Operations

Management
Chapter 2 – Operations
Strategy and
Competitiveness

© 2008 Prentice Hall, Inc. 2–1

 Developing Missions,
Strategies and Tactics

Mission Strategy Tactics

Mission
The reason for an organization’s existence
 Organization’s purpose for being
 Answers ‘What do we provide society?’
 Provides boundaries and focus
© 2008 Prentice Hall, Inc. 2–2
 Developing Missions, Strategies
and Tactics
Mission statements tell an
organization where it is going
Mission Statement: Answers the
question “What business are we
in?”
Mission Statement: states the
purpose of an organization
© 2008 Prentice Hall, Inc. 2–3
 Factors Affecting Mission

Philosophy
and Values

Profitability
Environment
and Growth
Mission
Customers Public Image

Benefit to
Society
© 2008 Prentice Hall, Inc. 2–4
 Developing Missions, Strategies
and Tactics
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational
destinations
Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the
organizational destinations
© 2008 Prentice Hall, Inc. 2–5
 Developing Missions, Strategies
and Tactics
 Strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses
Tactics and Operations
Tactics
 The methods and actions taken to accomplish
strategies
 The “how to” part of the process
Operations
 The actual “doing” part of the process
© 2008 Prentice Hall, Inc. 2–6
 Strategies and Tactics: planning
and Decision Making
Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures

© 2008 Prentice Hall, Inc. 2–7

 Operations Strategy
 Operations strategy consists of goals, plans and
a direction for the operations function that are
linked to the business strategy and other
functional strategies, leading to a competitive
advantage for the firm.
 The approach, consistent with organization
strategy, that is used to guide the operations
function
 The operations manager’s job is to
implement an OM strategy, provide
competitive advantage, and increase
productivity
© 2008 Prentice Hall, Inc. 2–8
 Operations Strategy Formulation
1. Link strategy directly to the organization's
mission or vision statement
2. Assess SWOT and identify core
competencies/what the firm does better than
any one else
3. Identify order winners and order qualifiers
• What qualifies an item to be considered for
purchase?
• What wins the order
4. Select one or two strategies (e.g., low cost,
speed, customer service) to focus on
© 2008 Prentice Hall, Inc. 2–9
 Strategies an Organization
Might Choose From
• Low Cost: out source operations to third
world countries
• Scale-based Strategies: use capital-
intensive to achieve high output volume
and low unit cost
• Specialization: focus on narrow product
lines or limited service to achieve higher
quality
• Newness: focus on innovation to create
new products or services
© 2008 Prentice Hall, Inc. 2 – 10
 Strategies an Organization
Might Choose From
• Flexible Operation: focus on quick
response and/or customization
• High Quality: focus on achieving higher
quality than competitors
• Service: focus on various aspects of
service (e.g., helpful, courteous, reliable
etc.)
• Sustainability: focus on environmental-
friendly and energy efficient operations

© 2008 Prentice Hall, Inc. 2 – 11

 Operations Strategy
Formulation
• Order qualifiers
– Characteristics that customers perceive
as minimum standards of acceptability
to be considered as a potential
purchase
• Order winners
– Characteristics of an organization’s
goods or services that cause it to be
perceived as better than the competition
© 2008 Prentice Hall, Inc. 2 – 12
 Strategic Planning
Mission
Mission
and
and Vision
Vision

V
Vooiiccee oof i ce o
o f
f tthhee
f tthhee Vooic
V e
B
Buussiinneess Corporate
Corporate u s ttoom
m eerr
ss C
C u s
Strategy
Strategy

Marketing
Marketing Operations
Operations Financial
Financial
Strategy
Strategy Strategy
Strategy Strategy
Strategy

© 2008 Prentice Hall, Inc. 2 – 13

 Elements of Operations
Management Strategy
 Low-cost product
 Product-line breadth
 Technical superiority
 Product characteristics/differentiation
 Continuing product innovation
 Low-price/high-value offerings
 Efficient, flexible operations adaptable to
consumers
 Engineering research development
 Location
 Scheduling
© 2008 Prentice Hall, Inc. 2 – 14
 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
© 2008 Prentice Hall, Inc. 2 – 15
 Competitiveness
– How effectively 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?
© 2008 Prentice Hall, Inc. 2 – 16
 Competitiveness
Businesses Compete Using Marketing
•Identifying consumer wants and needs
•Pricing
•Advertising and promotion

© 2008 Prentice Hall, Inc. 2 – 17

 Competitiveness
Businesses Compete Using Operations
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers
© 2008 Prentice Hall, Inc. 2 – 18
 Why Some Organizations Fail?
• Too much emphasis on short-term
financial performance
• Failing to take advantage of
strengths and opportunities
• Failing to recognize competitive
threats
• Neglecting operations strategy

© 2008 Prentice Hall, Inc. 2 – 19

 Why Some Organizations Fail?
• 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
• Failing to consider customer wants
and needs
© 2008 Prentice Hall, Inc. 2 – 20
 Distinctive Competence
•Something an organization does better than any
competing organization that adds value for the
customer.
•Something that operations does better than
anyone else
•Critical Success Factors: activities or factors that
are key to achieving competitive advantage
•Core Competencies: a set of skills , talents, and
activities that a firm does particularly well
© 2008 Prentice Hall, Inc. 2 – 21
 Achieving Competitive
Advantage Through Operations
Competitive Advantage: the creation
of a system that has a unique
advantage over competitors
This is to create customer value in an
efficient and sustainable way
Competitive advantage can be
achieved through differentiation, low
cost and response.

© 2008 Prentice Hall, Inc. 2 – 22

 Strategies for Competitive
Advantage
Differentiation – better, or
at least different
Cost leadership – cheaper
Response – rapid response

© 2008 Prentice Hall, Inc. 2 – 23

 1.Competing on Differentiation
Concerned with providing uniqueness
Distinguishing the offerings of an
organization in a way that the customer
perceives as adding value
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
E.g. Convenience of product features or
convenience of location distribution……
© 2008 Prentice Hall, Inc. 2 – 24
 Cont’d…….
Experience differentiation: is the
option for extending product
differentiation in service sector
Engaging the customer with a product
through imaginative use of the five
senses, so the customer
“experiences” the product.
E.g. Hard Rock Cafe – dining
experience (engage customer with
classic rock music, big screen rock
videos and so on)
© 2008 Prentice Hall, Inc. 2 – 25
 2.Competing on Cost
Provide the maximum value as
perceived by customer
Does not imply low quality
One driver of a low-cost strategy is a
facility that is effectively utilized
E.g. Wal-Mart – small overheads,
shrinkage, distribution costs
Low cost leadership: achieving
maximum value as perceived by the
customer
© 2008 Prentice Hall, Inc. 2 – 26
 3.Competing on Response
 Response: is a set of values related to
rapid, flexible, and reliable performance
Flexibility is matching market changes in
design innovation and volumes
Institutionalization at Hewlett-Packard
Reliability is meeting schedules
German machine industry
Timeliness is quickness
in design, production,
and delivery
Johnson Electric, Bennigan’s, Motorola
© 2008 Prentice Hall, Inc. 2 – 27