Chapter 3

Operation Strategies and

Competitiveness

1
 Operation Strategies
• Strategy: Is a plan for achieving
organizational goal.
Serves as a roadmap for reaching the
organizational destinations.
• Strategic Planning: A process for getting from
where the company is today to where company
would like to be in the future.
 A process for getting from “here” to “there.”

2
 Strategic Planning Steps

Preparing a mission statement

Creating a vision
Setting goals
Formulating strategies
Designing tactics
Evaluating process and taking corrective
action
Measuring results or outcomes

3
Strategic Planning Steps cont…
• Mission
 What is our business? (Who we are?)
 Focus is on “today” (Here!)
• Vision
 What we hope to be?
 Focus is on “future” (There!)
• Goals
What we must do to achieve vision?
Should be measurable.
• Strategies
In broad terms, what must we do to achieve goal?
Does not say how.
4
Strategic Planning Steps cont…

• Tactics
 What must we do to make strategies work?
• Evaluation and corrective action
Are tactic working?
Are they moving you closer to achieving goal?
If not, take corrective action by changing tactics.
• Outcome
Outcome of strategic planning process
Tells us if strategic planning process was
successful.
Was goal achieved?
 If not, repeat.

5
Strategic Planning Steps cont…

• Example:

6
 Business Strategy
• It is long-range plan of a business/company,
designed to achieve a particular goal or set of
goals or objectives.
• A Business strategy map is a great way to see
the whole picture on one piece of paper and to
adjust and align business activities to achieve
the vision and goals of the company.
• It takes the systems thinking approach -
everything in an organization and its
environment is interrelated and so determines
the outputs of the whole system.

7
Business Strategy cont…

• Three Inputs to a Business Strategy

8
Business Strategy cont…

• Examples from Strategies

• 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

9
 Operations strategy
• It is a long-range plan for the operations
function that specifies the design and
use of resources to support the business
strategy.
• It ensures all tasks performed are the
right tasks.
• The approach, consistent with
organization strategy, that is used to
guide the operations function.

10
Operations strategy cont…

• Hierarchical Planning and Decision Making

11
Operations strategy cont…

12
 Competitiveness
• It refers to how effectively an organization
meets the wants and needs of customers
relative to others that offer similar goods or
services.

13
Competitiveness cont…

• SWOT analysis
 Conducting an environmental scan and identifying
companies strengths and weakness is a SWOT
analysis.

Internal S= W=
Strengths Weakness
O=
External Opportuniti T = Threats
es

14
SWOT analysis cont…
• Key Internal Factors
1. Human Resources
• Skills of workforce, expertise, experience,
loyalty to the organization
2. Facilities and equipment
• Capacities, locations, age, maintenance costs
3. Financial resources
• Cash flow, access to additional funding,
debt, cost of capital
4. Customers
• Loyalty, wants and needs

15
SWOT analysis cont…
5.Products and services
• Existing, potential for new ones
6. Technology
• Existing, ability to integrate new and its
impact on current and future operations
7. Suppliers
• Relationships, dependency, quality,
flexibility, service
8. Other
• Labor relations, company image,
distribution channels etc
16
SWOT analysis cont…
• Key External Factors
1. Economic conditions
• Health and directions of the economy,
inflation, deflation, interest rates, taxes,
tariffs.
2. Political conditions
• Attitude towards business, political stability,
wars
3. Legal environment
• Antitrust laws, regulations, trade restrictions,
minimum wages laws, liability laws, labor laws,
patents

17
SWOT analysis cont…
4. Technology
• Innovations rate, future process technology,
design technology
5. Competition
• Number and strength of competitors, basis of
competitions (price, quality etc.)
6. Markets
• Size, location, brand loyalty, ease of entry,
growth potential, long term stability,
demographics.

