Operman

OPERMAN
OPERATIONS STRATEGY
• Any change in strategic direction typically has significant
consequences for the entire value chain and for operations.
• Over the past two decades, the transformation to a digital society
has caused many companies to redefine their strategy. Some had to
completely reinvent themselves.
• For Example: The demise of film cameras caused Kodak to change
to digital cameras. However, with stiff competition from Sony,
Samsung, and others, Kodak ended up filling for bankcruptcy
protection and has changed its strategy to focus on large commercial
inkjet printers, digital printing presses, workflow software, and
package printing.
• Likewise, Xerox, long known for its paper copy machines, has
reinvented itself and branched out into new but risky business
services, including commercial information technology, document
outsourcing, finance, human resources (HR), transportation, and
health care.
• Changing a corporate strategy has many implications for operations
and the entire value chain.
2-1 Gaining Competitive Advantage
Competitive advantage denotes a firm's ability to achieve market
and financial superiority over its competitors.
In the long run, a sustainable competitive advantage provides
above-average performance and is essential to the survival of the
business. Creating a competitive advantage requires a fundamental
understanding of two things.
1. Management must understand customer needs and
expectations
2. Management must build and leverage operational capabilities
to support desired competitive priorities.
Although it may be difficult to change the structure of the value
chain, operations manager have considerable freedom in determining
what components of the value chain to emphasize, in selecting
technology and processes, in making human resource policy choices,
and in making other relevant decisions to support the firm's strategic
emphasis.
2-2 Understanding Customer Wants and Needs

The fundamental purpose of an organization is to provide
goods and services of value to customer, it is important to first
undertand customer desires and also to understand how customers
evaluate goods and services.
To correctly identify what customers expect requires being
"close to the customer."
• Having employees visit and talk to customers, Managers talk to
customers, and doing formal marketing research
Basic customer expectations are generally considered the
minimum performance level required to stay in business and are often
called order qualifiers.
Oder winners are goods and service features and performance
characteristics that differentiate one customer benefit package from
another and win the customer's business.
2-3 Evaluating Goods and Services

Three types of attributes 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.
Example: color, price, freshness, style, fit, feel, hardness, and smell.
2. Experience attributes are those that can be discerned only after
purchase or during consumption or use.
Example: friendliness, taste, wearability, safety, fun, and customer
satisfaction.
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.
Example: expertise of a surgeon or mechanic, the knowledge of a
tax advisor, or the accuracy of tax preparation software.
Exhibit 2.1 (Picture)
> Customers seek and rely more on information from personal

sources than from non-personal sources when evaluating services
prior to purchase. Operations must ensure that accurate information
is available and that experiences with prior services and service
providers result in positive experiences and customer satisfaction.
> Customers percieve greater risks when buying services than when
buying goods. Because services are intangible, customers cannot
look at or touch them prior to the purchase decision. They experience
the service only when they actually go through the process. This is
why many are hesitany to use online banking or bill paying.
Dissatisfaction with services is often the result of customers' inability
to properly perform or coproduce their part of the service.
• A wrong order placed on the internet can be the result of customer
error despite all efforts on the part of the company to provide clear
instructions.
• The design of services must be sensitive to the need to educate
customers on their role in the service process
"General Electric discovered that design determines 75 percent of its
manufacturing costs."
2-4 Competive Priorities

