Chapter 2

SoYouHaveaMissionStatement...NowWhat?

VisioningisbigincorporateAmerica.EveryonefromIBMtotheLittleLeagueteamhas
missionstatements,visions,philosophies,andcorevalues.Missionstatementsstarted
appearinginthe1980swhencorporationsfacedtheissuesofdiversity,empowerment,
globalization,environmentalresponsibility,totalquality,teamwork,andcustomerfocusand
they'verapidlymultipliedsince.Let'slookatafewexamples.1

SomemissionstatementsclarifywhatbusinessacompanyisinforLeviStraussit's
"brandedcasualapparel";forIntelit'ssupplying"buildingblockstothecomputingindustry";
forLowe'sit'shelping"customersbuild,improve,andenjoytheirhomes";forBinney&
Smith(Crayola)it's"colorfulvisualexpression";andforCurrencyDoubledayit's"ideasthat
linkbusinesswithlife'smeaning."

OthermissionstatementsreflectthecharacterofthecompanySouthwestAirlinesdeliversits
service"withasenseofwarmth,friendliness,individualpride,andCompanySpirit";Benand
Jerry'screates"anewcorporateconceptoflinkedprosperity"thatincludesasocialmission;
HannaAnderssonwantsto"enhancetherichlytexturedexperienceoffamilyandcommunity";
andRitzCarltonproclaims"weareladiesandgentlemenservingladiesandgentlemen."

StillothersareshortandfocusedMotorola:"TotalCustomerSatisfaction,"andDeltaAir
Lines:"WorldwideAirlineofChoice."

Finally,somemissionstatementssignalaradicalchangeinthewaythecompanydoes
businessGeneralElectric:"Boundaryless...Speed...Stretch."

Missionstatementsarethe"constitution"foranorganization,thecorporatedirective.Butthey
aren'tanygood,asDilbertimplies,unlesstheycanbeconvertedintoaction.Andthat'swhat
thischapterisallaboutconvertingstrategyintoresults.

21.Gathermissionorvisionstatementsfromfivedifferentcompanies.(Theseareusually
printedinannualreports,postedinaplaceofbusiness,oraccessiblefromthecompanyWeb
site.)Whatdotheytellyouabouttheorganizations?Istheirmissionorvisionreflectedinthe
waytheydobusiness?

1
TheexamplesaretakenfromPatriciaJonesandLarryKahaner,SayitandLiveit:The50CorporateMission
StatementsThatHittheMark(NewYork:CurrencyDoubleday,1995).
StrategyFormulation
Strategyisacommonvisionthatunitesanorganization,providesconsistencyindecisions,
andkeepstheorganizationmovingintherightdirection.Strategyformulationconsistsoffour
basicsteps:

1. Definingaprimarytask.Theprimarytaskrepresentsthepurposeofafirmwhatthe
firmisinthebusinessofdoing.Italsodeterminesthecompetitivearena.Assuch,the
primarytaskshouldnotbedefinedtoonarrowly.Forexample,NorfolkSouthern
Railwaysisinthebusinessoftransportation,notrailroads.Paramountisinthe
businessofcommunication,notmakingmovies.Disneygoesonestepfurtherits
primarytaskisnotentertainment,it'smakingpeoplehappy!Theprimarytaskis
usuallyexpressedinafirm'smissionstatement.Themissionmaybeaccompaniedbya
visionstatementthatdescribeswhattheorganizationseesitselfbecoming.
2. Assessingcorecompetencies.Corecompetencyiswhatafirmdoesbetterthan
anyoneelse,itsdistinctivecompetence,itscompetitiveadvantage.Afirm'score
competencecanbeexceptionalservice,higherquality,fasterdelivery,orlowercost.
Onecompanymaystrivetobefirsttothemarketwithinnovativedesigns,whereas
anothermaylookforsuccessarrivinglaterbutwithbetterquality.
Tobesuccessful,companiesmustidentifyandcapitalizeonwhatsetsthemapart
fromotherfirmstheircorecompetencies.Butbewarecompetenciescanbecome
obsolete!Existingcompetenciesshouldbenurturedandenhancedandnew
competenciesdevelopedovertimeasneeded.Inalatersection,wewillexaminehow
todevelopandfullyutilizecorecompetencies.
3. Determiningorderwinnersandorderqualifiers.Afirmisintroubleifthethingsit
doesbestarenotimportanttothecustomer.That'swhyit'sessentialtolooktoward
customerstodeterminewhatinfluencestheirpurchasedecision.
Orderqualifiersarecharacteristicsofaproductorservicethatqualifyittobe
consideredforpurchasebyacustomer.Anorderwinneristhecharacteristicofa
productorservicethatwinsordersinthemarketplacethefinalfactorinthe
purchasingdecision.Forexample,whenpurchasingaCDplayer,customersmay
determineapricerange(orderqualifier)andthenchoosetheproductwiththemost
features(orderwinner)withinthatpricerange.Ortheymayhaveasetoffeaturesin
mind(orderqualifiers)andthenselecttheleastexpensiveCDplayer(orderwinner)
thathasalltherequiredfeatures.
Orderwinnersandorderqualifierscanevolveovertime,justascompetenciescan
begainedandlost.Japaneseautomakersinitiallycompetedonpricebuthadtoassure
certainlevelsofqualitybeforetheU.S.consumerwouldconsidertheirproduct.Over
time,theconsumerwaswillingtopayahigherprice(withinreason)fortheassurance
ofasuperiorqualityJapanesecar.Pricebecameaqualifier,butqualitywonthe
orders.Today,highquality,asastandardoftheautomotiveindustry,hasbecomean
orderqualifier,andinnovativedesignwinstheorders.
Itisimportantforafirmtomeettheorderqualifiersandexcelontheorderwinner.
Ideally,afirm'sdistinctivecompetenceshouldmatchthemarket'sorderwinner.Ifit
doesnot,perhapsasegmentofthemarketcouldbetargetedthatmorecloselymatches
thefirm'sexpertise.Orthefirmcouldbegindevelopingadditionalcompetenciesthat
aremoreintunewithmarketneeds.
 4. Positioningthefirm.Nofirmcanbeallthingstoallpeople.Positioninginvolves
makingchoiceschoosingoneortwoimportantthingstoconcentrateonanddoing
themextremelywell.Afirm'spositioningstrategydefineshowitwillcompeteinthe
marketplace.Aneffectivepositioningstrategyconsidersthestrengthsandweaknesses
oftheorganization,theneedsofthemarketplace,andthepositionofcompetitors.2

Let'slookatcompaniesthathavepositionedthemselvestocompeteoncost,quality,
flexibility,andspeed.

