DAVIS
F O U R T H
E D I T I O N
AQUILANO
CHASE
chapter 2
Operations Strategy:
Defining How Firms Compete
© The McGraw-Hill Companies, Inc., 2003
PowerPoint
Presentation
by
Charlie
Cook
Chapter Objectives
• Introduce the concept of operations strategy and its
various components, and show how it relates to the
overall business strategy of the firm.
• Illustrate how operations strategy pertains to adding
value for the customer.
• Identify the different ways in which operations strategy
can provide an organization with a competitive
advantage.
• Introduce the concept of tradeoffs between different
strategies and the need for a firm to align its
operations strategy to meet the needs of the particular
markets it is serving.
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Chapter Objectives (cont’d)
• Explain the difference between order-qualifiers and
order-winners as they pertain to operations strategy.
• Describe how firms are integrating manufacturing and
services to provide an overall “bundle of benefits” to
their customers.
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Managerial Issues
• Developing and Implementing Effective
Strategies
–Meeting the challenges of increased competition
in a globalized business environment.
–Keeping up with technology advances.
–Learning to do more with less.
–Staying ahead of copycat competitors.
–Keeping an eye on the future.
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Operations Strategy – An Overview
• Corporate strategy
–Overall strategy adopted by the firm that defines
the specific businesses in which the firm will
compete and the way in
which resources are
acquired and allocated.
Corporate
Business
Functional
Operational
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Operations Strategy – An Overview
• Strategic Business Unit (SBU)
–A stand-alone business within a conglomerate
(parent firm) that operates like an independent
company.
• Business Strategy
–How a strategic business unit (SBU) addresses
the specific markets it serves and products it
provides.
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Types of Business Strategies
Type
Definition
Low Cost
Producing the lowest cost products in the
market.
Market
Segmentation
Satisfying the needs of a particular market
niche.
Product
Differentiation
Offering products that differ significantly from
the competition.
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Operations Strategy – An Overview
• Functional Strategies
–Strategy developed by a function (e.g.,
marketing) within an organization to support the
business strategy.
• Competitiveness
–A company’s position in the marketplace relative
to its competition.
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Operations Strategy – An Overview
• Operations Strategy
–How the operations function contributes to
competitive advantage.
• Competitive Priorities
–How the operations function provides a firm with
a competitive advantage.
–Priorities—Low cost, high quality, fast delivery,
flexibility, and service.
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What is Operations Strategy?
• Operations Strategy
–Determining how to best utilize the firm’s
resources to achieve corporate objectives.
• Major long-term structural issues
–How big do we make the facilities?
–Where do we locate them?
–When do we build them?
–What type of process(es) do we install to make
the products?
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Hierarchy of Operational Planning
Exhibit 2.1
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Operations Strategy Means
Adding Value for the Customer
Perceived Customer Value 
Total Benefits
Total Costs
(2.1)
Perceived Customer Value  Total Benefits - Total Costs (2.2)
If benefits exceed costs, the customer perceives
value for the product or service.
“Value is in the eye of the beholder”
What affects customer perceptions of value?
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Maximizing Value Added in Operations
Exhibit 2.2
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Operations Strategy Means
Adding Value for the Customer
• How to add value:
–Reduce product costs to customer.
–Make the product more readily available.
–Provide faster service.
–Provide customers with additional relevant
information.
–Customize the product to the customer’s
specific needs.
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Trends Affecting Operations
Strategy Decisions
• Globalization
–Global village with hyper-competition:
• Continuous information technology advances
• Lower trade barriers
• Lower transportation costs
• Emergence of newly industrialized countries (NIC)
with high-growth markets and high standards of
living
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Trends Affecting Operations
Strategy Decisions (cont’d)
• Technology
–Connectivity—anyone, anywhere, all the time
–Speed—instantaneous transactions
–Intangibility—focus on innovative services to
gain competitive advantage
• Simultaneous Competition on Multiple
Competitive Priorities
–No traditional trade-offs of priorities
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Competitive Priorities
Type
Priority
Low Cost
Providing low cost products.
Controlling costs across the board.
Quality
Providing high quality products.
Focus is on product and process quality.
Delivery
Providing products reliably and quickly.
Flexibility
Providing a wide variety of products (mass
customization).
How fast a firm can produce a new product line.
Service
Providing “value-added” service.
How products are delivered and supported.
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The Next Sources of
Competitive Advantage?
• Two New Trends
–The use of environmentally friendly processes
and environmentally friendly products
–The use of information
• Large quantities data can now be accurately
stored and transmitted inexpensively.
• Competitive advantage can be gained through
products and services that provide enhanced
levels of feedback.
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Developing an Operations Strategy
from Competitive Priorities
• Factory Focus and Trade-offs
–A factory could not focus on all four competitive
priorities (cost, quality, delivery, and flexibility).
• Focusing performance on one priority
limits/eliminates the ability to focus on another
priority.
• Plant-within-a-Plant (PWP) concept (Skinner)
–Different locations with a facility would focus on
their own competitive priority.
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Developing an Operations Strategy
from Competitive Priorities (cont’d)
• Questioning the Trade-Offs
–World-class operations led to the establishment
of a hierarchy among the competitive priorities.
• Increased competitive capabilities led to increased
performance on all priorities by all competitors.
• Focus shifted from cost minimization to
maximizing the value added.
–Customer value is enhanced by the focus on
multiple priorities.
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Time Line for Operations Strategies
Exhibit 2.3
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Example of Trade-Offs on
Superior Performance Curves
Exhibit 2.4
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Order Qualifiers and Order Winners
• Order Qualifiers
–The minimum characteristics of a firm or its
products that a firm must have to be considered
as a source of purchase.
• Order Winners
–The characteristics of a firm that distinguish it
from its competition so that it is selected as the
source of purchase.
• ISO-9000 certification
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Distinguishing between
Order Qualifiers and Order Winners
Exhibit 2.5
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Focusing on Core Capabilities
• Core Capabilities
–Specific strengths that allow a company to
achieve its competitive priorities.
–The skill or set of skills that the operations
management function develops that allows the
firm to differentiate itself from its competitors.
• Focusing is achieved by:
–Divesting non-critical activities.
–Subcontracting ancillary activities and services.
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Integration of Manufacturing and Services
• The Customer’s Activity Cycle (CAC)
Component
Actions
Pre-purchase activities
Being responsive to customer
inquires and the ability to
demonstrate technical expertise.
Purchase activities
Actual sale and delivery of the
product and collecting payment.
Post-purchase activities
After-sales service and product
warranties
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The Customer’s Activity Cycle
Exhibit 2.6
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Service Strategies for Manufacturing Firms
(Wise and Baumgartner)
Service Strategy
Function
Embedded Services
Specific functions that are a part of
the product itself.
Comprehensive Services
The manufactured product is
“married” to additional services.
Integrated Solutions
Combining product and services
into a seamless offering that
addresses a specific customer
requirement.
Distribution Control
Manufacturing goes downstream to
assume responsibility for product
distribution.
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Additional Approaches for Integrating
Manufacturing and Services
• Demonstration of Knowledge and Expertise
–Reassuring customers by allowing them to view
the production process and have access to
production employees.
• Customer Training
–Providing product training to customers to build
product loyalty and increased use of products.
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