CHAPTER TWO

OPERATIONS STRATEGY AND COMPETITIVENESS

2.1 WHAT IS STRATEGY?

To maintain a competitive position in the marketplace, a company must have a long-range plan.
This plan needs to include the company’s long-term goals, an understanding of the marketplace,
and a way to differentiate itself from its competitors. All other decisions made by the company
must support this long-range plan. Otherwise, each person in the company would pursue goals
that he or she considered important, and the company would quickly fall apart.

Strategy is not particularly easy to define. The word derives from the Greek word ‘strategos’
meaning ‘leading an army’. And although there is no direct historical link between Greek
military practice and modern ideas of strategy, the military metaphor is powerful. Both military
and business strategy can be described in similar ways, and include some of the following.

Setting broad objectives that direct an enterprise towards its overall goal.
Planning the path (in general rather than specific terms) that will achieve these goals.
Stressing long-term rather than short-term objectives.
Dealing with the total picture rather than stressing individual activities.
Being detached from, and above, the confusion and distractions of day-to-day activities.

Here, by ‘strategic decisions’ we mean those decisions which are widespread in their effect on
the organization to which the strategy refers, define the position of the organization relative to its
environment, and move the organization closer to its long-term goals. But ‘strategy’ is more than
a single decision; it is the total pattern of the decisions and actions that influence the long-term
direction of the business.

2.2 What is operations strategy?

Operations strategy is concerned with setting broad polices and plans for using the resources of
the firm to best support the firm’s long-term competitive strategy. In short, OM strategy specifies
the means by which operations implements the firm’s corporate strategy. Operations strategy
links long and short-term operation decisions to corporate strategy. Operation strategy is derived
from business strategy which in turn is derived from corporate strategy.
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Corporate strategy this relates to the organization as a whole. How should the business fulfill
its long-term objectives and satisfy its mission? A mission here means a statement of the purpose
or the main reason for the organization’s existence. For example, a business school’s mission
statement may be: ‘to be amongst the top ten business schools in reign, providing programs at
undergraduate, postgraduate and executive levels.’ Similarly, a mission for a construction firm
may be: ‘to provide quality dam and highway bridges both at home and overseas.

Business Strategy: is the long-range plan of a business, designed to provide and sustain
shareholder value. For a company to succeed, the business strategy must be supported by each of
the individual business functions, such as operations, finance, and marketing.

Operations strategy: is a long-range plan for the operations function that specifies the design
and use of resources to support the business strategy. In today’s highly competitive, Internet-
based, and global marketplace, it is important for companies to have a clear plan for achieving
their goals.

Corporate and
business strategy

Operations Strategy
Internal Functional strategies in
analysis Mission marketing, finance,
Distinctive engineering, human
Competence resources, and
External information systems
Objectives
analysis (cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)

Consistent pattern of decisions

Results

Figure 2.1 Operations Strategy Model

2.3 THE ROLE OF OPERATIONS STRATEGY

The role of operations strategy is to provide a plan for the operations function so that it can make
the best use of its resources. Operations strategy specifies the policies and plans for using the
organization’s resources to support its long-term competitive strategy.

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Remember that the operations function is responsible for managing the resources needed to
produce the company’s goods and services. Operations strategy is the plan that specifies the
design and use of resources to support the business strategy. This includes the location, size, and
type of facilities available; worker skills and talents required; use of technology, special
processes needed, special equipment; and quality control methods. The operations strategy must
be aligned with the company’s business strategy and enable the company to achieve its long-term
plan.

The Importance of Operations Strategy

Operations strategy did not come to the forefront until the 1970s. Up to that time U.S. companies
emphasized mass production of standard product designs. There were no serious international
competitors, and U.S. companies could pretty much sell anything they produced. However, that
changed in the 1970s and 1980s. Japanese companies began offering products of superior quality
at lower cost, and U.S. companies lost market share to their Japanese counterparts. In an attempt
to survive, many U.S. companies copied Japanese approaches. Unfortunately, merely copying
these approaches often proved unsuccessful; it took time to really understand Japanese
approaches. It became clear that Japanese companies were more competitive because of their
operations strategy; that is, all their resources were specifically designed to directly support the
company’s overall strategic plan.

