Chapter-II

Operations Strategy for Competitive

Advantage

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 Introduction
 Business organizations craft their strategies in light of
the prevailing environmental realities.

 Before conducting the SWOT analysis, however, they

have to really know what their strategic intents are
(mission, vision, and objectives).

 The reason why they first scan the environmental

variables and then define their strategic intents is to
craft an appropriate strategy; a strategy that can help
them realize the strategic intents given the
environmental constraints and opportunities.

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 Defining the Strategic Intents and
Strategies
Mission
 The mission states why a firm exists.
 Mission statements provide boundaries and focus for
organizations and the concept around which the firm
can rely.
 It also clarifies and inculcates one with the nature of a
business an organization runs, the type of products it
produces, and the needs it fills.

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 Mission cont…
 Once an organization’s mission has been decided,
each functional area within the firm determines its
supporting mission.
Vision
 Visioning is visualizing things in mind and this is one of
the most important things in one’s life.
Objectives
 Business mission and company directions have to be
defined in terms of performance standards, something by
which the business’s progress can be measured, evaluated
and rated.

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 Objectives cont…
 Objectives can be:
a) Short-term
b) Medium-term and
c) Long-term
Or
a) Financial and
b) Business
Business objectives measure how the business performs relative to its
rivals and include:
 Leadership in technology
 Overtaking rivals’ customers
 Joining to foreign markets
 Improving quality
 Delivering better post-sales services

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 Strategy

 Thamson and Strickland define strategy as a pattern of actions and
business approaches managers employ to please customers, build
attractive market position, and achieve organizational objectives .
 A company‘s actual strategy is partly planned and partly reactive to
changing situations.

Intended Strategy Realized Strategy Actual

Strategy

r a teg y
n t st
Unrealized strategy Eme rg e
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 Cont…
If you think of goals as destinations, then strategies are the
road maps for reaching the destinations.
Strategies provide focus for decision-making.
organizations have overall strategies called organization
strategies.
The functional strategies should support the overall
strategies of the organization.

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 Strategies for Competitive
Advantage
1. Differentiation – better, or at least different
2. Cost leadership – cheaper
3. Response – more responsive

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 Competing on Differentiation
Uniqueness can go beyond both the physical
characteristics and service attributes to
encompass everything that impacts customer’s
perception of value

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 Competing on Cost
Provide the maximum value as perceived by
customer. Does not imply low quality.
► Southwest Airlines – secondary airports, no frills service,
efficient utilization of equipment
► Walmart – small overhead, shrinkage, and distribution
costs
► Franz Colruyt – no bags, no bright lights, no music, and
doors on freezers

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 Competing on Response
▶ Flexibility is matching market changes in
design innovation and volumes
▶ A way of life at Hewlett-Packard
▶ Reliability is meeting schedules
▶ German machine industry
▶ Timeliness is quickness
in design, production,
and delivery
▶ Johnson Electric,
Pizza Hut, Motorola

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 Environmental Analysis
Business decisions, especially the strategic ones need a
clear identification of relevant variables .

detailed and an in-depth analysis of the relevant variables

to understand their impact and implication for the
operations function in particular and the organization at
large have to be made.

The environment to analyze can be broken down into

two:.

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 1. External Environment
The external environment is further divided into two
sub external environments:
a. Macroenvironment
The factors include:
i. Political and Legal
 Taxation policy
 Employment law
 Foreign trade regulation
 Monopolies legislation

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 Cont…
ii. Economic Factors
Gross domestic product

Disposable income

Unemployment

Exchange rate fluctuations

Interest rate

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 Cont…
iii. Socio-Cultural Factors
Demographic variables

Income distribution

Social mobility

Attitude to work and leisure

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 Cont…
iv. Environmental Factors
Energy consumption
Environmental Protection
Availability of infrastructural facilities

v. Technological Factors
Technology transfer
Pace of technological change

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 b. Industry Analysis
Porter’s five competitive forces are:
The competitive pressure among the existing rivals

Threats from new entrants

Threats from substitute products

Threats from bargaining power of suppliers

Threats from bargaining power of customers

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 Operations Strategy Model: Levels at which a Strategy Operates

Corporate and
Business
Strategies

Internal Operations Strategy Functional Strategies

analysis
in marketing, finance,
Mission
engineering, human
Distinctive Competence
resource, and
External information system
analysis
Objectives
(Cost, Quality, Flexibility, and
Delivery)

Policies
(Process, quality, capacity, and
inventory)

Consistent Pattern
of decisions

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 Cont…
 Corporate strategy defines what businesses the company is
pursuing.
 Business strategy follows from the corporate strategy and
defines how a particular business will compete.
 Most large corporations have several different businesses
each competing in different market segments.
 Each business has to develop a strategy that states how it
will compete in the market which it sells its products to.
 Operations strategy, a functional strategy, is a statement of
how operations function will contribute to the achievement
of corporate goals.

