COMPETITIVENESS
AND
OPERATIONS STRATEGY
A COLD HARD FACT
Better quality, higher productivity, lower costs, and
the ability to respond quickly to customer needs
are more important than ever and…
the bar is getting higher
2-2
CHAPTER FOCUS
Competitiveness
Strategy
COMPETITIVENESS
 Competitiveness:
The extent that an organization meets the
wants and needs of customers relative to
others that offer similar goods or services
Organizations compete through some
combination of their marketing and operations
functions
What do customers want?
How can these customer needs best be
satisfied?
MARKETING INFLUENCES
COMPETITIVENESS BY:
Identifiying consumer needs and desires
Pricing
Advertising and promotion
OPERATIONS INFLUENCES
COMPETITIVENESS THROUGH (1 of 4):
1. Product and Service Design
2. Cost
3. Location
4. Quality and Reliability
OPERATIONS INFLUENCES
COMPETITIVENESS THROUGH (2 of 4):
5. Quick or Reliable Response
a. New Product Introduction Speed
b. Delivery Speed
c. Delivery Reliability
6. Service
OPERATIONS INFLUENCES
COMPETITIVENESS THROUGH (3 of 4):
7. Flexibility
a. in making alterations in design
b. in coping with changes in volume
c. in new product introduction
8. Inventory Management
OPERATIONS INFLUENCES
COMPETITIVENESS THROUGH (4 of 4):
9. Supply Chain Management
10. Service and Service Quality
11. Managers and Workers
WHY SOME ORGANIZATIONS FAIL? (1 of 2)
 Too much emphasis on short-term financial
performance
 Failing to take advantage of strengths and
opportunities
 Failing to recognize competitive threats
 Neglecting operations strategy
WHY SOME ORGANIZATIONS FAIL (2 of 2)
 Too much emphasis in product and service
design and not enough on improvement
 Neglecting investments in capital and human
resources
 Failing to establish good internal
communications and cooperation
 Failing to consider customer wants and needs
DEALING WITH TRADE-OFFS
For example, if we reduce costs by reducing product quality
inspections, we might reduce product quality.
For example, 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.
Cost
Flexibility
Delivery
Quality
HIERARCHICAL PLANNING
Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
HIERARCHICAL PLANNING
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Tactics
Operating
procedures
Marketing
Strategies
Tactics
Operating
2-14
procedures
Operations
Strategies
Tactics
Operating
procedure
MISSION
 Mission - where you
are going?
 The reason for the
existence for an
organization
 Provides boundaries &
focus
© 1995 Corel Corp.
FACTORS AFFECTING MISSION
Philosophy &
Values
Profitability
& Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
MISSION STATEMENT
States the purpose of the organization
The mission statement should answer the
question of “What business are we in?”
MISSION STATEMENT OF THE HARD ROCK
CAFE
To spread the spirit of Rock ‘n’ Roll by
delivering an exceptional entertainment
and dining experience. We are committed
to being an important, contributing member
of our community and offering the Hard
Rock family a fun, healthy, and nurturing
work environment while ensuring our longterm success.
MC’DONALD’S MISSION STATEMENT
McDonald's brand mission is to "be our
customers' favorite place and way to eat."
Our worldwide operations have been aligned
around a global strategy called the Plan to Win
centering on the five basics of an exceptional
customer experience -- People, Products, Place,
Price and Promotion. We are committed to
improving our operations and enhancing our
customers' experience.
GOALS
 The mission statement serves as the basis
for organizational goals
 Goals
They provide detail and the scope of the
mission
Goals can be viewed as organizational
destinations
They serve as the basis for organizational
strategies
STRATEGIES
Strategy
 Plans for achieving organizational goals
 Serves as a roadmap for reaching the
organizational destinations
Mission: Where you are going?
Strategy: How you are going to get there;
an action plan (shows how mission will be
achieved)
STRATEGIES
Organizations have
Organizational (business) strategies
Overall strategies that relate to the
entire organization
Support the achievement of
organizational goals and mission
Functional level strategies
Strategies that relate to each of the
functional areas and that support
achievement of the organizational
strategy
TACTICS AND OPERATIONS
Tactics
The methods of actions taken to accomplish
strategies
The “how to” part of the process
Answers the question: “How to reach the
destination, following the strategy road map”
Operations
The actual “doing” part of the process
STRATEGY EXAMPLE
Rita is a high school student. She would like
to have a career in business, have a good job,
and earn enough income to live comfortably
Mission:
Live a good life
Goal:
Successful career, good
income
Strategy:
Obtain a college education
Tactics:
Select a college and a major
Operations: Register, buy books, take
courses, study, graduate, get
job
SAMPLE STRATEGIES
Organizational Strategy
Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
U.S. first-class postage
Wal-Mart
High Quality
High performance design and/or high
quality processing
Sony TV
Lexus, Cadillac,
Consistent Quality
Coca-Cola; Kodak, Motorola
Quick Response(rapid delivery)
McDonald’s Restaurants
Express mail
FedEx; One-hour photo
Short Time
On-time delivery
Newness
Innovation
3M
Express mail
Flexibility
Variety
Volume
Burger King (Have it your way”)
McDonald’s (“Buses Welcome”)
Service
Superior customer service
Disneyland
IBM
Location
Convenie
Supermarkets, Banks, ATMs
Mall Stores
2-25
STRATEGY FORMULATION
Effective strategy formulation requires taking into
account the competitive arena (what the firm is in
the business of doing)
Strategy formulation process:
 Identification of core (distinctive)
competencies
 Environmental scanning and SWOT Analysis
 Identification of the order qualifiers
 Identification of the order winners
Positioning the firm
© 1995 Corel Corp.
