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Amity Business School Operational Competitiveness Strategy 1
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1 Competitiveness Strategy

Apr 08, 2015

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Cvangi Malhotra
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Page 1: 1 Competitiveness Strategy

Amity Business School

Operational Competitiveness

Strategy

1

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Amity Business School

Operational Competitiveness

Strategy

• Strategy can be defined as follows:

‘Strategy is the direction and scope of an

organisation over the long term: ideally, which

matches its resources to its changing

environment, and in particular its markets,

customers or clients so as to meet

stakeholder expectations.’2

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Operational Competitiveness

Strategy

• Strategy can be seen to exist at 3 main levels of corporate,

business and functional:

– Corporate level Strategy

• At the highest or corporate level the strategy provides long-range

guidance for the whole organisation

– Business Level Strategy

• Here the concern is with the products and services that should

be offered in the market defined at the corporate level

– Functional Level Strategy

• This is where the functions of the business (e.g. operations,

marketing, finance) make long-range plans which support the

competitive advantage being pursued by the business strategy.3

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Four Stages of Judging Operations’ Contribution to Strategy

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The stages are described as follows:

• Stage 1 Internal Neutrality

Here the operations function has very little to contribute to competitive success and is seen as a barrier to better competitive performance by other functions.

• Stage 2 External Neutrality

Here the operations function begins to focus on comparing its performance with competitor organisations.

• Stage 3 Internally Supportive

Here the operations function is one of the best in their market area and aspires to be the best in market.

• Stage 4 Externally Supportive

In stage 4 the operations function is becoming central to strategy making and providing the foundation for future competitive success.

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Measuring the Contribution of Operations to

Strategy: The Performance Objectives

• The five basic operation’s performance

objectives allow the organisation to measure its

operation’s performance in achieving its

strategic goals. The performance objectives are:

- Quality

- Speed

- Dependability

- Flexibility

- Cost6

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Quality

• Quality covers both the quality of the design of the product or service itself and the quality of the process that delivers the product or service.

• From a customer perspective quality characteristics include reliability, performance and aesthetics.

• From an operations viewpoint quality is related to how closely the product or service meets the specification required by the design, termed the quality of conformance.

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Speed

• Speed is the time delay between a customer request for a product or service and then receiving that product or service.

• The activities triggered from a customer request for a product or service will be dependent on whether a make-to-stock or customer-to-order delivery system is in place.

• The advantage of speed is that it can be used to both reduce costs (by eliminating the costs associated with make-to-stock systems) and reducing delivery time leading to better customer service.

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Dependability

� Dependability refers to consistently meeting a promised delivery time for a product or service to a customer.

• Thus an increase in delivery speed may not lead to customer satisfaction if it is not produced in a consistent manner.

• Dependability can be measured by the percentage of customers that receive a product or service within the delivery time promised. In some instances it may even be important to deliver not too quickly, but only at the time required (for example a consignment of wet concrete for construction!). Dependability leads to better customer service when the customer can trust that the product or service will be delivered when expected.

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Flexibility

• Flexibility is the ability of the organisation to change what it does.

The following types of flexibility can be identified:

o product or service - to be able to quickly act in response to

changing customer needs with new product or service designs

o mix - to be able to provide a wide range of products or services

o volume - to be able to decrease or increase output in response to

changes in demand.

o delivery - this is the ability to react to changes in the timing of a

delivery.

• Flexibility can be measured in terms of range (the amount of the

change) and response (the speed of the change).

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Cost

• Cost is considered to be the finance required to obtain the inputs (i.e. transforming and transformed resources) and manage the transformation process which produces finished goods and services.

• If an organisation is competing on price then it is essential that it keeps its cost base lower than the competition. Then it will either make more profit than rivals, if price is equal, or gain market share if price is lower.

• Cost is also important for a strategy of providing a product or service to a market niche, which competitors cannot provide. Thus cost proximity (i.e. to ensure costs are close to the market average) is important to maximise profits and deter competitors from entering the market. 11

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The Performance Objectives from an

Internal and External Perspective

• We can categorise the benefits of excelling at the performance objectives from an internal and external perspective.

• This is useful because even though a performance objective may have little relevance in achieving performance that external stakeholders, such as customers, value it may bring benefits in improving the capability of operations from an internal perspective.

• When we look at approaches to strategy we find that competitiveness is not just a matter of simply improving performance along specific external competitive dimensions, but incorporates the development of internal capabilities that provide specific operating advantages.