Harvard Business School professor Michael Porter says that companies often do not understand
the differences between operational efficiency and strategy. Operational efficiency is
performing operations tasks well, even better than competitors. Strategy, on the other hand, is a
plan for competing in the marketplace. An analogy might be that of running a race efficiently,
but it may be the wrong race. Strategy is defining in what race you will win. Operational
efficiency and strategy must be aligned; otherwise you may be very efficiently performing the
wrong task. The role of operations strategy is to make sure that all the tasks performed by the
operations function are the right tasks.

Why Some Organizations Fail

Organizations fail, or perform poorly, for a variety of reasons. Being aware of those reasons can
help managers avoid making similar mistakes.

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Among the chief reasons are the following:

1) Neglecting operations strategy.

2) Failing to take advantage of strengths and opportunities, and/or failing to recognize
competitive threats.
3) Putting too much emphasis on short-term financial performance at the expense of
research and development.
4) Placing too much emphasis on product and service design and not enough on process
design and improvement.
5) Neglecting investments in capital and human resources.
6) Failing to establish good internal communications and cooperation among different
functional areas.
7) Failing to consider customer wants and needs.
2.4 DEVELOPING A BUSINESS STRATEGY

A company’s business strategy is developed after its managers have considered many factors and
have made some strategic decisions. These include developing an understanding of what
business the company is in (the company’s mission), analyzing and developing an understanding
of the market (environmental scanning), and identifying the company’s strengths (core
competencies). These three factors are critical to the development of the company’s long-range
plan, or business strategy. In this section, we describe each of these elements in detail and show
how they are combined to formulate the business strategy.

2.4.1 Mission

An organization’s mission is the reason for its existence. It is expressed in its mission
statement. For a business organization, the mission statement should answer the question “What
business are we in?” Missions vary from organization to organization, depending on the nature
of their business. Example of some selected company mission statements

I. Microsoft; To help people and businesses throughout the world to realize their full
potential.
II. Starbucks; To inspire and nurture the human spirit—one cup and one neighborhood at a
time.

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III. U.S. Dept. of Education; To promote student achievement and preparation for global
competitiveness and fostering educational excellence and ensuring equal access.

A mission statement serves as the basis for organizational goals, which provide more detail and
describe the scope of the mission. The mission and goals often relate to how an organization
wants to be perceived by the general public, and by its employees, suppliers, and customers.
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. Every
organization, from IBM to the Boy Scouts, has a mission. The mission is a statement that
answers three overriding questions:

What business will the company be in (“selling personal computers,” “operating an

Italian restaurant”)?
Who will the customers be, and what are the expected customer attributes
(“homeowners,” “college graduates”)?
How will the company’s basic beliefs define the business (“gives the highest customer
service,” “stresses family values”)?

If a company does not have a well-defined mission it may pursue business opportunities about
which it has no real knowledge or that are in conflict with its current pursuits, or it may miss
opportunities altogether.

2.4.2 Environmental Scanning

A second factor to consider is the external environment of the business. This includes trends in
the market, in the economic and political environment, and in society. These trends must be
analyzed to determine business opportunities and threats. Environmental scanning is the process
of monitoring the external environment. To remain competitive, companies have to continuously
monitor their environment and be prepared to change their business strategy, or long-range plan,
in light of environmental changes. Environmental scanning allows a company to identify
opportunities and threats. Just because a company is an industry leader today does not mean it
will continue to be a leader in the future. The external business environment is always changing.
To stay ahead of the competition, a company must constantly look out for trends or changing
patterns in the environment, such as marketplace trends. These might include changes in
customer wants and expectations, and ways in which competitors are meeting those expectations.

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For example, we are seeing changes in the use of technology, such as point-of-sale scanners,
automation, computer-assisted processing, electronic purchasing, and electronic order tracking.

In addition to market trends, environmental scanning looks at economic, political, and social
trends that can affect the business. Economic trends include recession, inflation, interest rates,
and general economic conditions. Political trends include changes in the political climate—local,
national, and international—that could affect a company. Companies seek customers and
suppliers all over the globe. Many have changed their strategies in order to take advantage of
global opportunities, such as forming partnerships with international firms, called strategic
alliances. Finally, social trends are changes in society that can have an impact on a business.

2.4.3 Core Competencies

The third factor that helps define a business strategy is an understanding of the company’s
strengths. These are called core competencies. In order to formulate a long-term plan, the
company’s managers must know the competencies of their organization. Core competencies
could include special skills of workers, such as expertise in providing customized services or
knowledge of information technology. Another example might be flexible facilities that can
handle the production of a wide array of products. To be successful, a company must compete in
markets where its core competencies will have value.

