitors?

    Why didnt those powerful competitors react more promptly and vigorously to such
    attacks even after extended periods of time?

    How have some companies, in contrast, been able to defend themselves


    successfully?

    The answer lies in the surprising power of operations-based strategies: Such strategies
    reinforce a companys chosen approach to differentiating itself from its competitors; they
    are inherently difficult and time consuming for others to imitate and impossible to buy;
    and they are less visible to outsiders, and therefore less likely to trigger immediate

    counter-attacks. Let us look at several cases:


    Case 1: Southwest Airlines
    Read pages 39-40 of the text (last para on Page 39 and the first para on page 40) and
    add the following information to it.

    1971: Began in Dallas, with a wing and a prayer

    Began service outside Texas at end of 1970s

    1980s: Steady expansion, emphasizing direct, no frills service and egalitarian


    workforce policies

    1992: 7th largest (and only profitable) U.S. airline

    Its strategy was low-cost, point-to-point service between midsize cities and secondary
    airports in large cities.
    Case 2: Australian Paper Manufacturers

    1986: entered the fine paper market in Australia

    Its domestic competitor, APPM, had a 75% SOM, a low cost position, owned two of
    Australias three largest paper distributors. and was backed by a big conglomerate

    1990: APM had taken a third of the domestic market, was operating its newly rebuilt
    paper plant at capacity, and had announced plans to expand

    1993: APPM capitulated--selling all its paper operations to APM and exiting the
    business

    Its strategy was higher quality and faster response.


    Case 3: Crown Equipment Corp. Crown Equipment Corp.

    Entered the forklift truck business in 1957 (total sales <$1 mill.), with a small, manual
    model.

    Thereafter, entered segment after segment, each time taking on larger competitors
    and winning substantial market shares.

    Each time it differentiated itself with superior design (aesthetics and ease of
    operation), at a premium price.

    Today is the third largest producer in the U.S. (even though it only produces electric
    trucks).

    Its strategy was better design and customized products.


    Case 4: Wal Mart

    Went public in 1972, when it had only 30 discount stores in rural Arkansas, Missouri
    & Oklahoma.

    Steadily expanded around that base, emphasizing low cost operations, egalitarian
    workforce policies, and a tightly integrated supplier/logistics system.

    Built state-of-the-art I.T. systems and capabilities

    By 1987 had 1200 stores (~ half as many as Kmart), and was approaching its
    strongholds in major cities.

    By 1993 was in Kmarts face and half again as big.

    Its strategy was low cost operations.


    Case 5: U.S. versus Japanese Auto Manufacturers
    There original strategy was fewer defects and more reliable autos.
    Reasons for Success and Failure
    In all of these cases, the obvious questions are

    Why did the large, powerful, entrenched competitors prove to be so vulnerable?

    Why didnt they react faster when the threat became clear?

    Why were they apparently unable to mount an effective counterattack?

    Why werent they able to learn from--or even copy--the innovative practices of the
    upstart?

    While the counter attacks, if any, were not successful in the cases described above, here
    is a case of a successful counter-attack:

    American Connector Co. (ACC, disguised name) learned that DJC, a Japanese
    competitor, was planning to build a new factory in the U.S.

    DJCs factory in Japan had, through a series of innovations, reduced the cost of
    making comparable products by about 35 percent.

    ACC immediately began planning a counter-attack:

    initiated a major cost reduction program in the U.S., using DJCs example as
    a source of new approaches
    sold its customization capabilities and problem-solving services to
    customers
    reduced prices of products directly competitive with the ones DJC had tooled
    up to build, starving its new plant

    Attacking through operations: There are two broad approaches:


    1. Operations--Based Strategy: Positioning: Addressing the needs of a different
    market niche, and/or using a different process technology

    Each business unit has its own strengths & weaknesses, and may choose to
    compete in a different way

    An operating system/organizations design enables it to deliver particularly strong


    performance along certain dimensions, but limits its performance along others

    Therefore, an operating system should be configured and managed so that it


    provides superiority along dimensions that are competitively important, while
    accepting lesser performance along those that arent

