1

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Chapter 2
Operations Strategy and
Competitiveness

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OBJECTIVES
 Operations Strategy
 Competitive Dimensions
 Order Qualifiers and Winners
 Strategy Design Process
 A Framework for Manufacturing Strategy
 Service Strategy Capacity Capabilities
 Productivity Measures

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Competitive strategy
is about being
different.

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The essence of
STRATEGY
is to perform
activities differently
than rivals

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STRATEGY :
a. Operations Effectiveness
b. Customer Management
c. Product Innovation

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a. Operations Effectiveness
:relates to the core business process
- Customer Order
- Handling returns
- Manufacturing
- Managing Website
- Shipping Products

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b. Customer management
:relates to better understanding and
leveraging customer relationships

For example: segmenting

customers

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c. Product Innovation
- development of a new product
- markets
- relationship

To sustain growth

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Operations Strategy
Strategy Process Example

Customer Needs More Product

Corporate Strategy Increase Org. Size

Operations Strategy Increase Production Capacity

Decisions on Processes
and Infrastructure Build New Factory

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Process Design :
–Technology
–Sizing the process over time
–Inventory
–Locating the process

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Infrastructure :

–Planning and Control System

–Quality Assurance and
Control Approaches
–Work Payment
–Organization
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Competitive Dimensions
 Cost or Price
– Make the Product or Deliver the Service Cheap
 Quality
– Make a Great Product or Deliver a Great Service
 Delivery Speed
– Make the Product or Deliver the Service Quickly
 Delivery Reliability
– Deliver It When Promised
 Coping with Changes in Demand
– Change Its Volume
 Flexibility and New Product Introduction Speed
– Change It
 Other Product-Specific Criteria
– Support It

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Dealing with Trade-offs

For
Forexample,
example, ififwe
wereduce
reducecosts
costsby
byreducing
reducingproduct
product
quality
qualityinspections,
inspections,we
wemight
mightreduce
reduceproduct
productquality.
quality.

For
Forexample,
example, ifif we
we
improve
improvecustomer
customer Cost
service
serviceproblem
problem solving
solving
by
bycross-training
cross-training Flexibility Delivery
personnel
personneltotodeal
dealwith
withaa
wider-range
wider-rangeofof Quality
problems,
problems,they
they may
may
become
becomeless
lessefficient
efficient at
at
dealing
dealingwith
withcommonly
commonly
occurring
occurringproblems.
problems.
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Order Qualifiers and Winners

Defined
Order qualifiers are the basic
criteria that permit the firm’s
products to be considered as
candidates for purchase by
customers

Order winners are the criteria that

differentiate the products and
services of one firm from another

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Service Breakthroughs
 A brand name car can be an
“order qualifier”

Repair services can be “order

winners”
Examples: Warranty, Roadside Assistance,
Leases, etc.

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Strategy Design Process

Strategy Map What it is about!
Financial Perspective Improve Shareholder Value

Customer Perspective Customer Value Proposition

Internal Perspective Build-Increase-Achieve

Learning and Growth Perspective A Motivated and Prepared

Workforce

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Kaplan and Norton’s Generic

Strategy Map
In the Kaplan and Norton’s Generic Strategy
Map, under the Financial Perspective, the
Productivity Strategy is generally made up from
two components:

1. Improve cost structure: Lower direct and

indirect costs
2. Increase asset utilization: Reduce working
and fixed capital

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Kaplan and Norton’s Generic

Strategy Map (Continued)
In the Kaplan and Norton’s Generic Strategy
Map, under the Financial Perspective, the
Revenue Growth Strategy is generally made
up from two components:
1. Build the franchise: Develop new sources of
revenue
2. Increase customer value: Work with
existing customers to expand relationships
with company

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Kaplan and Norton’s Generic

Strategy Map (Continued)
In the Kaplan and Norton’s Generic Strategy
Map, under the Customer Perspective, there
are three ways suggested as means of
differentiating a company from others in a
marketplace:

1. Product leadership
2. Customer intimacy
3. Operational excellence

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Kaplan and Norton’s Generic

Strategy Map (Continued)
In the Kaplan and Norton’s Generic Strategy
Map, under the Learning and Growth
Perspective, there are three principle
categories of intangible assets needed for
learning:

