Competitiveness and Operations
Strategy
Competitiveness
Competitiveness
Competitiveness refers to how effective an
organization is in the competition for
customers’ purchases

Primarily a function of how well the organization
(through its operations) meets the needs of customers

Competitiveness is relative to others that offer similar
goods or services

What is competitive today may not be competitive
tomorrow.
Competitiveness : Bases for Competition
Business organizations compete with one another in a variety of
ways. These includes
Price
Quality
Service
Time
Managers and workers
Note: Some of the dimensions, mentioned above might overlap. Ex: Several of the
items on the list may come under the heading of “quality”.
Bases for Competition
Price is the amount a customer must pay for
the product or service. If all other factors are
equal, customers will choose the product or
service that has the lowest price.
Organizations that compete on price may
settle for lower profit margins, but most
focus on lowering costs of goods or
services.
Bases for Competition
Quality refers to materials and
workmanship as well as design
[Appearance, Performance & Function, After
sales service, etc].
Usually, it relates to a buyer’s perceptions of
how well the product or service will serve its
intended purpose.
Bases for Competition (Contd.)
Product or service differentiation refers to
any special features that cause a product or
service to be perceived by the buyer as more
suitable than a competitor’s product or service.
Example for Special Feature:
Design, Cost, Quality, Easy of use,
Convenient Location, Warrantee
Bases for Competition (Contd.)
Flexibility is the ability to respond to
changes. The better a company or
department is at responding to changes,
the greater its competitive advantage over
another company that is not as responsive.
The changes might relate to increase
or decrease in volume demanded, or to
changes in the design of goods or
services.
Bases for Competition (Contd.)
Time refers to a number of different
aspects of an organization’s operations,
such as
 how quickly a product or service is
delivered to a customer
 how quickly new products or services
are developed and brought to the market,
 the rate at which improvements in
products or processes are made, etc.
Bases for Competition (Contd.)
Service might involve after-sale activities that
perceived by customers as value added, such as
delivery,
setup,
warranty work,
technical support, or
extra attention while work is in progress such as
curtsey,
keeping the customer informed, and
attention to little details.
Bases for Competition (Contd.)
Managers and workers are the people at the heart and soul
of an organization, and if they are competent and motivated,
they can provide a distinct competitive edge by their skills and
the ideas they create.
Example: One skill that is often overlooked is answering the
telephone.
If the person answering the call is rude, not helpful, or
cut off the call
produce a negative image to customers
else [calls are handled promptly and cheerfully]
produce a positive image to customers and
potentially, a competitive advantage.
endif
Causes of Poor Competitiveness
 Putting too much emphasis on short-term financial
performance at the expense of research and
development.
 Failing to take advantage of strengths and
opportunities, and/or failing to recognize
competitive threads.
 Neglecting operations strategy.
 Neglecting investments in capital and human
resources.
 Failing to establish good internal communications
and cooperation among different functional areas.
 Failing to consider customer wants and needs.
Mission/Strategy/Tactics
Mission/Strategy/Tactics
Mission
Strategy
Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
Mission – The reason for existence of an organization

Organization’s purpose for being

Provides boundaries & focus

Answers ‘How can we satisfy people’s needs?’

Expressed in published statement

What business are we in?

To guide formulation of strategies for the
organization as well as decision making at all
levels.
Mission Statement
The mission statement is about
the kind of business the company wants to be in
who its customers are
its basic beliefs about business
its goals of survival, growth, and profitability
Example: One goal of an organization may be to capture a
certain %age of market share for a product; Another goal may
be achieve a certain level of profitability.
Taken together, the goals and the mission, establish a
destination for the organization.
Example – Mission Statement
University
–
discovering and disseminating knowledge
Bank
–
Safeguard and increase the value of its
customers’ investment
Manufacturer –
Supply high quality products to a wide
market, while ensuring a satisfactory
profit
Telev. network –
entertain, inform and educate the widest
possible audience
Sample Mission for a Service Company
Satisfy our customers’ immediate needs and
wants by providing them with a wide variety
of goods and services at multiple locations.
Sample Mission for a Manufacturing Company
is to provide
(a) society with superior products and
services - innovations and solutions that
improve the quality of life and satisfy
customer needs;
(b) employees with meaningful work and
advancement opportunities and investors
with a superior rate of return
IBM-Mission Statement
We create, develop, and manufacture the industry’s
most advanced information technologies, including
computer systems, software, networking systems,
storage devices, and microelectronics.
We have two fundamental missions:

We strive to lead in the creation, development,
and
manufacture
of
the
most
advanced
information technologies.

