CHAPTER 2

OPERATION
OPERATION
STRATEGY
 01
Learning Outcomes:
At the end of this chapter, students are expected to:

1. Explain how organizations gain competitive advantage

2. Explain approaches for understanding customer wants and needs.
3. Discuss the five key competitive dimensions.
4. Appreciate the importance of quality management in the operation
management
process.
5. Describe operation strategy in a global environment.
 Learning Content:
02 1. Operations Strategy Defined
2. Gaining Competitive Advantage
3. Understanding Customer Wants and Need
4. Evaluating Goods and Services
5. Strategic Operations Dimensions
6. Operation Strategy in a Global Environment
I – OPERATION
STRATEGY
DEFINED
 INTRODUCTION
Over the past two decades, the transformation to a
digital society hase caused many companies to
redefine their strategies. Some had to completely
reinvent themselves.
 OPERATIONS STRATEGY
- is a series of strategic decisions made by a company’s
management, and it defines the company’s operational structure and
production capabilities.

- It also refers to the system an organization implements to achieve

its long-term goals and mission. It involves decision based on
multiple factors, including product management, supply chain,
inventory, forecasting, scheduling, quality, and facilities planning and
management.
THREE LEVELS OF STRATEGY
Corporate Strategy
- is a long–term plan that outlines
clear goals for a company. The
ultimate purpose of a corporate
strategy is to improve the company.
Example:
Starbucks' corporate strategy is to inspire
and nurture the human spirit – one person,
one cup and one neighborhood at a time.

Starbucks also pursues a growth strategy

by opening new stores, entering new
markets, and developing new products
and formats
.
 Business Strategy
- is an organizational master plan. This plan is
what the management of the company
develops and implements to achieve their
strategic goals
Example:
To offer high-quality coffee and a unique customer experience, based on its
core values of quality, service, community, and responsibility.

Starbucks also uses a differentiation strategy by creating its own coffee

blends, roasts, and flavors, as well as by offering personalized and
customized options for customers.

Starbucks also leverages its loyalty program and mobile app to increase
customer engagement and convenience.
Functional Strategy
- strategy refers to a business
strategy that focuses on the action
plans by a particular functional
area in order to achieve the set
business objectives.
Example:
Starbucks' coffee operations strategy is to optimize its
sourcing, roasting, and distribution processes to ensure the
freshness and consistency of its coffee products.

Starbucks uses ethical and sustainable practices to procure its

coffee beans from farmers around the world.

Starbucks also operates its own roasting plants and

distribution centers to control the quality and supply of its
coffee.

Starbucks also invests in technology and innovation to improve

its operations efficiency and effectiveness.
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.
In this first situation, the firm would be best served by:
• emphasizing quality and cost reduction in their make to-stock
strategy.

This would require a:

• well-balanced, synchronized supply chain approach with strong
supplier involvement, efficient assembly line final assembly
processes, and
• high work standardization.
• Some equipment and processes might be dedicated to a
particular product line or family of products.
• In this case, a highly efficient manufacturing system is needed
2. Provide high product variety and customization in a turbulent market
that requires innovative designs to meet customer-specific
requirements.

In this second situation, the firm would need to be able to :

Operate at different levels of production volume while also achieving
high quality and flexibility.
• An operations strategy based on mass customization would be
appropriate.
• Product design would require constant innovation and shorter
development cycles.
• Operations would need to be highly flexible in a make-to-order
environment, producing batches of unique, customer-specified
orders in low to moderate volumes, and using employees with
high skill levels and diverse capabilities.
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 the firm such as
marketing and finance.
II – GAINING
COMPETITIVE
ADVANTAGE
 COMPETITIVENESS
04
- means how effectively an organization
meets the wants and needs of customers
relative to others that offer similar goods and
services..
 COMPETITIVE ADVANTAGE
- a firm’s ability to achieve market and financial
superiority over its competitors.
- It also refers to the specific edge or benefit that a
company has over its rivals that makes it more
attractive or valuable to customers or stakeholders.
Competitive Advantage requires a fundamental
understanding of two things:
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.
 VALUE CHAIN
- is a network of facilities and processes that describes the
flow of materials, finished goods, services, information, and
financial transactions from suppliers, through the facilities
and processes that create goods and services, and those that
deliver them to the customer.