18
 Competitive priorities
There are four broad categories of competitive priorities:
1.Cost:- A competitive priority focusing on low cost.
 To develop this competitive priority, the operations function
must focus primarily on cutting costs in the system, such as
costs of labour, materials, and facilities.
 Companies that compete based on cost study their
operations system carefully to eliminate all waste.
 They might offer extra training to employees to maximize
their productivity and minimize scrap.
 Also, they might invest in automation in order to increase
productivity.
 Generally, companies that compete based on cost offer a
narrow range of products and product features, allow for
little customization, and have an operations process that is
designed to be.
19
Competitive priorities cont…
2. Quality:- A competitive priority focusing
on the quality of goods and services.
 Quality depends on who is defining it.
Quality as a competitive priority has two
dimensions.
1.High-performance design:-This means that the
operations function will be designed to focus on
aspects of quality such as superior features,
high durability, and excellent customer service.
2.Goods and services consistency:-which measures
how often the goods or services meet the exact
design specifications.
20
Competitive priorities cont…
3. Time:-A competitive priority focusing on
speed and on-time delivery
 When time is a competitive priority, the job of
the operations function is to critically analyse
the system and combine or eliminate processes
in order to save time.
 Often companies use technology to speed up
processes, rely on a flexible workforce to
meet peak demand periods, and eliminate
unnecessary steps in the production process….

21
Competitive priorities cont…

4. Flexibility:- A competitive priority focusing

on offering a wide variety of goods or
services.
 As a company’s environment changes rapidly,
including customer needs and expectations, the
ability to readily accommodate these changes can
be a winning strategy. This is flexibility.
 To carry out this strategy, flexible companies tend
to have more general-purpose equipment that can
be used to make many different kinds of products.

22
Competitive priorities cont…
• There are two dimensions of flexibility.
1. Product flexibility :-ability to offer a wide
variety of goods or services and customize them
to the unique needs of clients. This is called
product flexibility. A flexible system can quickly
add new products that may be important to
customers or easily drop a product that is not
doing well.
2.Volume flexibility:- Another aspect of
flexibility is the ability to rapidly increase or
decrease the amount produced in order to
accommodate changes in the demand. This is
called volume flexibility.

23
Competitive priorities cont…

Trade-off:-The need to focus more on one competitive

priority than on others.

To help a company decide which competitive priorities to

focus on, it is important to distinguish between order
winners and order qualifiers, which are concepts developed
by Terry Hill, a professor at Oxford University.

Order qualifiers are those competitive priorities that a

company has to meet if it wants to do business in a
particular market.

Order winners, on the other hand, are the competitive

priorities that help a company win orders in the market.

24
 The dependability objective
• Dependability means doing things in time for
customers to receive their goods or services
exactly when they are needed, or at least
when they were promised.
• Customers might only judge the dependability
of an operation after the product or service
has been delivered.
• Over time, however, dependability can
override all other criteria.

25
Competition cont…

•  

26
Competition… productivity cont…

•  

27
Competition… productivity cont…

• Productivity Example

28
Competition… productivity cont…

Example: Commercial Bank of Ethiopia employs 3

loan officers, each working 8 hours per day. Each
officer processes an average of 5 loans per day.
The bank’s payroll cost for the officers is $820
per day and there is a daily overhead expense of
$500. The bank has just purchased new computer
software that should enable each officer to
process 8 loans per day, although the overhead
expense will increase to $550. Evaluate the
change in labour and multifactor productivity
before and after implementation of the new
computer software.
29
 Competition productivity cont…

Solution:
Labour productivity (old) =(3 officers * 5 loans/day)/24
labour-hours
= 0.625 loans per labour-hour
Labour-productivity (new) =(3 officers * 8 loans/day)/24
labour-hours
=1.00 loan/labour hour
Multifactor productivity (old) =15 loan/day/($820/day +
$500/day)
=0.0113loan/dollar
Multifactor-productivity (new) =24 loan/day/($820/day +
$550/day)
=0.0175 loan/dollar
30
 Competition productivity cont.…

• The change in labour productivity is from 0.625 to

1.00 loans per labour-hour. This results in an
increase of 1.00/0.625 =1.6, or an increase of 60
percent. Or (1.00 – 0.625)/0.625 = 0.6,
0.6*100=60%

• The change in multifactor productivity is from

0.0113 to 0.0175 loans per dollar. This results in an
increase of 0.0175/0.0113=1.55, or an increase of
55 percent.