We translate advanced technologies into value for
our customers as the world’s largest information
services company. Our professionals worldwide
provide expertise within specific industries,
consulting services, systems integration, and
solution development and technical support.
Skynet Worldwide Courier-Mission Statement
The Skynet Worldwide Courier Network sets the
standard
for
international
delivery
and
distribution services by consistently exceeding
customer expectations.
Skynet delivers customer satisfaction by:
 Integrating all aspects of the transportation
process.
 Personalizing service worldwide.
 Investing in quality people and technology.
 Innovating and adapting to meet customers
unique and changing requirements.
Strategies
Each strategy established in light of:
threats and opportunities in the environment
strengths and weaknesses of the organization
(related to environment)
Strategies – are the roadmaps (plans) for reaching the goals

Action plan to achieve mission

Shows how mission will be achieved

Provide focus for decision making

Organization strategies, provides the overall
direction for the organization.
 The organizational strategies should
support the goals and missions of the
organization.

Functional strategies, relate to each of the
functional areas of the organization.
 The functional strategies should support the
overall strategies of the organization.
Strategic Planning Hierarchy
Corporate-Level
Strategic Planning
What business(es)/industries do we
want to be in?
Business-Level
Strategic Planning
How can we compete with this
business/in this market?
Functional-Level
Strategic Planning
How can this functional area support
the business-level (SBU) strategy?
Questions about organizational/competitive strategies






What is our industry like?
What are the future prospects?
What are our strengths?
Who are the competitors?
What are the competitors’ strength?
What flexibility do we have?
The answers to the above questions suggest a range of more
detailed questions like








What products should we concentrate on?
What volume should we produce?
What quality should we provide?
Do we supply low or high cost products?
Are our products reliable?
Do we give fast deliveries?
Who are our biggest customers?
Do we have adequate financing?
Tactics – are the methods and actions used
to accomplish strategies

are more specific in nature than strategies

provide guidance and direction for
carrying out actual operations, which
need the most specific and detailed
plans and decision making in an
organization.

tells ‘how to reach the destination,
following the strategy roadmap.
Operations Strategy
is narrower in scope, dealing primarily with the
operations aspect of the organization.
relates to Products, Processes, Methods, Operating
Resources, Quality, Costs, Lead-Times and Scheduling.
can have a major influence on the competitiveness of an
organization.
For operations strategy to be truly effective, it is important to
link it to organization strategy. That is, both organization
strategy and operations strategy should not be formulated
independently.
Operations Strategy
Strategy Process
Example
Customer Needs
More Product
Corporate Strategy
Operations Strategy
Decisions on Processes
and Infrastructure
Increase Org.
Size
Increase Production Capacity
Build New Factory
There is an apparent relationship that exists from the
mission down to actual operations, which is
hierarchical in nature.
Strategic Planning and Execution
Planning and
decision making
is hierarchical in
organization
Mission
Goals
Organizational strategy
Functional strategies
Finance
Tactics
Finance
operations
Marketing Operations
Tactics
Tactics
Marketing
operations
Operations
operations
Mission/Strategy/Tactics
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
Characteristics of Strategic Decisions
Long-term perspective/planning horizon
Made at top levels of organization
Involve a high degree of uncertainty about outcomes
Tend to focus on external factors
Can require significant cost and lead time to implement
Can be difficult to reverse once implemented
Cross functional/geographic/organizational boundaries
Choices and results can have a powerful (positive or negative)
impact competitiveness and survival of the organization
(“high stakes”)
Strategic Decisions in Operations
Products
Services
Capacity
Human
Resources
Facilities
Sourcing
Processes and
Technology
Quality
Operating
Systems
Note: Cross functional/geographic/organizational boundaries
Products & Services
 Make-to-order

Made to customer specifications after
order received
 Make-to-stock

Made in anticipation of demand
 Assemble-to-order

Add options according to customer
specification
Processes & Technology
 Project

One-time production of product to customer order
 Batch production

Process many jobs at same time in batch
 Mass production

Produce large volumes of standard product for mass
market
 Continuous production

Very high volume commodity product
Product-Process Matrix
High
Continuous
Production
Volume
Mass
Production
Batch
Production
Projects
Low
Low
Standardization
High
Service-Process Matrix
High
Service
Factory
Volume
Mass
Service
Low
Service
Shop
Professional
Service
Low
Standardization
High
Capacity & Facilities
 How much capacity to provide
 Size of capacity changes
 Handling excess demand
 Hiring/firing workers
 Need for new facilities

Best size for facility?