CompetingonCost

Companiesthatcompeteoncostrelentlesslypursuetheeliminationofallwaste.Inthepast,
companiesinthiscategoryproducedstandardizedproductsforlargemarkets.Theyimproved
yieldbystabilizingtheproductionprocess,tighteningproductivitystandards,andinvestingin
automation.Today,theentirecoststructureisexaminedforreductionpotential,notjustdirect
laborcosts.Highvolumeproductionandautomationmayormaynotprovidethemostcost
effectivealternative.

TaketheexampleofLincolnElectric,amanufacturerthathasreducedcostsby$10milliona
yearfor10years.Oneexampleofcostcuttingmeasures:Aircurrentsfromductsbehinda
waterfalldrawpaintthathasmisseditsmarkduringthepaintingprocessandcarryitintoa
filteringsystemsothatitcanbereused.Skilledmachineoperators,workingonastrictpiece
ratesystem,earnaround$80,000ayear.Theymaketheirowntools,maintainandrepairthe
equipmentthemselves,andchecktheirownquality.Called"milliondollarmen,"these
workershavesavedthecompanymillionsofdollarsthatwouldhavebeenspentonautomated
equipment.

SouthwestAirlines'strategyoflowcostandcontrolledgrowthissupportedbycarefully
designedservice,efficientoperations,andcommittedpersonnel.Southwestusesonlyone
typeofairplane,theBoeing737,tofacilitatecrewchangesandtostreamlinetraining,record
keeping,maintenance,andinventorycosts.Turnaroundtimebetweenflightsis15minutes.
Sinceitsflightsarelimitedtoshortroutes(aboutanhour),allflightsaredirect.Thatmeans
nobaggagetransfersandnomealstobeserved.Therearenoassignedseatsandnoprinted
boardingpassesforflights.PassengersshowtheirIDatthegate,arecheckedoffthe
reservationlist,andareissuedplasticboardingpassesthattheairlinecanuseagainandagain.
Southwestsaves$30millionannuallyintravelagentcommissionsbyrequiringcustomersto
calltheairlinedirectlytobookflights.Theairlinecarefullyselectsemployeesandreinforces
itscommitmentwithamodelprofitsharingplan.Theresult?Southwestboaststhelowestcost
perpassengermileandthehighestnumberofpassengersperemployeeintheindustry,aswell
asthemostontimearrivalsandthefewestnumberofmishandledbaggagecomplaints.

Companiesthatcompetesuccessfullyoncostrealizethatlowcostcannotbesustainedasa
competitiveadvantageifincreasesinproductivityareobtainedsolelybyshorttermcost
reductions.Alongtermproductivity"portfolio"isrequiredthattradesoffcurrent
expendituresforfuturereductionsinoperatingcost.Theportfolioconsistsofinvestmentsin
updatedfacilitiesandequipment,programsandsystemstostreamlineoperations,andtraining
anddevelopmentthatenhancestheskillsandcapabilitiesofpeople.
CompetingonQuality

Mostcompaniesapproachqualityinadefensiveorreactivemode;qualityisconfinedto
minimizingdefectratesorconformingtodesignspecifications.Tocompeteonquality,
companiesmustviewqualityasanopportunitytopleasethecustomer,notjustawaytoavoid
problemsorreducereworkcosts.

Topleasethecustomer,onemustfirstunderstandcustomerattitudestowardandexpectations
ofquality.OnegoodsourceistheAmericanCustomerSatisfactionIndexcompiledeachyear
bytheAmericanSocietyforQualityandtheNationalQualityResearchCenter.Examining
recentwinnersoftheMalcolmBaldrigeNationalQualityAwardandthecriteriaonwhichthe
awardarebasedalsoprovidesinsightintocompaniesthatcompeteonquality.

TheRitzCarltonHotelCompanyisaBaldrigeAwardwinnerandarecognizedsymbolof
quality.Theentireservicesystemisdesignedtounderstandtheindividualexpectationsof
morethan500,000customersandto"moveheavenandearth"tosatisfythem.Every
employeeisempoweredtotakeimmediateactiontosatisfyaguest'swishorresolvea
problem.Processesareuniformandwelldefined.Teamsofworkersatalllevelsset
objectivesanddevisequalityactionplans.Eachhotelhasaqualityleaderwhoservesasa
resourceandadvocateforthedevelopmentandimplementationofthoseplans.Dailyquality
reportssubmittedfromthe720worksystemstracksuchmeasuresasguestroompreventive
maintenancecycles,percentageofcheckinswithnowaiting,andtimespenttoachieve
industrybestcleanroomappearance.GuestIncidentActionReportscompletedbyevery
employeehelptoidentifypatternsofproblemssothattheycanberesolvedpermanently.
GuestPreferenceReportsarerecordedinasophisticatedcustomerdatabaseforservice
deliverythroughoutthecompany.Forexample,ifaguestinAtlantalikesfreshfruitandfive
differentnewspaperseachmorning,thatwishisstoredinthedatabaseandautomatically
fulfilledwhethertheguest'snextstayoccursataRitzinNaplesorHongKong.RitzCarlton
providesexceptionalservicequalityonecustomeratatime.

CompetingonFlexibility

Marketingalwayswantsmorevarietytoofferitscustomers.Manufacturingresiststhistrend
becausevarietyupsetsthestability(andefficiency)ofaproductionsystemandincreases
costs.Theabilityofmanufacturingtorespondtovariationhasopenedupanewlevelof
competition.Flexibilityhasbecomeacompetitiveweapon.Itincludestheabilitytoproducea
widevarietyofproducts,tointroducenewproductsandmodifyexistingonesquickly,andto
respondtocustomerneeds.

