Operations Strategy and Competitive Priorities

1. OPERATIONS & TECHNOLOGY MANAGEMENT Operations Strategy and Competitive Priorities

2. Understanding Customer Wants and Needs Dissatisfiers: requirements that are expected in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. Satisfiers: requirements that customers say they want. Exciters/delighters: new or innovative good or service features that customers do not expect. Examples?

3. Understanding Customer Wants and Needs Basic customer expectations - dissatisfiers and satisfiers – are generally considered the minimum performance level required to stay in business and are often called order qualifier. Order winners are goods and service features and performance characteristics that differentiate one customer benefit package from another, and win the customer's business.

4. Understanding Customer Wants and Needs Search attributes are those that a customer can determine prior to purchasing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hardness, and smell. Goods such as supermarket food, furniture, clothing, automobiles, and houses are high in search attributes.

5. Understanding Customer Wants and Needs Experience attributes are those that can only be discerned after purchase or during consumption or use. Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer satisfaction.

6. Understanding Customer Wants and Needs 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. Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software.

7. How Customers Evaluate Goods and Services

8. Competitive Priorities Competitive advantage denotes a firm’s ability to achieve market and financial superiority over its competitors. Competitive priorities represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain.

9. Competitive Priorities • Cost • Quality • Time • Flexibility • Innovation

10. Competitive Priorities Every organization is concerned with building and sustaining a competitive advantage in its markets. A strong competitive advantage is driven by customer needs and aligns the organization's resources with its business opportunities. A strong competitive advantage is difficult to copy, often because of a firm’s culture, habits, or sunk costs.

11. Interlinking Quality and Probability Performance

12. Competitive Priority – Quality Competitive strategies often led to tradeoffs between quality and cost; some company strategies are willing to sacrifice quality in order to develop a low cost advantage.

13. Competitive Priority -- Time Time is perhaps the most important source of competitive advantage. Customers demand quick response, short waiting times, and consistency in performance. Many firms use time as a competitive weapon to create and deliver superior goods and services such as Charles Schwab, Clarke American Checks, CNN, Dell, FedEx, and Wal-Mart.

14. Competitive Priority -- Time Reductions in processing (flow) time serve two purposes. First, they speed up work processes so that customer response is improved. Deliveries can be made faster, and more often on-time. Second, reductions in processing time can only be accomplished by streamlining and simplifying processes and value chains to eliminate non-value-added steps such as rework and waiting time.

15. Competitive Priority -- Time Processing (flow) time reductions often drive simultaneous improvements in quality, cost, and productivity.

16. Competitive Priority -- Flexibility Mass customization requires companies to align their activities around differentiated customer segments and design goods, services, and operations around flexibility. High-levels of flexibility might require special strategies such as modular designs, interchangeable components, and postponement strategies.

17. Competitive Priority -- Flexibility Flexible operations require sharing manufacturing lines and specialized training for employees. Flexible operations may also require attention to outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements, because delayed shipments and a complex supply chain can hinder flexibility.

18. Competitive Priority -- Flexibility Mass customization is being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world.

19. Competitive Priority -- Innovation Innovationis the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms. Innovations in all forms encapsulate human knowledge.

20. Competitive Priority -- Innovation • Innovations take many forms such as: • Physical goods such as telephones, automobiles, refrigerators, computers, optical fiber, satellites, and cell phones. • Services such as self-service, all-suite hotels, health maintenance organizations, and Internet banking • Manufacturing such as computer-aided design, robotic automation, and smart tags. • Management practices such as customer satisfaction surveys, quantitative decision models, and Six Sigma.

21. Strategic Planning Strategy is a pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. Effective strategies develop around a few key competitive priorities - such as low cost or fast service time - which provide a focus for the entire organization, and exploit an organization’s core competencies - the strengths unique to that organization.

22. Strategic Planning Most large organizations have three levels of strategy: A 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. A Business strategydefines the focus for SBUs. The major decisions involve which markets to pursue and how best to compete in those markets; that is, what competitive priorities the firm should pursue A Functional strategy is the set of decisions that each functional area - marketing, finance, operations, research and development, engineering, and so on - develops to support its particular business strategy.

23. Strategic Planning • The operations strategy is how an organization’s processes are designed and organized to produce the type of goods and services to support the corporate and business strategies. • Managers recognize that the value (supply) chain can be leveraged to provide a distinct competitive advantage, and that operations is a core competency for the organization. • Whoever has superior operational capability over the long term is the odds-on-favorite to win the industry shakeout

24. Strategic Planning Process Strategy development refers to a company's approach, formal or informal, for making key long-term business decisions. The process typically takes into account customer and market requirements, the competitive environment, industry structure and non-industry competitors, financial and societal risks, human resource capabilities and needs, technological capabilities, and supplier capabilities.

25. Strategic Planning Process The major steps are as follows: Step 1 - Gather and Analyze Strategic Performance Data Step 2 - Review/Analyze Existing Strategic Directions and Documents Step 3 - Revise/Develop Strategy Step 4 - Deploy Objectives and Action Plans Step 5 - Review Progress and Results Step 6 - Continually Evaluate and Improve The next step is to translate business strategy into operations strategy, policies, and resource allocation plans

26. Strategic Planning Process The strategic mission of a firm defines its reason for existence. The strategic vision (SV) describes where the organization is headed and what it intends to be. Example Strategic Vision:

27. Values are attitudes and policies for all employees to follow that direct the journey to achieving the organization’s vision. Values are reinforced through conscious and subconscious behavior at all levels of the organization

28. Example: Strategic Values for a leading restaurant are:

29. Operations Strategy An operations strategy defines how an organization will execute its chosen business strategies. Developing an operations strategy involves translating competitive priorities into operational capabilities by making a variety of choices and trade-offs for design and operating decisions. Operating decisions must be aligned with achieving the desired competitive priorities. For example, if corporate objectives are to be the low cost and mass market producer of a good then adopting an assembly line type of process is how operations can help achieve this corporate objective.

30. Operations Strategy and Competitive Priorities • Professor Terry Hill’s Strategy Development Framework • Operations design choices are the decisions management must make as to what type of process structure is best suited to produce goods or create services. • Types of processes and alternative designs • Supply chain integration and outsourcing • Technology • Capacity and Facilities (size, timing, location) • Inventory • Trade-off Analysis

31. Hill’s Strategy Development Framework

32. Operations Strategy and Competitive Priorities • Hill’s Strategy Development Framework • Infrastructure focuses on the non-process • features and capabilities of the organization and includes the • workforce, • operating plans and control systems, • quality control, • organizational structure, • compensation systems, • learning and innovation systems, and • support services.

33. Four Key Decision Loops in Terry Hill’s Generic Strategy Framework

34. Operations Strategy and Competitive Priorities • Hill’s Strategy Framework Applied to McDonald’s • McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value, so that we make every customer in every restaurant smile. To achieve our vision, we focus on three worldwide strategies: • (1) Be The Best Employer • (2) Deliver Operational Excellence • (3) Achieve Enduring Profitable Growth • Customer Benefit Package Design and Strategy • Strategy Development for McDonald’s

35. McDonald’s Customer Benefit Package

36. Applying the Hill’s Strategy Development Framework to McDonald’s (slide 1)

37. Applying the Hill’s Strategy Development Framework to McDonald’s (slide 2)