Competitive Priorities: Cost, Time, and Innovation Group # 2 MNGT 6320 Production & Operations Management The University of Texas Permian Basin - College of Business Professor: Jiajia Qu Dec 12, 2022 COMPETETIVE PRIORITIES 2 Introduction In operations management, companies can compete amongst five specific competitive priorities, contributing to their competitive advantage over their competitors. Understanding competitive advantage means organizations must first identify customer demand and learn how to capitalize on the most fundamental competitive priorities aligned with the organization's set objectives. The competitive priorities in operations management are cost, quality, time, flexibility, and innovation. All the competitive priorities are essential for an organization to succeed, and many find it challenging to focus on all five priorities within a business strategy. When evaluating each competitive priority, operations managers will select critical dimensions within their respective competitive priority to focus on, known as tradeoffs—creating a type of Pareto hierarchy of advantages. The key most valuable dimensions defined within competitive Pareto; thus, prioritizing how the organization can place performance measures on these priorities and categorizing the road map to the overall business's success. We will explore three top competitive priorities within this research paper: cost, time, and innovation with this basic knowledge. Define each of the specified priorities in detail and discuss the advantages and disadvantages of each. Determining the best-in-class of each specified competitive priority will give benchmarks for organizations to base their operational strategy to meet the market demands. We will examine specific tradeoffs associated with each best-in-class company leader to identify how their most prized competitive advantage puts them in top rankings. Our analysis focuses on companies like Amazon who had comprehensive lead times with the widest variety of products to customer needs resulting in huge market share and revenue leads. Companies like Apple, whose competitive edge led 5g networks and customer protection clauses. On a broad spectrum to a daily consumer, Walmart drove down supply chain costs COMPETETIVE PRIORITIES 3 pushed directly to the customer. Most importantly, defining how these respective organizations faired during the Coronavirus pandemic compared to other organizations. Many businesses failed during the global pandemic, and those that survived excelled well with high-profit margins. Competitive Priority - Cost Several essential categories measure organizational performance, one of them being the company’s finances. Cost and revenue are important aspects of a company’s financial measures, and they often take top priority when assessing an organization’s effectiveness. Return on investment, operating profit, revenue from new goods and services, earnings per share, liquidity, growth, asset utilization, and pre-tax profit margin are other financial measures traditionally used by companies interested in measuring their performance. Minimizing cost and maximizing value to consumers is the main priority for many companies, mainly those operating as non-profit organizations. Measuring the financial aspects of the business will allow the company to monitor its operating cost and stay in line with its budgeting goals. Their financial performance directly influences operational success, and monitoring these factors will help managers build and leverage the capabilities to their fullest potential. A competitive advantage that many firms utilize to establish themselves as a market leader is to enter the low-cost industry. Low cost is significantly related to competitive advantage in the eyes of consumers and influences the customers perceived added value. A company trying to establish itself as a low-cost leader in an industry typically operates by selling high inventory volumes and efficiently managing its supply chains. The design and management of operations are influential in achieving a low-cost competitive advantage by monitoring and minimizing the cost of the value chain. Continuous monitoring of the financial performance, maximization of the COMPETETIVE PRIORITIES 4 value chain, and strategic improvements are essential for a company to achieve a low-cost competitive advantage. When choosing a competitive advantage, a company’s direction will drive its strategy and influence it positively and negatively. Integrating the company’s goals and policies into deciding which strategy to choose will guide which approach provides the most value and limit the trade-offs of choosing this strategy over other options. For a company to identify its strengths, core competencies need exploiting. All competitive priorities are vital to the success of an organization. However, companies generally make trade-offs among these competing priorities and focus their efforts on one or two competitive strategies to effectively achieve an advantage. How the operations are designed and implemented affects the achievement of the strategy and the business’s overall performance. Closely coordinating operations with chosen strategies is vital in achieving competitive priorities and minimizing trade-offs. Advantages a company will see when using a low-cost strategy are the potential for better profits by reducing development and production