COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MASTER OF BUSINESS ADMINISTRATION
 
CHAPTER TWO
OPERATIONS STRATEGY & COMPETITIVENESS
By:
Mehari H. (Ass. Prof, MBA, MA, BA)
E-mail: [email protected]

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 Learning objectives
After studying this chapter you should be able to;
– Define business strategy.
– Explain how a business strategy is developed.
– Explain the role of operations strategy in the
organization.
– Explain the relationship between business
strategy and operations strategy.
– Identify competitive priorities of the operations
function.

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 Example
• Mission
– live a good life
• Goal
– successful career, good income.
• Strategy
– obtain a college/university education
• Tactics
– select a college/university and a major; decide
how to finance.
• Operations
– register, buy books, take courses, study hard.
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 What is a strategy?
• Derived from the Greek word “strategos” ,
meaning ‘leading an army’.
• Strategies are the means by which the
enterprise achieves its objectives.
• They describe the chosen “paths to goal”, or
“routes to achievement” or “plans of
campaign”.
• Strategies act as “ground-rules”, and define
the nature and occasion of the decisions
needed to achieve enterprise objectives.

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 Summary

• Strategy is all about :

– How to outcompete rivals.
– How to respond to economic and market
conditions and growth opportunities.
– How to manage functional pieces of the
business.
– How to improve the firm’s financial and
market performance.

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 WHY DO STRATEGY ?
• A firm does strategy:
– To improve its financial performance.
– To strengthen its competitive position.
– To gain a sustainable competitive
advantage over its market rivals.

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 Strategy Formulation

Mission

Internal External
Strengths Opportunities
Strategy

Internal External
Weaknesses Threats
Core
Competencies

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 A Framework for Manufacturing
Strategy
Customer Needs

New and Current

Products

Performance Priorities
and Requirements

Quality, Dependability,
Speed, Flexibility, and Price

Enterprise Capabilities
Operations & Supplier Capabilities

Technology Systems People R&D CRM JIT TQM Distribution

Support Platforms
Financial Management Human Resource Management Information Management
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 Operations Strategy
• A long-range plan for the operations function that
specifies the design and use of resources to support the
business strategy.
– ‘Operations’ are the resources that create products
and services.
– ‘Operational’ is the opposite of strategic, meaning
day-to-day and detailed.
– The content of operations strategy is the specific
decisions and actions which set the operations role,
objectives and activities.
– The process of operations strategy is the method
that is used to make the specific ‘content’ decisions.

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• is the plan that specifies the design and
use of resources to support the business
strategy.
– This includes the location, size, and type of
facilities available; worker skills and talents
required; use of technology, special processes
needed, special equipment; and quality
control methods.
• Is the approach, consistent with the
organizational strategy , that is used to
guide the operations function.
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 Perspectives on operations strategy

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 Cont’d
• There are four slightly different views of operations strategy.
1. Top-down
• The ‘top-down’ perspective views strategic decisions at a number
of levels.
• Corporate strategy
– defines what business the company is pursuing. E.g making people
happy’
• Business strategy
– defines how a particular business will compete. Sets objective on how it
positions itself in its marketplace. E.g customer intimacy, product
leadership.
• Functional strategies
– set the objectives for each function’s contribution to its business strategy.
– The operations, marketing, finance and other functions will all need to
consider how best they should organize themselves to support the
business’s objectives.
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2. Bottom up
• sees overall strategy as emerging from day-
to-day operational experience.
• This perspective believes that strategy is
gradually shaped over time and based on
real-life experience rather than theoretical
positioning.

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3. Market requirement
• This perspective is based on the fact that one
of the obvious objectives for any organization
is to satisfy the requirements of its markets.
• No operation that continually fails to serve its
markets adequately is likely to survive in the
long term.
• Hence, operations performance objectives and
operations decisions should be primarily
influenced by a combination of customers’
needs and competitors’ actions.

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4. Operations Resource
• is based on the resource-based view (RBV) of the
firm.
• RBV holds that firms are likely to gain sustainable
competitive advantage because of the core
competences (or capabilities) of their resources.
• This means that the way an organization inherits, or
acquires, or develops its operations resources will,
over the long term, have a significant impact on its
strategic success.
• So understanding and developing the capabilities of
operations resources is a particularly important
perspective on operations strategy.

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 Operations strategy Decisions
– The approach, consistent with organization strategy, that is
used to guide the operations function.
Decisions What the Decisions Affect

 Product and service design Costs, quality, liability, and environmental issues

 Capacity Cost, structure, flexibility

 Process selection and layout Costs, flexibility, skill level needed, capacity

 Work design Quality of work life, employee safety, productivity

 Location Costs, visibility

 Quality Ability to meet or exceed customer expectations

 Inventory Costs, shortages

 Maintenance Costs, equipment reliability, productivity

 Scheduling Flexibility, efficiency

 Supply chains Costs, quality, agility, shortages, vendor relations

 Projects Costs, new products, services, or operating systems 16

 Role of Operations Strategy
• Business organizations should be able to master the
skills to first ‘implement’, then ‘support’, and then
‘drive’ operations strategy.
1. Implementing business strategy
– puts it into practice.
2. Supporting business strategy.
– It means developing the capabilities which allow the
organization to improve and refine its strategic
goals.
3. Driving business strategy.
– The third, and most difficult, role of operations is
to drive strategy by giving it a unique and long-
term advantage.
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 Competitiveness
• Companies must be competitive to sell their
goods and services in the market.
• How effectively an organization meets the
wants and needs of customers relative to
others that offer similar goods or services.
• Business organizations compete with one
another in a variety of ways.
– Key among them are price, quality, product
or service differentiation, flexibility, and
time to perform certain activities.

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 Competitive Priorities
Corporate strategy
• environmental scanning
• core competencies
• core processes Market analysis
• global strategies • segmentation
• needs analysis

Competitive priorities
• cost
• quality
• time
• flexibility
Capabilities
• current
• needed
New Service/ • planned
Product Design
• design
• analysis
• development
• full launch

Functional area strategies

• finance • operations
• marketing • others

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• Price; is the amount a customer must pay
for the product/service.
– Focus on lower production costs.
• Quality; refers to the materials and
workmanship as well as design.
– It relates to the buyer’s perceptions of how well
the product or service will serve its purpose.
• Product differentiation; refers to any special
features that cause a product or service to
be perceived by the buyer as more suitable
than a competitor’s product or service.
– E.g. design, cost, quality, ease of use, convenient
location, warranty etc.
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• Flexibility; the ability to respond to changes. The
changes might relate to increases or decreases in
volume demanded, or to changes in product mix.
– The better a company or department is at
responding to changes, the greater its competitive
advantage over another company.
• Time; refers to different aspects of an
organization’s operation.
– How quickly a product/service is delivered to
customers.
– How quickly a new product/services are developed
and brought in to the market.
– The rate at which improvements in products or
processes are made.
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 THANK YOU!!

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