Highly successful firms develop a business strategy that takes advantage of their core
competencies or strengths. To see why it is important to use core competencies, think of a
student developing plans for a successful professional career. Let’s say that this student is
particularly good at mathematics but not as good in verbal communication and persuasion.
Taking advantage of core competencies would mean developing a career strategy in which the
student’s strengths could provide an advantage, such as engineering or computer science. On the
other hand, pursuing a career in marketing would place the student at a disadvantage because of
a relative lack of skills in persuasion. Increased global competition has driven many companies
to clearly identify their core competencies and outsource those activities considered noncore.
Outsourcing is when a company obtains goods or services from an outside provider. By
outsourcing noncore activities, a company can focus on its core competencies.

2.5 DEVELOPING AN OPERATIONS STRATEGY

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The organization strategy provides the overall direction for the organization. It is broad in scope,
covering the entire organization.

Operations strategy; The approach, consistent with the organization strategy, that is used to
guide the operations function. In order for operations strategy to be truly effective, it is important
to link it to organization strategy; that is, the two should not be formulated independently.
Rather, formulation of organization strategy should take into account the realities of operations’
strengths and weaknesses, capitalizing on strengths and dealing with weaknesses. Similarly,
operations strategy must be consistent with the overall strategy of the organization, and with the
other functional units of the organization.

Once a business strategy has been developed, an operations strategy must be formulated. This
will provide a plan for the design and management of the operations function in ways that
support the business strategy. The operations strategy relates the business strategy to the
operations function. It focuses on specific capabilities of the operation that give the company a
competitive edge. These capabilities are called competitive priorities. By excelling in one of
these capabilities, a company can become a winner in its market.

Companies must be competitive to sell their goods and services in the marketplace.
Competitiveness is an important factor in determining whether a company prospers, barely gets
by, or fails. Business organizations compete through some combination of price, delivery time,
and product or service differentiation.

Competitiveness is How effectively an organization meets the wants and needs of customers
relative to others that offer similar goods or services.

Marketing influences competitiveness in several ways, including identifying consumer wants and
needs, pricing, and advertising and promotion.

1. Identifying consumer wants and/or needs; is a basic input in an organization’s

decision-making process, and central to competitiveness. The ideal is to achieve a perfect
match between those wants and needs and the organization’s goods and/or services.
2. Price and quality; are key factors in consumer buying decisions. It is important to
understand the trade-off decision consumers make between price and quality.

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 3. Advertising and promotion; are ways organizations can inform potential customers
about features of their products or services, and attract buyers.

Operations has a major influence on competitiveness through product and service design, cost,
location, quality, response time, flexibility, inventory and supply chain management, and service.
Many of these are interrelated.

1. Product and service design should reflect joint efforts of many areas of the firm to
achieve a match between financial resources, operations capabilities, supply chain
capabilities, and consumer wants and needs. Special characteristics or features of a
product or service can be a key factor in consumer buying decisions. Other key factors
include innovation and the time-to-market for new products and services.
2. Cost of an organization’s output is a key variable that affects pricing decisions and
profits. Cost-reduction efforts are generally ongoing in business organizations.
Productivity is an important determinant of cost. Organizations with higher productivity
rates than their competitors have a competitive cost advantage. A company may
outsource a portion of its operation to achieve lower costs, higher productivity, or better
quality.
3. Location can be important in terms of cost and convenience for customers. Location near
inputs can result in lower input costs. Location near markets can result in lower
transportation costs and quicker delivery times. Convenient location is particularly
important in the retail sector.
4. Quality refers to materials, workmanship, design, and service. Consumers judge quality
in terms of how well they think a product or service will satisfy its intended purpose.
Customers are generally willing to pay more for a product or service if they perceive the
product or service has a higher quality than that of a competitor.
5. Quick response can be a competitive advantage. One way is quickly bringing new or
improved products or services to the market. Another is being able to quickly deliver
existing products and services to a customer after they are ordered, and still another is
quickly handling customer complaints.
6. Flexibility is the ability to respond to changes. Changes might relate to alterations in
design features of a product or service, or to the volume demanded by customers, or the