cost. Furthermore, this strategy can increase a team’s market share and profit margin. The company may also benefit from business sustainability, especially during economic downturns driven by reduced financial threats. A lowcost strategy also may benefit a company by increasing the capital resources which can be utilized to grow the company or invest more into the current model. Reduced competition is another perk a company may experience because competitors may not be willing to compete with low prices an established business can maintain while retaining market share. A company may face disadvantages when using a low-cost strategy to gain a competitive advantage. If the strategy is not implemented and managed efficiently, the financial cuts can be COMPETETIVE PRIORITIES 5 harmful to the company’s financial structure. Another disadvantage of using a low-cost approach could be a reduction in innovative capabilities. A company utilizing a low-cost strategy likely would limit or eliminate research and development departments from their structure, which would limit the innovation of new products and services. This strategy encourages the same product to be sold continuously with a focus solely on the low price. Ignoring market changes and customer preferences may lead to a short-lived low-cost advantage. For a low-cost advantage to remain effective, a company should ensure management constantly monitors the industry changes. Furthermore, a negative result of mismanaged lowcost strategy is that this strategy may encourage lower quality products if management cuts the cost of materials and production too narrowly. This disadvantage can be avoided if leadership effectively manages their supply chain while producing a product that meets the consumer’s basic needs. This strategy can pose some drawbacks, but the risk can decrease if the manager can adapt to the changing circumstances and carefully manage the supply chain. The COVID-19 pandemic globally changed how many businesses operate and created a lasting effect on the world’s economy. Overnight, stores shut down in compliance with government-mandated, stay-at-home orders to slow the spread of COVID-19. These safety measures triggered bankruptcies, layoffs, and permanent store closures as the economy tanked. Chains such as Walmart, Target, and even Starbucks were deemed “essential business” and remained open. These essential businesses reaped the rewards of staying open as customers were given limited choices of where they could shop, causing their revenues to skyrocket. Social distancing and consumers being fearful of shopping in person drove up demand for online orders. COMPETETIVE PRIORITIES 6 Consumers have embraced the web at an unprecedented high during the pandemic, and this trend will likely have lasting effects. Showrooms will likely decrease in size and will be replaced with integrated digital operations to adapt to increased online sales. A rise in ecommerce sales can prove beneficial to a low-cost strategy because the deteriorating need to shop in-store will allow a business to require less real estate and decrease operating costs by limiting their showroom floors. Online ordering also greatly influences low-cost strategy because consumers can easily compare prices with a few clicks of a mouse. There is also an opportunity for increased market share because online orders allow retailers to reach consumers who are not physically located next to their facilities, allowing them to reach more potential customers. Walmart is a best-in-class leader that utilizes the low-cost strategy to secure its market share. Because of the pandemic, Walmart had to find new ways to make shopping easier for consumers new safety expectations. Their revenues for the second quarter of the fiscal year 2021 shot up to $137.7 billion, which it said was a 5.6 percent increase from last year (Sundar, S. 2020, p.3). One of the adjustments Walmart made was to focus on its online services options. According to the company, the pandemic caused many people to stay home to protect their health, which resulted in Walmart’s e-commerce sales growing by 97 percent (Sundar, S. 2020, p.3). Many consumers are using online sales to protect themselves from exposure to the virus. According to the case tracker by Johns Hopkins University, The United States of America was leading the global death toll count in COVID-19 casualties, with more than 170,560 deaths since the beginning of the pandemic to August 2020 (Sundar, S. 2020, p.3). This statistic has created caution and fear for many consumers and has likely created a permanent change in consumer buying habits. “If you engage with something you hadn’t before, if you behave in a way you COMPETETIVE PRIORITIES 7 hadn’t before, you’re likely to do that in the future,” said Andrew Lipsman, a senior analyst for retail and e-commerce at research firm, eMarketer (Hays, K. 2020). Walmart faces a genuine business problem due to the ongoing pandemic. Walmart’s supply chain is strained (like many others in a goods-producing industry) due to increased demand, decreased international shipments, and a shortage of employees to fill these roles. Walmart stated they needed to hire thousands of more workers to meet the demand for this essential business (Morris, 2020). These obstacles Walmart has to overcome will need to be managed efficiently to maintain their low-cost strategy by reducing development