AnexampleofthestrategicimportanceofflexibilityisprovidedbythesocalledHYwarin
Japanintheearly1980s,whenYamahachallengedHonda'sdominanceofthemotorcycle
market.Beforethechallenge,bothcompaniesofferedabout60differentmodelsof
motorcycles.Within18months,Hondahadintroducedandretired113models.Yamahawas
abletointroduceonly37newmodelsinthattimeframe.Honda'snewmodelshadfourvalve
engines,directdrive,andotherinnovations.ComparedtoaHonda,aYamahamotorcyclewas
perceivedasoldandoutdated.Twoyearslater,withitscompletefieldinventoryrendered
obsolete,Yamahaconcededdefeat.Honda"won"thewarwithinnovationandvariety.Itskey
toachievingmarketdominancewasflexibilitythroughsuperiormethodsfordeveloping,
manufacturing,andintroducingnewproducts.

Technologycanalsoprovidethetoolsforflexibility.Handmadeshoesbeginwithcustom
sculptedmodels,calledlasts,thatcancosthundredsofdollarsandtaketentotwentyhoursto
construct.Theentireshoemakingprocesstakesabouteightmonthsandisveryexpensive.At
CustomFootshoestore,acustomer'sfeetarescannedelectronicallytocapturetwelve
differentthreedimensionalmeasurements.ThemeasurementsaresenttoafactoryinItaly,
wherealibraryof3,000computerized"lasts"canbemodifieddigitallyinsteadofmanually
andthenmilledbyamachineoutofplastic.Customshoesaremailedtothecustomer'shome
withinamonth,andsincetheshoestorecarriesnoinventory,thepricesarecomparableto
offtheshelfshoes.

TheNationalBicycleIndustrialCompanyfitsbicyclestoexactcustomermeasurements.
Bicyclemanufacturerstypicallyoffercustomersachoicebetween20or30differentmodels.
Nationaloffers11,231,862variationsanddeliverswithin2weeksatcostsonly10percent
abovestandardmodels.Computerizeddesignandcomputercontrolledmachineryallow
customizedproductstobeessentiallymassproduced.Thepopulartermforthisphenomenon
ismasscustomization.

CompetingonSpeed

Speedhasbecomeanewsourceofcompetitiveadvantage.Serviceorganizationssuchas
McDonald's,LensCrafters,andFederalExpresshavealwayscompetedonspeed.Citicorp
advertisesafifteenminutemortgageapproval,L.L.Beanshipsordersthedaytheyare
received,andWalMartreplenishesitsstocktwiceaweekinsteadoftheindustryaverageof
everytwoweeks.Nowmanufacturersarediscoveringtheadvantagesoftimebased
competition.Inthegarmentindustry,SaksFifthAvenuehasterminalsfromtheFrench
nationalVideotexsystemthatlinkretailerstomanufacturersabroad.TailorsinNewYork
sendsuitmeasurementsviasatellitetoFrance,wherealasercutstheclothandtailorsbegin
theirwork.ThesuitiscompletedandshippedbacktoNewYorkwithinfourdays.That's
aboutthesameamountoftimerequiredforalterationsinmostclothingstores.Thestandard
forcustommadesuitsistenweeks.

Infivedays,HewlettPackardcanproduceelectronictestingequipmentthatusedtotakefour
weekstoproduce.GeneralElectrichasreducedthetimeofmanufactureforcircuitbreaker
boxesfromthreeweekstothreedaysandthemanufactureofdishwashersfromsixdaysto
eighteenhours.Motorolanowneedssixtyminutestobuildtoorderandshippagersthatused
totakethreeweeks!

THECOMPETITIVEEDGE
AndersenWindowsGetsFlexible

AndersenWindows,likemostmanufacturers,usedtoproducealimitedrangeofstandard
productsinlargevolumes.Ascustomersdemandedmoreuniqueness,Andersenintroduced
moreandmoreoptionstotheirstandardwindowssomany,infact,thatthenumberof
productsofferedgrewfrom28,000to86,000.Thickcatalogsallowedcustomerstocombine
thousandsofoptionsintotrulyuniquewindows.However,apricequotetookseveralhoursto
calculate,requiredaworkingknowledgeoftrigonometry,andwasaslongas15pages.With
thisdegreeofcomplexity,therateoferrorinthefinishedproductwasalsohigh(oneinfive
truckloadsshippedhadatleastoneerror),andAndersen'sreputationasaqualitymanufacturer
wasthreatened.

In1992,Andersenintroducedanelectronicversionofitscatalogthatsalespeoplecanuseto
add,change,andstripawayfeaturesuntilthecustomerispleasedwiththedesign.The
computerthenchecksthewindowspecsforstructuralsoundness,generatesapricequote,and
transmitstheordertoanAndersenfactory.Atthefactory,standardpartsfrominventoryare
usedtoassemblecustomproducts,andbarcodeskeeptrackofthecustomerorderasitmoves
throughassembly.Infiveyears,demandforAndersenwindowshastripled,thenumberof
differentproductsofferedhastopped188,000,anderrorsaredowntooneper200truckloads.
FlexibilityhasprovidedAndersenWindowswithacompetitiveedge.

Source:JustinMartin,"AreYouasGoodasYouThinkYouAre?"Fortune(September30,1996):14244.

Competingonspeedrequiresanorganizationcharacterizedbyfastmoves,fastadaptations,
andtightlinkages.3Decisionmakingispusheddowntheorganizationaslevelsof
managementarecollapsedandworkisperformedincrossfunctionalteams.Changeis
embracedandrisktakingencouraged.Closecontactismaintainedwithbothsuppliersand
customers.Performancemetricsreflecttime,speed,andrate,inadditiontocostandprofit.
Strategyistimepacedtocreateapredictablerhythmforchange.Intel'stimepacedstrategy
involvesdoublingthecapacityofcomputerchipseveryeighteenmonthsandaddinganew
fabricationfacilityeveryninemonths.3Mmandatesthat30percentofitsrevenuescome
fromnewproductseachyear.Dellcomputer's"Dellocity"setsthepacefortheentire
industry.

Formingalliancesisoneofthemosteffectiveavenuesforcompetingonspeed.Thebest
exampleisthetextileindustry'squickresponse(QR)initiative,designedtoimprovetheflow
ofinformation,standardizerecordingsystems,andreduceturnaroundtimesalongtheentire
supplychainfromfibertotextilestoappareltoretailing.Automotive,electronics,and
equipmentmanufacturersencouragesimilarallianceswithintheirrespectiveindustrieswith
aninitiativecalledagilemanufacturing.