• Change= (New-old)/old*100%
31
Competition… productivity cont…

5.Dependability means doing things in time for

customers to receive their goods or services
exactly when they are needed, or at least when
they were promised.

32
 Polar representation

• Polar diagrams are used to indicate the relative

importance of each performance objective to an
operation or process
• They can also be used to indicate the difference
between different products and services
produced by an operation or process

33
Polar diagrams for a taxi service versus a bus service

34
Polar diagrams for newspaper collection and general
recycling services

35
 Perspectives on operations strategy
• Different authors have different views and
definitions of operations strategy. four of the
‘perspectives’ are:
OS is a top-down reflection of what the whole
group or business wants to do.
 OS is a bottom-up activity where operations
improvements cumulatively build strategy.
 OS involves translating market requirements
into operations decisions.
 OS involves exploiting the capabilities of
operations resources in chosen markets.

36
 1. Top-down Perspective
• A large corporation will need a strategy to position
itself in its global, economic, political and social
environment.
• This will consist of decisions about what types of
business the group wants to be in, what parts of
the world it wants to operate in, how to allocate
its cash between its various businesses, and so on.
• Decisions such as these form the corporate
strategy of the corporation.
• Each business unit within the corporate group will
also need to put together its own business strategy
which sets out its individual mission and objectives.
37
The top-down perspective of operations strategy and its application to the printing
services group 38
 2. Bottom-up Perspective
• The ‘top-down’ perspective provides an
accepted/conventional view of how functional strategies
should be put together.
• But in fact the relationship between the levels in the
strategy hierarchy is more complex than this.
• Although it is a convenient way of thinking about strategy,
this hierarchical model is not intended to represent the way
strategies are always formulated.
• When any group is reviewing its corporate strategy, it will
also take into account the circumstances, experiences and
capabilities of the various businesses that form the group.
• Similarly, businesses, when reviewing their strategies, will
consult the individual functions within the business about
their constraints and capabilities.
• They may also incorporate the ideas which come from each
function’s day-to-day experience. 39
The ‘bottom-up’ perspective of operations strategy and its
application to the printing services company
40
 3. Market-requirements Perspective
• One of the obvious objectives for any organization
is to satisfy the requirements of its markets.
• No operation that continually fails to serve its
markets adequately is likely to survive in the long
term. And although understanding markets is
usually thought of as the domain of the marketing
function, it is also of importance to operations
management.
• Without an understanding of what markets
require, it is impossible to ensure that operations
is achieving the right priority between its
performance objectives (quality, speed,
dependability, flexibility and cost).
41
 4. The operations resources perspective
• The fourth and final perspective we shall take on
operation strategy is based on a particularly
influential theory of business strategy – the
resource-based view (RBV) of the firm.
• Put simply, the RBV holds that firms with an ‘above-
average’ strategic performance are likely to have
gained their sustainable competitive advantage
because of the core competences (or capabilities)
of their resources.
• This means that the way an organization inherits,
or acquires, or develops its operations resources
will, over the long term, have a significant impact on
its strategic success. 42
 The process of operations strategy
• The process of strategy formulation is concerned with
‘how’ operations strategies are put together.
• It is important because, although strategies will vary
from organization to organization, they are usually
trying to achieve some kind of alignment, or ‘fit’,
between what the market wants, and what the
operation can deliver, and how that ‘alignment’ can be
sustained over time.
• So, the process of operations strategy should both
satisfy market requirements through appropriate
operations resources, and also develop those resources
in the long term so that they can provide competitive
capabilities in the longer term that are sufficiently
powerful to achieve sustainable competitive
advantage. 43
 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.
• 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.
44