and production cost. Hiring new employees during a pandemic comes at an increased price. Walmart also said it incurred $1.5 billion in “incremental costs” related to the pandemic, and it has hired more than 500,000 new associates since the start of 2020 (Sundar, S. 2020, p.3). Furthermore, Walmart needed incentives to encourage citizens to work for their company. Working in this environment means that these workers will risk exposure, while many Americans stay home with their families. This retailer incentivized employees to work with bonuses and raises. An increase in employee wages will directly affect the low-cost strategy by allocating financial resources to employees instead of production. In April, the retailer paid the first round of bonuses which amounted to $300 for each full-time hourly associate and $150 for each part-time hourly associate (Sundar, S. 2020, p.3). Competitive Priority – Time It is important to have time as a competitive priority when owning a business. Emphasizing time can revolve around a short production time, in service a quick delivery time, or even short lead times to produce a product (Jitpaiboon, 2014). A substantial competitive advantage exists when a particular business is known for delivering its products COMPETETIVE PRIORITIES 8 before expected or right on the exact date listed. Making time a priority will entice consumers and will make the company one of the best. There are many advantages when having time as a competitive priority. One of the advantages when having a business that makes time a competitive priority is improved customer service offering. Whenever a company makes it one of the main priorities to get their product to customers out quickly, this helps with customer service. Customer service is essential to achieve positively, so if your customers are constantly satisfied with how quick or good the service your business offers, this will result in repeat customers. Possibly even bringing in new and additional customers. Another advantage when making time a priority is quicker feedback from customers on provided products/services. If a business offers its service or product on time, customers will have more than enough time to review the product or service provided. Not only does this help with getting feedback quickly, but if the customer is satisfied with delivery time, the customer will give positive feedback. Positive customer experiences will help consistently bring in more customers. There are many advantages to prioritizing time in a business; some disadvantages can result from this focus. Whenever there is an advantage towards a business, there will always be a disadvantage to follow suit. One of the disadvantages of making time a priority in a business is a negative interaction with consumers if time does not deliver based on expectations. Although it is good to have a company known for how quickly products are delivered, a possibility exists that something will happen along the way, causing a delayed delivery of goods. Delivery delays could create tension and hostility between the business and the customer, leading to more significant problems and negative feedback. Another disadvantage would be the potential for COMPETETIVE PRIORITIES 9 higher operating costs. Whenever a company is having its employees try to meet demand faster, there is always a possibility that there will be higher operating costs. Potentially higher operating costs result from meeting demand quicker when the business operation is too high. However, it is difficult to consistently meet expectations without disadvantages that are part of having a business and prioritizing time when delivering the product offered. connected .com is known as one of the biggest companies in the world. It is an American multinational technology company, which focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. Amazon started in 1995 when it was known as a site for only selling books. Within just a month of being in business, Amazon had sold and shipped books to over 40 different countries worldwide. This business model quickly helped Amazon become one of the largest e-commerce companies in the world (Gale, 2015, p. 52). Amazon has become best in class for utilizing time as a competitive priority in many remarkable ways. When a business is referred to as best in class, they are better than all competition. Amazon has many factors as to why it is number one and is the best compared to its competition. Not only does Amazon utilize time as a competitive priority, they also place importance on innovation. Amazon is also known for innovating technologies and practices, such as the device Alexa: Amazon’s famous voice command device. Customer service is another factor in Amazon’s success. The Amazon team shows dedication to meet all of the customers’ expectations when needing help. Whether through telephone or social media, the Amazon team is committed to answering all customers’ questions and concerns as quickly as possible. Execution is something Amazon.com succeeds in when dealing with customer orders. Amazon makes sure all customer orders are executed and ready for delivery when expected, sometimes even before the delivery date. Diversification is crucial to the Amazon team. Amazon COMPETETIVE PRIORITIES 10 was known for only selling books online initially, but their goal was always to branch out and diversify to sell all types of