2-1 Competitiveness, Strategy, and Productivity
Operations Management
William J. Stevenson
2-2 Competitiveness, Strategy, and Productivity
CHAPTER
2
Competitiveness and
Operations Strategy
McGraw-Hill/Irwin
2-3 Competitiveness, Strategy, and Productivity
Competitiveness:
How effectively an organization meets the
wants and needs of customers relative to
others that offer similar goods or services
2-4 Competitiveness, Strategy, and Productivity
Businesses Compete Using Marketing
Identifying consumer wants and needs
Pricing
Advertising and promotion
2-5 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Product and service design
Cost
Location
Quality
Quick response/speed
2-6 Competitiveness, Strategy, and Productivity
Businesses Compete Using Operations
Flexibility
Inventory management
Supply chain management
Service
2-7 Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
Too much emphasis on short-term financial
performance
Failing to take advantage of strengths and
opportunities
Failing to recognize competitive threats
Neglecting operations strategy
2-8 Competitiveness, Strategy, and Productivity
Why Some Organizations Fail
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
Failing to consider customer wants and needs
2-9 Competitiveness, Strategy, and Productivity
Mission/Strategy/Tactics
Mission Strategy Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
2-10 Competitiveness, Strategy, and Productivity
Strategy
Mission
The reason for existence for an organization
Mission Statement
Answers the question “What business are we in?”
Goals
Provide detail and scope of mission
Strategies
Plans for achieving organizational goals
Tactics
The methods and actions taken to accomplish strategies
2-11 Competitiveness, Strategy, and Productivity
Operations Strategy
Decision Making Levels
Strategic
Long-term
Broad in scope; lowest level of detail
Traditionally -- top management
Tactical
Intermediate term
Resource acquisition (suppliers, employees, ...)
Middle management
Operational
Day-to-day
Scheduling (shifts, purchases, customers, ...)
First-line supervisors (team leaders)
2-12 Competitiveness, Strategy, and Productivity
Planning and Decision Making
Figure 2.1
Mission
Goals
Organizational Strategies
Functional Goals
Finance Marketing Operations
Strategies Strategies Strategies
Tactics Tactics Tactics
Operating Operating Operating
procedures procedures procedures
2-13 Competitiveness, Strategy, and Productivity
Strategy Example
Example 1
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
2-14 Competitiveness, Strategy, and Productivity
Examples of Strategies
Low cost
Scale-based strategies
Specialization
Flexible operations
High quality
Service
2-15 Competitiveness, Strategy, and Productivity
Strategy and Tactics
Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
Price
Quality
Time
Flexibility
Service
Location
2-16 Competitiveness, Strategy, and Productivity
Examples of Distinctive Competencies
Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns
Quality High-performance design Sony TV
or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola
Time Rapid delivery Express Mail, Fedex,
On-time delivery One-hour photo, UPS
Flexibility Variety Burger King
Volume Supermarkets
Service Superior customer Disneyland
service Citibank
Location Convenience Banks, ATMs
2-17 Competitiveness, Strategy, and Productivity
Strategy and the Internet
Internet can be used to create a distinctive
business strategy
eBay, Lelong, Mudah
unlimited capacity and a huge market
all work is done by buyers and sellers and
there is no marginal cost
2-18 Competitiveness, Strategy, and Productivity
Strategy and the Internet (cont.)
Internet can be used to strengthen existing
competitive advantages by integrating new and
traditional activities
Online Banking
Intel
sells $2 billion a month over the Internet
purchases 80% of its direct materials online
replaced 19,000 sales-order faxes received daily
2-19 Competitiveness, Strategy, and Productivity
Operations Strategy:
Products and Services
Make-to-Order
products and services are made to customer
specifications after an order has been received
Make-to-Stock
products and services are made in anticipation
of demand
Assemble-to-Order
products and services add options according to
customer specifications
2-20 Competitiveness, Strategy, and Productivity
Product Strategy
Brand portfolio?
2-21 Competitiveness, Strategy, and Productivity
Types of Strategy
Competitive Advantage – something which gives
the organisation some advantage over its rivals
Cost advantage – A strategy to seek out and
secure a cost advantage of some kind - lower
average costs, lower labour costs, etc.
