OM CHAPTER 4 OPERATIONS STRATEGY DAVID A. COLLIER AND JAMES R. EVANS 1

Competitive Priorities Chapter 4 Operations Strategy Competitive Priorities Competitive advantage denotes a firm’s ability to achieve market and financial superiority over its competitors. Competitive priorities represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain.

Understanding Customer Requirements Chapter 4 Operations Strategy Understanding Customer Requirements A Japanese professor, Noriaki Kano, suggested three classes of customer requirements: Dissatisfiers: requirements that are expected in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. Satisfiers: requirements that customers say they want. Exciters/delighters: new or innovative good or service features that customers do not expect. Examples?

Understanding Customer Requirements Chapter 4 Operations Strategy Understanding Customer Requirements Basic customer expectations—dissatisfiers and satisfiers—are generally considered the minimum performance level required to stay in business and are often called order qualifiers. Order winners are goods and service features and performance characteristics that differentiate one customer benefit package from another, and win the customer's business.

Understanding Customer Requirements Chapter 4 Operations Strategy Understanding Customer Requirements Search attributes are those that a customer can determine prior to purchasing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hardness, and smell. Goods such as supermarket food, furniture, clothing, automobiles, and houses are high in search attributes.

Understanding Customer Requirements Chapter 4 Operations Strategy Understanding Customer Requirements Experience attributes are those that can be discerned only after purchase or during consumption or use. Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer satisfaction.

Understanding Customer Requirements Chapter 4 Operations Strategy Understanding Customer Requirements Credence attributes are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption. Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software.

Competitive Priorities Chapter 4 Operations Strategy Competitive Priorities Cost Quality Time Flexibility Innovation

Competitive Priority – Cost Chapter 4 Operations Strategy Competitive Priority – Cost Almost every industry has a low price market segment. Low-cost strategy firms: Honda Motor Co., Marriott's Fairfield Inns, Merck-Medco On-line Pharmacy, Southwest Airlines, and Wal-Mart's Sam's Club. Southwest Airlines is one of the few airlines that have been profitable during the 2001-2005 period. A low cost strategy can reshape industry structure such as in the airline industry.

Competitive Priority – Quality Chapter 4 Operations Strategy Competitive Priority – Quality Businesses offering premium quality goods usually have large market shares and were early entrants into their markets. Quality is positively and significantly related to a higher return on investment for almost all kinds of market situations. A strategy of quality improvement usually leads to increased market share, but at a cost in terms of reduced short-run profitability. High goods quality producers can usually charge premium prices.

Competitive Priority – Time Chapter 4 Operations Strategy Competitive Priority – Time Time is perhaps the most important source of competitive advantage. Customers demand quick response, short waiting times, and consistency in performance. Many firms use time as a competitive weapon to create and deliver superior goods and services, such as Charles Schwab, Clarke American Checks, CNN, Dell, FedEx, and Wal-Mart.

Competitive Priority – Time Chapter 4 Operations Strategy Competitive Priority – Time Reductions in flow time serve two purposes: First, they speed up work processes so that customer response is improved. Deliveries can be made faster, and more often on-time. Second, reductions in flow time can be accomplished only by streamlining and simplifying processes and value chains to eliminate non-value-added steps such as rework and waiting time.

Competitive Priority – Flexibility Chapter 4 Operations Strategy Competitive Priority – Flexibility Mass customization is being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world. High-levels of flexibility might require special strategies such as modular designs, interchangeable components, and postponement strategies.

Competitive Priority – Flexibility Chapter 4 Operations Strategy Competitive Priority – Flexibility Flexible operations require sharing manufacturing lines and specialized training for employees. Flexible operations may also require attention to outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements, because delayed shipments and a complex supply chain can hinder flexibility.

Competitive Priority – Innovation Chapter 4 Operations Strategy Competitive Priority – Innovation Innovation is the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms. Innovations in all forms encapsulate human knowledge.

Competitive Priority – Innovation Chapter 4 Operations Strategy Competitive Priority – Innovation Innovations take many forms: Physical goods such as telephones, automobiles, refrigerators, computers, optical fiber, satellites, and cell phones. Services such as self-service, all-suite hotels, health maintenance organizations, and Internet banking.

Competitive Priority – Innovation Chapter 4 Operations Strategy Competitive Priority – Innovation Innovations take many forms: Manufacturing such as computer-aided design, robotic automation, and smart tags. Management practices such as customer satisfaction surveys, quantitative decision models, and Six Sigma.

Chapter 4 Operations Strategy Strategic Planning Strategy is a pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. Effective strategies develop around a few key competitive priorities, such as low cost or fast service time, which provide a focus for the entire organization and exploit an organization’s core competencies (the strengths unique to that organization).

Chapter 4 Operations Strategy Strategic Planning Strategic planning is the process of determining long-term goals, policies, and plans for an organization. The businesses in which the firm will participate are often called strategic business units (SBUs), and are usually defined as families of goods or services having similar characteristics or methods of creation. Strategy is the result of a series of hierarchical decisions about goals, directions, and resources.

Chapter 4 Operations Strategy Strategic Planning Most large organizations have three levels of strategy: Corporate strategy is necessary to define the businesses in which the corporation will participate and develop plans for the acquisition and allocation of resources among those businesses.

Chapter 4 Operations Strategy Strategic Planning Most large organizations have three levels of strategy: A business strategy defines the focus for SBUs. The major decisions involve which markets to pursue and how best to compete in those markets; that is, what competitive priorities the firm should pursue.

Chapter 4 Operations Strategy Strategic Planning Most large organizations have three levels of strategy: A functional strategy is the set of decisions that each functional area—marketing, finance, operations, research and development, engineering, and so on—develops to support its particular business strategy.

Chapter 4 Operations Strategy Strategic Planning The operations strategy defines how an organization will execute its chosen business strategies. It is how an organization’s processes are designed and organized to produce the type of goods and services to support the corporate and business strategies.

Chapter 4 Operations Strategy Strategic Planning Managers recognize that the value (supply) chain can be leveraged to provide a distinct competitive advantage, and that operations is a core competency for the organization. Whoever has superior operational capability over the long term is the odds-on-favorite to win the industry shakeout.