DoingBusinessintheGlobalArena

InternationalsalesarenotnewtoLands'End(LE).

ThecompanyfirststartedservicingCanadiancustomersthroughitsregularU.S.
mailingsin1987.Butoverseasexpansionpresentednewchallengesandopportunities
forthemidwesternretailer.

Itwasagreedfromthestartthatnointernationalventurewouldcompromisethe
competenciesthathadmadeLands'Endsuccessfulitsculture,itsprinciples,its
customerfocus,howittreatsitsemployees,itswayofdoingbusiness.Buthow
wouldthosevaluesmixwithforeignbusinesscultures?

Lands'End'sfirstoverseasforaywastotheUnitedKingdomin1991.Apound
denominatedcatalogwasdevelopedbyLEcopywritersinDodgeville,Wisconsin.
PhoneoperatorsinLondonhandledcallsonacontractualbasis,anddistributionwas
managedjointlythroughtheDodgevillefacilityandacontractU.K.facility.The
venturewasasuccess,buttherewereafewproblems.

First,theBritishadagenciesdidn'tlikethecopyspecsforthenewspaperinserts
largephotos,detaileddescriptionsofproducts,testimonials,evensomecompany
history.Theyarguedthatitwassillyandawasteofmoney.ButLands'End
prevailed,andtheadswerewellreceived.

Second,theAmericanEnglishofthecatalogconfusedBritishcustomers.LE
correctedtheobviousproblemsinthenextissueandhiredaU.K.executivewith
mailorderexperiencetodirectallBritishmarketingandmerchandisinginitiatives
thereafter.Withintwoyears,Lands'Endhadleaseda60,000squarefoottelephone
anddistributioncenternearLondonandhireditsowncreativestafftowritecopy
especiallyforitsBritishcustomers.
 Japanwasnext.Again,Lands'Endhaddifficultygettinglocalauthoritiestogoalong
withitsstyleofnewspaperinserts.ButLEstoodfirm.

"Ourcatalogueandadsareourstore,"explainedVPofinternationaloperations,
FrankBuettner."Sowehavetomakesurethatthephotographyisbig,bright,and
beautifulitmustcapturethetone,thetexture,andtheessenceofwhattheproductis
like.Further,theadsmustdescribehowtheproductismade,whyourproducthasan
edgeoverthecompetition,andeventheoccasionsatwhichthegarmentmightbe
worn."

AswasthecaseinBritain,thenewspaperadswerewellreceivedbycustomers.Then
camethebiggestchallengetheguarantee.Noonebelievedit.Interestinthe
Americancompanyanditsunusualguaranteeledtoanationwidepressconference
carriedonallthreenetworks.TheJapanesemediaaskedtoexamineanumberof
actualreturnssothattheycouldverifytheguarantee.Theshipmentthatcamefrom
theUnitedStatesincludedmonogrammeditems,itemsthatweresoiledandtorn,and
itemsthatwereyearsold.Truetotheguarantee,allthecustomershadreceivedafull
refund,noquestionsasked.

Withthat,JapaneseconsumerswereconvincedtheycouldtrustLands'End.Nowit
wastimeforLands'EndtotrusttheJapaneseconsumer.UnlikeintheUnitedStates
wherechecksandcreditcardsareusedtopayforanorderbeforeitisreceived,
Japanesecustomersorderanitem,receiveit,tryiton,and,iftheylikeit,sendin
payment.AlthoughthisapproachwasunusualforLE,thecompanycompliedwith
theJapanesewayofdoingbusiness.AndsofarLands'Endhashadveryfew
problems!

22.Listandexplainthefourstepsofstrategyformulation.

23.Whatisthedifferencebetweenanorderwinnerandanorderqualifier?

24.Explaintheconceptofcorecompetenciesinyourownwords.Provideexamplesofacore
competencyforabank,aretailstore,andanautomanufacturerwithwhichyouarefamiliar.

*25.Companiesthatcompeteonqualitywouldcertainlybeinterestedindetermining
customersatisfaction.TheAmericanSocietyforQualityControl(ASQC)sponsorsanannual
surveytoassesscustomersatisfaction.Linktothisyear'scustomersatisfactionindexand
evaluateindustry"scores."Anysurprises?Puttherawdataintoabarchartshowingprogress
(orchange)overtheyearsbyindustry.Also,summarizehowthedataiscollectedandwhich
companiesarechosentoparticipate.

26.Discusstherequirementsfromanoperationsperspectiveofcompetingon(a)quality;(b)
cost;(c)flexibility;(d)speed;(e)dependability;(f)service.Giveexamplesofmanufacturing
orservicefirmsthatsuccessfullycompeteoneachofthecriterialisted.

*27.Companiesthatcompeteonspeedorflexibilitymusthavecloserelationshipswiththeir
suppliers.TakesometimetolookaroundtheDemandActivatedManagementArchitecture
site.LinktotheQuickResponseConsortiaandMIT'sfastandflexiblesite.Readaboutagility
inmanufacturing.Whatismeantbythetermsquickresponse,flexible,andagile?What
competenciesdoesacompanyneedtobecomefast,flexible,andagile?Summarizethetype
ofresearchthatisbeingperformedateachsite.Whattypesofindustriesarerepresented?
Howdothefoursitesdifferinemphasis?

*TheseexercisesrequireadirectlinktoaspecificWebsite.ClickInternetExercisesforthe
listofinternetlinksfortheseexercises.

1
TheexamplesaretakenfromPatriciaJonesandLarryKahaner,SayItandLiveIt:The50CorporateMission
StatementsThatHittheMark(NewYork:CurrencyDoubleday,1995).

2
ThesefactorscanbedepictedinaSWOTmatrix,whichliststhecurrentstrengths(S)andweaknesses(W)
internaltothecompany,andtheopportunities(O)andthreats(T)externaltothecompany.

3
SeeTomPeters,ThrivingonChaos(NewYork:AlfredA.Knopf,1987)andKathleenEisenhardtandShona
Brown,CompetingontheEdge(Boston:HBRPress,1998).