products. Amazon.com is known as a website where you can find just about anything you need. Whether that be electronics, kitchen supplies, books, music, movies, etc., this makes them unique to their competitors and any other websites out there. Outstanding user experience is another factor as to what makes Amazon.com so successful. Having a solid user experience is something that helps customers browse the website comfortably. Amazon makes it easy for e-commerce customers to browse the website and find what they need. Merging design with content also makes Amazon.com unique. Amazon’s products listed on the website have a lengthy description of the product, providing a view into all essential characteristics. All these factors are what make Amazon such a great company and the top competitor in the business. One way Amazon maintains time as a competitive priority is through hiring their own delivery drivers to deliver packages. Back in 2018, Amazon was facing challenges with delivery times. The most notable delivery services (UPS, FedEx, USPS, third-party couriers, etc.) began to struggle to deliver Amazon products in the two-day required window for Prime shipping. Since Amazon prides itself in the two-day delivery service, customers began filing complaints due to the lack of on-time delivery. Amazon decided to take matters into its own hands. Amazon shifted away from utilizing these delivery services and decided to hire its own delivery drivers. Taking this step allowed Amazon to target the number of drivers needed during seasonal changes in demand. For example, Amazon employs more workers during the holidays, driven by increased demand for Christmas presents. Utilizing this method saves cost when the number of drivers needed stays low and helps ensure delivery times are met based on customer expectations (Soper, 2018). COMPETETIVE PRIORITIES 11 As previously stated, during COVID-19, many businesses were hit hard and struggled. Some businesses had to close completely. Many companies were worried about the pandemic and how badly their companies were going to suffer or even be able to come back from it. Since Amazon.com was known for prompt delivery, many thought the company would suffer tremendously due to the pandemic. Amazon ended up being one of the few companies that managed the pandemic well and became stronger because of it. With many stores facing closures and empty shelves, customers immediately turned to Amazon.com to find products such as sanitizing wipes, hand sanitizer, face masks, and any other types of disinfected products. Amazon was able to continue to make time their number priority even through the pandemic. They provided their workers work even though many companies were shutting down; they made sure to take extra precautions to continue meeting demand. “Amazon had a hiring spree throughout 2020 to meet growing demand for online shopping during the COVID-19 pandemic. The Seattle-based company now employs more than 36,000 full and part-time employees in Illinois” (Crain’s Chicago Business & Rodgers, 2021). Amazon.com faces many trade-offs while competing with time as a number one priority. Large customer-based versus competition is one of the many trade-offs that Amazon.com faces. Since not many companies sell almost everything as Amazon does, it is arguably the number one company where sellers can present products to other customers. Cannibalization is another tradeoff that Amazon encounters. When people are looking for information or products, they tend to use Google as a source. Amazon takes advantage of this by having customers use them as thirdparty sellers and using keywords that will lead people to see Amazon as a choice to sell their products or buy them. Amazon also ensures sellers know that everything they sell is to Amazon’s customers, not their own, which is also considered a trade-off. Amazon also makes it easier for COMPETETIVE PRIORITIES 12 opportunities for growth for the products you want to sell. Amazon is one of the biggest companies, making it very easy for many sellers to use it to grow in a positive direction rather than going with any other company. Amazon is such a big company thriving every day. If businesses think their products will not do well on their websites, using Amazon as a third-party seller may enable success. Amazon.com is known for making time one of its main priorities when meeting demand and delivering products to its customers. This priority is one of the reasons why this company is so successful and is the best amongst the competition. Competitive Priority – Innovation Innovation is an integral part of competitive priorities for companies to have. This area of focus can lead to significant competitive advantages for being ahead of trends and what is available in the general market. Generally, innovation allows for a better quality of life and enables organizations to serve customers better. Companies that focus on innovation have excellent product research and development processes and usually have higher-quality products. Companies are generally leading the way in product technology, and their ability to innovate is crucial for the company’s success. As proven before, certain advantages and disadvantages come with the selection of a competitive priority. One of the advantages of utilizing innovation as a competitive priority is increasing the cost of products from innovation. Since there are no