COMPETITIVENESS AND OPERATIONS STRATEGY

the bar is getting higher A COLD HARD FACT Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and… the bar is getting higher

CHAPTER FOCUS Competitiveness Strategy Productivity

COMPETITIVENESS Competitiveness: How effectively (the extent that) 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?

MARKETING INFLUENCES COMPETITIVENESS BY: Identifiying consumer needs and desires Pricing Advertising and promotion

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (1 of 4): 1. Product and Service Design 2. Cost 3. Location 4. Quality and Reliability

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (1 of 4): 5. Quick or Reliable Response a. New Product Introduction Speed b. Delivery Speed c. Delivery Reliability 6. Service

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (1 of 4): 7. Flexibility a. in making alterations in design b. in coping with changes in volume c. in new product introduction 8. Inventory Management

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (1 of 4): 9. Supply Chain Management 10. Service and Service Quality 11. Managers and Workers

WHY SOME ORGANIZATIONS FAIL? (1 of 2) Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy

WHY SOME ORGANIZATIONS FAIL (2 of 2) 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 and cooperation Failing to consider customer wants and needs

HIERARCHICAL PLANNING Mission Goals Organizational Strategies Tactics Functional Strategies

HIERARCHICAL PLANNING Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures

MISSION Mission - where you are going? The reason for the existence for an organization Provides boundaries & focus © 1995 Corel Corp.

MISSION STATEMENT States the purpose of the organization The mission statement should answer the question of “What business are we in?”

MISSION STATEMENT OF THE HARD ROCK CAFE To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

MC’DONALD’S MISSION STATEMENT McDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience -- People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience.

GOALS The mission statement serves as the basis for organizational goals Goals They provide detail and the scope of the mission Goals can be viewed as organizational destinations They serve as the basis for organizational strategies

STRATEGIES Strategy A plan for achieving organizational goals Serves as a roadmap for reaching the organizational destinations Mission: Where you are going? Strategy: How you are going to get there; an action plan (shows how mission will be achieved)

STRATEGIES Organizations have Organizational (business) strategies Overall strategies that relate to the entire organization Support the achievement of organizational goals and mission Functional level strategies Strategies that relate to each of the functional areas and that support achievement of the organizational strategy

TACTICS AND OPERATIONS The methods and actions taken to accomplish strategies The “how to” part of the process Answers the question: “How to reach the destination, following the strategy road map” Operations The actual “doing” part of the process

STRATEGY EXAMPLE Mission: Live a good life 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

CORE COMPETENCIES Core Competencies The special attributes or abilities that give an organization a competitive edge To be effective core competencies and strategies need to be aligned

SAMPLE STRATEGIES Organizational Strategy Operations Strategy Examples of Companies or Services Low Price Low Cost U.S. first-class postage Wal-Mart High Quality High performance design and/or high quality processing Consistent Quality Sony TV Lexus, Cadillac, Coca-Cola; Kodak, Motorola Short Time Quick Response(rapid delivery) On-time delivery McDonald’s Restaurants Express mail FedEx; One-hour photo Newness Innovation 3M Flexibility Variety Volume Burger King (Have it your way”) McDonald’s (“Buses Welcome”) Service Superior customer service Disneyland IBM Location Convenience Supermarkets, Banks, ATMs Mall Stores

© 1995 Corel Corp. STRATEGY FORMULATION Effective strategy formulation requires taking into account: Core competencies Environmental scanning (SWOT) Successful strategy formulation also requires taking into account: Order qualifiers Order winners

IDENTIFICATION OF CORE COMPETENCIES The special attributes or abilities that give an organization a competitive edge. What the firm does better than anyone else (critical success factors, distinctive competencies) Price Quality Time Flexibility Service Location Develop Distinctive Competencies based on customer needs and on what the competitors doing

ENVIRONMENTAL SCANNING The consideration of events and trends that present threats or opportunities for a company Environmental Scanning is necessary to identify Internal Factors Strengths and Weaknesses External Factors Opportunities and Threats