Large or small facilities

Facility focus

Facility location

Global facility
Human Resources
 Skill levels required
 Degree of autonomy
 Policies
 Profit sharing
 Individual or team work
 Supervision methods
 Levels of management
 Training
Quality
 Target level
 Measurement
 Employee involvement
 Training
 Systems needed to ensure quality
 Maintaining quality awareness
 Evaluating quality efforts
 Determining customer perceptions
Sourcing
 Degree of vertical integration
 Supplier selection
 Supplier relationship
 Supplier quality
 Supplier cooperation
Decision Area
Typical OPMA decisions
Strategic decisions
Business
What business are we in?
Product
What products are supplied?
Process
How are products made?
Location
Where are products made?
Capacity
How large should facilities be?
Tactical decisions
Layout
How should operations be arranged?
Planning
When should a new product be introduced?
Quality Assurance
How well should products be made?
Distribution
How should distribution be organized: what transport should be used?
Maintenance
How often should equipment be maintained a d replaced?
Operational decisions
Scheduling
In what order should products be made?
Inventory
How much should be held in stock?
Reliability
How often is equipment breaking down: what can be done to improve this?
Maintenance
When can maintenance periods be scheduled?
Quality control
Are products reaching designed quality?
Note: The distinction between strategic, tactical and operational decisions are not usually as
clear as given above [Example: Quality – when company plan for a new product then quality
is strategic decision; tactical when deciding how quality can be measured; etc.]
Strategy Formulation
To formulate an effective strategy, senior management must
take into account the distinctive competencies of the
organizations, and they must scan the environment [Internal
and External Factors that relate to possible strength or
weakness : Strategy Formulation ].
In formulating a successful strategy, organization must take into
account both order qualifiers and order winners.
Examples of Distinctive Competencies
Competency
Examples of Companies or Services
Price
Low cost
U.S. first-class postage
Motel-6, Red Roof Inns
Mail-order computers
Quality
High Performance design and/or
high quality
Sony TV
Lexus, Cadillac
Disneyland
Five-star restaurants or hotels
Consistent quality
Coca-Cola PepsiCo
Kodak, Xerox, Motorola
Electrical Power
Rapid Delivery
McDonald’s Restaurants
Express Mail
UPS
Domino’s Pizza
On-time Delivery
One-hour photo, Federal Express, Express Mail
Variety
Burger Kind (“Have it your way”), Hospital emergency room
Volume
McDonald’s (“Buses welcome”)
Toyota
Supermarkets (additional checkouts)
Service
Superior customer service
Disneyland
Hewlett-Packard
IBM
Nordstrom's
Location
Convenience
Supermarkets, dry cleaners
Mail stores
Service stations
Banks, ATMs
Time
Flexibility
External Factors that relate to possible strength
or weakness : Strategy Formulation
Economic Conditions: These include general health and
direction of the economy, inflation, interest rates, tax laws, and
tariffs.
Political Conditions: These include favorable or unfavorable
attitudes towards the business, political stability or instability,
and wars.
Legal Environment: These include antitrust laws, government
regulations, trade restrictions, minimum wage laws, labour
laws, and patents.
External Factors (Contd.)
Technology: This can include the rate at which the product
innovations are occurring, current and future process
technology (equipment and material handling), and design
technology.
Competition: This include the number and strength of
competitors, the basis of competition (price, quality, special
features), and the easy of market entry.
Markets: This include size, location, brand loyalties, easy of
entry, potential for growth, long term stability, and
demographics.
Internal Factors that relate to possible strength or
weakness : Strategy Formulation
Human Resources: These include the skills and abilities of
managers and workers; special talents (creativity, designing,
problem solving); loyalty to the organization; expertise;
dedication; and experience.
Facilities and Equipment: Capacities, location, age, and cost
to maintain or replace can have a significant impact on
operations.
Financial Resources: Cash flow, access to additional funding,
existing debt burden, and cost of capital are important
considerations.
Customers: Loyalty, existing relationships, and understanding
of wants and needs are important
Internal Factors (Contd.)
Product and Services: These include existing products and
services, and the potential for new products and services.
Technology: This include existing technology, the ability to
integrate new technology, and the probable impact of
technology on current and future operations
Suppliers: Supplier relationships, dependability of suppliers,
quality, flexibility, and service are typical considerations
Others: Other factors include patents, labour relations,
company or product image, distribution channels, relationship
with distributors, maintenance of facilities and equipment,
access to resources, and access to markets.
Order Winners and Qualifiers
Within a given industry or market, certain
competitive priorities can be identified as being
either order winners or order qualifiers.
 Order Qualifiers –they are the basic criteria
that permit the firms products to be
considered as candidates for purchase by
customers.
 A brand name car can be an “order
qualifier”
 Order winners –they are the criteria that
differentiates the products and services of one
firm from another.
 Repair services can be “order winners”
Examples: Warranty, Roadside Assistance,
Leases, etc.
Order Winners and Qualifiers
To develop effective strategies for business, it is
essential for organizations to determine what
combinations of factors are important to
customers, which factors are order qualifiers, and
which are order winners.
Characteristics such as price, quality, delivery
reliability, delivery speed can be order qualifier or
order winner.
Characteristics which may be an order qualifier in
some situations will become an order winner in
another situation [example Quality]
It is also necessary to decide on the relative
importance of each factors so that an appropriate
actions can be given to the various factors.
Today’s Key Strategies for Operations
 Quality-based strategies