other products like it on the market, the innovative company gets to set the price and benefit from its profits until its competitors can make a similar product. Another advantage includes the advancement of technology and the company’s increased reputation to innovate. This advantage naturally leads customers interested in future developments and what other products the company might be producing. By customers COMPETETIVE PRIORITIES 13 becoming invested in what a company does next, a company self-creates brand loyalty over time. Brand loyalty is best seen with Apple with its continued innovations of products. Innovation in products or services is not the only way innovation can benefit a company. A company can also innovate its manufacturing process. Innovating the manufacturing process enables the production of more products faster and cheaper, which can be profoundly beneficial to the company (Fawcett, 1991). Manufacturing innovation can also aid in solving gaps that arise driven by global economic downturns (Dean et al., 2021, p. 285). Some of the disadvantages of focusing on innovation include the time and cost consumption involved in innovation. This focus can lead to the apparent problem that the investment must pay off in a reasonable time. If a company cannot get a new product to market fast enough, the company could run out of money while investing in the project. On the flip side, if the product does make it to market, there is the possibility it is not received well, and the investment put in to develop the product is not recuperated. This possibility results in lost resources for the company. If a product is produced and not good enough or took too long, similar results could occur. If the product is inferior enough, the company’s reputation is at risk. The most significant disadvantage to innovation is the inherent risk of breaking new grounds and further advancing products or services. Apple is another one of the biggest companies in the world. For a while, Apple has been known for its ability to make groundbreaking new devices never been seen before. Apple started in 1976 as a computer company but quickly grew with its innovation in software and user interfaces. As the market continued to grow, Apple went through a phase where it did not continue to innovate or achieve any competitive advantage over the market. After a significant COMPETETIVE PRIORITIES 14 rehaul and reacquisition of their CEO, Steve Jobs, the company led the industry again with their innovation (Elliot, 2012, p. 75). Apple had major milestones with innovation in producing the original Macintosh, iMac, iPod, and iPhone. In the market, these devices were considered one of a kind and had never been seen before. Apple took the ideas of the general marketplace and made them far superior to their competition. All of these led to Apple becoming the world’s most valuable brand with the highest level of brand loyalty due to its constant innovation and industry-leading technology and user interfaces. These innovations inherently led Apple to become the best in class. When the iPod was released, many mp3 devices sat on the market. However, Apple’s device quickly became the standard of comparison. There was no match for the iPod on the market at the time. Apple’s innovative wheel (to move your cursor up or down) with a screen and sleek design became vital product differentiators. It wasn’t until the release of the iTunes store that Apple was able to capitalize on the music industry. By spending over $200 million on advertising, far more significant than its competitors, Apple grew its sales and showed its superiority (Linden 2008). Similarly, when the iPhone was released, people were in shock. The device revolutionized the mobile device industry. All mobile phones on the market had a keyboard along with a screen. Additionally, no device was as user-friendly and straightforward with an application store. The iPhone revolutionized all of this. The iPhone was something the world had never seen before by providing a full screen with only one button on the front, a keyboard incorporated into the screen, and an application store. All this innovation led to significant success and became the leader every other company strived against to compete. Apple has continued to lead in brand loyalty because of innovation and its ease of use with its devices. COMPETETIVE PRIORITIES 15 Some other innovations that Apple has created within the product line that most people do not think of when they think of Apple include Apple Pay, AirDrop, lightning connection, and Wi-Fi password sharing (Moren, 2018). Apple Pay allows users to pay through any device (phone, watch) that store their credit card information. This innovation enabled convenience to consumers that they did not know they wanted. AirDrop allows users with Apple devices to transfer files between them without email, USB, etc. Again, another convenience factor was created that saves time overall. The lightning connection allows for Apple products to be paired without worrying about connection issues. Wi-Fi password sharing works how it sounds. It enables individuals to share passwords with their contacts if they try to join the same network they are already connected to. All these innovations were not necessarily needed but allowed for conveniences that all consumers appreciated. Throughout COVID-19, Apple was a beneficiary of people’s