Chapter 2

Operations Strategy and

Competitiveness

By: Ayele Fettera (PhD Candidate)

 Cont’d
 To maintain a competitive position in the
marketplace, a company must have a long-range
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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By: Ayele Fettera (PhD Candidate)
 Operations strategy is the development of a long-term plan for
using the major resources of the firm for a high degree of
compatibility between these resources and the firm’s long term
corporate strategy. Operations strategy addresses very broad
questions about how these major resources should be configured
to achieve the desired corporate objectives. Some of the major
long-term issues addressed in operations strategy include;
 How large do we make our facilities?
 What type of process (es) do we install to make the products or
provide services?
 What will our supply chain look like?
 What will be the nature of our workforce?
 How do we ensure quality?

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By: Ayele Fettera (PhD Candidate)
Business/Functional
Strategy

© Wiley 2005 4
 Business strategy
 A means by which an organization sets
out to achieve its objectives
 Is a set of competitive movies and
actions that a business uses to attract
customers, compute successfully,
strengthening performance and
achieve goals
 It outlines how business should carried
out to reach the desired ends 5
To Develop a Business
Strategy
 Consider these factors and
strategic decisions:
 What business in the company in
(mission)
 Analyze and understand the market
(environmental scanning)
 Identify the company strengths (core
competencies)

© Wiley 2010 6
Three Inputs to a Business
Strategy

© Wiley 2010 7
Key Examples
 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
© Wiley 2010 8
 Types of business strategy
 The basic strategies
 Cost leadership

 Differentiation

 Focus

Other strategies: Growth, Expansion,

Acquisition, takeover, price skimming

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Developing an Operations
Strategy

Operations Strategy: a plan for the

design and management of
operations functions
 is developed after the business
strategy
 focuses on specific capabilities which
give it a competitive edge –
competitive priorities

© Wiley 2010 10
Operations Strategy –
Designing the Operations
Function

© Wiley 2005 11
The Role of Operations
Strategy
 Provide a plan that makes best use
of resources which;
 Specifies the policies and plans for
using organizational resources
 Supports Business Strategy as shown
above

© Wiley 2010 12
 Importance of Operations
Strategy
 Creates essential differences between
operational efficiency and strategy:
 Operational efficiency is performing tasks
well, even better than competitors
 Strategy is a plan for competing in the
marketplace
 Operations strategy ensures all tasks
performed are the right tasks

© Wiley 2010 13
Competitive Priorities- The
Edge
 Four Key Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?

© Wiley 2010 14
 Competing on Cost?

 Offering product at a low price relative to competition


Typically high volume products

Often limit product range & offer little
customization

May invest in automation to reduce unit costs

Can use lower skill labor

Probably use product focused layouts

Low cost does not mean low quality

© Wiley 2010 15
Competing on Quality?
 Quality is often subjective
 Quality is defined differently depending on who
is defining it
 Two major quality dimensions include

High performance design:

Superior features, high durability, & excellent customer
service

Product & 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
© Wiley 2010 16
 Competing on Time?
 Time/speed one of most important
competition priorities
 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
Competing on Flexibility?
 Product flexibility:
 Easily switch production from one item to
another
 Easily customize product/service to meet
specific requirements of a customer

 Volume flexibility:
 Ability to ramp production up and down to
match market demands
The Need for Trade-offs
 Decisions must emphasis priorities that
support business strategy
 Decisions often required trade offs
 Decisions must focus on order qualifiers and
order winners

Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since
everyone expects it


Which priorities are “Order Winners”?
e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
© Wiley 2010 19
Competitiveness
 Ability and performance of a firm to
sell and supply goods and services in
a given market, in relation to the
ability and performance of other
firms
 In other words, how will one firm win
over customers in order to become
the product or service of choice.

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 Types of operations Strategy

 Type of process is directly related to

product and service strategy
 Three basic strategies include
 Make-to-stock; in anticipation of
demand
 Assemble-to-order; built from standard
components on order
 Make-to-order; produce to customer
specification at time of order
 Types of Operations Strategies
 Quality-based strategies are commonly
used when companies wish to elevate their
reputation in the marketplace.
 Improving on their product design and the
reduction of errors are the backbone of these
initiatives.
 Firms will often use programs such as
ISO9001, Six Sigma, and Total Quality
Management in their efforts.
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 Types of Operations
Strategies
 Time-based strategies are used to
reduce lead time, which is the amount of
time elapsed from the receipt of the
customer’s order until the products are
shipped.
 Firms that can produce faster will often
have lower costs.
 These companies may use lean production
methods to improve the velocity of their
processes.
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