• UNIT II.

COMPETITIVENESS &
STRATEGY
 1. Define competitiveness
2. Discuss the concept of competitive
Learning advantage
3. Learn the steps in strategic
Outcomes management process
4. Explain the link between operations
strategy to the organizations mission,
After completing goals & objectives, and strategies
this study unit,
you should be 5. Discuss the different ways an
organization can gain competitive
able to: advantage
6. Relate how the operations function
can help the organization in gaining
competitive advantage.
COMPETITIVENESS
• It is not enough for
business to create goods
and services to make a
profit.

• Companies must be
competitive enough to
sell their goods and
services in the marketplace
 • Refers to how
effectively an
organization meets
the wants and
needs of customers
relative to others
that offer similar
goods and services.
• For a firm to be
competitive, it is
important that it can
COMPETITIVENESS gain competitive
advantage.
 • First: What do
the customers
want?
• Second: What
is the best way
to satisfy
Two Basic Issues those wants?
(In meeting customer
expectations)
COMPETITIVE
ADVANTAGE

• Denotes a firm’s ability to

achieve market and financial
superiority over its
competitors.
• It is what makes an entity's
goods or services superior to
all of a customer's other
choices.
How to create
competitive advantage?
1. Management must understand
customer needs and expectations –
and how the value chain can best
meet these through the design and
delivery of attractive customer benefit
packages.
2. Management must build and leverage
operational capabilities to support
desired competitive priorities.
 UNDERSTANDING WANTS
AND NEEDS
• Business exist to earn a profit
• In order for this to happen, business
firms has to provide either goods or
services that is of value to customers
• Thus it is important to understand
customers desires and how
customers evaluate goods and
services
 UNDERSTANDING WANTS
AND NEEDS
• However, not all customers can be
satisfied with the same goods and
services
• Thus, marketing comes in by
segmenting the market
• Understanding the different market
segments will allow businesses to
address the unique needs of each
segment.
 Attributes used in
evaluating the quality
of goods and services:
1. Search attributes
are those that a
customer can
determine prior to
purchasing the
goods and/or
services. (e.g. color,
Evaluating Goods and price, freshness,
style, fit, feel, smell)
Services
Evaluating Goods
and Services
Attributes used in evaluating
the quality of goods and
services:
2. Experience attributes are
those that can be discerned
only after purchase or
during consumption or use.
(e.g. friendliness, taste,
wearabilitty, safety, fun,
customer experience)
Evaluating Goods and Services
Attributes used in evaluating the quality of goods and services:
3. Credence attributes are any aspects of a good or service that the
customer must believe in but cannot personally evaluate even after
purchase and consumption. (e.g. expertise of a surgeon,
knowledge of a consultant, accuracy of the work of a bookkeeper)
 • Goods are easier
to evaluate than
services
• Goods are high in
search attributes
• Services are high
in experience and
credence
attributes
Goods-Services
Continuum
 • Most important
search and experience
attributes should be
Goods-Services evaluated during
Continuum: design, measured
during manufacturing,
Implications for and drive key
Operations operational controls
to ensure that they
are built into the good
with high quality
 • Credence attributes
Goods-Services stem from the nature
Continuum: of the service, the
design of the service
Implications for system, and the
Operations training and expertise
of service providers
Arrange the steps in strategic management
process correctly
• Environmental Scanning
• Define Vision and Mission
• Establish Goals and Objectives
• Strategy Control
• Strategy Formulation
• Strategy Implementation
Strategic Management Process

Strategic Strategic
Formulation Implementation
Vision External
Analysis

Strategy
SWOT Goals/ Strategy Strategic
Mission Implement-
Analysis Objectives Formulation Control
ation

Long-term Corporate Budget

Internal
Medium-term Business Policy
Analysis
Short-term Functional Procedures
Missions & Strategies
An effective operations management effort
must have a mission so it knows where it is
going and a strategy, so it knows how to get
there

Economic success, especially survival, is the

result of identifying missions to satisfy
customer’s wants and needs
Mission Statement
 Is a precise description of what the organization
does, the reason for its existence

 It is a definition of “why” the organization

exists

 Provides details of what is done and answers

the question “What do we do?” or “What is
our business?”
Mission Statement - Sample

Organize the world’s information

and make it universally accessible
and useful.

We will provide branded products

and services of superior quality
and value that improve the lives of
the world’s consumers
Mission-Goals-Strategies-Tactics

 The mission statement - basis for organizational

goals, which provide more detail and describe the
scope of the mission

 Goals - serve as a foundation for the development

of organizational strategies.
 These, in turn, provide the basis for strategies and
tactics of the functional units of the organization.
Mission Statement
 Once an organization’s mission has
been defined, each functional area
within the firm determines its
supporting mission

 e.g.: OM’s mission: To produce products

consistent with the company’s mission
as the worldwide low-cost manufacturer
Strategy

 When the mission is established, strategy

and its implementation can begin

 Strategy – is an organization’s action plan

or a game plan to achieve its mission
Strategy

 Organizational strategy is important

because it guides the organization by
providing direction for, and alignment of,
the goals and strategies of the functional
units. Moreover, strategies can be the main
reason for the success or failure of an
organization.
  Goals:
destinations
 Tactics - are
 Strategies: the methods
roadmaps and actions
used to
accomplish
strategies
 Order
Qualifiers
vs
Order
Winners

Order qualifiers and order winners are taken into account in formulating
a successful strategy
• Order qualifiers - characteristics that potential customers perceive as
minimum standards of acceptability for a product to be considered
for purchase.
• Order winners - characteristics of an organization's goods or services
that cause them to be perceived as better than the competition.
Strategies to Gain Competitive Advantage

Firms achieve missions in three conceptual ways:

Differentiation  Better / Different

Cost Leadership  Affordable
Response  More responsive

Each of these strategies provides an opportunity to

achieve competitive advantage…
Strategy: Differentiation
 Differentiation is concerned with providing uniqueness
 Differentiation should be thought of as going beyond
both physical characteristics and service attributes to
encompass everything about the product or service that
influences the value that the customers derive from it
 e.g.: broad product line, product feature, after-sales
services, delivery & installation, experience
differentiation
Strategy: Competing on Cost
Low-cost leadership entails achieving maximum
value as defined by your customer. It requires
examining each of the 10 OM decisions in a
relentless effort to drive down costs while
meeting customer expectations of value.