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Market-Based Approach to Operations Strategy

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Market-Based Approach to Operations Strategy

• Using this approach an organisation makes a decision regarding the markets and the customers within those markets that it intends to target.

• The organisation’s market position is one in which its performance enables it to attract customers to its products or services in a more successful manner than its competitors.

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Resource-Based Approach to Operations Strategy

• A resource-based view of operations strategy

works from the inside-out of the firm, rather than

the outside-in perspective of the market-based

approach.

• Here an assessment of the operations resources

and processes leads to a view of the operations

capability

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Reconciling the Market-Based and Resource-Based Strategy Approaches

• It has been found that not all companies pursue strategy in accordance with a pure market-based approach and it has been found that competitiveness is not just a matter of simply improving performance along specific competitive dimensions, but incorporates the development of capabilities that provide specific operating advantages.

• Thus the resource-based view of strategy is that operations takes a more active role in providing long-term competitive advantage.

• What makes the development of operation strategy particularly challenging is that not only should the market-based and resource-based views of strategy need to be considered at a point in time, but the changing characteristics of markets and the need to develop operations capabilities over time means a dynamic as well as a static view of strategy is required. 16

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Reconciling the Market-Based and Resource-Based

Strategy Approaches

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Operations Strategy Formulation

• In the following approach to operations strategy Hill proposes that the issue of the degree of ‘fit’ between the proposed marketing strategy and the operation’s ability to support it is resolved at the business level in terms of meeting corporate (i.e. strategic) objectives.

• Thus Hill provides an iterative framework that links together the corporate objectives; which provide the organisational direction, the marketing strategy; which defines how the organisation will compete in its chosen markets, and the operations strategy; which provides capability to compete in those markets.

• The framework consists of five steps:

- Define corporate objectives

- Determine marketing strategies to meet these objectives

- Assess how different products win orders against competitors

- Establish the most appropriate mode to deliver these sets of products

- Provide the infrastructure required to support operations

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• Step 1 involves establishing corporate objectives that provide a direction for the organisation and performance indicators that allow progress in achieving those objectives to be measured.

• The objectives will be dependent on the needs of external and internal stakeholders and so will include financial measures such as profit and growth rates as well as employee practices such as skills development and appropriate environmental policies.

Step 1 Corporate Objectives

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Step 2 Marketing Strategy

• Step 2 involves developing a marketing strategy to meet the corporate objectives defined in step 1.

• This involves identifying target markets and deciding how to compete in these markets.

• This will require the utilisation of product/service characteristics such as range, mix and volume that the operations activity will be required to provide.

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Step 3 How Do Products Win Orders in the

Market Place?

• This is the crucial stage in Hill’s methodology where any mismatches between the requirements of the organisation’s strategy and the operations’ capability are revealed. This step provides the link between corporate marketing proposals and the operations processes and infrastructure necessary to support them.

• This is achieved by translating the marketing strategy into a range of competitive factors (e.g. price, quality, delivery speed) on which the product or service wins orders. These external competitive factors provide the most important indicator as to the relative importance of the internal operations performance objectives discussed earlier in this chapter. Next Figure provides examples of how different (external) competitive factors will require a focus on the corresponding (internal) performance objectives.

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• Figure does not imply a one-to-one relationship between competitive factor and performance objectives. This is because of the interrelationships between the performance objectives, for example speed will be partly dependent on other performance objectives such as cost and dependability. Thus the figure shows that a particular external competitive factor will provide an indication of the relative importance of the internal performance objective.

• At this stage it is necessary to clarify the nature of the markets that operations will serve by identifying the relative importance of the range of competitive factors (i.e. customers and competitors) on which the product or service wins orders. Two measurements systems are described which do this.

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Measuring the relative importance of the competitive factors – Customers (Hill)

• Hill distinguishes between the following types of competitive factors which relate to securing customer orders in the marketplace.

- order-winning factors – They are key reasons for customers purchasing the goods or services and raising the performance of the order-winning factor may secure more business

- qualifying factors – Performance of qualifying factors must be at a certain level to gain business from customers, but performanceabove this level will not necessarily gain further competitive advantage.

• From the descriptions above it can be seen that it is therefore essential to meet both qualifying and order-winning criteria in order to be considered and then win customer orders.

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Measuring the Relative Importance of the Competitive Factors –Customers and Competitors (Slack)

• This uses two dimensions – importance and performance – to help operations managers prioritise performance objectives. - The relative importance of a competitive factor is assessed in terms of its importance to internal or external customers using a 9 point scale of degrees of order-winning, qualifying and less important customer viewed competitive factors.