ProcessCenteredStrategies4
Corecompetenciesaretheessentialcapabilitiesthatcreateafirm'ssustainablecompetitive
advantage.Basedonexperience,knowledge,andknowhow,theyarebuiltupovertimeand
cannotbeeasilyimitated.Forthisreason,productsandtechnologiesareseldomcore
competencies.Theadvantagetheyprovideisshortlived,andothercompaniescanreadily
purchase,emulate,orimproveuponthem.Corecompetenciesaremorelikelytobeprocesses.

Processescutacrossfunctionallinesanddepartments.Figure2.1showstheprocessesof
productdevelopment,orderfulfillment,supplychainmanagement,andcustomerservicein
contrasttotypicalbusinessfunctionssuchassales,manufacturing,purchasing,and
accounting.
Ascompaniesbecomeskilledatthinkingprocesses,insteadoffunctionaldepartmentsor
productsormarkets,anewdimensionofstrategyopensup.ConsiderChaparralSteel,the
tenthlargeststeelproducerintheUnitedStates,aminimilloflessthan1,000workersthat
neverthelesshassetworldproductivityrecordsseveraltimesandwasthefirstAmericansteel
companytoreceiveaJapaneseIndustrialQualityCertification.5Chaparralmanagement
allowsitscompetitorstotouritsplantsatwillbecause"theycan'ttake[whatwedobest]
homewiththem."AlthoughChaparralisknownforitslowcostandhightechnology,itscore
competencyisnottechnology,buttheabilitytotransformtechnologyrapidlyintonew
productsandprocesses.Bythetimeacompetitorcopiesitscurrenttechnology,Chaparralis
confidenttheywillhavemovedontosomethingelse.

Similarly,theGapcan'tpredictwhatyoungconsumerswillwearanybetterthanother
retailers,butitcanofferthemmorechoicesandreactquicklywhenstylesorcolors"hit."The
Gap'scorecompetencyinsourcing,logistics,andsupplychainsallowsthecompanyto
introducemorethantwentynewfashionlinesintoitsstoreseachyear,insteadofthe
traditionalfour.

Centeringstrategyaroundprocessesmakesiteasiertoidentifycorecompetencies.Doyou
remembertheclassicstrategytaleofthebuggywhipmanufacturerwhoseprimarytaskof
makingbuggywhipsdrovehimoutofbusinesswhenothermodesoftransportationcameon
thescene?Wouldthebuggywhipmanufacturerhavesucceededifithaddefineditselfin
termsofthetransportationindustryandconvertedtomakingcars?Probablynot.The
companyhadnoexpertiseininternalcombustionenginesormetalchassis.Butits
competenceinleatherfabricationmighthavepositionedittomanufactureleatherglovesor
handbags.Strategyisledbycompetencies.
Asafirmlearnsmoreaboutitscompetencies,aprocessorientationallowsseveralinteresting
optionsforcapitalizingonwhatafirmdoesbest.Companiescanfurtherdevelopandexploit
theircorecompetenciesby:

Enhancingthevalueacompetencyprovidestocustomers.Asastartingpoint,
companiesshoulddeterminewhichprocessesmattermosttotheircustomersandwork
toimprovethecompetenciesrelatedtothem.Thismayleadtonewopportunities.6For
example,GoodyearnolongerjustdeliverstirestoNavistar'swarehouse.Itoperates
thetirewarehouseforNavistarandmountsandbalancesthetiresonNavistar'strucks.
FederalExpressnotonlydeliverssmallpartsandcriticalsuppliesforcomputer
manufacturersandmedicalservices,itmaintainstheirinventorylevelsaswell.
Transforminganinternalcompetenceintoasalableitem.AmericanAirlinesmarkets
itsSABREreservationsystemtoairlinesandtravelagents,anditsmaintenance
systemtootherairlines.TrigonofMassachusettssellsitstelemarketingservices;L.L.
Beanmarketsitscustomerserviceprocess;andXerox,Westinghouse,AT&T,and
othershavespunofffirmstomarkettheirqualityimprovementprocesses.
Applyingcompetenciesinacreativewaytonewproductsandservices.CircuitCity,
theretailelectronicsstore,excelledinmanaginginventorylevelsandhandling
customercreditapplications.Thecompanydiscoveredthatthesecompetencieswere
alsocriticaltosuccessintheusedcarbusiness.CircuitCity'ssubsidiary,CarMax,is
nowahugelysuccessfulusedcarbusinessthatissettingnewstandardsof
performanceinthatindustry.H&RBlockuseditsexpertiseinrecruitingand
managingshorttermemployeesduringtaxseasontocreateacompetitiveadvantagein
thefieldoftemporaryservices.
 Creatingnewcompetenciesandfindingnewmarkets.JohnDeere,afarmequipment
manufacturer,developedcompetenciesinfinancialservicessothatitcouldprovideits
retaildealernetworkwithinsurance.Thecompanylatersoldtheseprocessesto
automobiledealers,boatdealers,andrecreationaldealers.

28.Doyouhaveacorecompetency?Makealistofthecorecompetenciesyouwillneedto
successfullycompeteinthejobmarket.Designastrategyfordevelopingthecompetencies
thatyoudonothaveandcapitalizingonthecompetenciesthatyoudohave.

29.Howcancompetencieshelpinformulatingstrategy?Givethreeexamplesof
competencybasedstrategies.

210.Visitthewebsiteoftwocompaniesinthesameindustry.Examinetheirmostrecent
annualreports.Canyouidentifyhoweachcompanyhaschosentocompete?Usequotesfrom
thereportstodescribeeachcompany'soverallstrategyandtheirspecificgoalsfortheyear.
Doestheiroverallstrategymatchtheirspecificgoals?

4
ThediscussionofprocesscenteredstrategyisadaptedfromMichaelHammer,BeyondReengineering(New
York:HarperCollins,1996).

5
ThediscussionofChaparralSteelandcorecompetenciesisadaptedfromDorothyLeonardBarton,Wellsprings
ofKnowledge(Boston:HarvardPress,1996),Chapters1and2.

6
Similarly,processesthathaveamarginalimpactoncustomers,andforwhichacompanyhasnoparticular
expertise,arecandidatesforoutsourcing.