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 mix of products or services offered by an organization. High flexibility can be a
competitive advantage in a changeable environment.
7. Inventory management can be a competitive advantage by effectively matching
supplies of goods with demand.
8. Supply chain management involves coordinating internal and external operations
(buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout
the system.
9. Service might involve after-sale activities customers perceive as value-added, such as
delivery, setup, warranty work, and technical support. Or it might involve extra attention
while work is in progress, such as courtesy, keeping the customer informed, and attention
to details. Service quality can be a key differentiator; and it is one that is often
sustainable.
10. Managers and workers are the people at the heart and soul of an organization, and if
they are competent and motivated, they can provide a distinct competitive edge by their
skills and the ideas they create.
2.5.1 Competitive Priorities and Competitive Advantage

Operations managers must work closely with marketing in order to understand the competitive
situation in the company’s market before they can determine which competitive priorities are
important. Many firms strive for competitive advantage, but few truly understand what it is or
how to achieve and keep it. Competitive advantage can be viewed as any activity that creates
superior value above its rivals. The strongest competitive advantage is a strategy that can’t be
imitated by other companies. In general, a competitive advantage can be gained by offering the
customer a greater value than the competitors. The key to developing an effective operations
strategy lies in understanding how to create or add value for customers i.e. how to gain
competitive advantage. Specifically, competitive advantage can be gained (value can be added)
through the competitive priority (priorities that are selected to support a given strategy).
Generally, there are possible competitive priorities for process which fall in to four groups:

1. Cost: Competing based on cost means offering a product at a low price relative to the prices
of competing products. The need for this type of competition emerges from the business
strategy. The role of the operations strategy is to develop a plan for the use of resources to

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 support this type of competition. Note that a low-cost strategy can result in a higher profit
margin, even at a competitive price. Also, low cost does not imply low quality. To develop
this competitive priority, the operations function must focus primarily on cutting costs in the
system, such as costs of labor, materials, and facilities.

Companies that compete based on cost study their operations system carefully to eliminate all
waste. They might offer extra training to employees to maximize their productivity and minimize
scrap. Also, they might invest in automation in order to increase productivity. Generally,
companies that compete based on cost offer a narrow range of products and product features,
allow for little customization, and have an operations process that is designed to be as efficient as
possible.

2. Quality: Many companies claim that quality is their top priority, and many customers say
that they look for quality in the products they buy. Yet quality has a subjective meaning; it
depends on who is defining it. Quality is a major influence on customer satisfaction or
dissatisfaction Quality is defined differently depending on who is defining it Quality is
consistent conformance to customers’ expectations. For example, to one-person quality could
mean that the product lasts a long time. To another person quality might mean high
performance. When companies focus on quality as a competitive priority, they are focusing
on the dimensions of quality that are considered important by their customers.

Quality as a competitive priority has two dimensions. The first is high-performance design.
This means that the operations function will be designed to focus on aspects of quality such as
superior features, close tolerances, high durability, and excellent customer service. The second
dimension is goods and services consistency, which measures how often the goods or services
meet the exact design specifications. A company that competes on this dimension needs to
implement quality in every area of the organization.

a. Product Design Quality: which involves making sure the product meets the
requirements of the customer.
b. Process Quality: deals with designing a process to produce error-free products. This
includes focusing on equipment, workers, materials, and every other aspect of the
operation to make sure it works the way it is supposed to. Companies that compete based

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 on quality have to address both of these issues: the product must be designed to meet
customer needs, and the process must produce the product exactly as it is designed.
3. Time: Time or speed is one of the most important competitive priorities today. Companies
in all industries are competing to deliver high-quality products in as short a time as possible.

Companies like FedEx, Lens Crafters, United Parcel Service (UPS), and Dell compete based on
time. Today’s customers don’t want to wait, and companies that can meet their need for fast
service are becoming leaders in their industries.

Making time a competitive priority means competing based on all time-related issues, such as
rapid delivery and on-time delivery.

a. Rapid delivery: refers to how quickly an order is received;

b. On-time delivery: refers to the number of times deliveries are made on time.
When time is a competitive priority, the job of the operations function is to critically
analyze the system and combine or eliminate processes in order to save time. Often
companies use technology to speed up processes, rely on a flexible workforce to meet
peak demand periods, and eliminate unnecessary steps in the production process.
4. Flexibility As a company’s environment changes rapidly, including customer needs and
expectations, the ability to readily accommodate these changes can be a winning strategy.
This is flexibility.