- The relative performance of a competitive factor against competitor achievement. A 9 point performance scale (rating from consistently better than the nearest competitor to consistently worst than most competitors) is used for each performance objective.

• The next step is to plot each importance rating and performance rating in an importance-performance matrix. This indicates what customers find important in achieved performance when compared with competitor performance. The importance-performance matrix is divided into 4 zones.

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The zones are defined as follows:

• Appropriate - Performance objectives in this zone are satisfactory in the short to medium term, but there should be a wish to improve performance towards the upper boundary of the zone.

• Improve - Performance objectives below the lower bound of the appropriate zone will be candidates for improvement.

• Urgent Action - Here performance objectives are far below what the customer requires and so should be improved to ‘same as’ or ‘better then’ competitor performance.

• Excess? - Here too many resources may be being used to achieve this level of performance. There is a possibility that they could be deployed to a less well performing area.

Zones

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Influences on the Relative Importance of the Competitive Factors

The measures above have considered the influence of customers (Hill) and customers and competitors (Slack) on the relative importance of the competitive factors. These influences are now considered in more detail.

- Customers will value a range of competitive factors for any particular product/service, thus it is necessary to identify the relative importance of a range of factors. Competitors

- Competitor actions will also influence the basis on which competition is based and may require a change in priorities of the competitive factors used by the organisation. The Product/Service Life Cycle

- The product/service life cycle (PLC) provides one way of generalising customer and competitor behaviour over time. The PLC is an attempt to describe the change in sales volume for a particular product or service from being introduced into a market until its withdrawal.

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• Step 4 Delivery System Choice (Structural Decisions) and Step 5 Infrastructure choice (Infrastructural Decisions)

– Steps 4 and 5 of Hill’s methodology involves putting the processes and resources in place which provide the required performance as defined by the performance objectives.

– Hill categorises operations decision areas into delivery system choice, which is often referred to as structural decisions and infrastructure choice, which is often termed infrastructural decisions. o Delivery system choice concerns aspects of the organisation’s physical resources such as service delivery systems and capacity provision.

o Operations Infrastructural decisions describe the systems, policies and practices that determine how the structural elements covered in step 4 are managed.

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Achieving Strategic Fit –

Trade-Offs, Focus and Agility

– Step 3 of Hill’s methodology involves providing a ‘fit’

between the external competitive factors derived from

the market position and the internal performance

objectives derived from the operations processes and

resources (infrastructure).

– Some of the concepts underlining the idea of how this

fit can be achieved are now discussed in terms of the

concepts of trade-offs, focus and agile operations.

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Trade-Offs

• The idea of trade-offs can be used to help us understand

the way in which the performance objectives relate to

one another. The original idea of trade-offs is that there is

a trade-off relationship between competitive objectives,

such as cost, quality, delivery etc. that means to excel in

only one objective usually means poor performance in

some or all of the others. Thus an attempt to be good at

everything will lead to being mediocre at everything.

• The existence of trade-offs means that optimum solutions

must be sought within the inherent limits (constraints) of

the operation.

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Focus

• The concept of focus is to align particular market demands with individual facilities to reduce the level of complexity generated when attempting to service a number of different market segments from an individual organisation.

• This is because it is difficult and probably inadvisable for operations to try to offer superior performance over competitors across all of the performance objectives. Usually organisations succeed when they organise their resources and compete across one or two performance objectives.

• Also the capabilities of the organisation will usually mean that it can do some things better than others and a strategy that uses inherent strengths will be more likely to offer a competitive advantage.

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Agile Operations

• The aim of agile operations is to be able to respond quickly

to changing market demand in order to retain current

markets and gain new market share.

• Agile operations aims to serve fast changing markets in

which customers demand both high quality service and low

cost.

• Thus an agile operations strategy aims to overcome trade-

offs by developing the capability of its resources. Attempts

to do this have included the use of process technology and

process redesign.

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Mass Customisation

Mass customisation is an attempt to combine high variety and high volume output in order to provide the customer with customised products at a relatively low price.

Literatures describe 3 levels of customisation.

• Customer-contact customisation - This is where the product or service is tailored to individual needs.

• Adaptive customisation - This is where a standard product or service can be customised to meet individual needs.

• Presentation customisation - This is where standard products are presented differently to different customers.