CHAPTER TWO

OPERATIONS STRATEGY AND COMPETITIVENESS

2.1 What is strategy?

Strategy is a plan for achieving organizational goals. If you think of goals as destinations, then
strategies are the roadmaps for reaching destinations. Organizations have over all strategies
called organizational strategies, which relate to entire organization. Functional strategies are
strategies related to functional areas of the organization. Functional strategies should support the
overall strategies of the organization, just as organizational strategies should support the goal and
mission of the organization.

2.2 Levels of Strategy

Strategy can be seen as to exist three major levels within the organizations. At the highest or
corporate level the strategy provides very general long-range guidance for the whole
organizations often expressed as a statement of its mission. The mission statement describes in a
general terms what key decision maker want the company to accomplish and what kind of
company they want it’s to become. Thus, the mission focuses the organization on specific market
area and the basis on which it must compete. Corporate strategy is the set of decisions that
answer the questions, what business are we in?

The second level of strategy is termed as a business strategy, which is the set of decisions that
answers the question, how will we compete in this business?

According to porter three types of business strategies;

 Low-cost strategy: focus on producing the lowest cost products.

The third level of the strategy is operation strategy. The organization strategy provides the
overall direction for the organization. It is broad in scope, covering the entire organization.
Operations strategy is narrower in scope, dealing primarily with the operations aspect of the
organization. Operations strategy relates to products, processes, methods, operating resources,

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quality, costs, lead times, and scheduling. Operation strategy refers to how the operation
management function contributes to a firm ability to achieve its competitive advantage in that
marketplace. Operation strategy can be divided in to two major categories.

 Structural elements: consists of facility location, choice of process and strategy in nature.
 Infrastructure element: consist of the workforce (in terms of size and skill), quality issue,
planning and control.

Any business strategy needs to be translated downward in to operations strategy. Operation

Order winners and qualifiers

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. In his writings,
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 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.

*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.

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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.
When a fit exist 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
state at this time are not ISO-9000 certified. As a consequence ISO-9000 certified company in
the united state 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.

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2.3 Competitive advantage

Many firms strive for competitive advantage, but few truly understand what it is or how to
achieve and keep it. Competitiveness refers to how effectively an organization meets the needs
of customers relative to others that offer similar goods and services.

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 8 possible competitive priorities for process
which fall in to four groups:

1. Cost: With in every industry, there is usually a segment of the market that buys strictly on
the basis of low cost. To successfully compete in niche market, firm must necessarily, be the
low cost producers and even doing this does not always guarantee profitability and success.
Products sold strictly on the basis of cost includes commodity like flour, petroleum, sugar
etc. In other words, customers can’t easily distinguish the products made by one firm from
those of another. As a result customers use cost as the primary determinant in making a
purchase. To compete based on cost, operations managers must address labor, materials,
scrap, overhead and other cost to design a system that lower the cost per units of the product
or service. Low cost operation /make it cheap is thus, one of the competitive priority.
2. Quality: quality is a dimension of a product or services that is defined by the customer.
Today, more than ever, quality has important implications. As for operations, two
competitive priorities deal with quality.
 High performance design: - is determination of the level of operations performance
required in making a products or performing a services. This may include:
*superior features, close tolerance, and greater durability.
* Helpfulness, courteousness and availability of service employees.
* Convenience of access to service locations
*Safety of product or service.

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  Consistent quality: measurement of the frequency with which the product or service
meets design specifications. Customers wants product or service that consistently meets
the specifications they contracted for, have come to expect or saw advertised. For
example, bank customers expect that the bank will not make errors when recording
transactions. To compete on the basis of consistent quality, managers need to design and
monitor operations to reduce errors. A firm that does not have consistent quality does
not last long in a competitive global market place.
3. Time: As the saying goes,” time is money”. Three competitive priorities deals with time
include:
 Fast delivery time (delivery speed): is the elapsed time between the customer’s order and
filling it. An acceptable delivery time depends on the nature of the products. For
example an acceptable lead time can be a year for a complex customized machine,
several weeks for scheduling elective surgery and minutes for ambulance. Manufacturers
can shorten delivery time by storing inventory or by having excess capacity.
 On time delivery: measurement of the frequency with which delivery time promises is
met.
 Development speed: measures how quickly a new product or service is introduced,
covering the elapsed time from idea generation through final design and production.
Development speed is especially important in the fashion apparel industry.
4. Flexibility: flexibility is a characteristic of a firm’s operations that enables it to react to
customer needs quickly and efficiently. Some firms give top priority to two types of
flexibility: customization and volume flexibility.
 Customization: is the ability to satisfy the unique needs of each customer by
changing product or service design. For example, a hairdresser works with the
customer to design a hair style that may be unique to the individual. Customization
typically implies that the operating system must be flexible to handle specific
customer needs and changes in design.
 Volume flexibility: is the ability to accelerate or decelerate the rate of production
quickly to handle large fluctuations in demand. Volume flexibility is an important
operating capability that often supports the achievement of other competitive
priorities.