StrategyDeployment
"Thedifficultyisnotinknowingwhattodo.It'sdoingit,"saidKodak'sCEO,GeorgeFisher.7
Implementingstrategycanbemoredifficultthanformulatingstrategy.Strategiesunveiled
withmuchfanfaremayneverbefollowedbecausetheyarehardtounderstand,toogeneral,or
unrealistic.Strategiesthataimforresultsfiveyearsorsodowntheroadmeanverylittletothe
workerwhoisevaluatedonhisorherdailyperformance.Differentdepartmentsorfunctional
areasinafirmmayinterpretthesamestrategyindifferentways.Iftheireffortsarenot
coordinated,theresultscanbedisastrous.

ConsiderSchlitzBrewingCompany,whosestrategycalledforreducedcostsandincreased
efficiency.Operationsachieveditsgoalsbydramaticallyshorteningitsbrewingcycleand,in
theprocess,lostsixoutofeverytencustomerswhentheclarityandtasteofthebeersuffered.
Theefficiencymovethatwastomakethecompanythemostprofitableinitsindustryinstead
causeditsstockvaluetoplummetfrom$69pershareto$5pershare.
 THECOMPETITIVEEDGE
BendixUsesItsExpertisetoOpenNewMarkets

Doesyourcarhaveantilockbrakes?Mostdothesedays,buttherewasatimewhen
themarketforantilockbrakeswaslimitedtoluxuryvehicles.That'sbecausethepart
wastooheavyandtooexpensive.Throughmarketresearch,BendixAutomotive
Services,asubsidiaryofAlliedSignal,discoveredthatthemarketforantilockbrakes
couldbeincreased500percentto1,000percentiftheirweightandcostcouldbecut
inhalf.

SoBendixengineers,productionmanagers,andaccountantsgottogetherandpooled
theirexpertisetodesignaproductwith70percentfewerpartsthattakeshalfasmuch
timetoproduceandcosts60percentless.Andthatopenedupahugenewmarket.

Source:DavidCarr,KevinDougherty,HenryJohansson,RobertKing,andDavidMoran,Breakpoint
BusinessProcessRedesign(Arlington,Va.:Coopers&Lybrand,1992),pp.67,20.

Companiesstrugglingtoaligndaytodaydecisionswithcorporatestrategyhavefound
successwithaplanningsystemknowninJapanashoshinkanri,andintheUnitedStatesas
strategydeployment,policydeployment,orhoshinplanning.8Hoshinkanriisroughly
translatedfromJapaneseas"shiningmetalpointingdirection"acompass.That'swhat
HarvardprofessorRobertHayessuggestsweneedfromstrategy:

Whenyouarelostonahighway,aroadmapisveryuseful;butwhenyouarelostina
swampwhosetopographyisconstantlychanging,aroadmapisoflittlehelp.Asimple
compasswhichindicatesthegeneraldirectiontobetakenandallowsyoutouseyour
owningenuityinovercomingvariousdifficultiesismuchmorevaluable.9

PolicyDeployment

Policydeploymenttriestofocuseveryoneinanorganizationoncommongoalsandpriorities
bytranslatingcorporatestrategyintomeasurableobjectivesthroughoutthevariousfunctions
andlevelsoftheorganization.Asaresult,everyoneintheorganizationshouldunderstandthe
strategicplan,beabletoderiveseveralgoalsfromtheplan,anddeterminehoweachgoalties
intotheirowndailyactivities.
Figure2.2outlinesthestrategicplanninghierarchy.Seniormanagement,withinputand
participationfromdifferentlevelsoftheorganization,developsacorporatestrategicplanin
concurrencewiththefirm'smissionandvision,customerrequirements(voiceofthe
customer),andbusinessconditions(voiceofthebusiness).Thestrategicplanfocusesonthe
gapbetweenthefirm'svisionanditscurrentposition.Itidentifiesandprioritizeswhatneeds
tobedonetoclosethegapandprovidesdirectionforformulatingstrategiesinthefunctional
areasofthefirmsuchasmarketing,operations,andfinance.
Supposethecorporatestrategicplancalledforareductionof50percentinthelengthofthe
businesscycle.Seniormanagementfromeachfunctionalareawouldgathertogethertoassess
howtheiractivitiescontributetothebusinesscycle,conferonthefeasibilityofreducingthe
cycleby50percent,andagreeuponeachperson'sparticularroleinachievingthereduction.
Marketingmightdecidethatcreatingstrategicallianceswithitsdistributorswouldshortenthe
averagetimetoreleaseanewproduct.Operationsmighttrytoreduceitspurchasingand
productioncyclesbyreducingitssupplierbase,certifyingsuppliers,andimplementingajust
intime(JIT)system.Financemightdecidetoeliminateunnecessaryapprovalloopsfor
expenditures,beginprequalifyingsalesprospects,andexploretheuseofelectronicfunds
transfer(EFT)inconjunctionwithoperations'JITstrategy.

Theprocessforformingobjectiveswouldcontinueinasimilarmannerdowntheorganization
withthemeansofachievingobjectivesforonelevelofmanagementbecomingthetargetor
objectivesforthenextlevel.Theoutcomeoftheprocessisacascadeofactionplans(or
hoshins)alignedtocompleteeachfunctionalobjectivewhichwill,inturn,combineto
achievethestrategicplan.

Figure2.3showsthederivationofanactionplanforreducingcycletime.Forsimplicity,only
thetopbranchofthetreediagramiscompletedinwhichBillWrayisgiven$5,000toreduce
theaveragequeuetimeperjobby50percent.

Nowthatwe'veseenhowcorporatestrategiesprovidetheframeworkforfunctionalstrategies,
let'slookattheissuesinvolvedinformulatingaconsistentstrategywithintheoperations
function.
211.Whydocompaniesneedpolicydeployment?Whatdoesitdo?

*212.FindoutmoreaboutPolicyDeployment(alsoknownashoshinplanning)byexploring
TQE'shoshinplanningsite.Besuretoaccessthesoftwaredemo.Printoutthesamplehoshin
formsandcreateahoshinexampleofyourownusingTQE'sformat.

*213.Therearesevenmanagementandplanningtoolscommonlyusedinpolicydeployment.
ReadabouthoshinkanrifromNASA'swebsite,thenlinktoGOAL/QPC'sdescriptionofthe
seven"new"tools.Whichofthesetoolsarefamiliar?Whichonesarenewtoyou?Choose
anyonetooltoapplyatyouruniversityorplaceofbusiness.

*TheseexercisesrequireadirectlinktoaspecificWebsite.ClickInternetExercisesforthe
listofinternetlinksfortheseexercises.