There are two dimensions of flexibility. One is the ability to offer a wide variety of goods or
services and customize them to the unique needs of clients. This is called product flexibility. A
flexible system can quickly add new products that may be important to customers or easily drop
a product that is not doing well. Another aspect of flexibility is the ability to rapidly increase or
decrease the amount produced in order to accommodate changes in the demand. This is called
volume flexibility. Also, flexible companies typically do not compete based on cost, because it
may take more resources to customize the product. However, flexible companies often offer
greater customer service and can meet unique customer requirements. To carry out this strategy,
flexible companies tend to have more general-purpose equipment that can be used to make many
different kinds of products. Also, workers in flexible companies tend to have higher skill levels
and can often perform many different tasks in order to meet customer needs.

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2.5.2 The Need for Trade-Offs

You may be wondering why the operations function needs to give special focus to some
priorities but not all. Aren’t all the priorities important? As more resources are dedicated to one
priority, fewer resources are left for others.

The operations function must place emphasis on those priorities that directly support the business
strategy. Therefore, it needs to make trade-offs between the different priorities. For example,
consider a company that competes on using the highest quality component parts in its products.
Due to the high quality of parts, the company may not be able to offer the final product at the
lowest price. In this case, the company has made a trade-off between quality and price. Similarly,
a company that competes on making each product individually based on customer specifications
will likely not be able to compete on speed. Here, the trade-off has been made between flexibility
and speed.

It is important to know that every business must achieve a basic level of each of the priorities,
even though its primary focus is only on some. For example, even though a company is not
competing on low price, it still cannot offer its products at such a high price that customers
would not want to pay for them. Similarly, even though a company is not competing on time, it
still has to produce its product within a reasonable amount of time; otherwise, customers will not
be willing to wait for it. One way that large facilities with multiple products can address the issue
of trade-offs is using the concept of plant-within-a-plant (PWP), introduced by well-known
Harvard professor Wickham Skinner. The PWP concept suggests that different areas of a facility
be dedicated to different products with different competitive priorities. These areas should be
physically separated from one another and should even have their own separate workforce. As
the term suggests, there are multiple plants within one plant, allowing a company to produce
different products that compete on different priorities. For example, hospitals use PWP to
achieve specialization or focus in a particular area, such as the cardiac unit, oncology, radiology,
surgery, or pharmacy. Similarly, department stores use PWP to isolate departments, such as the
Sears auto service department versus its optometry center.

2.5.3 Order winners and qualifiers

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The terms ‘order winner’ and ‘order qualifier’ were coined by Terry Hill, professor at the
London business school, and refers to the process of how internal operational capabilities are
converted to criteria that may lead to competitive advantage and market success. Hill
emphasized the interactions and co-operations between operations and marketing. The operations
people are responsible for providing the order winning and order qualifying criteria-identified by
marketing – that enables products to win orders in the market place.

This process starts with the cooperatives strategy and ends with the criteria that either keeps the
company in the running (i.e. order qualifier) or wins the customers business. Terry Hill has
coined the terms order winner and qualifies to describe marketing-oriented priorities that are key
to competitive success:

 An order qualifier is a screening criterion that permits a firm’s products to even be

considered as possible candidates for purchase. In short, order qualifier can be defined
as the minimum elements or characteristics that a firm or its products must have in order
to even be considered as a potential supplier or source.
 An order winner is a criterion that differentiates the products or services of one firm
from another. In general, order winner is a characteristic of a firm that distinguishes it
from its competition so that it is selected as the source of purchase.

In net shell, an order winner is a characteristic that will win the bid or customers purchase.
Therefore, customers must provide the qualifiers in order to get in to or stay in a market. To
provide qualifiers they need only to be as good as their competitors. Failure to do so may results
in los of sales. However, to provide order winners, firms must be better than their competitors.

It is important to remember that the order winning and order qualifying criteria may change over
time. Order winner and order qualifiers are both market specific and time specific. They work in
different combination in different ways in different markets and with different customers. While,
some general trends exist across the markets, these may not be stable over time. For example, in
the late 1990s, delivery speed and product customization were frequent order winner while
product quality and price, which previously were frequent order winners, tend to be order
qualifiers. Hence, firms need to develop different strategies to support different marketing needs
and this strategy will change over time. When a firm’s perception of order winners and qualifiers
matches the customer’s perception of the same, there exists “FIT” between the two perspectives.

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When a fit exists, one would expect a positive sales performance and this is the reason for having
a strategy.

When very few firms offer specific characteristics, such as high quality, customization, or
outstanding services that characteristics can be defined as an order winner. However, over time
as more and more firms begin that same enhancement, the order winner becomes an order
qualifier. In other words, it becomes the minimum acceptable level for all competitors. As a
result, the customer uses some other enhancement or characteristics to make the final purchase.