1. Strategic competencies
2. Strategic technologies
3. Climate for action

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Southwest’s Strategy

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No delay

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Many passangers

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No commission
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Cut the time to get
on and off the board

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Take care of employees = best services to customers

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Operations Strategy Framework
Customer Needs

New product : Old product

Competitive
dimensions & requirements

Quality, Dependability, Speed, Flexibility, and Price

Enterprise capabilities
Operations
Operationsand Suppliercapabilities
& Supplier Capabilities
R&DR&D Technology SystemsSystems
Technology People
People Distribution
Distribution

Support Platforms
Financial management Human resource management Information management

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Steps in Developing a
Manufacturing Strategy

 1. Segment the market according to the

product group
 2. Identify product requirements, demand
patterns, and profit margins of each group
 3. Determine order qualifiers and winners for
each group
 4. Convert order winners into specific
performance requirements

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Service Strategy Capacity

Capabilities
 Process-based
– Capacities that transforms material or information
and provide advantages on dimensions of cost and
quality
 Systems-based
– Capacities that are broad-based involving the entire
operating system and provide advantages of short
lead times and customize on demand
 Organization-based
– Capacities that are difficult to replicate and provide
abilities to master new technologies

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What is Productivity?
Defined
Productivity is a common measure
on how well resources are being
used. In the broadest sense, it can
be defined as the following ratio:
Outputs
Inputs

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Total Measure Productivity

Total Measure Productivity = Outputs
Inputs

or
= Goods and services produced
All resources used

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Partial Measure Productivity

 Partial measures of productivity =

 Output or Output or Output or Output

Labor Capital Materials Energy

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Multifactor Measure
Productivity
 Multifactor measures of productivity =

 Output .
Labor + Capital + Energy

or

 Output .
Labor + Capital + Materials

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Example of Productivity
Measurement
 You have just determined that your service
employees have used a total of 2400 hours of
labor this week to process 560 insurance
forms. Last week the same crew used only
2000 hours of labor to process 480 forms.
 Which productivity measure should be used?
 Answer: Could be classified as a Total
Measure or Partial Measure.
 Is productivity increasing or decreasing?
 Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.

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Problem
7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000 What is the

multifactor
Cost of materials: $520 productivity?

Cost of overhead: $2000 Ans. 2.20

39
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Solution
MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20

40
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2004 2005
Output Sales value of $22,000 $35,000
production
Input Labor $10,000 $15,000
Raw materials and $ 8,000 $12,500
supplies
Capital equipment $ 700 $ 1,200
depreciation
Other $ 2,200 $ 4,800

Compute the labor, raw materials and supplies,

and total Productivity of 2004 and 2005.
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Solution
2004 2005
Partial productivities
Labor 2.20 2.33
Raw materials and 2.75 2.80
supplies
Total productivity 1.05 1.04

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Question Bowl
An operations strategy is concerned
with which of the following?
a. Setting specific policies and plans
b. Short-term competitive strategies
c. Coordination of operational goals
d. All of the above
e. None of the above
Answer: c. Coordination of operational
goals

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Question Bowl
Typically a strategy breaks down
into what major components?
a. Operations effectiveness
b. Customer management
c. Production innovation
d. All of the above
e. None of the above

Answer: d. All of the above

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Question Bowl
A criterion that differentiates the
products and services of one firm
from another can be which of the
following?
a. An order qualifier
b. An order winner
c. PWP
d. KPI
e. None of the above

Answer: b. An order winner

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Question Bowl
A travel agency processed 240 customers on
Day 1 with a staff of 12, and 360 customers
the on Day 2 with a staff of 15. What can be
said about the productivity shift from Day 1
to Day 2?
a. An increase in productivity from Day 1 to Day 2
b. A decrease in productivity from Day 1 to Day 2
c. The same productivity from Day 1 to Day 2
d. Can not be computed from data above
e. None of the above
Answer: a. An increase in productivity from Day 1 to
Day 2(Day 1 productivity = 240/12=20
Day 2 productivity = 360/15=24)

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Question Bowl
In addition to traditional financial measures, what
critical questions can a Balanced Scorecard
help a company answer?
a. How do customers see us?
b. What must we excel at?
c. How can we continue to improve and create
value?
d. All of the above
e. None of the above

Answer: d. All of the above

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End of Chapter 2

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