CHAPTER -2

Operations Strategy and

Competitiveness
Melkam A.(MBA)
Department of Management
College of Business and Economics
Wollega University
 The Concept of Strategy
• Strategy is the grand design or an overall ‘plan’
which an organization chooses in order to move or
react towards the set of objectives by using its
resource.
• Strategies are the means by which the enterprise
achieves its objectives.
• Generally, describe the chosen paths to goal, or
routes to achievement or plans of campaign.
• To maintain a competitive position in the
marketplace, a company must have a long-range
plan(strategy plan).
• 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.
• All other decisions made by the company must
support this long-range plan.
• Otherwise, each person in the company would
pursue goals that he or she considered important,
and the company would quickly fall apart.

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Example
• The functioning of a football team on the field is
similar to the functioning of a business. Before
the plays are made, the team prepares a game
strategy.

• Each player on the team must perform a

particular role to support this strategy.

• A successful football team is a unified group of

players using their individual skills in support of
a winning strategy. The same is true for a
business. 8-4
 Levels of Strategy
1. Corporate level
2.business strategy (Strategic business unit) and
3. Functional strategy (Operations, finance &marketing
Corporate level the strategy provides very general
long-range guidance for the whole organization,
often expressed as a statement of mission and It is
grand strategies
• The mission statement describes in general terms
what key decision-makers want the company to
accomplish and what kind of company they want it
to become.
• It is related to “what and why” aspect and
Business strategy (SBU) It is long-range plan of
a business, designed to provide and sustain
shareholder value
For a company to succeed, the business strategy
must be supported by each of the individual
business functions, such as operations, finance,
and marketing.
Operations strategy is a long-range plan for the
operations function that specifies the design and
use of resources to support the business
strategy.
• actions which set the role, objectives and
activities of the operation.
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 The role of operations strategy
To provide a plan for the operations
function so that it can make the best use of
its resources.
Specifies the policies and plans for using
the organization’s resources to support its
long-term competitive strategy.
To make sure that all the tasks performed
by the operations function are the right
tasks.
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The operations function is responsible for
managing the resources needed to produce
goods and services.
•The operations strategy must be aligned
with the company’s business strategy and
enable the company to achieve its long-
term plan.

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 Importance of Operations Strategy

•Companies often do not understand the

differences between operational efficiency and
strategy:
Operational efficiency is performing tasks well,
even better than competitors.
Operational Strategy is a plan for competing in
the marketplace.
Operational efficiency and strategy must be
aligned; otherwise, you may be very efficiently
performing the wrong task.

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Relationship between the business strategy and the functional
strategies

8-10
 Developing a Business Strategy
•A business strategy is developed after taking
into many factors and following some
strategic decisions such as;
What is our business? (mission)
Analyzing and understanding the market
(environmental scanning)
Identifying the companies strengths (core
competencies)
•These three factors are critical to the
development of the company’s long-range
plan, or business strategy.
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 The Role of Business Strategy
Provides a plan (business strategy) making the
best use of resources that:
• Defines the long-range plan to compete in the
marketplace
• Helps to differentiate the firm from competitors
• Provides a game plan upon which functional
strategies are developed Focuses on doing the
“right tasks”
Three Inputs to a Business Strategy

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 Example

• Mission: Dell Computer- “to be the most

successful computer company in the world”.
• Environmental Scanning: political trends, social
trends, economic trends, market place trends,
global trends.
• Core Competencies: strength of workers, modern
facilities, market understanding, best
technologies, financial know-how, logistics.

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 Developing an Operations Strategy
• Operation Strategy is a plan for the design and
management of operations functions in a way that
supports business strategy.
• Operation Strategy developed after the business
strategy
• Operations Strategy focuses on specific
capabilities which give it a competitive edge –
competitive priorities

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Operations Strategy: Designing the Operations Function

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 Competitive Priorities
• Competitive how effectively an organization
meets the wants and needs of customers relative
to others that offer similar goods and service
• Competitive priorities - Capabilities that the
operations function can develop in order to give a
company a competitive advantage in its market.
• Four Important Operations Questions: Will you compete on:
Cost?
Quality?
Time?
Flexibility?

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 Competing on Cost?
• It is organization is competing on price
• Offering product at a low price relative to
competition
Features
high volume products
Can use lower skill labor
Probably use product focused layouts
Low cost does not mean low quality

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 Competing on Quality?
• Quality is often subjective definition b/c depending on
who is defining it.
• Quality is consistent conformance to customers’
expectations
• Two major quality dimensions include
• High performance design:
• Superior features, high durability, and excellent
customer service
• Product and service consistency:
• Meets design specifications
• Close tolerances
• Error free delivery
• Quality needs to address
• Product design quality – product/service meets
requirements
• Process quality – error free products 19
 Competing on Time/speed?
• It is one of most important competition priorities
today
• Speed means the elapsed time between customers
requesting products (services) and receiving them.
• Time related issues involve
• Rapid delivery: Focused on shorter time between order
placement and delivery
• On-time delivery: Deliver product exactly when needed
every time
• 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.
•. 20
 Competing on Flexibility?
• Flexibility means being able to change the operation in
some way.
• There are two dimensions of flexibility:
• Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific
requirements of a customer.
• Generally, it is operation's ability to introduce new or
modified products or services;
• Volume flexibility:
• Ability to ramp production up and down to match
market demands

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• Companies that compete based on flexibility often
cannot compete based on speed because it
generally requires more time to produce a
customized product.
The Need for Trade-offs
• Consider a company that competes on using the
highest quality component parts in its products.
• Due to the high quality of parts the company may
not be able to offer the final product at the
lowest price.
• In this case, the company has made a tradeoff
between quality and price.
• Decisions must emphasis priorities that support
business strategy
• One way that large facilities with multiple
products can address the issue of trade-offs is
using the concept of plant-within-a-plant (PWP),
that different areas of a facility be dedicated to
different products with different competitive
priorities.
• For example, hospitals use PWP to focus in a
particular area, such as the cardiac unit, oncology,
radiology, surgery, or pharmacy.

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• Decisions must focus on order qualifiers and order winners.
• Order qualifiers :Characteristics that customers perceive
as minimum standards of acceptability to be considered as a
potential purchase
• Competitive priorities that must be met for a company to
qualify as a competitor in the marketplace.
• Order winners:
• Characteristics of an organization’s goods or services that
cause it to be perceived as better than the competition
• Competitive priorities that win orders in the marketplace.
 E.g. Consider a simple restaurant that makes and
delivers ‘Tegabino’.
• Order qualifiers might be low price (less than Br
10.00) and quick delivery (under 15 minutes),
because this is a standard that has been set by
competing restaurants.
• The order winners may be “fresh ingredients” and
“home-made taste.”
• These characteristics may differentiate the restaurant
from all the other restaurants.
 Translating Competitive Priorities to 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.
Structure – decisions related to the production
process, such as characteristics of facilities used,
selection of appropriate technology, and the flow of
goods and services
Infrastructure – decisions related to planning and
control systems of operations, such as the organization
of the operations function, the skills and pay of workers,
and quality control approaches. 8-26