IDENTIFICATION OF CORE
COMPETENCIES

The special attributes or abilities that give an
organization a competitive edge. What the firm
does better than anyone else (critical success
factors, distinctive competencies)
 Price
 Quality
 Time
 Flexibility
 Service
 Location
2-27
Develop Distinctive Competencies based on
customer needs and on what the competitors
doing
To be effective core competencies and
strategies need to be aligned
ENVIRONMENTAL SCANNING
The consideration of events and trends that
present threats or opportunities for a company
Environmental Scanning is necessary to identify
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats
ENVIRONMENTAL SCANNING:
KEY EXTERNAL FACTORS
 Economic conditions
 Political conditions
 Legal environment
 Technology
 Competition
 Customers and Markets
 Suppliers
 Distributors
2-30
ENVIRONMENTAL SCANNING:
KEY INTERNAL FACTORS
Resources available (human resources,
facilities and equipment, financial
resources)
Existing and potential products and
services
Technology
Stages of life cycles of current products
SWOT ANALYSIS TO STRATEGY
FORMULATION
Mission
Internal
Strengths
External
Opportunities
Strategy
Internal
Weaknesses
Competitive
Advantage
External
Threats
ORDER QUALIFIERS: DEFINED
Order qualifiers are the basic criteria that
permit the firm’s products to be considered as
candidates for purchase by customers.
These are the characteristics that customers
perceive as minimum standards of acceptability
to be considered as a potential purchase.
ORDER WINNERS: DEFINED
Order winners are the criteria that differentiate
the products and services of the firm from
others’.
These are the characteristics of an
organization’s goods or services that cause it to
be perceived as better than competitors’
products
A brand name car can be
an “order qualifier”
Repair services can be “order winners”
Examples: Warranty, Roadside Assistance,
Leases, etc
LAST STEP IN STRATEGY FORMULATION:
POSITIONING THE FIRM
The firm’s positioning strategy defines how
it will compete in the marketplace, ie. what
unique value it will deliver to the customer.
Choosing one or two important things on
which to concentrate and doing them
extremely well.
2-36
ORGANIZATION STRATEGY/
OPERATIONS STRATEGY
 The organization strategy provides the
overall direction for the organization. It is broad
in scope covering the entire organization
 Operations strategy is the approach
consistent with organization strategy that is
used to guide the operations function. It is
narrower in scope, dealing with the operations
aspect of the organization.
Organization
Strategy
Relates to growth rate, market
share
Operations
Strategy
Relates to product design;
choice of location, technology,
new facilities
STRATEGIC PLANNING
Mission and
Vision
Voice of the
Business
Marketing
Strategy
Corporate
Strategy
Operations
Strategy
Voice of the
Customer
Financial
Strategy
OPERATIONS ROLE IN CORPORATE
STRATEGY
 Provide support for overall strategy of a
firm
 Serve as firm’s distinctive competence
 Must be consistent
 Must be consistent with overall strategy
IMPETUS FOR STRATEGY CHANGE
Changes in the organization
Stages in the product life cycle
Changes in the environment
TYPES OF OPERATIONS STRATEGIES
Cost leadership strategy
Differentiation strategy
Quick response strategy (requires
institutionalization within the firm of the
ability to respond)
Flexibility
Reliability
Speed, Timeliness
COMPETING ON COST
 Eliminate all waste
Provide the maximum value as
perceived by the customer
Does not imply low value or low quality
 Invest in
 Updated facilities & equipment
 Streamlining operations
 Training & development
COMPETING BY DIFFERENTIATION
Please the customers by offering
unique goods or services that
make them feel special
Uniqueness can go beyond both
the physical characteristics and
service attributes to encompass
everything that impacts
customer’s perception of value
2-44
COMPETING ON RESPONSE
Flexibility
Speed
Reliability, Timeliness
Requires institutionalization within the
firm of the ability to respond
COMPETING ON SPEED
 Fast moves
 Fast adaptations
 Tight linkages
COMPETING ON FLEXIBILITY
 Produce wide variety of
products
 Introduce new products
 Modify existing products
quickly
 Respond to customer needs
AGILE OPERATIONS
 Agile operations
A strategic approach for competitive
advantage that emphasizes the use of
flexibility to adapt and prosper in an
environment of change
Involves the blending of several core
competencies:
 Cost
 Quality
 Reliability
 Flexibility
TYPES OF OPERATIONS STRATEGIES
Quality Based Strategies
Time Based Strategies
QUALITY-BASED STRATEGIES
 Strategy that focuses on quality in all phases of an
organization
 Focuses on maintaining or improving the quality of
an organization’s products or services
 Understand customer attitudes toward and
expectations of quality
 Quality at the source
Pursuit of such a strategy is rooted in a number of
factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
