Amity Business School

Operational
Competitiveness
Strategy
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Operational Competitiveness
Strategy
• Strategy can be defined as follows:

‘Strategy is the direction and scope of an

organisation over the long term: ideally, which
matches its resources to its changing
environment, and in particular its markets,
customers or clients so as to meet
stakeholder expectations.’
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Operational Competitiveness
Strategy
• Strategy can be seen to exist at 3 main levels of corporate,
business and functional:
– Corporate level Strategy
• At the highest or corporate level the strategy provides long-range
guidance for the whole organisation
– Business Level Strategy
• Here the concern is with the products and services that should
be offered in the market defined at the corporate level
– Functional Level Strategy
• This is where the functions of the business (e.g. operations,
marketing, finance) make long-range plans which support the
competitive advantage being pursued by the business strategy.3
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Four Stages of Judging Operations’ Contribution to Strategy

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The stages are described as follows:

• Stage 1 Internal Neutrality
Here the operations function has very little to contribute
to competitive success and is seen as a barrier to better
competitive performance by other functions.
• Stage 2 External Neutrality
Here the operations function begins to focus on
comparing its performance with competitor
organisations.
• Stage 3 Internally Supportive
Here the operations function is one of the best in their
market area and aspires to be the best in market.
• Stage 4 Externally Supportive
In stage 4 the operations function is becoming central to
strategy making and providing the foundation for future
competitive success.
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Measuring the Contribution of Operations to

Strategy: The Performance Objectives

• The five basic operation’s performance

objectives allow the organisation to measure its
operation’s performance in achieving its
strategic goals. The performance objectives are:
- Quality
- Speed
- Dependability
- Flexibility
- Cost
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Quality
• Quality covers both the quality of the design of
the product or service itself and the quality of the
process that delivers the product or service.
• From a customer perspective quality
characteristics include reliability, performance
and aesthetics.
• From an operations viewpoint quality is related
to how closely the product or service meets the
specification required by the design, termed the
quality of conformance. 7
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Speed
• Speed is the time delay between a customer request for
a product or service and then receiving that product or
service.

• The activities triggered from a customer request for a

product or service will be dependent on whether a make-
to-stock or customer-to-order delivery system is in place.

• The advantage of speed is that it can be used to both

reduce costs (by eliminating the costs associated with
make-to-stock systems) and reducing delivery time
leading to better customer service.
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Dependability

Dependability refers to consistently meeting a promised
delivery time for a product or service to a customer.
• Thus an increase in delivery speed may not lead to
customer satisfaction if it is not produced in a consistent
manner.
• Dependability can be measured by the percentage of
customers that receive a product or service within the
delivery time promised. In some instances it may even
be important to deliver not too quickly, but only at the
time required (for example a consignment of wet
concrete for construction!). Dependability leads to better
customer service when the customer can trust that the
product or service will be delivered when expected.
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Flexibility
• Flexibility is the ability of the organisation to change what it does.
The following types of flexibility can be identified:
o product or service - to be able to quickly act in response to
changing customer needs with new product or service designs
o mix - to be able to provide a wide range of products or services
o volume - to be able to decrease or increase output in response to
changes in demand.
o delivery - this is the ability to react to changes in the timing of a
delivery.
• Flexibility can be measured in terms of range (the amount of the
change) and response (the speed of the change).
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Cost
• Cost is considered to be the finance required to obtain
the inputs (i.e. transforming and transformed resources)
and manage the transformation process which produces
finished goods and services.
• If an organisation is competing on price then it is
essential that it keeps its cost base lower than the
competition. Then it will either make more profit than
rivals, if price is equal, or gain market share if price is
lower.
• Cost is also important for a strategy of providing a
product or service to a market niche, which competitors
cannot provide. Thus cost proximity (i.e. to ensure costs
are close to the market average) is important to
maximise profits and deter competitors from entering the
market. 11
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The Performance Objectives from an

Internal and External Perspective

• We can categorise the benefits of excelling at the performance

objectives from an internal and external perspective.

• This is useful because even though a performance objective may

have little relevance in achieving performance that external
stakeholders, such as customers, value it may bring benefits in
improving the capability of operations from an internal perspective.

• When we look at approaches to strategy we find that

competitiveness is not just a matter of simply improving performance
along specific external competitive dimensions, but incorporates the
development of internal capabilities that provide specific operating
advantages.
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Market-Based Approach to Operations Strategy

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Market-Based Approach to
Operations Strategy

• Using this approach an organisation makes a

decision regarding the markets and the
customers within those markets that it intends to
target.

