Chapter two

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
nothing 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(strategy).
• 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 capabilities 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

Competitiveness
 degree to which a company/nation can produce
goods and services that meet the test of markets.
• The most common measure of competitiveness is productivity.
• Increases in productivity allow wages to grow without producing
inflation, thus raising standard of living.
• Productivity growth also represents how quickly an economy can
expand its capacity to supply goods and services.
• Search and read ‘Global competitiveness report’ by
World Bank to see our competitiveness level.
 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 four broad categories of competitive
priorities : cost, quality, time/speed and
flexibility
 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.
 Invest on technologies that reduce wastages
Cont’d…
o invest in automation in order to increase productivity.

o 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:
1) product design quality- which involves making sure the
product meets the requirements of the customer.
2) process design 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…
3. 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…
4. 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:
1) Product flexibility- the ability to offer a wide variety
of goods or services and customize them to the unique
needs of clients.
2) 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.
• Thus, 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.