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chapter 2 Operations Strategy:

Defining How Firms PowerPoint
Presentation

Compete by
Charlie
Cook
The McGraw-Hill Companies, Inc., 2003
 Chapter
Chapter Objectives
Objectives
Introduce the concept of operations strategy and its
various components, and show how it relates to the
overall business strategy of the firm.
Illustrate how operations strategy pertains to adding
value for the customer.
Identify the different ways in which operations strategy
can provide an organization with a competitive
advantage.
Introduce the concept of tradeoffs between different
strategies and the need for a firm to align its operations
strategy to meet the needs of the particular markets it
is serving.
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 Chapter
Chapter Objectives
Objectives (contd)
(contd)
Explain the difference between order-qualifiers and
order-winners as they pertain to operations strategy.
Describe how firms are integrating manufacturing and
services to provide an overall bundle of benefits to
their customers.

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 Managerial
Managerial Issues
Issues
Developing and Implementing Effective
Strategies
Meeting the challenges of increased competition
in a globalized business environment.
Keeping up with technology advances.
Learning to do more with less.
Staying ahead of copycat competitors.
Keeping an eye on the future.

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 Operations
Operations Strategy
Strategy An
An Overview
Overview
Corporate strategy
Overall strategy adopted by the firm that defines
the specific businesses in which the firm will
compete and the way in
which resources are
acquired and allocated.

Corporate
Business
Functional
Operation
al
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 Operations
Operations Strategy
Strategy An
An Overview
Overview
Strategic Business Unit (SBU)
A stand-alone business within a conglomerate
(parent firm) that operates like an independent
company.
Business Strategy
How a strategic business unit (SBU) addresses
the specific markets it serves and products it
provides.

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 Types
Types of
of Business
Business Strategies
Strategies
Type Definition

Low Cost Producing the lowest cost products in the

market.

Market Satisfying the needs of a particular market

Segmentation niche.

Product Offering products that differ significantly from

Differentiation the competition.

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 Operations
Operations Strategy
Strategy An
An Overview
Overview
Functional Strategies
Strategy developed by a function (e.g.,
marketing) within an organization to support the
business strategy.
Competitiveness
A companys position in the marketplace relative
to its competition.

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 Operations
Operations Strategy
Strategy An
An Overview
Overview
Operations Strategy
How the operations function contributes to
competitive advantage.
Competitive Priorities
How the operations function provides a firm
with a competitive advantage.
PrioritiesLow cost, high quality, fast delivery,
flexibility, and service.

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 What
What is
is Operations
Operations Strategy?
Strategy?
Operations Strategy
Determining how to best utilize the firms
resources to achieve corporate objectives.
Major long-term structural issues
How big do we make the facilities?
Where do we locate them?
When do we build them?
What type of process(es) do we install to make
the products?

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Hierarchy
Hierarchy of
of Operational
Operational Planning
Planning

Exhibit 2.1
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 Operations
Operations Strategy
Strategy Means
Means
Adding
Adding Value
Value for
for the
the Customer
Customer
Total Benefits
Perceived Customer Value (2.1)
Total Costs
Perceived Customer Value Total Benefits - Total Costs (2.2)

If benefits exceed costs, the customer

perceives value for the product or service.

Value is in the eye of the beholder

What affects customer perceptions of value?

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Maximizing
Maximizing Value
Value Added
Added in
in Operations
Operations

Exhibit 2.2
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 Operations
Operations Strategy
Strategy Means
Means
Adding
Adding Value
Value for
for the
the Customer
Customer

How to add value:

Reduce product costs to customer.
Make the product more readily available.
Provide faster service.
Provide customers with additional relevant
information.
Customize the product to the customers
specific needs.

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 Trends
Trends Affecting
Affecting Operations
Operations
Strategy
Strategy Decisions
Decisions

Globalization
Global village with hyper-competition:
Continuous information technology advances
Lower trade barriers
Lower transportation costs
Emergence of newly industrialized countries (NIC)
with high-growth markets and high standards of
living

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 Trends
Trends Affecting
Affecting Operations
Operations
Strategy
Strategy Decisions
Decisions (contd)
(contd)

Technology
Connectivityanyone, anywhere, all the time
Speedinstantaneous transactions
Intangibilityfocus on innovative services to
gain competitive advantage
Simultaneous Competition on Multiple
Competitive Priorities
No traditional trade-offs of priorities

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 Competitive
Competitive Priorities
Priorities
Type Priority

Low Cost Providing low cost products.