• The organisation’s market position is one in

which its performance enables it to attract
customers to its products or services in a more
successful manner than its competitors. 14
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Resource-Based Approach to
Operations Strategy
• A resource-based view of operations strategy
works from the inside-out of the firm, rather than
the outside-in perspective of the market-based
approach.

• Here an assessment of the operations resources

and processes leads to a view of the operations
capability
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Reconciling the Market-Based and

Resource-Based Strategy Approaches

• It has been found that not all companies pursue strategy in

accordance with a pure market-based approach and it has been
found that competitiveness is not just a matter of simply improving
performance along specific competitive dimensions, but incorporates
the development of capabilities that provide specific operating
advantages.
• Thus the resource-based view of strategy is that operations takes a
more active role in providing long-term competitive advantage.
• What makes the development of operation strategy particularly
challenging is that not only should the market-based and resource-
based views of strategy need to be considered at a point in time, but
the changing characteristics of markets and the need to develop
operations capabilities over time means a dynamic as well as a
static view of strategy is required. 16
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Reconciling the Market-Based and Resource-Based

Strategy Approaches

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Operations Strategy Formulation

• In the following approach to operations strategy Hill proposes that the

issue of the degree of ‘fit’ between the proposed marketing strategy and
the operation’s ability to support it is resolved at the business level in
terms of meeting corporate (i.e. strategic) objectives.
• Thus Hill provides an iterative framework that links together the
corporate objectives; which provide the organisational direction, the
marketing strategy; which defines how the organisation will compete in
its chosen markets, and the operations strategy; which provides
capability to compete in those markets.
• The framework consists of five steps:
- Define corporate objectives
- Determine marketing strategies to meet these objectives
- Assess how different products win orders against competitors
- Establish the most appropriate mode to deliver these sets of products
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- Provide the infrastructure required to support operations
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Step 1 Corporate Objectives

• Step 1 involves establishing corporate
objectives that provide a direction for the
organisation and performance indicators that
allow progress in achieving those objectives
to be measured.
• The objectives will be dependent on the
needs of external and internal stakeholders
and so will include financial measures such as
profit and growth rates as well as employee
practices such as skills development and
appropriate environmental policies.
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Step 2 Marketing Strategy

• Step 2 involves developing a marketing strategy
to meet the corporate objectives defined in step
1.
• This involves identifying target markets and
deciding how to compete in these markets.
• This will require the utilisation of
product/service characteristics such as range,
mix and volume that the operations activity will
be required to provide.

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Step 3 How Do Products Win Orders in the

Market Place?
• This is the crucial stage in Hill’s methodology where any
mismatches between the requirements of the organisation’s
strategy and the operations’ capability are revealed. This
step provides the link between corporate marketing
proposals and the operations processes and infrastructure
necessary to support them.
• This is achieved by translating the marketing strategy into a
range of competitive factors (e.g. price, quality, delivery
speed) on which the product or service wins orders. These
external competitive factors provide the most important
indicator as to the relative importance of the internal
operations performance objectives discussed earlier in this
chapter. Next Figure provides examples of how different
(external) competitive factors will require a focus on the 21
corresponding (internal) performance objectives.
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• Figure does not imply a one-to-one relationship between

competitive factor and performance objectives. This is
because of the interrelationships between the performance
objectives, for example speed will be partly dependent on
other performance objectives such as cost and
dependability. Thus the figure shows that a particular
external competitive factor will provide an indication of the
relative importance of the internal performance objective.

• At this stage it is necessary to clarify the nature of the

markets that operations will serve by identifying the relative
importance of the range of competitive factors (i.e.
customers and competitors) on which the product or service
wins orders. Two measurements systems are described
which do this. 23
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Measuring the relative importance of the

competitive factors – Customers (Hill)

• Hill distinguishes between the following types of competitive factors

which relate to securing customer orders in the marketplace.
- order-winning factors – They are key reasons for customers
purchasing the goods or services and raising the performance of
the order-winning factor may secure more business
- qualifying factors – Performance of qualifying factors must be at
a certain level to gain business from customers, but performance
above this level will not necessarily gain further competitive
advantage.