All major functions in an organization, not only operations

but also:
purchasing, marketing, sales, human resource management,
finance and accounting, information systems and technology,
distribution and support services.
Competitive Advantage requires a fundamental
understanding of two things:
2. Management must build and leverage
operational capabilities to support desired
competitive priorities.

Every organization has a myriad of choices on

deciding where to focus its efforts -
for example:on LOW COST, HIGH QUALITY,QUICK
RESPONSE, FLEXIBILITY CUSTOMIZATION
III – UNDERSTANDING
CUSTOMER NEEDS AND
WANTS
 MARKET SEGMENTATION
- dividing the market into distinct groups that might
require separate products and/or marketing mixes
such as: GEOGRAPHICAL, DEMOGRAPHIC,
PSYCHOGRAPHIC, BEHAVIORAL.
WHY SEGMENT?
• cannot satisfy ALL customers with the same
goods and services.

• understanding the differences of each segment

allows a company to design the most appropriate
customer benefit packages, competitive strategies
and processes to create the goods and services to
meet the unique needs of each segment.
 HOW TO IDENTIFY CUSTOMER EXPECTATION
Requires being Requires being “close” to the customers:
• Having employees visit and talk to customers
• Having managers talk to customers.
• Doing formal marketing research.
- focus groups
- salesperson and employee feedback
- complaint analysis
-on-the-spot interviews with customers
-videotaped service encounter
-mystery shoppers
-telephone hotlines
- Internet monitoring
-customer service
IV – EVALUATING
GOODS AND SERVICES
- Research suggests that customers use three
attributes in evaluating the quality of goods and
services such as search, experience, and credence.

- Search attributes are those that a customer can

determine prior to purchasing the goods and/or
service.

- These attributes include things like color, price,

freshness, style, fit, feel, hardness, and smell.
Experience Attribute
- are those that can be discerned only after
purchase or during consumption or us.

Examples are: friendliness, taste, wearability,

safety, fun and customer satisfaction.
Credence attributes
- are any aspects of a good or service that customers
must believe in but cannot personally evaluate even
after purchase or consumption.

Examples include the expertise of a surgeon or

mechanic, the knowledge of a tax advisor, or the
accuracy of tax preparation software.
Search and experience attributes should be evaluated
during design, measured during manufacturing, and
drive key operational controls to ensure that they are
build into the good with high quality.

Credence attributes stem from the nature of services,

the design of service system, and the training and
expertise of the service providers.
V – STRATEGIC
OPERATIONS
DIMENSION
A strategic plan outlines aligning a company’s operational
activities with its overarching business goals.

It’s about ensuring that every department, team, and

individual within an organization works cohesively toward
the same objectives. Unlike day-to-day operational tasks,
this strategy focuses on long-term goals, sustainability,
and growth.
FIVE COMPETITIVE PRIORITIES
1. Cost
2. Time
3. Flexibility
4. Innovation
5. Quality
1. COST
—This is one of the most basic core competencies.
In order to compete on a price basis, the firm must be
able to produce the product at a lesser cost or be
willing to accept a smaller profit margin.
.
2. TIME
—Organizations focus on the timely delivery of
products to get an edge over their competitors.
Time acts as the most crucial strategic tool adopted
by an organization to achieve a competitive
edge in the market.
3. FLEXIBILITY
—It refers to the capability of an organization to
respond to changes in situations with respect to
product improvement and innovation. Nowadays
customers prefer to purchase more customised
products. Organisations that are able to provide
customised products get a competitive advantage
in the market.
4. INNOVATION
— is the discovery and practical application or
commercialization of a device, method,
or idea that differs from existing norms.
Innovation can create value for customers in lots of different
ways, including making a product
or service cheaper, quicker or more convenient, functional,
reliable or durable, or perhaps better
designed.
5. QUALITY
— The main aim of an organization is to achieve a
high level of customer satisfaction by
providing high-quality goods and services. Quality
is all about reducing the number of defects in
products or meeting the specified value standards
of an organization.
DAVID GARVIN EIGHT
DIMENSIONS OF QUALITY:
1. Performance
2. Conformance
3. Features
4. Durability
5. Reliability
6. Serviceability
7. Aesthetics.
8. Perceived Quality
1. PERFORMANCE
-refers to a product’s primary operating
characteristics.

