COMPETITIVENESS AND OPERATIONS STRATEGY

the bar is getting higher A COLD HARD FACT Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and… the bar is getting higher

CHAPTER FOCUS Competitiveness Strategy

COMPETITIVENESS Competitiveness: The extent that an organization meets the wants and needs of customers relative to others that offer similar goods or services Organizations compete through some combination of their marketing and operations functions What do customers want? How can these customer needs best be satisfied?

MARKETING INFLUENCES COMPETITIVENESS BY: Identifiying consumer needs and desires Pricing Advertising and promotion

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (1 of 4): 1. Product and Service Design 2. Cost 3. Location 4. Quality and Reliability

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (2 of 4): 5. Quick or Reliable Response a. New Product Introduction Speed b. Delivery Speed c. Delivery Reliability 6. Service

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (3 of 4): 7. Flexibility a. in making alterations in design b. in coping with changes in volume c. in new product introduction 8. Inventory Management

OPERATIONS INFLUENCES COMPETITIVENESS THROUGH (4 of 4): 9. Supply Chain Management 10. Service and Service Quality 11. Managers and Workers

WHY SOME ORGANIZATIONS FAIL? (1 of 2) Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy

WHY SOME ORGANIZATIONS FAIL (2 of 2) 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 and cooperation Failing to consider customer wants and needs

DEALING WITH TRADE-OFFS For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems. Cost Quality Delivery Flexibility

HIERARCHICAL PLANNING Mission Goals Organizational Strategies Tactics Functional Strategies

HIERARCHICAL PLANNING Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures

MISSION Mission - where you are going? The reason for the existence for an organization Provides boundaries & focus © 1995 Corel Corp.

FACTORS AFFECTING MISSION Philosophy & Values Profitability Environment & Growth Mission Customers Public Image One can obviously discuss the impact of each of these factors on a company mission. An alternative is to have each student take a company mission and identify the connection to each of the factors. In particular, ask students if the connection is uni- or bi-directional, i.e., “The environment within which a company operates may impact its mission, can the mission also impact the environment?” Benefit to Society

MISSION STATEMENT States the purpose of the organization The mission statement should answer the question of “What business are we in?”

MISSION STATEMENT OF THE HARD ROCK CAFE To spread the spirit of Rock ‘n’ Roll by delivering an exceptional entertainment and dining experience. We are committed to being an important, contributing member of our community and offering the Hard Rock family a fun, healthy, and nurturing work environment while ensuring our long-term success.

MC’DONALD’S MISSION STATEMENT McDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience -- People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience.

GOALS The mission statement serves as the basis for organizational goals Goals They provide detail and the scope of the mission Goals can be viewed as organizational destinations They serve as the basis for organizational strategies

STRATEGIES Strategy Plans for achieving organizational goals Serves as a roadmap for reaching the organizational destinations Mission: Where you are going? Strategy: How you are going to get there; an action plan (shows how mission will be achieved)

STRATEGIES Organizations have Organizational (business) strategies Overall strategies that relate to the entire organization Support the achievement of organizational goals and mission Functional level strategies Strategies that relate to each of the functional areas and that support achievement of the organizational strategy

TACTICS AND OPERATIONS The methods of actions taken to accomplish strategies The “how to” part of the process Answers the question: “How to reach the destination, following the strategy road map” Operations The actual “doing” part of the process

STRATEGY EXAMPLE Mission: Live a good life 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

SAMPLE STRATEGIES Organizational Strategy Operations Strategy Examples of Companies or Services Low Price Low Cost U.S. first-class postage Wal-Mart High Quality High performance design and/or high quality processing Consistent Quality Sony TV Lexus, Cadillac, Coca-Cola; Kodak, Motorola Short Time Quick Response(rapid delivery) On-time delivery McDonald’s Restaurants Express mail FedEx; One-hour photo Newness Innovation 3M Flexibility Variety Volume Burger King (Have it your way”) McDonald’s (“Buses Welcome”) Service Superior customer service Disneyland IBM Location Convenie Supermarkets, Banks, ATMs Mall Stores

