Competitiveness and Operations Strategy

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 Quality Price Time Flexibility Differentiation Service 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

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.

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.

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.

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

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. You might ask students to prepare for class by visiting several company web sites, and, for each company: locating the company mission, and printing a copy of the mission to bring to class. The students should also be asked to, if possible, determine the strategy used by the company to achieve its avowed mission. You might even ask that a student finding a mission statement that they believe of special interest, bring a copy of the statement on a transparency. You might begin the class by asking students why a company’s mission is so important. Does it really convey important information, or is it, as some cynics might claim, simply an expression of wishful thinking? Among other benefits, the mission provides an “umbrella” under which decisions should be made. This may be especially useful for a global enterprise. If the students have obtained the mission statements of companies with which they are familiar, you might ask if their perception of the company suggests that it is fulfilling it published mission. If the answer is “No,” ask what suggests otherwise.

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. Assuming that students have brought to class with them copies of the missions of several companies, ask that they compare those to this mission statement of Circle K.

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 Ask the students to compare the mission of Circle K with this of Merck (and with those they have located). What does the recognition of employees and investors signify? Is it reasonable to suggest that employees and investors should be recognized in all mission statements? Does such recognition have any significance with regard to employee working conditions, corporate decision making, or corporate attitude toward risk?

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) One of the first things you might point out is that Komatsu is not a recent arrival in the market place. They are pursuing strategies begun in the 1960s. You might contrast this with the somewhat shorter time perspectives held by many U.S. firms. Other topics the students might find helpful to discuss include: 1. Why did Komatsu decide to become a global enterprise so much earlier than manufacturers (e.g., Caterpillar, John Deere, and Ingersoll-Rand)) in the U.S.? 2. Komatsu’s present focus on engine controls which, among other things, benefits the environment. 3. How can new technology be used to drive down costs and improve quality?

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

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 Increase Org. Size Corporate Strategy Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory 3

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 Marketing Operations Tactics Tactics Tactics Finance operations Marketing operations Operations operations

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 Processes and Technology Capacity Human Resources Quality Facilities Sourcing Services Operating Systems Note: Cross functional/geographic/organizational boundaries

Products & Services Make-to-order Make-to-stock Assemble-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
Volume Low High Projects Batch Production Mass Continuous Standardization

Service-Process Matrix
Volume Low High Professional Service Service Shop Mass Service Service Factory Standardization

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

Operational decisions
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? 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 Time Rapid Delivery McDonald’s Restaurants Express Mail UPS Domino’s Pizza On-time Delivery One-hour photo, Federal Express, Express Mail Flexibility Variety Burger Kind (“Have it your way”), Hospital emergency room Volume McDonald’s (“Buses welcome”) Toyota Supermarkets (additional checkouts) Service Superior customer service Hewlett-Packard IBM Nordstrom's Location Convenience Supermarkets, dry cleaners Mail stores Service stations Banks, ATMs

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 You might begin here to raise the notion that change in strategy is not optional - but must occur when any other factor(s) change(s). The Japanese have come to view strategy as being continually adaptive. The next slide lists the stages in the product life cycle. The several slides following that elaborate on strategic issues over the product life cycle.

Stages in the Product Life Cycle
Introduction Growth Maturity Decline Growth rate The purpose of this slide is simply to introduce the stages of the product life cycle and provide time for the instructor to present brief definitions. A context for further elaboration is provided by the following four slides. The fifth enables a useful summary.

Strategy and Issues During a Product’s Life
Introduction Growth Maturity Decline Standardization Less rapid product changes - more minor changes 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 Forecasting critical Product and process reliability Competitive product improvements and options Increase capacity Shift toward product focused Enhance distribution Product design and development critical Frequent product and process design changes Short production runs High production costs Limited models Attention to quality Best period to increase market share R&D product engineering critical Practical to change price or quality image Strengthen niche Cost control critical Poor time to change image, price, or quality Competitive costs become critical Defend market position OM Strategy/Issues Company Strategy/Issues HDTV CD-ROM Color copiers Drive-thru restaurants Fax machines Station wagons Sales 3 1/2” Floppy disks Internet This slide can be useful in summarizing strategy changes over the lifecycle of the product.

Competitiveness and Operations Strategy

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