• From the descriptions above it can be seen that it is therefore

essential to meet both qualifying and order-winning criteria in order
to be considered and then win customer orders. 24
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Measuring the Relative Importance of the Competitive Factors –

Customers and Competitors (Slack)
• This uses two dimensions – importance and performance
– to help operations managers prioritise performance
objectives.
- The relative importance of a competitive factor is assessed in terms of
its importance to internal or external customers using a 9 point scale of
degrees of order-winning, qualifying and less important customer viewed
competitive factors.
- The relative performance of a competitive factor against competitor
achievement. A 9 point performance scale (rating from consistently
better than the nearest competitor to consistently worst than most
competitors) is used for each performance objective.
• The next step is to plot each importance rating and
performance rating in an importance-performance matrix.
This indicates what customers find important in achieved
performance when compared with competitor
performance. The importance-performance matrix is
divided into 4 zones. 25
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Zones
The zones are defined as follows:
• Appropriate - Performance objectives in this zone are satisfactory in
the short to medium term, but there should be a wish to improve
performance towards the upper boundary of the zone.

• Improve - Performance objectives below the lower bound of the

appropriate zone will be candidates for improvement.

• Urgent Action - Here performance objectives are far below what the
customer requires and so should be improved to ‘same as’ or ‘better
then’ competitor performance.

• Excess? - Here too many resources may be being used to achieve

this level of performance. There is a possibility that they could be
deployed to a less well performing area. 27
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Influences on the Relative Importance of the

Competitive Factors
The measures above have considered the influence of customers (Hill)
and customers and competitors (Slack) on the relative importance of
the competitive factors. These influences are now considered in more
detail.
- Customers will value a range of competitive factors for any particular
product/service, thus it is necessary to identify the relative importance
of a range of factors. Competitors
- Competitor actions will also influence the basis on which competition
is based and may require a change in priorities of the competitive
factors used by the organisation. The Product/Service Life Cycle
- The product/service life cycle (PLC) provides one way of generalising
customer and competitor behaviour over time. The PLC is an attempt
to describe the change in sales volume for a particular product or
service from being introduced into a market until its withdrawal. 28
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• Step 4 Delivery System Choice (Structural Decisions) and

Step 5 Infrastructure choice (Infrastructural Decisions)
– Steps 4 and 5 of Hill’s methodology involves putting the
processes and resources in place which provide the
required performance as defined by the performance
objectives.
– Hill categorises operations decision areas into delivery
system choice, which is often referred to as structural
decisions and infrastructure choice, which is often
termed infrastructural decisions.
o Delivery system choice concerns aspects of the organisation’s
physical resources such as service delivery systems and
capacity provision.
o Operations Infrastructural decisions describe the systems,
policies and practices that determine how the structural elements
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covered in step 4 are managed.
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Achieving Strategic Fit –

Trade-Offs, Focus and Agility
– Step 3 of Hill’s methodology involves providing a ‘fit’
between the external competitive factors derived from
the market position and the internal performance
objectives derived from the operations processes and
resources (infrastructure).
– Some of the concepts underlining the idea of how this
fit can be achieved are now discussed in terms of the
concepts of trade-offs, focus and agile operations.

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Trade-Offs
• The idea of trade-offs can be used to help us understand
the way in which the performance objectives relate to
one another. The original idea of trade-offs is that there is
a trade-off relationship between competitive objectives,
such as cost, quality, delivery etc. that means to excel in
only one objective usually means poor performance in
some or all of the others. Thus an attempt to be good at
everything will lead to being mediocre at everything.
• The existence of trade-offs means that optimum solutions
must be sought within the inherent limits (constraints) of
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the operation.
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Focus
• The concept of focus is to align particular market demands
with individual facilities to reduce the level of complexity
generated when attempting to service a number of different
market segments from an individual organisation.
• This is because it is difficult and probably inadvisable for
operations to try to offer superior performance over
competitors across all of the performance objectives.
Usually organisations succeed when they organise their
resources and compete across one or two performance
objectives.
• Also the capabilities of the organisation will usually mean
that it can do some things better than others and a strategy
that uses inherent strengths will be more likely to offer a
competitive advantage. 32
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Agile Operations

• The aim of agile operations is to be able to respond quickly

to changing market demand in order to retain current
markets and gain new market share.
• Agile operations aims to serve fast changing markets in
which customers demand both high quality service and low
cost.
• Thus an agile operations strategy aims to overcome trade-
offs by developing the capability of its resources. Attempts
to do this have included the use of process technology and
process redesign. 33
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Mass Customisation
Mass customisation is an attempt to combine high variety and
high volume output in order to provide the customer with
customised products at a relatively low price.

Literatures describe 3 levels of customisation.

• Customer-contact customisation - This is where the product
or service is tailored to individual needs.

• Adaptive customisation - This is where a standard product or

service can be customised to meet individual needs.

• Presentation customisation - This is where standard products

are presented differently to different customers.
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