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Competitiveness and Operations Strategy. Competitiveness. Competitiveness. Competitiveness refers to how effective an organization is in the competition for customers’ purchases Primarily a function of how well the organization (through its operations) meets the needs of customers
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Competitiveness • Competitiveness refers to how effective an organization is in the competition for customers’ purchases • Primarily a function of how well the organization (through its operations) meets the needs of customers • Competitiveness is relative to others that offer similar goods or services • What is competitive today may not be competitive tomorrow.
Price Flexibility Quality Service Differentiation Time Competitiveness : Bases for Competition Business organizations compete with one another in a variety of ways. These includes Managers and workers Note: Some of the dimensions, mentioned above might overlap. Ex: Several of the items on the list may come under the heading of “quality”.
Bases for Competition • Price is the amount a customer must pay for the product or service. If all other factors are equal, customers will choose the product or service that has the lowest price. • Organizations that compete on price may settle for lower profit margins, but most focus on lowering costs of goods or services.
Bases for Competition Quality refers to materials and workmanship as well as design [Appearance, Performance & Function, After sales service, etc]. Usually, it relates to a buyer’s perceptions of how well the product or service will serve its intended purpose.
Bases for Competition (Contd.) Product or service differentiation refers to any special features that cause a product or service to be perceived by the buyer as more suitable than a competitor’s product or service. Example for Special Feature: Design, Cost, Quality, Easy of use, Convenient Location, Warrantee
Bases for Competition (Contd.) Flexibility is the ability to respond to changes. The better a company or department is at responding to changes, the greater its competitive advantage over another company that is not as responsive. The changes might relate to increase or decrease in volume demanded, or to changes in the design of goods or services.
Bases for Competition (Contd.) • Time refers to a number of different aspects of an organization’s operations, such as • how quickly a product or service is delivered to a customer • how quickly new products or services are developed and brought to the market, • the rate at which improvements in products or processes are made, etc.
Bases for Competition (Contd.) Service might involve after-sale activities that perceived by customers as value added, such as delivery, setup, warranty work, technical support, or extra attention while work is in progress such as curtsey, keeping the customer informed, and attention to little details.
Bases for Competition (Contd.) Managers and workers are the people at the heart and soul of an organization, and if they are competent and motivated, they can provide a distinct competitive edge by their skills and the ideas they create. Example: One skill that is often overlooked is answering the telephone. If the person answering the call is rude, not helpful, or cut off the call produce a negative image to customers else [calls are handled promptly and cheerfully] produce a positive image to customers and potentially, a competitive advantage. endif
Causes of Poor Competitiveness • Putting too much emphasis on short-term financial performance at the expense of research and development. • Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threads. • Neglecting operations strategy. • Neglecting investments in capital and human resources. • Failing to establish good internal communications and cooperation among different functional areas. • Failing to consider customer wants and needs.
Mission Strategy Tactics Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies?
Mission – The reason for existence of an organization • Organization’s purpose for being • Provides boundaries & focus • Answers ‘How can we satisfy people’s needs?’ • Expressed in published statement • What business are we in? • To guide formulation of strategies for the organization as well as decision making at all levels.
Mission Statement • The mission statement is about • the kind of business the company wants to be in • who its customers are • its basic beliefs about business • its goals of survival, growth, and profitability Example: One goal of an organization may be to capture a certain %age of market share for a product; Another goal may be achieve a certain level of profitability. Taken together, the goals and the mission, establish a destination for the organization.
Example – Mission Statement University – discovering and disseminating knowledge Bank – Safeguard and increase the value of its customers’ investment Manufacturer – Supply high quality products to a wide market, while ensuring a satisfactory profit Telev. network – entertain, inform and educate the widest possible audience
Sample Mission for a Service Company Satisfy our customers’ immediate needs and wants by providing them with a wide variety of goods and services at multiple locations.
Sample Mission for a Manufacturing Company is to provide (a) society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs; (b) employees with meaningful work and advancement opportunities and investors with a superior rate of return
IBM-Mission Statement We create, develop, and manufacture the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices, and microelectronics. We have two fundamental missions: We strive to lead in the creation, development, and manufacture of the most advanced information technologies. We translate advanced technologies into value for our customers as the world’s largest information services company. Our professionals worldwide provide expertise within specific industries, consulting services, systems integration, and solution development and technical support.
Skynet Worldwide Courier-Mission Statement The Skynet Worldwide Courier Network sets the standard for international delivery and distribution services by consistently exceeding customer expectations. Skynet delivers customer satisfaction by: • Integrating all aspects of the transportation process. • Personalizing service worldwide. • Investing in quality people and technology. • Innovating and adapting to meet customers unique and changing requirements.
Strategies Each strategy established in light of: • threats and opportunities in the environment • strengths and weaknesses of the organization (related to environment)
Strategies – are the roadmaps (plans) for reaching the goals • Action plan to achieve mission • Shows how mission will be achieved • Provide focus for decision making • Organization strategies, provides the overall direction for the organization. • The organizational strategies should support the goals and missions of the organization. • Functional strategies, relate to each of the functional areas of the organization. • The functional strategies should support the overall strategies of the organization.
Questions about organizational/competitive strategies • What is our industry like? • What are the future prospects? • What are our strengths? • Who are the competitors? • What are the competitors’ strength? • What flexibility do we have? The answers to the above questions suggest a range of more detailed questions like • What products should we concentrate on? • What volume should we produce? • What quality should we provide? • Do we supply low or high cost products? • Are our products reliable? • Do we give fast deliveries? • Who are our biggest customers? • Do we have adequate financing?