    Seek competitive superiority through lower cost, better quality (performance), more
    flexible/responsive, more dependable, and so forth

    Operating System Decision Categories

    Structure

    Policies & Systems

    Capacity

    Work scheduling

    Facilities

    Quality systems

    Equip. Technology

    Human Resource Policies

    Sourcing/Make vs. buy

    Measurement & Reward systems, Product/process


    development, and Resource Allocation & Organization

    Every operating source of strength has an associated Weakness. By making a series of


    such structural and infrastructural choices, you foster an ability to do certain things well,
    but reduce your effectiveness at other things. And thus, a smart competitor can build an
    attack around your strategic vulnerabilities, as long as there is a market for those
    capabilities.
    2. Operations-Based Strategy: Execution: Competing within an existing niche, and
    using known processes, but doing it more effectively than your competitors can. This
    involves being able to extract higher performance from a given operating system in a
    given market niche than can your competitors, through the cultivation of superior
    organizational capabilities e.g. getting down the learning curve
    Southwest Airlines fast aircraft turnaround times
    Boise Cascades fast plant build & start
    APMs high quality and fast delivery times
    Sustainability of Operations-Based Strategies: First, they are less visible to or
    underestimated by competitors. Second, they are difficult to imitate, replicate, or
    purchase as they could be complex systems of people and organizational processes (for
    example, Japanese TQM and fast product development). Or they could involve
    combinations of capabilities. Examples include Fedex (hub-and-spoke pickup/delivery
    system, real-time package tracking system, direct access [via internet] customer
    checking), and virtual order [electronic catalog & shipping]. Third, they are dynamic in
    nature as leaders keep advancing.
    Defending through Operations

    Exploit (and sell) your own strengths, but not beyond the point of diminishing
    returns.

    Attack the inherent weaknesses in your opponents operations strategy.

    React so quickly to a competitors attack, that it isnt able to get too far ahead of you
    down the learning curve (e.g. Microsoft vs. Netscape).

    Building Superior Performance


    The role of operations in competitive strategy has changed dramatically. Operations
    management used to be about being a good custodian of industry standard equipment
    and methods and not messing up too badly (or without warning). In such situations, the
    most important things were ones competitive positioning in the marketplace and the
    relative power of suppliers, customers, substitutes, other competitors, and new entrants
    (firms who might decide to do what you do and take a share of your market). But that is
    not the case any more. Todays competitive landscape is characterized by ongoing,
    relentless innovation; rapid changes (new niches, new tools, new players); and not just
    random benchmarking or continuous attempts to improve - but focused, re-invention of
    ones business. There is a more complicated game of chess where the players can
    invent new regions of the board and new pieces, as well as the moves they are able to
    make with them. There are Different types of capabilities: process-based (e.g.
    Australian Paper), system-based (e.g. Frito-Lay), organization-based (e.g. Wal-Mart and
    SouthWest Airlines), and paired (e.g. Federal Express).
    Building superior capabilities requires time. You must identify and assess threats early
    because emulating world class practices is not enough and the most dangerous threats
    often come not from your larger, more visible competitors, but from smaller ones in other
    countries and, often, in adjoining industries. Begin experimenting with capabilities and
    developing them before you really need them. For example, Federal Express and
    Hitachi Seiki (mechatronics).
    Some Common Lessons in Operations-Based Attacks and Defenses
    First, vulnerable defenders tended to view their competitors capabilities through the
    distorting lens of their own operating approaches. Second, they put too much faith in the
    power of static assets like size, patents, and asset base, reputation, brand name, and
    tradition. They erroneously assume that required new capabilities could be bought,
    licensed, or copied easily.
    While effective defenders recognized that it takes a long time to develop major new
    capabilities, they were constantly scanning the horizon for potential competitors and new
    operating approaches. They Understood that winning the game is not enough, one
    must also be able to spot, and quickly master, the introduction of a new game (e.g.
    Federal Express and Microsoft confront the Internet).

    Part II: Competitive Advantage and Operations Strategy (Some from the textbook
    and some from outside)
    Competitive Advantage is achieved by positioning yourself in a unique, defensible niche
    in your market or industry, and/or developing capabilities along performance dimensions
    that are both valued by customers and superior to those of competitors
    The Strategy Hierarchy:

    Corporate strategy: what businesses should we be in?