© 1995 Corel Corp. STRATEGY FORMULATION Effective strategy formulation requires taking into account the competitive arena (what the firm is in the business of doing) Strategy formulation process: Identification of core (distinctive) competencies Environmental scanning and SWOT Analysis Identification of the order qualifiers Identification of the order winners Positioning the firm

IDENTIFICATION OF CORE COMPETENCIES The special attributes or abilities that give an organization a competitive edge. What the firm does better than anyone else (critical success factors, distinctive competencies) Price Quality Time Flexibility Service Location

Develop Distinctive Competencies based on customer needs and on what the competitors doing To be effective core competencies and strategies need to be aligned

ENVIRONMENTAL SCANNING The consideration of events and trends that present threats or opportunities for a company Environmental Scanning is necessary to identify Internal Factors Strengths and Weaknesses External Factors Opportunities and Threats

ENVIRONMENTAL SCANNING: KEY EXTERNAL FACTORS Economic conditions Political conditions Legal environment Technology Competition Customers and Markets Suppliers Distributors

ENVIRONMENTAL SCANNING: KEY INTERNAL FACTORS Resources available (human resources, facilities and equipment, financial resources) Existing and potential products and services Technology Stages of life cycles of current products

SWOT ANALYSIS TO STRATEGY FORMULATION Mission Internal External S trengths O pportunities Strategy Internal External W eaknesses T hreats Competitive Advantage

ORDER QUALIFIERS: DEFINED Order qualifiers are the basic criteria that permit the firm’s products to be considered as candidates for purchase by customers. These are the characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase.

ORDER WINNERS: DEFINED Order winners are the criteria that differentiate the products and services of the firm from others’. These are the characteristics of an organization’s goods or services that cause it to be perceived as better than competitors’ products

A brand name car can be an “order qualifier” Repair services can be “order winners” Examples: Warranty, Roadside Assistance, Leases, etc

LAST STEP IN STRATEGY FORMULATION: POSITIONING THE FIRM The firm’s positioning strategy defines how it will compete in the marketplace, ie. what unique value it will deliver to the customer. Choosing one or two important things on which to concentrate and doing them extremely well.

ORGANIZATION STRATEGY/ OPERATIONS STRATEGY The organization strategy provides the overall direction for the organization. It is broad in scope covering the entire organization Operations strategy is the approach consistent with organization strategy that is used to guide the operations function. It is narrower in scope, dealing with the operations aspect of the organization.

Organization Strategy Relates to growth rate, market share Operations Strategy Relates to product design; choice of location, technology, new facilities

STRATEGIC PLANNING Mission and Vision Corporate Strategy Voice of the Business Customer Marketing Strategy Operations Strategy Financial Strategy

OPERATIONS ROLE IN CORPORATE STRATEGY Provide support for overall strategy of a firm Serve as firm’s distinctive competence Must be consistent Must be consistent with overall strategy

IMPETUS FOR STRATEGY CHANGE Changes in the organization Stages in the product life cycle Changes in the environment

TYPES OF OPERATIONS STRATEGIES Cost leadership strategy Differentiation strategy Quick response strategy (requires institutionalization within the firm of the ability to respond) Flexibility Reliability Speed, Timeliness

Does not imply low value or low quality COMPETING ON COST Eliminate all waste Provide the maximum value as perceived by the customer Does not imply low value or low quality Invest in Updated facilities & equipment Streamlining operations Training & development

COMPETING BY DIFFERENTIATION Please the customers by offering unique goods or services that make them feel special Uniqueness can go beyond both the physical characteristics and service attributes to encompass everything that impacts customer’s perception of value

COMPETING ON RESPONSE Flexibility Speed Reliability, Timeliness Requires institutionalization within the firm of the ability to respond Most students readily acknowledge that competing on the basis of response involves the notion of quickness or speed, so the discussion should probably concentrate on the other three elements. The concept of and need for “institutionalization” will likely require significant discussion. Here you might point out that “response” is seldom the prerogative of any, single, individual - appropriate response is often the outcome of the work of many.