Controlling costs across the board.

Quality Providing high quality products.

Focus is on product and process quality.

Delivery Providing products reliably and quickly.

Flexibility Providing a wide variety of products (mass

customization).
How fast a firm can produce a new product line.

Service Providing value-added service.

How products are delivered and supported.

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 The
The Next
Next Sources
Sources of
of
Competitive
Competitive Advantage?
Advantage?

Two New Trends

The use of environmentally friendly processes
and environmentally friendly products
The use of information
Large quantities data can now be accurately
stored and transmitted inexpensively.
Competitive advantage can be gained through
products and services that provide enhanced
levels of feedback.

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Developing
Developing an
an Operations
Operations Strategy
Strategy
from
from Competitive
Competitive Priorities
Priorities

Factory Focus and Trade-offs

A factory could not focus on all four competitive
priorities (cost, quality, delivery, and flexibility).
Focusing performance on one priority
limits/eliminates the ability to focus on another
priority.
Plant-within-a-Plant (PWP) concept (Skinner)
Different locations with a facility would focus on
their own competitive priority.

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Developing
Developing an
an Operations
Operations Strategy
Strategy
from
from Competitive
Competitive Priorities
Priorities (contd)
(contd)
Questioning the Trade-Offs
World-class operations led to the establishment
of a hierarchy among the competitive priorities.
Increased competitive capabilities led to increased
performance on all priorities by all competitors.
Focus shifted from cost minimization to
maximizing the value added.
Customer value is enhanced by the focus on
multiple priorities.

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Time
Time Line
Line for
for Operations
Operations Strategies
Strategies

Exhibit 2.3
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 Example
Example of
of Trade-Offs
Trade-Offs on
on
Superior
Superior Performance
Performance Curves
Curves

Exhibit 2.4
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 Order
Order Qualifiers
Qualifiers and
and Order
Order Winners
Winners
Order Qualifiers
The minimum characteristics of a firm or its
products that a firm must have to be considered
as a source of purchase.
Order Winners
The characteristics of a firm that distinguish it
from its competition so that it is selected as the
source of purchase.
ISO-9000 certification

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 Distinguishing
Distinguishing between
between
Order
Order Qualifiers
Qualifiers and
and Order
Order Winners
Winners

Exhibit 2.5
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 Focusing
Focusing on
on Core
Core Capabilities
Capabilities
Core Capabilities
Specific strengths that allow a company to
achieve its competitive priorities.
The skill or set of skills that the operations
management function develops that allows the
firm to differentiate itself from its competitors.
Focusing is achieved by:
Divesting non-critical activities.
Subcontracting ancillary activities and services.

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 Integration
Integration of
of Manufacturing
Manufacturing andand
Services
Services
The Customers Activity Cycle (CAC)

Component Actions

Pre-purchase activities Being responsive to customer

inquires and the ability to
demonstrate technical expertise.

Purchase activities Actual sale and delivery of the

product and collecting payment.

Post-purchase activities After-sales service and product

warranties

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The
The Customers
Customers Activity
Activity Cycle
Cycle

Exhibit 2.6
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 Service
Service Strategies
Strategies for
for Manufacturing
Manufacturing
Firms
Firms
(Wise
(Wise and
and Baumgartner)
Baumgartner)
Service Strategy Function

Embedded Services Specific functions that are a part of

the product itself.

Comprehensive Services The manufactured product is

married to additional services.

Integrated Solutions Combining product and services

into a seamless offering that
addresses a specific customer
requirement.

Distribution Control Manufacturing goes downstream to

assume responsibility for product
distribution.

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 Additional
Additional Approaches
Approaches for
for
Integrating
Integrating Manufacturing
Manufacturing and
and
Services
Services
Demonstration of Knowledge and Expertise
Reassuring customers by allowing them to view
the production process and have access to
production employees.
Customer Training
Providing product training to customers to build
product loyalty and increased use of products.

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