    Business strategy: how should we compete?

    Functional strategy: what should our facilities and it networks look like?

    What competitive advantage(s) are you seeking?

    Lowest price/cost: delivered vs. lifetime of the product/service

    Highest quality: product/service performance, tolerances, purity, and customer


    service

    Most dependable/reliable: product or service, delivery or availability, field


    service/repair

    Most

    flexible:

    broad

    product

    line,

    customized

    products

    &

    services,

    fast

    response/delivery times

    Most innovative: new products & services and latest technologies/methodologies

    The competitive dimensions


    The competitive dimensions of operations strategy thus include cost, product quality and
    reliability, delivery speed, delivery reliability, coping with changes in demand (changing
    volume), flexibility and new product introduction speed, and other product-specific
    criteria (technical liaison and support, meeting launching date, supplier after-sale
    support, and so forth). Since no organization can excel on all dimensions at the same
    time, there is a need for determining competitive priorities based on tradeoffs. For
    example, if we reduce costs by reducing product quality inspections, we might reduce
    product quality.
    Or if we improve customer service problem solving by cross-training personnel to deal
    with a wider-range of problems, they may become less efficient at dealing with
    commonly occurring problems. In the plant-within-a-plant approach,
    Different locations within the facility are allocated to different product lines, each with its
    own operations strategy.
    Order Qualifiers and Winners: The Manufacturing-Operations Link
    Some competitive dimensions are more important than others, and their importance
    depends on your competitive environment and strategy. An order qualifier is a screening

    criterion that permits a firms products to be considered as candidates for purchase by


    customers. In other words, it is the minimum level that must be achieved in order to be
    considered a viable candidate. An order winner is a criterion that differentiates the
    products and services of one firm from another. In other words, it is the single most
    important attribute to your targeted customers (that you must excel in). A brand name
    car can be an order qualifier. Repair services can be order winners. Examples include
    warranty, roadside assistance, and leases.
    More on Superior Performance
    Like any system, an operations organization cant do everything exceptionally well. So,
    it must concentrate its resources on doing one or two of the most important things
    exceptionally well. This implies that its operations strategy must be centered on a
    dominant focus. A strong competitor with an operations advantage moves from
    "acceptable range of performance on each competitive dimension (cost, quality/product
    performance, dependability/reliability, flexibility, and innovativeness) to "superior
    performance on dimensions with the highest priorities. An obvious prescription is to
    build operations strategies that meet the qualifiers and excel on the winners. But theres
    a problem: Things change, winners and qualifiers change, and jockey for position over
    time. Consider the US auto industry in the late 1950s.

    Order winner: price (& length!) => narrow product range

    Japanese car imports competed first at low end, then progressively emphasized
    quality

    Quality/reliability became the new order winner!

    Big scramble to catch up!

    Now after many years, the US and European auto companies can deliver roughly the
    same degree of quality as their Japanese counterparts, but once everyone is at the
    same level on an order winner, it becomes an order qualifier! So whats the next order
    winner going to be? Features? Fuel efficiency? Safety? Electronics? None of these
    are particularly difficult to imitate. Toyota can now custom produce a car in Japan,
    through its plants, in 5 days versus 12 weeks in the U.S. and Europe. Could this be the
    next across-the-industry order winner? It is very difficult to imitate, and delivers value to
    the customer, because operations are difficult (difficult to imitate), they can be great
    sources of sustained advantage.
    III. More from the Textbook: Productivity
    Productivity is a common measure on how well resources are being used. Since these
    are relative measures, they are meaningful if they are compared to something else.
    Often, the comparison is with other companies.
    In the broadest sense, it can be defined as the following ratio:

    Outputs
    Inputs

    Total Measure Productivity =

    Output Goodsservices produced


    =
    Inputs
    All resources used

    Partial measures of productivity =


    Output or Output or Output or Output
    Labor
    Capital Materials Energy
    Multifactor measures of productivity =
    Output
    .
    Labor + Capital + Energy + materials

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