7
Hammer,BeyondReengineering,p.193.,

OperationsStrategy
Operationscanplaytworolesincorporatestrategyitcanprovidesupportfortheoverall
strategyofafirm,anditcanserveasafirm'sdistinctivecompetence.Itisimportantthat
operationsstrategybeinternallyconsistent,aswellasconsistentwiththefirm'soverall
strategy.Strategicdecisionsinoperationsinvolveproductsandservices,processesand
technology,capacityandfacilities,humanresources,quality,sourcing,andoperatingsystems.
AsshowninFigure2.4,allthesedecisionsshould"fit"likepiecesinapuzzle.Let'sbriefly
discusswhatisinvolvedineachsetofdecisions.
ProductsandServices

Thekindsofproductsandservicesofferedbyacompanydriveoperationsstrategy.Products
andservicescanbeclassifiedasmaketoorder,maketostock,orassembletoorder.Make
toorderproductsandservicesaredesigned,produced,anddeliveredtocustomer
specificationsinresponsetocustomerorders.10Examplesincludeweddinginvitations,
custombuilthomes,customtailoredclothes,charterairlineflights,componentparts,and
mostprofessionalservices(suchasmedical,legal,andfinancialservices).Criticaloperations
issuesrelatetosatisfyingthecustomer(sinceeachcustomerwantssomethingdifferent)and
minimizingthetimerequiredtocompletetheorder.

Maketostockproductsandservicesaredesignedandproducedfor"standard"customersin
anticipationofdemand.Shelvesareprestockedwiththeitems,andcustomerschoosefrom
amongtheproductsorservicesthatareavailableforpurchase.Examplesincludereadyto
wearapparel,books,televisions,airlineflights,spechomes,andstandardvacationpackages.
Criticaloperationsissuesareforecastingfuturedemandandmaintaininginventorylevelsthat
meetcustomerservicegoals.

Assembletoorderproductsandservicesareproducedinstandardmodulestowhichoptions
areaddedaccordingtocustomerspecifications.Thus,componentsaremadetostockandthen
assembledtoorderafterthecustomerorderhasbeenreceived.Examplesincludecomputer
systems,corporatetraining,andindustrialequipment.Theoperationsfunctionisconcerned
withminimizingtheinventorylevelofstandardcomponents,aswellasthedeliverytimeof
thefinishedproduct.
ProcessesandTechnology

Processescanbeclassifiedintoprojects,batchproduction,massproduction,andcontinuous
production,asshowninFigure2.5.Weintroducetheclassificationshereanddiscussthem
morethoroughlyinChapter6.

Aprojecttakesalongtimetocomplete,involvesalargeinvestmentoffundsandresources,
andproducesoneitematatimetocustomerorder.Examplesincludeconstructionprojects,
shipbuilding,newproductdevelopment,andaircraftmanufacturing.

Batchproductionprocessesmanydifferentjobsthroughtheproductionsystematthesame
timeingroupsorbatches.Productsaremadetocustomerorder,volume(intermsofcustomer
ordersize)islow,anddemandfluctuates.Examplesofbatchproductionincludeprinters,
bakeries,machineshops,education,andfurnituremaking.

Massproductionproduceslargevolumesofastandardproductforamassmarket.Product
demandisstable,andproductvolumeishigh.Goodsthataremassproducedinclude
automobiles,televisions,personalcomputers,fastfood,andmostconsumergoods.

Continuousproductionisusedforveryhighvolumecommodityproductsthatarevery
standardized.Thesystemishighlyautomatedandistypicallyinoperationcontinuously24
hoursaday.Refinedoil,treatedwater,paints,chemicals,andfoodstuffsareproducedby
continuousproduction.
Theprocesschosentocreatetheproductorservicemustbeconsistentwithproductand
servicecharacteristics.Themostimportantproductcharacteristics(intermsofprocess
choice)aredegreeofstandardizationanddemandvolume.Figure2.5showsaproduct
processmatrixthatmatchesproductcharacteristicswithprocesschoice.

Thebestprocessstrategyisfoundonthediagonalofthematrix.Companiesorproductsthat
areoffthediagonalhaveeithermadepoorprocesschoicesorhavefoundameanstoexecutea
competitiveadvantage.Forexample,technologicaladvancementsinflexibleautomation
allowMotorolatomassproducecustomizedpagers.VolvoandRollsRoyceoccupyaspecial
marketnichebyproducingcarsinacrafted,customizedfashion.Examplesofpoorprocess
choiceincludeTexasInstrument'sattempttoproduceconsumerproductsformassmarketsby
thesameprocessthathadbeensuccessfulintheproductionofscientificproductsfor
specializedmarkets,andCorning'sproductionoflowvolumeconsumeritems,suchasrange
covers,withthesamecontinuousprocessusedforotheritemsformedfromglass.

Althoughmostservicescanbeclassifiedintothesametypesofprocessesasmanufactured
products,amorenaturalclassificationsystemforservicesemphasizesdegreeof
customization(ratherthanstandardization)anddegreeoflaborintensity(ratherthanvolume).
Figure2.6showsaserviceprocessmatrixbasedonthesetwoservicecharacteristics.A
professionalservice,suchasaccountant,lawyer,ordoctor,ishighlycustomizedandvery
laborintensive.Aserviceshop,suchasschoolsandhospitals,islesscustomizedandlabor
intensivebutstillattentivetoindividualcustomers.Amassservice,suchasretailingand
banking,offersthesamebasicservicestoallcustomersandallowslessinteractionwiththe
serviceprovider.Serviceswiththeleastdegreeofcustomizationandlaborintensity,suchas
airlinesandtrucking,aremostlikemanufacturedproductsandarethusbestprocessedbya
servicefactory.
CapacityandFacilities

Strategicissuesintermsofcapacityandfacilitiesbeginwithdetermininghowmuchcapacity
shouldbeprovidedtomeetalldemand,tomeetaveragedemand,ortomeetsome
establishedlevelofdemand?Shouldcapacitybeprovidedinlargechunksorinsmall
increments?Doesthecompanyprefertohandleexcessdemandwithovertime,extrashifts,or
subcontracting?Atwhatpointshouldworkersbehiredorfired?Atwhatpointshouldnew
facilitiesbebuilt?