Competitive priorities represents the strategic emphasis that a firm
places on certain performance measures and operational capabilities
within a value chain.
In general, organizations can compete on five key competitive
priorities:
1. Cost
2. Quality
3. Time
4. Flexibility
5. Innovation
Cost
Low cost can result from high productivity and high-capacity
utilization. More important, improvements in quality lead to
improvements in productivity, which in turn lead to lower costs. Thus,
a strategy of continuous improvement is essential to achieve a low-
cost competitive advantage.
Quality
The role of quality in achieving competitive advantage was
demonstrated by several research studies. Researchers have found
that:
> Business offering premium-quality goods usually have large market
shares and were early entrants into their markets.
> Quality is positively and significantly related to a higher return on
investment for almost all kinds of market situations.
> A strategy of quality improvement usually leads to increased market
share, but at a cost in terms of reduced short-run profitability.
> Producers of high-quality goods can usually charge premium prices.
Exhibit 2.2 (picture)
Operations managers deal with quality issues on a daily basis;
these include ensuring that goods are produced defect-free or that
service is delivered flawlessly. In the long run, it is the design of
goods and service processes that ultimately defines the quality of
outputs and outcomes.
" Time reductions often drive simultaneous improvements in quality,
cost, and productivity. "
Time
In today's society, Time is perhaps the most important source of
competitive advantage. Customers demand quick response, short
waiting times, and consistency in performance.
Flexibility
Flexibility is manifest in mass-customization strategies that are
becoming increasingly prevalent today
Mass customization is being able to market whatever goods and
servicesbthe customer wants, at any volume, at any time for anybody,
and for a global organization, from any place in the world.
Mass Customization requires companies to align their activities
around differentiated customer segments and design goods, services,
and operations around flexibility.
Some examples include Sign-tic company signs; business
consulting; Levi's jeans that are cut to exact measurements; personal
Web pages; estate planning; etc.
Innovation
Innovation is the discovery and practical application or
commercialization of a device, method, or idea that differs from
existing norms.
Over the years, innovations
Innovation
Innovation is the discovery and practical application or
commercialization of a device, method, or idea that differs from
existing norms.
Over the years, innovations in goods and services have improved
the overall quality of life. Within business organizations, innovations in
manufacturing equipment and management practices have allowed
organizations to become more efficient and better meet customers'
needs.
Om and Strategic Planning

Strategy is a pattern or plan that integrates an organization's
major goals, policies, and action sequences into a cohesive whole.
Core competencies are the strengths that are unique to that
organization.
Strategic planning is the process of determining the long-term
goals, policies, and plans for an organization.
The objective of strategic planning is to build a position that is so
strong in selected ways that the organization can achieve its goals
despite unforseeable external forces that may arise.
Strategy is the result of a series of hierarchical decisions about
goals, directions, and resources; thus most large organizations have
three levels of strategy:
At the top level, corporate strategy is necessary to define the
businesses in which the corporation will participate and develop plans
for the acquisition and allocation of resources among those
businesses.
The businesses in which the firm will participate are often called
strategic business units (SBUs) and are usually defined as families of
goods or services having similar characteristics or methods of
creation.
The second level of strategy is generally called business
strategy and defines the focus for SBUs.
Finally; the third level of strategy is functional strategy, the
means by which business strategies are accomplished. A functional
strategy is the set of decisions that each functional area develops to
support its particular business strategy.
Example 2.1 (picture)
Operational Strategy
An operations strategy is the set of decisions across the value
chain that supports the implementation of higher-level business
strategies.
-It defines how an organization will executes its chosen
business strategies.
For example: Progressive automobile insurance has developed a

competitive advantage around superior customer service. To
accomplish this, its operating decisions have included on-the-spot
claims processing at accident sites.
To illustrate how operations strategy can support competitive

priorities, consider two types of business strategies for a
manufacturer:
1. Produce a well-defined set of products in a fairly stable market
environment as a low-cost leader
2. Provide high product variety and customization in a turbalent
market that requires innovative designs to meet customer-specific
requirements.
How operations are designed and implemented can have a dramatic

effect on business performance and achievement of the strategy.
Therefore, operations require close coordination with functional
strategies in other areas of firm such as marketing and finance.
Sustainability and Operations Strategy

Sustainability is an organizational strategy--it is broder than a
competitive priority.
Sustainability is defined in previous chapters using three
dimensions---environmental, social, and economic sustainability.
Stakeholders such as the community, green advocacy groups, and

the government drive environmental sustainability.
Social sustainability is driven by ethics and human ideals of

protecting the planet and its people for the well-being of future
generations.
Economic sustainability is driven by shareholders such as pension

funds, and insurance companies.

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OPERMAN

2-2 Understanding Customer Wants and Needs

2-3 Evaluating Goods and Services

> Customers seek and rely more on information from personal

2-4 Competive Priorities

Om and Strategic Planning

For example: Progressive automobile insurance has developed a

To illustrate how operations strategy can support competitive

How operations are designed and implemented can have a dramatic

Sustainability and Operations Strategy

Stakeholders such as the community, green advocacy groups, and

Social sustainability is driven by ethics and human ideals of

Economic sustainability is driven by shareholders such as pension

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