A part of a cost 2-50
reduction strategy
TIME-BASED STRATEGIES
Strategies that focus on the reduction of time
needed to accomplish tasks
Competing on speed: fast moves, fast
adaptations, tight linkages
It is believed that by reducing time,
costs are lower, quality is higher,
productivity is higher, time-to-market
is faster, and customer service
is
improved
TIME-BASED STRATEGIES
Areas where organizations have achieved time
reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
EFFECTIVE STRATEGY CAN BE ACHIEVED:
by performing different activities from
those of competitors
or
by performing the same activities better
STRATEGIC DECISIONS IN OPERATIONS
Products
Services
Processes,
Technology
Job design
Quality
Capacity
Facilities
Sourcing
Inventory
THE BALANCED SCORECARD
APPROACH FOR TRANSFORMING
STRATEGY INTO ACTION
 A top-down management system that organizations can use to
clarify their vision and strategy and transform them into action
Develop objectives
Develop metrics and targets for each objective
Develop initiatives to achieve objectives
Identify links among the various perspectives
 Finance
 Customer
 Internal business processes
 Learning and growth
Monitor results
BALANCED SCORECARD
 Finance — How should we look to our
shareholders?
 Customer — How should we look to our
customers?
 Processes — At which business processes must
we excel?
 Learning and Growing — How will we sustain our
ability to change and improve?
OPERATIONS
STRATEGY AT
WAL-MART
Wal-Mart
Mission
Provide value for our customers
Competitive
Priority
Low prices, everyday
Operations
Strategy
Low inventory levels
Operations
Structure
Linked communications
between stores
Enabling Process
and Technologies
EDI/satellites
Short flow times
Fast transportation
system
Cross-docking
Focused
locations
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Courteous, but limited
passenger service
Lean, productive
employees
High aircraft
utilization
Competitive Advantage:
Low Cost
Standardized fleet of
Boeing 737 aircraft
Short haul, point-to-point
routes, often to secondary
airports
Frequent, reliable
schedules
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Courteous, but limited
passenger service
No seat assignments
No baggage transfers
Automated ticketing machines
No meals
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Lower gate costs at
secondary airports
High number of flights,
reduces employee idle
time between flights
Short haul, point-to-point
routes, often to secondary
airports
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
High number of flights reduces
employee idle time between
flights
Saturate a city with flights
lowering administrative costs
per passenger for that city
Frequent, reliable
schedules
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Pilot training on only one type of
aircraft
Reduced maintenance inventory
required because of only one type
of aircraft
Excellent supplier relations with
Boeing has aided financing
Standardized fleet of
Boeing 737 aircraft
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
High aircraft
utilization
Flexible employees and
standard planes aids scheduling
Flexible union contracts
Maintenance personnel trained
on only one type of aircraft
20 minute gate turnarounds
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Lean, productive
employees
High level of stock ownership
Hire for attitude, then train
High employee compensation
Empowered employees
Automated ticket machines
ACTIVITY MAPPING: SOUTWEST AIRLINE’S
LOW COST COMPETITIVE ADVANTAGE
Courteous, but limited
passenger service
Lean, productive
employees
High aircraft
utilization
Competitive Advantage:
Low Cost
Standardized fleet of
Boeing 737 aircraft
Short haul, point-to-point
routes, often to secondary
airports
Frequent, reliable
schedules
ACTIVITY MAPPING: SOUTWEST
AIRLINE’S LOW COST COMPETITIVE
ADVANTAGE
OPERATIONS STRATEGY FRAMEWORK
Customer Needs
New product : Old product
Competitive
dimensions & requirements
Quality, Dependability, Speed, Flexibility, and Price
Enterprise capabilities
Operations and Supplier Capabilities
R&D
Technology
Systems
People
Distribution
Support Platforms
Financial management
Human resource
2-67 management
Information management
THE CHANGING CORPORATION
CHARACTERISTIC
20TH CENTURY
CORPORATION
Organization
Focus
Style
Source of strength
Structure
Resources
Operations
Products
Reach
Financials
Inventories
Strategy
Leadership
Workers
Job expectations
Motivation
Improvements
Quality
The Pyramid
Internal
Structures
Stability
Self-sufficient
Physical assets
Vertical integration
Mass production
Domestic
Quarterly
Months
Top-down
Dogmatic
Employees
Security
To compete
Incremental
Affordable best
21ST CENTURY
CORPORATION
The Web
External
Flexible
Change
Interdependencies
Information
Virtual integration
Mass customization
Global
Real-time
Hours
Bottom-up
Inspirational
Employees, free agents
Personal growth
To build
Revolutionary
No compromise