Chap4

OMOperations Strategy

4

COLLIER/EVANS

5

Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part.

LEARNING OUTCOMES

2Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5 | CH4

1 Explain how organizations seek to gaincompetitive advantage

2 Explain approaches for understanding customer wants and needs

3 Describe how customers evaluate goods and services


LEARNING OUTCOMES (continued)

4 Explain the five key competitive priorities

5 Explain the role of OM, sustainability, and operations in strategic planning

6 Describe Hill’s framework for operations strategy


Competitive Advantage

• Firm’s ability to achieve market and financial superiority over its competitors• Requires:

- Understanding customer needs and expectations

- Building and leveraging operational capabilities to support desired competitive priorities


Understanding Customer Wants and Needs

• Customers are categorized into various segments based on their needs and wants• By understanding the unique needs of each

segment, a company can design:- Appropriate customer benefit packages- Competitive strategies- Processes to create goods and services

• Order qualifiers: Basic customer expectations for the minimum performance level required to stay in business


Understanding Customer Wants and Needs

• Order winners: Goods and service features and performance characteristics that differentiate one customer benefit package from another and win the customer’s business


Evaluating Goods and Services

• Aspects of a good or service that a customer can determine prior to purchase

Search attributes

• Aspects of a good or service that can be discerned only after purchase or during consumption or use

Experience attributes

• Aspects of a good or service that the customer believes in and cannot be discerned even after purchase and consumption

Credence attributes

8Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5| CH4

Exhibit

4.1 How Customers Evaluate Goods and Services


Competitive Priorities

• Strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain• Types

- Cost- Quality- Time- Flexibility- Innovation


Cost

• Each industry has a low price market segment

• Low cost results from: • High productivity• High capacity utilization• Economies of scale

• Continuous improvement is essential to achieve a low-cost competitive advantage


Quality

• Businesses offering premium quality goods have large market shares and were early entrants into the markets

• Positively and significantly related to a higher return on investment for all kinds of market situations


Quality

• Strategy of quality improvement leads to increased market share

• High goods quality producers can charge premium prices


Exhibit

4.2 Interlinking Quality and Profitability Performance


Time

• Important source of competitive advantage• Customers demand quick response, short

waiting times, and consistency in performance

• Speeding up work processes improves customer response

• Deliveries can be made faster and on-time


Time

• Reductions: • Accomplished only by streamlining and

simplifying processes and value chains - To eliminate non-value-added steps such as

rework and waiting time• Drive improvements in quality, cost, and

productivity


Flexibility

• Success in global markets requires design and demand flexibility

• Visible in mass customization strategies• Mass customization: Ability to make goods and

services that the customer requires at any:- Volume- Time for anybody, and for a global

organization- Place in the world


Innovation

• Discovery and practical application or commercialization of a device, method, or idea that differs from existing norms• Innovative companies focus on:

- Outstanding product research, design, and development

- High product quality- Ability to modify production facilities to

produce new products frequently


OM and Strategic Planning

• Strategy: Pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole• Direction an organization takes and the

competitive priorities it chooses are driven by its strategy- Effective strategies to develop key competitive

priorities▸ Low cost or fast service time▸ Exploit an organization’s core competencies


Strategic Planning

• Process of determining long-term goals, policies, and plans for an organization• Objective - Build a strong position for the

organization to achieve its goals despite unforeseen external forces


Levels of Strategy

• Corporate strategy - Businesses in which the corporation will participate and develop plans for the acquisition and allocation of resources among those businesses• These businesses in which the firm participates

are called strategic business units (SBUs)


Levels of Strategy

• Business strategy - Defines the focus for SBUs• Major decisions involves:

- Pursuing the target markets- Best way to compete in target markets

• Functional strategy - Set of decisions that each functional area develops to support its particular business strategy


Levels of Strategy

• Organization will decide on the execution of its chosen business strategies• Development - Translating competitive priorities

into operational capabilities - By making variety of choices and trade-offs for

design and operating decisions


Sustainability

• Organizational strategy in many firms• Dimensions• Environmental• Social• Economic

• Requires major changes in the culture of an organization


A Framework for Operations Strategy

• Operations design choices: Management decisions taken for the appropriate type of process structure to be adopted while producing goods or creating services• Key areas it addresses

- Types of processes- Value chain integration and outsourcing- Technology, capacity and facilities - Inventory and service capacity- Trade-offs


A Framework for Operations Strategy

• Infrastructure: Focuses on the non-process features and capabilities of the organization• Workforce• Operating plans and control systems• Quality control• Organizational structure• Compensation systems• Learning and innovation systems• Support services


Exhibit

4.3 Hill’s Strategy Development Framework


Exhibit

4.4 Four Key Decision Loops in Terry Hill’s Generic Strategy Framework


Operations Strategy at McDonald’s

• Vision - World's best quick service restaurant experience • Worldwide strategies

- Be the best employer- Deliver operational excellence- Achieve enduring profitable growth



• Sustainability initiatives• Build a sustainable McDonald’s that involves all

facets of business• Commit to a three-pronged approach

- Reduce - Reuse- Recycle

• Strive to provide eco-friendly workplaces and restaurants



• Sustainability initiatives• Work with suppliers and outside experts to

continuously improve: - Purchasing decisions- Evaluation of supplier performance regarding

animal welfare


Exhibit

4.5 McDonald’s Customer Benefit Package

SUMMARY


• Competitive advantage is required to show the firm’s ability to achieve superiority over competitors

• Customers perceive greater risks when buying services than when buying goods

• Understanding competitive priorities provides basis for designing the process that create and deliver goods and services

SUMMARY


• When an organization takes a direction and the decisions on competitive priorities are driven by its strategy

• Framework for operations strategy is designed for goods-producing organization and to be applied to service-providing firms

KEY TERMS


• Competitive advantage• Competitive priorities• Credence attributes• Experience attributes• Infrastructure• Innovation• Mass customization• Operations design choices• Operations strategy

KEY TERMS


• Order qualifiers• Order winners• Search attributes• Strategy

Chap4

Documents

Transcript of Chap4