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 Cont…
 It is, therefore, narrower and much more specific in scope than
its corresponding business strategy and corporate in that it
addresses the following specific questions:
 What products can be produced in which facility and
how much?
 Which products are going to be produced internally, and
which ones will be purchased?
 What level of technology (automation, etc) will be used?
 Are the resources going to be owned or bought?

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 Cont…
 How will the products be distributed to the end
customer?
 Where will the facilities be located, with how much
capacity?
 What type of processes will be utilized to produce
products?
 How much flexibility is required from each process
and each product?
 Which suppliers will provide materials, and how
much?
 What kind of human skills are needed?

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 Cont…
Firms’ operations achieve missions in three conceptual ways:
(1) differentiation, (2) cost leadership, and (3) quick response.
 In practice, these three concepts- differentiation, low cost, and
response-are often translated into six specific strategies:
flexibility in design and volume
low price
delivery
quality
after-sale service, and
a broad product line (typical Operations Objectives)

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 Focused Operations
 Lack of focus in manufacturing plants and service
operations results from excessive attention to economies of
scale.
 In the name of efficiency due to economies of scale,
different missions are being served by the same operation.
 The solution is to arrange each product as a plant-within-a-
plant (PWP).
 PWP may, however, sacrifice some economies of scale
while doing a better job of meeting market requirements
and improving profitability.
.

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 Cont..
.

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 After focusing the operations based on the volume of
the products, it is put as:
.

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 Cont…
Several types of focus dimensions need to be
considered. These include the following:
Product focus
Process type focus
Volume of sales focus
Make-to-order and make-to-stock
New product vs old product focus

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 Order qualifiers and order winner
Order qualifiers:
Characteristics of a company’s product or
service that customers percieve as
minimum standards of acceptability to be
considered as a standard
Order winners:
Characteristics of a company’s product or
service that cause it to be perceived as
better than the competition
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 Discussion questions
1. How operation strategy influence other strategies of
given organization. Explain its role and importance
Operations strategy:
2. What is meant by the terms order qualifiers and
order winners? Explain why they are important.
3. Explain what is meant by the term competitive
priority and describe the four categories of
competitive priorities discussed in the chapter.

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 Discussion questions
4. Explain the role of operations strategy in a business.
5. Describe how an operations strategy is formulated
from the business strategy.
6. Find an example of a company that makes quality its
competitive priority. Find another company that
makes time its competitive priority. Compare these
strategies

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 Discussion questions
1. Identify how changes in the external environment may affect
the OM strategy for a company. For example, what impact are
the following factors likely to have on OM strategy?
a. The occurrence of a major storm or hurricane or COVID 19.
b.The much discussed decrease in the quality of Ethiopian
primary and secondary school systems.
c. Trade Legislation such as WTO and NAFTA and changes in
tariffs and quotas.
d.The rapid rate at which the cost of health insurance is
increasing.
e. The Internet.

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 Discussion questions
Identify how the changes in the internal environment
affect the OM strategy for a company. For example,
what impact are the following factors likely to have on
OM strategy?
a. The increased use of Local and Wide Area
Networks (LANs and WANs)
b. An increased emphasis on service
c. The increased role of women in the workplace
d. The seemingly increasing rate at which both
internal and external environments change.

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 Discussion questions
Operations managers are called upon to
support the organization's strategy. OM does
this with some combination of one of three
strategies. What are these three strategies?

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 Case Analysis
Duke’s Business Plan As the business team sits at their
round conference table, Rita brings up an issue now
near to her heart. She has just become engaged to Duke,
who works for Pepsi Co. Duke is worried about his new
job. Coke’s CEO Robert Goizueta has created more
wealth for shareholders than any CEO in history with
the single focused strategy of making Coke the domestic
and international drink. On the other hand, Pepsi is a
conglomerate with domestic and international drinks;
restaurants such as Sonargaon, Sheraton, Sundarban,
and Pizza Hut etc; Bottling operations.

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 Cont----
While Coke has been focused on selling Coke, Pepsi has
diversified, pouring billions of dollars into other capital-
intensive business. Some think Pepsi has lost the cola
wars, both in Bangladesh and overseas. Duke wants the
team’s advise about what strategic help he can give his
new boss. Questions:
1.Taking the steps in the strategic process in order, what
advice do you think the team should give Duke? 2.What
factor do you think have led Pepsi to choose its strategy
instead of Coke’s strategy?
3.What strategic planning changes would you recommend
to Pepsi and why?
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