ENVIRONMENTAL SCANNING: KEY EXTERNAL FACTORS Economic conditions Political conditions Legal environment Technology Competition Customers and Markets Suppliers Distributors

ENVIRONMENTAL SCANNING: KEY INTERNAL FACTORS Resources available (human resources, facilities and equipment, financial resources) Existing and potential products and services Technology Stages of life cycles of current products

SWOT ANALYSIS TO STRATEGY FORMULATION Mission Internal External S trengths O pportunities Strategy Internal External W eaknesses T hreats Competitive Advantage

ORDER QUALIFIERS: DEFINED Order qualifiers are the basic criteria that permit the firm’s products to be considered as candidates for purchase by customers. These are the characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase.

ORDER WINNERS: DEFINED Order winners are the criteria that differentiate the products and services of the firm from others’. These are the characteristics of an organization’s goods or services that cause it to be perceived as better than competitors’ products

A brand name car can be an “order qualifier” Repair services can be “order winners” Examples: Warranty, Roadside Assistance, Leases, etc

ORGANIZATION STRATEGY/ OPERATIONS STRATEGY The organization strategy provides the overall direction for the organization. It is broad in scope covering the entire organization Operations strategy is the approach consistent with organization strategy that is used to guide the operations function. It is narrower in scope, dealing with the operations aspect of the organization.

Organization Strategy Relates to growth rate, market share Operations Strategy Relates to product design; choice of location, technology, new facilities

STRATEGIC PLANNING Mission and Vision Corporate Strategy Voice of the Business Customer Marketing Strategy Operations Strategy Financial Strategy

OPERATIONS ROLE IN CORPORATE STRATEGY Provide support for overall strategy of a firm Serve as firm’s distinctive competence Must be consistent Must be consistent with overall strategy

IMPETUS FOR STRATEGY CHANGE Changes in the organization Stages inthe product life cycle Changes in the environment

GLOBAL STRATEGY Strategic decisions must be made with respect to globalization What works in one country may not work in another Strategies must be changed to account for these differences Other issues Political, social, cultural, and economic differences

STRATEGIC DECISIONS IN OPERATIONS Products Processes, Technology Capacity Job design Quality Facilities Sourcing Services Inventory

STRATEGIC OM DECISION AREAS What the Decisions Affect Product and service design Costs, quality, liability, and environmental issues Capacity Cost, structure, flexibility Process selection and layout Costs, flexibility, skill level needed, capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems

TRADITIONAL STRATEGIES Cost minimization Product differentiation

COMPETING ON COST Eliminate all waste Invest in Updated facilities & equipment Streamlining operations Training & development

COMPETING BY DIFFERENTIATION Please the customers by offering unique goods or services that make them feel special

QUALITY-BASED STRATEGIES Quality-based strategy Strategy that focuses on quality in all phases of an organization Focuses on maintaining or improving the quality of an organization’s products or services Understand customer attitudes toward and expectations of quality Quality at the source Pursuit of such a strategy is rooted in a number of factors: Trying to overcome a poor quality reputation Desire to maintain a quality image A part of a cost reduction strategy

TIME-BASED STRATEGIES Strategies that focus on the reduction of time needed to accomplish tasks Competing on speed: fast moves, fast adaptations, tight linkages It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved

TIME-BASED STRATEGIES Areas where organizations have achieved time reductions: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

COMPETING ON FLEXIBILITY Produce wide variety of products Introduce new products Modify existing products quickly Respond to customer needs

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

THE BALANCED SCORECARD APPROACH A top-down management system that organizations can use to clarify their vision and strategy and transform them into action Develop objectives Develop metrics and targets for each objective Develop initiatives to achieve objectives Identify links among the various perspectives Finance Customer Internal business processes Learning and growth Monitor results

THE BALANCED SCORECARD