1. Strategy and Value: Competing Through Operations
Chapter 3
Strategy and Value: Competing Through Operations

2. Learning Objectives
Describe the concepts of business-to-business (B2B) and business-to-consumer (B2C).
Define the concept of a supply chain.
Describe the value attributes common to B2B and B2C customers.
Describe the role of the strategies that form the strategy hierarchy.
Describe the role and importance of supply chain strategy
Describe Porter’s three strategies
Define order winners, order losers, and order qualifiers and relate them to value.
List and describe examples of strategic structural and infrastructural decisions.
List and describe the competitive priorities of operations.
Summarize the effects each strategic decision category has on operations’ competitive priorities.
Distinguish between capabilities and processes.
Compare the strengths and weaknesses of process-oriented, product-oriented, and cellular layouts.
Describe the continuum of choices related to production volume and the alternatives available for linking to customer demand.
Describe what is meant by a capability chain.

3. Supply Chains
A supply chain encompasses all activities associated with the flow and transformation of goods from the raw material stage (extraction), through the end user, as well as the associated information flows.

4. Supply Chains
Basic
Producer
Converters
Fabricators
Assemblers
Support Services
Transport
Storage
Finance, etc.
Basic Producer – Mines, extracts or harvests natural resources
Converter – Refines natural resources
Fabricator – Converts refined materials into usable components
Assembler – Assembles components into finished products

5. Supply Chains
Exhibit 3.1
Generic
Supply Chain
Model

6. Value Attributes of Consumer Customers
Cost – What does it cost for the total time of ownership?
Quality – Does it meet my needs?
Convenience – How easy is it to get?
Timeliness – How quickly can I get it?
Personalization – Will the business treat me as special? Do they know me?
Ethical Issues – Is the business acting responsibly?
Style/Fashion – Is the product the most current style?
Technology – Do I need technical skills to use this product?

7. Value Attributes of Business Customers
When determining product or service value, a Business evaluates its potential to add value to the products or services it sells to its customers.
Cost – What does it cost for the total time of ownership?
Quality – Does it meet our specifications?
Delivery Dependability – Does the firm meet delivery promises?
Flexibility – Can they adapt to special needs?
Response Time – How quickly can they get it to us?

8. The Value Transfer Model
Those producers sell it to consumers if it matches the value attributes they desire.
Suppliers create value.
They sell it to product and service producers.

9. Operations Management Framework
A strategy is a plan for creating value.
A strategy is a pattern of decisions an organization
adopts in order to link resource decisions to goals.
A strategy is not what you say it is-it is defined by what you do.
In A Successful Strategy. . .
The firm has made decisions that enable it to continue providing value profitably. Customers perceive value that is greater than the value offered by competitors.

10. The Strategic Hierarchy
Mission Statement
Corporate Strategy
Business Strategy
Operations Strategy

11. The Strategic Hierarchy
Mission Statement
A short statement of what a business does, what its values are, who its market is, and why.
Corporate Strategy
Broad and general in large diversified companies
Defines the businesses the corporation will engage in and how resources will be expended in these businesses.
Sets expectations for business performance
Business Strategy
The general basis on which the business will compete
Cost Leadership
Differentiation
Focus
Functional Strategy
Sets priorities so that day-to-day decisions support business strategy

12. A Closer Look at Business Strategies
Cost leadership
Keep costs lower than those of competition
May lead to lower prices than competitors
Differentiation
Create products or services that are different enough to be more attractive or better match customers view of value
Focus
Target a small segment of the market

13. Business & Operations Strategy
Cost
Quality
Response
Time
Dependability
Convenience
Style/
Fashion
Ethics
Technology
Flexibility
Personalization 4
Understand what is “valued” in the market
Choose which attributes to emphasize
Prioritize those attributes
Design operations to support those priorities
Cost
Quality
Response
Time
Dependability
Flexibility 1 3 2 X X X X
REMINDER:
Operations management is “The management of resources used to create saleable products and services” X X

14. Operations Strategy Operations Strategy How to design the operation
How to allocate productive resources
Functional strategies must support one another as well as the higher level strategies!!

15. Environmental Scanning
Enables the business to stay abreast of changes in
Technology
Customer expectations
Competitor’s offerings
Global politics
Regulations
Costs of inputs

16. Structural vs. Infrastructural Decisions
Structural - Related to tangible resources (buildings, equipment, process, supply-chain integration)
Examples
Capacity
High vs. Low volume Equipment, Adding capacity, Flexibility of capacity
Facilities
Location, size, design, number
Process Technology
Layout, Automation
Vertical Integration/Supplier Relationships
Supplier links, partnerships, integration vs. outsourcing

17. Structural vs. Infrastructural Decisions
Infrastructural - Related to systems used to enhance the utilization and control of structural resources
Examples
Human Resources
Skill level, part vs. full time, salaries
Quality
Prevention vs detection, control, specifications, supplier involvement
Planning & Control
Inventory management, vendor policies

18. Structural vs. Infrastructural Decisions
Infrastructural Examples (continued)
New Product Development
Sequential vs. parallel activities, development team composition
Performance measurement
Team vs. individual incentives, types of measures, types of rewards
Organization structure
Organizational structure, line and staff relationships

19. Strategic Decision Categories and Value
Structural and infrastructural
decisions affect value, and
ultimately whether or not
the customer’s needs are met.
REMINDER:
Operations management is “The management of resources used to create saleable products and services.” The structural and infrastructural decisions dictate how those resources are used.

20. Operations Strategy
Align the value being created (cost, quality, response time, dependability, convenience, etc.) with resource decisions (inventory, workforce, capacity, facilities) so that your investment in resources creates what customers expect and you get a financial return on that resource investment that is better than your alternatives.

21. Value Attributes and Competitive Priorities
The value attributes
customers want . . .
must dictate how
operations makes
resource decisions

22. Summary of Competitive Effects of Structural Decisions
Insert Exhibit 3.10

23. Summary of Competitive Effects of Infrastructural Decisions
Insert Exhibit 3.11

24. Strategic Objectives, Capabilities, and Process Requirements
Mary’s Speedy Pizza
Guaranteed Pizza Delivery in 20 minutes

25. Order Qualifiers and Order Winners
Mary looks at “Speedy” delivery as an order winner
She organizes processes to create capabilities that support the strategic objective
Other minimum expectations must also be met before customers consider alternatives.
Taste & Temperature
Must develop process supported capabilities in these areas as well.

26. Order Losers, Order Qualifiers, Order Winners
Example: Taking a group of children to lunch
Order Qualifier: hamburgers and fries are available.
Order Winner: a cool toy is given with the meal.
Order Loser: bad tasting food, soggy fries, etc.
Example: Selecting a bank after moving to a new city
Order Qualifiers: ATM access, online banking drive-up window
Order Winner: free checking, no ATM fees for other banks’ ATMS
Order Loser: No ATM access, no online access.

27. Customers pay for capabilities, not processes or resources
HOWEVER . . .
No capability delivers a competitive advantage (i.e., acts as an “order winner”) forever.
No capability delivers competitive advantage alone.
Because capabilities rely on processes, competitive advantage can be obtained by concurrent design of capabilities along with products and processes .