Tactics – are the methods and actions used to accomplish strategies • are more specific in nature than strategies • provide guidance and direction for carrying out actual operations, which need the most specific and detailed plans and decision making in an organization. • tells ‘how to reach the destination, following the strategy roadmap.
Operations Strategy is narrower in scope, dealing primarily with the operations aspect of the organization. relates to Products, Processes, Methods, Operating Resources, Quality, Costs, Lead-Times and Scheduling. can have a major influence on the competitiveness of an organization. For operations strategy to be truly effective, it is important to link it to organization strategy. That is, both organization strategy and operations strategy should not be formulated independently.
Operations Strategy Strategy Process Example Customer Needs More Product Increase Org. Size Corporate Strategy Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory
There is an apparent relationship that exists from the mission down to actual operations, which is hierarchical in nature.
Strategic Planning and Execution Planning and decision making is hierarchical in organization Mission Goals Organizationalstrategy Functional strategies Finance Marketing Operations Tactics Tactics Tactics Operations operations Finance operations Marketing operations
Mission/Strategy/Tactics Example: 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
Characteristics of Strategic Decisions Made at top levels of organization Involve a high degree of uncertainty about outcomes Long-term perspective/planning horizon Tend to focus on external factors Can require significant cost and lead time to implement Can be difficult to reverse once implemented Cross functional/geographic/organizational boundaries Choices and results can have a powerful (positive or negative) impact competitiveness and survival of the organization (“high stakes”)
Processes and Technology Services Products Human Resources Quality Capacity Operating Systems Sourcing Facilities Strategic Decisions in Operations Note: Cross functional/geographic/organizational boundaries
Products & Services • Make-to-order • Made to customer specifications after order received • Make-to-stock • Made in anticipation of demand • Assemble-to-order • Add options according to customer specification
Processes & Technology • Project • One-time production of product to customer order • Batch production • Process many jobs at same time in batch • Mass production • Produce large volumes of standard product for mass market • Continuous production • Very high volume commodity product
High Continuous Production Mass Production Volume Batch Production Projects Low Low High Standardization Product-Process Matrix
High Service Factory Mass Service Volume Service Shop Professional Service Low Low High Standardization Service-Process Matrix
Capacity & Facilities • How much capacity to provide • Size of capacity changes • Handling excess demand • Hiring/firing workers • Need for new facilities • Best size for facility? • Large or small facilities • Facility focus • Facility location • Global facility
Human Resources • Skill levels required • Degree of autonomy • Policies • Profit sharing • Individual or team work • Supervision methods • Levels of management • Training
Quality • Target level • Measurement • Employee involvement • Training • Systems needed to ensure quality • Maintaining quality awareness • Evaluating quality efforts • Determining customer perceptions
Sourcing • Degree of vertical integration • Supplier selection • Supplier relationship • Supplier quality • Supplier cooperation
Note: The distinction between strategic, tactical and operational decisions are not usually as clear as given above [Example: Quality – when company plan for a new product then quality is strategic decision; tactical when deciding how quality can be measured; etc.]
Strategy Formulation To formulate an effective strategy, senior management must take into account the distinctive competencies of the organizations, and they must scan the environment [Internal and External Factors that relate to possible strength or weakness : Strategy Formulation ]. In formulating a successful strategy, organization must take into account both order qualifiers and order winners.
External Factors that relate to possible strength or weakness : Strategy Formulation Economic Conditions: These include general health and direction of the economy, inflation, interest rates, tax laws, and tariffs. Political Conditions: These include favorable or unfavorable attitudes towards the business, political stability or instability, and wars. Legal Environment: These include antitrust laws, government regulations, trade restrictions, minimum wage laws, labour laws, and patents.
External Factors (Contd.) Technology: This can include the rate at which the product innovations are occurring, current and future process technology (equipment and material handling), and design technology. Competition: This include the number and strength of competitors, the basis of competition (price, quality, special features), and the easy of market entry. Markets: This include size, location, brand loyalties, easy of entry, potential for growth, long term stability, and demographics.
Internal Factors that relate to possible strength or weakness : Strategy Formulation Human Resources: These include the skills and abilities of managers and workers; special talents (creativity, designing, problem solving); loyalty to the organization; expertise; dedication; and experience. Facilities and Equipment: Capacities, location, age, and cost to maintain or replace can have a significant impact on operations. Financial Resources: Cash flow, access to additional funding, existing debt burden, and cost of capital are important considerations. Customers: Loyalty, existing relationships, and understanding of wants and needs are important
Internal Factors (Contd.) Product and Services: These include existing products and services, and the potential for new products and services. Technology: This include existing technology, the ability to integrate new technology, and the probable impact of technology on current and future operations Suppliers: Supplier relationships, dependability of suppliers, quality, flexibility, and service are typical considerations Others: Other factors include patents, labour relations, company or product image, distribution channels, relationship with distributors, maintenance of facilities and equipment, access to resources, and access to markets.
Order Winners and Qualifiers Within a given industry or market, certain competitive priorities can be identified as being either order winnersororder qualifiers. • Order Qualifiers –they are the basic criteria that permit the firms products to be considered as candidates for purchase by customers. • A brand name car can be an “order qualifier” • Order winners –they are the criteria that differentiates the products and services of one firm from another. • Repair services can be “order winners” Examples: Warranty, Roadside Assistance, Leases, etc.
Order Winners and Qualifiers • To develop effective strategies for business, it is essential for organizations to determine what combinations of factors are important to customers, which factors are order qualifiers, and which are order winners. • Characteristics such as price, quality, delivery reliability, delivery speed can be order qualifier or order winner. • Characteristics which may be an order qualifier in some situations will become an order winner in another situation [example Quality] • It is also necessary to decide on the relative importance of each factors so that an appropriate actions can be given to the various factors.