2. CONFORMANCE
- the degree to which a product’s design and
operating characteristics meet
predetermined standards
3. FEATURES
-are the bells and whistles of a product or service. In other
words, characteristics
that supplement the basic function of the product or
service.
4. DURABILITY
- is defined as the mean time until replacement. In other
words, how long does
the product last before it is worn out or has to be replaced
because repair is impossible?
5. RELIABILITY
-refers to a product’s mean time until failure or between
failures. In other words, the time until a product breaks
down and has to be repaired, but not replaced.

6. SERVICEABILITY
-is defined by speed, courtesy, competence, and ease of
repair. This can be an extremely important characteristic
as witnessed by the proliferation of toll-free hotlines for
customer service.
7. AESTHETICS
- a product’s looks, feel, smell, sound, or taste are its
aesthetic qualities.

8. PERCEIVED QUALITY
- is usually inferred from various tangible and intangible
aspects of the product.
VI – OPERATIONS
STRATEGY IN GLOBAL
ENVIRONMENT
Globalization refers to growth of trade and investment,
accompanied by the growth in
international businesses, and the integration of economies
around the world. According
to Punnett the globalization concept is based on a number of
relatively simple premises:
● Technological developments have increased the ease and
speed of international
communication and travel.
● Increased communication and travel have made the world
smaller.
● A smaller world means that people are more aware of events
outside of their
home country and are more likely to travel to other countries.
● Increased awareness and travel result in a better
understanding of foreign
opportunities.
● A better understanding of opportunities leads to increases in
international trade
and investment, and the number of businesses operating across
national
borders.
● These increases mean that the economies and financial
markets around the
world are more closely integrated.
FOUR INTERNATIONAL
OPERATIONS STRATEGIES:
1. Global Strategy
2. Transnational Strategy
3. International Strategy
4. Multidomestic Strategy
FOUR INTERNATIONAL
OPERATIONS STRATEGIES:
1. Global Strategy
2. Transnational Strategy
3. International Strategy
4. Multidomestic Strategy
GLOBAL STRATEGY
- is a strategy that a company develops to expand into the
global market. The purpose of developing a global
strategy is to increase sales across the world. The term
"global strategy" includes standardization, and
international and multinational strategies.
-Standardized product ;
-Economies of scale ;
-Cross-cultural learning
Examples: Texas Instruments, Caterpillar, Otis Elevator
TRANSNATIONAL STRATEGY
-refers to a plan of action defined by a company that
conducts its
operations across global borders. This is one example of a
strategy used by a multinational
corporation to appeal to both local markets and
international markets.
-Move material, people, ideas across national boundaries ;
-Economies of scale ;
-Cross-cultural learning
Examples: Coca-Cola, Nestlé
INTERNATIONAL STRATEGY
-is an approach with low levels of global integration and
local reactivity.
In terms of organizing the business units, it means that the
company centralizes all information,
authority, and decision-making for international markets
at the headquarters.
- Import/export or license existing product
Examples U.S. Steel, Harley Davidson
MULTIDOMESTIC STRATEGY
- A strategy that enables individual subsidiaries of a
multinational firm to compete independently in different
domestic markets. The multinational headquarters
coordinates financial controls and some marketing policy,
and may centralize some R&D and component production.
- Use existing domestic model globally ;
- Franchise, joint ventures, subsidiaries
Examples: Heinz, The Body Shop, McDonald’s, Hard Rock
Cafe
Thank You
Very Much