Focus on satisfying the customer by integrating
quality into all phases of the organization

Quality includes both products and processes
such as design, production, and service after
the sale
 Time-based strategies

Gain competitive advantage by performing
certain activities more quickly than
competitors
Key Strategies for Operations (contd.)
 Vertical integration and outsourcing

Make vs. buy

Strategic alliances
 Supply chain management - Synchronization of the supply chain to
achieve high performance

Suppliers, manufacturers, distribution channels, retailers
and customers—all viewed as an integrated system

Cooperation between links, sharing of information

Focus on trade-off between cost and level of service
Time-based strategies
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time
Various Time-based strategies
Planning time: The time needed to react to competitive
threat, to develop strategies and select tactics, to approve
proposed changes to facilities, to adopt new
technologies, and so on.
Product/service design time: The time needed to
develop and market new or redesigned products or
service
Processing time: The time needed to produce goods or
provide services. This can involve scheduling, repairing
equipment, wasted efforts, inventories, quality, training,
etc.
Time-based strategies (Contd.)
Changeover time: The time needed to change from
producing one type of product or service to another. This
may involve new equipment settings and attachments,
different methods, equipment, schedules or materials.
Delivery time: The time needed to fill order
Response time: These must be customer complaints
about quality, timing of deliveries, and incorrect
shipments. These might also be complaints from
employees about working conditions (e,g., safety, lighting,
heat or cold), equipment problems, or quality problems.
Impetus for Strategy Change
Changes in the organization
Stages in the product life cycle
Changes in the environment
Growth rate
Stages in the Product Life Cycle
Introduction
Growth
Maturity
Decline
Strategy and Issues During a
Product’s Life
Introduction
Company Strategy/Issues
Best period to
increase market
share
R&D product
engineering critical
Growth
Maturity
Practical to change
price or quality image
Poor time to change
image, price, or quality
Competitive costs become
critical
Strengthen niche
Fax machines
CD-ROM
Color copiers
Cost control
critical
Defend market position
Drive-thru restaurants
Sales
Decline
3 1/2”
Floppy
disks
Station
wagons
Internet
HDTV
OM Strategy/Issues
Product design and
development critical
Frequent product and
process design changes
Short production runs
High production costs
Forecasting critical
Standardization
Product and process
reliability
Less rapid product
changes - more minor
changes
Competitive product
improvements and options
Increase capacity
Limited models
Shift toward product
focused
Attention to quality
Enhance distribution
Optimum capacity
Increasing stability of
process
Long production runs
Product improvement and
cost cutting
Little product
differentiation
Cost minimization
Overcapacity in the
industry
Prune line to eliminate
items not returning good
margin
Reduce capacity