In Europe, for example, the vast majority of companies today require that their vendors be ISO-
9000 certified. (This certification ensures that a firm has documented all of its processes). Thus,
ISO-9000 certification is an order qualifier in Europe. In contrast, most companies in the united
states at this time are not ISO-9000 certified. As a consequence, ISO-9000 certified company in
the united states uses their certification as an order winner i.e. ISOO-9000 distinguishes them as
being better than their competition.

From the manufacturing future survey, it would appear that in general, conformance quality, on
time delivery, and product reliability are now order winners for most large manufacturers. Low
price is emerging as the order winner.

2.5.4 Translating Competitive Priorities into Production Requirements

Operations strategy makes the needs of the business strategy specific to the operations function
by focusing on the right competitive priorities. Once the competitive priorities have been
identified, a plan is developed to support those priorities. The operations strategy will specify the
design and use of the organization’s resources; that is, it will set forth specific operations
requirements. These can be broken down into two categories.

a. Structure: Operations decisions related to the design of the production process, such as
characteristics of facilities used, selection of appropriate technology, and flow of goods
and services through the facility.
b. Infrastructure: Operations decisions related to the planning and control systems of the
operation, such as organization of the operations function, skills and pay of workers,
and quality control approaches. Together, the structure and infrastructure of the
production process determine the nature of the company’s operations function.

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The structure and infrastructure of the production process must be aligned to enable the company
to pursue its long-term plan.

2.6 STRATEGIC ROLE OF TECHNOLOGY

Over the last decade we have seen an unprecedented growth in technological capability.
Technology has enabled companies to share real-time information across the globe, to improve
the speed and quality of their processes, and to design products in innovative ways. Companies
can use technology to help them gain an advantage over their competitors.

For this reason, technology has become a critical factor for companies in achieving a competitive
advantage. In fact, studies have shown that companies that invest in new technologies tend to
improve their financial position over those that do not. However, the technologies a company
acquires should not be decided on randomly, such as following the latest fad or industry trend.
Rather, the selected technology needs to support the organization’s competitive priorities. Also,
technology needs to be selected to enhance the company’s core competencies and add to its
competitive advantage.

2.6.1 Types of Technologies

There are three primary types of technologies. They are differentiated based on their application,
but all three areas of technology are important to operations managers.

a. Product technology: which is any new technology developed by a firm. An example of this
would include Teflon, the material used in no-stick fry pans. Teflon became an emerging
technology in the 1970s and is currently used in numerous applications. Other examples
include CDs and flat-screened monitors. Product technology is important as companies must
regularly update their processes to produce the latest types of products.
b. Process technology: is the technology used to improve the process of creating goods and
services. Examples of this would include computer aided design (CAD) and computer-aided
manufacturing (CAM). These are technologies that use computers to assist engineers in the
way they design and manufacture products. Process technologies are important to companies,
as they enable tasks to be accomplished more efficiently.
c. Information technology: enables communication, processing, and storage of information. IT
has grown rapidly over recent years and has had a profound impact on business. Just consider

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 the changes that have occurred due to the Internet. The Internet has enabled electronic
commerce and the creation of the virtual marketplace and has linked customers and buyers.
Another example of IT is enterprise resource planning (ERP), which functions via large
software programs used for planning and coordinating all resources throughout the entire
enterprise. ERP systems have enabled companies to reduce costs and improve responsiveness
but are highly expensive to purchase and implement. Consequently, as with any technology,
investment in ERP needs to be a strategic decision.
2.6.2 Technology as a Tool for Competitive Advantage

Technology can be acquired to improve processes and maintain up-to-date standards.

Technology can also be used to gain a competitive advantage. For example, by acquiring
technology a company can improve quality, reduce costs, and improve product delivery. This can
provide an advantage over the competition and help gain market share. However, investing in
technology can be costly and entails risks, such as overestimating the benefits of the technology
or incurring the risk of obsolescence due to rapid new inventions.

Technology should be acquired to support the company’s chosen competitive priorities, not just
to follow the latest market fad. Also, technology may require the company to rethink its strategy.
For example, when the Internet became available, it was generally assumed that it would replace
traditional ways of doing business. This has not turned out to be the case. In fact, for many
companies the Internet has enhanced traditional methods. Physical activities such as shipping,
warehousing, transportation, and even physical contact must still be performed. As you can see,
acquiring technology is an important strategic decision for companies. Operations managers
must consider many factors when making a purchase decision.

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