 A low-cost strategy does not imply low value or

low quality.
Strategy: Competing on Cost
Driver for low-cost strategy:
 Effective utilization of facility: identify
optimum size, to allow firms to spread
overhead costs
 Lowering costs does not mean sacrificing
customers’ expectations of value
 Lower cost does not mean inferior quality
Strategy: Competing on Response
 Response – includes the entire range of values related to
timely product development and delivery, reliable
scheduling, and flexible performance

ASPECTS of Response Strategy:

1. Flexible response – ability to match changes in the
marketplace where design innovations and volumes
fluctuate substantially
Strategy: Competing on Response

2. Reliability of scheduling or
dependability

3. Quickness or speed
 COMPETITIVE
PRIORITIES
represent the strategic emphasis that a firm
place on certain performance measure and
operational capabilities within a value chain
FIVE COMPETITIVE
PRIORITIES

1. COST
When cost becomes
the competitive
priority, firms can
achieve competitive
advantage through low
prices
 COMPETING ON COST
• High volume
• Strict attention to cost and the design
and management of operations
• High productivity
• High-capacity utilization (economies of
scale)
• Quality improvements = improvements
in productivity = low cost
• Continuous improvement strategy is
essential
P=O/I
Original Situation: 10 / 10= 1

Improved Productivity
10 / 5 = 2 (Same output, decreased input)
20 / 10 = 2 (Same input, increase output)
2. QUALITY
Quality is influenced by
• Better features
• Superior performance
• Reliability
• Durability

Superior attributes allow

firms to command higher
prices
 COMPETING ON QUALITY
• Higher prices result to increased
market share
• Leads to increased revenue to offset
added cost of superior attributes
• Improved conformance in production
leads to lower manufacturing and
service costs through savings from
rework, scrap and warranty
• Improved quality of designs and
conformance = increased profits
 Customer's demand
• quick response
• short waiting
times
• consistency in
performance.

Many firms use time

as a competitive
weapon to create
3. TIME and deliver superior
goods and services.
 COMPETING ON TIME
• First, they speed up work processes so
that customer response is improved.
Deliveries can be made faster, and
more often on-time.

• Second, reductions in flow time can be

accomplished only by streamlining and
simplifying processes and value chains
to eliminate non-value-added steps
such as rework and waiting time.
4. FLEXIBILITY
- refers to the ability
of business firms
to respond to the
varying tastes and
preferences of
customers
 COMPETING ON FLEXIBILITY
• Through mass-customization
• Mass customization is being able to
make whatever goods and services the
customer wants, at any volume, at any
time for anybody, and for a global
organization, from any place in the
world.
• Modular designs
• Interchangeable parts
• Postponement strategies
5. INNOVATION
- the discovery and practical application or
commercialization of a device, method, or idea that
differs from existing norms.
Summary on strategies
1. Low-cost strategy or cost as the competitive
priority
2. Differentiation strategy or quality as the
competitive priority
3. Response or time as the competitive priority
4. Flexibility as the competitive priority
5. Innovation as the competitive priority
 • Set of decisions across the
OPERATIONS value chain that supports the
STRATEGY implementation of higher-
level business strategies
 • The operations strategy
OPERATIONS defines how an
organization will execute
STRATEGY
its chosen business
strategies.
 • It is how an organization’s
processes are designed
OPERATIONS and organized to produce
the type of goods and
STRATEGY
services to support the
corporate and business
strategies.
 • Developing an operation
strategy involves
translating competitive
priorities into operational
capabilities by making a
OPERATIONS variety of choices and
STRATEGY trade-offs for design and
operating decisions. That
is, operating decisions
must be aligned with
achieving the desired
competitive priorities.
 • Effective strategies develop
around a few key competitive
priorities, such as low cost or
OPERATIONS differentiation, which provide
STRATEGY a focus for the entire
organization and exploit an
organization’s core
competencies
 • Core competencies are the
strengths that are unique to
OPERATIONS the organization, or those
STRATEGY special attributes or abilities
possessed by an organization
that give it a competitive edge
or competitive advantage.
Aims of an Operations Strategy
 Support the higher strategies in achieving the
organization’s purpose.
 To provide superior performance in operations.

Its contents:
 The purpose of the operations, summarized in operations
mission.
 An expanded series of goals and objectives.

 Plans and methods to achieve these goals.

Operations Strategy
 For operations strategy to be truly effective…

 “It is important to link it to organizations’ strategy.

That is, both organizational strategy and operations
strategy should not be formulated independently.”

 Thus, can have a major influence on the

competitiveness of an organization.
OPERATIONS Competitive Advantage: Produce a
well-defined set of products in a
STRATEGY: stable market environment as a low-
AN EXAMPLE cost leader
 Operations Strategy:
• Emphasizing quality and cost
reduction in their make-to-stock
strategy
OPERATIONS • Require well-balanced,
STRATEGY: synchronized supply chain
approach with strong supplier
AN EXAMPLE involvement, efficient assembly
line final assembly processes and
high work standardization
• Highly efficient production
process
Any questions?