inability to leave home. People became more focused on their devices because they were unable to socialize in person. This change meant everyone became invested in their computers, tablets, phones, and even watches for fitness. Consumer behavior adjustments led to Apple’s continued success in sales and an even better spread in device sales than in recent years when iPhone sales dominated it. Apple also benefited from the pandemic in their launch of Apple TV+ and Fitness+ subscriptions with stay-at-home orders in effect. These services weren’t innovative and were late to the market compared to their competitors but benefited all the same from the COVID-19 pandemic. With all these advancements, inevitable trade-offs come with the territory. Because innovation leads to brand loyalty and success, customers start to get worried that the company can no longer innovate when there is no recent innovation. We saw this during the period after releasing the original Macintosh, and we have seen this in recent years with Apple after minimal COMPETETIVE PRIORITIES 16 changes with its current devices. Consumers have noticed that Apple is behind its competitors in adding features to its products that similar products currently have. For example, Apple was behind its competitors in increasing its battery length, adding 5G capability, producing a better camera, and increasing its screen size. These enhancements have led to some customers questioning whether Apple has innovated compared to the market in recent years after releasing the iPhone. Even with the release of the Apple Watch, not many enhancements existed compared to the competition. Despite it becoming the most popular smartwatch due to brand loyalty, similar smartwatches on the market accomplished the same features. Another trade-off that comes with innovation is the risk that the consumers will not buy the change. If a company innovates a product to what they believe to be an advancement, there is no guarantee that customers will like the change. There have been many examples of change the general public has not bought into, leading to the product’s failure. Even though it can be accepted later, the initial production and success will depend upon the reception to the general public. One more trade-off is the cost associated with innovating. To be able to innovate, companies must invest in years of research and development (R&D). There is a cost associated with R&D, and this is reflected in the prices for Apple. Apple’s prices are higher than its competitors. This trade-off opens a company up to the risk of innovation launches not taking off in the market. Overall, innovation is an important competitive priority but cannot be the only thing considered for companies to be successful. Advantages and disadvantages need to be considered, along with the previous successes in the industry, to determine if innovation should be prioritized. Looking at Apple, we can see ways to make a company flourish and stall out in COMPETETIVE PRIORITIES 17 advancement. For consumers, innovation is vital in providing new products and services that we have not seen before. Conclusion In conclusion, competitive priorities play a major role in how organizations plan their operations and maximize on running efficiently, which achieve lower internal cost. By establishing these key core priorities to focus on will help companies ensure a competitive advantage over their competitors. Discussed within this paper we identified three major priorities in detail including cost, time, and innovation. These three are the most critical priorities we wanted to evaluate with the audience and express why these should become a major focus within any organization. In addition, included within the research paper was the best-in-class leaders that excel within each given priority and tradeoffs. Identifying the best-in-class leaders for each given competitive priority will give organizations a better understanding of who is most successful within the specified priority. Walmart, we identified as a best-in-class leader in lowcost strategic initiative, which has helped them dominate the market. With their impressive lowcost strategy implemented corporate wide they have managed to pass the savings along to their valued consumers. Amazon has dominated in the time sector due to their Prime Membership value that offers customers faster delivery options upon checkout. The expansive network of negotiated wholesalers and distributors have made it easy to obtain much needed products to meet the demands of their customers. Apple was chosen as the best in class leader in the innovation priority due in large part to always raising the bar in new technology. Our research also indicated how each best in class leader faired during the global pandemic. Where most companies failed these industry leaders invested most of their efforts in provinding customers the capability to purchase products online. COMPETETIVE PRIORITIES 18 References Crain’s Chicago Business, & Rodgers, S. (2021, July 15). How COVID affected Chicago’s largest out-of-town employers. Crain’s Chicago Business. https://www.chicagobusiness.com/crains-list/how-covid-affected-chicagos-largest-outtown-employers Dean, M., Rainnie, A., Stanford, J., & Nahum, D. (2021). Industrial policy-making after COVID-19: Manufacturing, innovation and sustainability. 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