Whatisthebestsizeforafacility?Shoulddemandbemetwithafewlargefacilitiesorwith
severalsmallerones?Shouldafacilityfocusonservingcertaingeographicregions,product
lines,orcustomers?Shouldtheentireproductbemade(orserviceprovided)inonefacility,or
shouldtheprocessbebrokendownandplacedinaseriesoffacilities?Whereshouldfacilities
belocatednearmarkets,nearrawmaterials,ornearlaborsources?

Ifglobalizationispartofthefirm'sstrategy,shoulditemsbemade,aswellassold,inforeign
countries?Ifso,whatkindofrelationshipisneededwithmanufacturersintheforeign
countrieslicensingagreement,jointventure,partnership,alliance,merger?Whatlegaland
culturalissuesmightarise?Whoshouldmanagethesefacilities?Howshouldtheybe
operated?

HumanResources

Strategicissuesinhumanresourcesinvolvedeterminingtheskilllevelsanddegreeof
autonomyrequiredtooperatetheproductivesystem,outliningtrainingrequirementsand
selectioncriteria,andsettinguppoliciesonperformanceevaluations,compensation,and
incentives.Willworkersbesalaried,paidanhourlyrate,orpaidapiecerate?Willprofit
sharingbeallowed,andifso,onwhatcriteria?Willworkersperformindividualtasksorwork
inteams?Willtheyhavesupervisorsorworkinselfmanagedworkgroups?Howmanylevels
ofmanagementwillberequired?Willextensiveworkertrainingbenecessary?Shouldthe
workforcebecrosstrained?Whateffortswillbemadeintermsofretention?

Quality

Qualitypermeatesvirtuallyeverystrategicdecision.Whatisthetargetlevelofqualityforour
productsandservices?Howwillitbemeasured?Howwillemployeesbeinvolvedwith
quality?Whattypesoftrainingarenecessary?Whatwillbetheresponsibilitiesofthequality
department?Whattypesofsystemswillbesetuptoensurequality?Howwillquality
awarenessbemaintained?Howwillqualityeffortsbeevaluated?Howwillcustomer
perceptionsofqualitybedetermined?Howwilldecisionsinotherfunctionalareasaffect
quality?

Sourcing

Afirmthatsellstheproduct,assemblestheproduct,makesalltheparts,andextractstheraw
materialiscompletelyverticallyintegrated.Butmostcompaniescannot(ordonotwantto)
makeallofthepartsthatgointoaproduct.Amajorstrategicdecision,then,ishowmuchof
theworkshouldbedoneoutsidethefirm.Thedecisioninvolvesquestionsofdependence,
competencybuilding,andproprietaryknowledge,aswellascost.

Onwhatbasisshouldparticularitemsbemadeinhouse?Whenshoulditemsbeoutsourced?
Howshouldsuppliersbeselected?Whattypeofrelationshipshouldbemaintainedwith
suppliersarm'slength,controlling,partnership,alliance?Whatisexpectedfromour
suppliers?Howmanysuppliersshouldbeused?Howcanthequalityanddependabilityof
suppliersbeassured?Howcansuppliersbeencouragedtoworktogether?

OperatingSystems

Operatingsystemsexecutestrategicdecisionsonadaytodaybasis,soitisimportantthat
theybedesignedtosupporthowthefirmcompetesinthemarketplace.Theinformation
technologysystemmustbeabletosupportbothcustomerandworkerdemandsforrapid
access,storage,andretrievalofinformation.Planningandcontrolsystemsmustbesetupwith
timelyfeedbackloopsandconsistentdecisionmakingcriteria.Inventorylevels,scheduling
priorities,andrewardsystemsshouldalignwithstrategicgoals.

Strategy,atboththecorporateandfunctionallevels,involvessettingdirectionintoan
uncertainfuture.Decisionmakingundertheseconditionscanbescaryatbest.Fortunately,
therearequantitativetoolsavailableformakingdecisionsunderuncertainconditions.The
supplementtothischapterreviewsseveralofthemforus.

214.Explainthedifferencebetweenmaketostock,maketoorder,andassembletoorder
productsandservices.Giveanexampleofeach.

215.Whatarethefourbasictypesofproductionprocesses?Howdotheydiffer?Givean
exampleofeach.

216.Whattwoproductcharacteristicshavethemostinfluenceonprocesschoice?

*217.Howdotheproductprocessandserviceprocessmatricesrelatetooperationsstrategy?

218.Whatroleshouldoperationsplayincorporatestrategy?

219.Nameseveralstrategicdecisionsthatinvolvetheoperationsfunction.

*TheseexercisesrequireadirectlinktoaspecificWebsite.ClickInternetExercisesforthe
listofinternetlinksfortheseexercises.

10
Somecompaniesrefertoproductsthataredesignedinresponsetothecustomerasengineeredtoorder,and
thosethatarebuiltanddeliveredinresponsetothecustomerasmadetoorder.
8
Weusetheterm"policydeployment"inthistexttodistinguishthisparticularplanningsystemfromthegeneral
processofstrategyimplementation.

9
RobertHayes,"StrategicPlanningForwardinReverse,"HarvardBusinessReview(MayJane1985):11119.

Summary
Thereisnoonebestwaytodesignaproduct,makeaproduct,manageoperations,orserve
customers.The"bestway"dependsonafirm'sobjectives,resources,competencies,and
context(productsandcustomers).Firmschoosetocompeteindifferentways.Afirm's
strategydefineshowitwillcompeteinthemarketplaceitsownbestway.

Strategyformulationinvolves(1)definingtheprimarytask,(2)assessingcorecompetencies,
(3)determiningorderwinnersandorderqualifiers,and(4)positioningthefirm.Thesecretto
effectivestrategy?Excelontheorderwinners,meettheorderqualifiers,capitalizeoncore
competencies,andmaintainfocus.

Corporatestrategydrivesfunctionalstrategy.Functionalstrategiesmustbeconsistentwith
andsupportiveofcorporatestrategy.Strategicdecisionsintheoperationsfunctioninvolve
productsandservices,processesandtechnology,capacityandfacilities,humanresources,
quality,sourcing,andoperatingsystems.Policydeploymentisaplanningsystemthathelps
aligndaytodayoperatingdecisionswiththecompany'soverallstrategy.