COMPETING ON SPEED Fast moves Fast adaptations Tight linkages

COMPETING ON FLEXIBILITY Produce wide variety of products Introduce new products Modify existing products quickly Respond to customer needs

AGILE OPERATIONS Agile operations A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change Involves the blending of several core competencies: Cost Quality Reliability Flexibility

TYPES OF OPERATIONS STRATEGIES Quality Based Strategies Time Based Strategies

QUALITY-BASED STRATEGIES Strategy that focuses on quality in all phases of an organization Focuses on maintaining or improving the quality of an organization’s products or services Understand customer attitudes toward and expectations of quality Quality at the source Pursuit of such a strategy is rooted in a number of factors: Trying to overcome a poor quality reputation Desire to maintain a quality image A part of a cost reduction strategy

TIME-BASED STRATEGIES Strategies that focus on the reduction of time needed to accomplish tasks Competing on speed: fast moves, fast adaptations, tight linkages It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved

TIME-BASED STRATEGIES Areas where organizations have achieved time reductions: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

EFFECTIVE STRATEGY CAN BE ACHIEVED: by performing different activities from those of competitors or by performing the same activities better

STRATEGIC DECISIONS IN OPERATIONS Products Processes, Technology Capacity Job design Quality Facilities Sourcing Services Inventory

THE BALANCED SCORECARD APPROACH FOR TRANSFORMING STRATEGY INTO ACTION A top-down management system that organizations can use to clarify their vision and strategy and transform them into action Develop objectives Develop metrics and targets for each objective Develop initiatives to achieve objectives Identify links among the various perspectives Finance Customer Internal business processes Learning and growth Monitor results

BALANCED SCORECARD Finance — How should we look to our shareholders? Customer — How should we look to our customers? Processes — At which business processes must we excel? Learning and Growing — How will we sustain our ability to change and improve?

OPERATIONS STRATEGY AT WAL-MART Provide value for our customers Low prices, everyday Low inventory levels Linked communications between stores Short flow times Fast transportation system Cross-docking Focused locations EDI/satellites Wal-Mart Mission Competitive Priority Operations Strategy Operations Structure Enabling Process and Technologies

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost Discuss how the individual strategies combine to achieve the overall company mission.

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Courteous, but limited passenger service No seat assignments No baggage transfers Automated ticketing machines No meals

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Short haul, point-to-point routes, often to secondary airports Lower gate costs at secondary airports High number of flights, reduces employee idle time between flights

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Frequent, reliable schedules High number of flights reduces employee idle time between flights Saturate a city with flights lowering administrative costs per passenger for that city

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Standardized fleet of Boeing 737 aircraft Pilot training on only one type of aircraft Reduced maintenance inventory required because of only one type of aircraft Excellent supplier relations with Boeing has aided financing

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE High aircraft utilization Flexible employees and standard planes aids scheduling Flexible union contracts Maintenance personnel trained on only one type of aircraft 20 minute gate turnarounds

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Lean, productive employees High level of stock ownership Hire for attitude, then train High employee compensation Empowered employees Automated ticket machines

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE Courteous, but limited passenger service Lean, productive employees Short haul, point-to-point routes, often to secondary airports High aircraft utilization Standardized fleet of Boeing 737 aircraft Frequent, reliable schedules Competitive Advantage: Low Cost

ACTIVITY MAPPING: SOUTWEST AIRLINE’S LOW COST COMPETITIVE ADVANTAGE

OPERATIONS STRATEGY FRAMEWORK Customer Needs New product : Old product Competitive dimensions & requirements Quality, Dependability, Speed, Flexibility, and Price Enterprise capabilities Operations and Supplier Capabilities R&D Distribution Technology Systems People Support Platforms Financial management Human resource management Information management

THE CHANGING CORPORATION 20TH CENTURY 21ST CENTURY CHARACTERISTIC CORPORATION CORPORATION Organization The Pyramid The Web Focus Internal External Style Structures Flexible Source of strength Stability Change Structure Self-sufficient Interdependencies Resources Physical assets Information Operations Vertical integration Virtual integration Products Mass production Mass customization Reach Domestic Global Financials Quarterly Real-time Inventories Months Hours Strategy Top-down Bottom-up Leadership Dogmatic Inspirational Workers Employees Employees, free agents Job expectations Security Personal growth Motivation To compete To build Improvements Incremental Revolutionary Quality Affordable best No compromise