2-22 Competitiveness, Strategy, and Productivity
Types of Strategy
Market Dominance:
Achieved through:
Internal growth
Acquisitions – mergers and takeovers
New product development: to keep ahead of
rivals and set the pace
Contraction/Expansion – focus on what you are
good at (core competencies) or seek to expand into a range
of markets?
2-23 Competitiveness, Strategy, and Productivity
Types of Strategy
Price Leadership – through dominating the
industry – others follow your price lead
Global – seeking to expand
global operations
Reengineering – thinking outside the box –
looking at news ways of doing things to leverage
the organisation’s performance
2-24 Competitiveness, Strategy, and Productivity
Types of Strategy
Internal business level strategies –
Downsizing – selling off unwanted parts of the
business – similar to contraction
Delayering – flattening the management structure,
removing bureaucracy, speed up decision making
Restructuring – complete re-think of the way the
business is organised
2-25 Competitiveness, Strategy, and Productivity
Strategy Formulation
Distinctive competencies
Environmental scanning
SWOT
Order qualifiers
Order winners
2-26 Competitiveness, Strategy, and Productivity
Strategy Formulation
Order qualifiers
Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
Order winners
Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competition
2-27 Competitiveness, Strategy, and Productivity
Key External Factors
Political conditions
Economic conditions
Social conditions
Technology
Competition
Markets
Legal environment
2-28 Competitiveness, Strategy, and Productivity
Key Internal Factors
Human Resources
Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
2-29 Competitiveness, Strategy, and Productivity
Operations Strategy:
Capacity and Facility
Capacity strategic decisions include:
When, how much, and in what form to alter
capacity
Facility strategic decisions include:
Whether demand should be met with a few
large facilities or with several smaller ones
Whether facilities should focus on serving
certain geographic regions, product lines, or
customers
Facility location can also be a strategic decision
2-30 Competitiveness, Strategy, and Productivity
Operations Strategy: Human Resources
What are the skill levels and degree of autonomy
required to operate production system?
What are the training requirements and selection
criteria?
What are the policies on performance evaluations,
compensation, and incentives?
Will workers be salaried, paid an hourly rate, or
paid a piece rate?
Will profit sharing be allowed, and if so, on what
criteria?
2-31 Competitiveness, Strategy, and Productivity
Operations Strategy: Human Resources (cont.)
Will workers perform individual tasks or work in
teams?
Will they have supervisors or work in self-
managed work groups?
How many levels of management will be
required?
Will extensive worker training be necessary?
Should workforce be cross-trained?
What efforts will be made in terms of retention?
2-32 Competitiveness, Strategy, and Productivity
Operations Strategy: Quality
What is the target level of quality for our
products and services?
How will it be measured?
How will employees be involved with quality?
What will the responsibilities of the quality
department be?
2-33 Competitiveness, Strategy, and Productivity
Operations Strategy: Quality (cont.)
What types of systems will be set up to ensure
quality?
How will quality awareness be maintained?
How will quality efforts be evaluated?
How will customer perceptions of quality be
determined?
How will decisions in other functional areas affect
quality?
2-34 Competitiveness, Strategy, and Productivity
Operations Strategy: Sourcing
Vertical Integration
degree to which a firm produces parts that go
into its products
Strategic Decisions
How much work should be done outside the
firm?
On what basis should particular items be made
in-house?
When should items be outsourced?
How should suppliers be selected?
2-35 Competitiveness, Strategy, and Productivity
Operations Strategy: Sourcing (cont.)
What type of relationship should be maintained
with suppliers?
What is expected from suppliers?
How many suppliers should be used?
How can quality and dependability of suppliers
be ensured?
How can suppliers be encouraged to
collaborate?
2-36 Competitiveness, Strategy, and Productivity
Operations Strategy: Operating Systems
How will operating systems execute strategic
decisions?
How does one align information technology and
operations strategic goals?
How does information technology support both
customer and worker demands for rapid access,
storage, and retrieval of information?
How does information technology support
decisions making process related to inventory
levels, scheduling priorities, and reward
systems?
2-37 Competitiveness, Strategy, and Productivity
Operations Strategy
Elements of OM Strategy
Inputs
Add/remove capacity; outsourcing issues
Skills/flexibility of workforce
Safety/environmental commitment
Transformation process
Product/process development investment
Commitment to standardization
Control systems and automation
Outputs
Line of goods/services
Focus on customer
2-38 Competitiveness, Strategy, and Productivity
Strategic Planning
Mission
Mission
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and Vision
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