Chap 4

COLLIER/EVANS
OM
4
Operations
Strategy
Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
LEARNING OUTCOMES
1 Explain how organizations seek to gain
competitive advantage
2 Explain approaches for understanding
customer wants and needs
3 Describe how customers evaluate goods
and services
Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH4
LEARNING OUTCOMES (continued)
4 Explain the five key competitive

priorities
5 Explain the role of OM, sustainability,
and operations in strategic planning
6 Describe Hills framework for operations
strategy
OM5 | CH4
Competitive Advantage
Firms ability to achieve market
and financial superiority over its
competitors
Requires:
- Understanding customer needs and
expectations
- Building and leveraging operational
capabilities to support desired
competitive priorities
OM5 | CH4
Understanding Customer Wants

and Needs
Customers are categorized into
various segments based on their
needs and wants
By understanding the unique needs of
each segment, a company can design:
- Appropriate customer benefit
packages
- Competitive strategies
- Processes to create goods and
services
Order qualifiers: Basic customer
OM5 | CH4
Understanding Customer Wants

and Needs
Order winners: Goods and service
features and performance
characteristics that differentiate one
customer benefit package from
another and win the customers
business
OM5 | CH4
Evaluating Goods and Services

Search attributes
Aspects of a good or service that a customer can
determine prior to purchase
Experience attributes
Aspects of a good or service that can be
discerned only after purchase or during
consumption or use
Credence attributes
Aspects of a good or service that the customer
believes in and cannot be discerned even after
purchase and consumption
OM5 | CH4
Exhib
it
4.1
How Customers Evaluate Goods and Services
OM5| CH4
Competitive Priorities
Strategic emphasis that a firm
places on certain performance
measures and operational
capabilities within a value chain
Types
- Cost
- Quality
- Time
- Flexibility
- Innovation
OM5 | CH4
Cost
Each industry has a low price market
segment
Low cost results from:
High productivity
High capacity utilization
Economies of scale
Continuous improvement is essential

to achieve a low-cost competitive
advantage
OM5 | CH4
10
Quality
Businesses offering premium
quality goods have large market
shares and were early entrants into
the markets
Positively and significantly related
to a higher return on investment
for all kinds of market situations
OM5 | CH4
11
Quality
Strategy of quality improvement
leads to increased market share
High goods quality producers can
charge premium prices
OM5 | CH4
12
Exhib
it
4.2
Interlinking Quality and Profitability

Performance
OM5| CH4
13
Time
Important source of competitive
advantage
Customers demand quick response,
short waiting times, and consistency
in performance
Speeding up work processes
improves customer response
Deliveries can be made faster and
on-time
OM5 | CH4
14
Time
Reductions:
Accomplished only by streamlining
and simplifying processes and value
chains
- To eliminate non-value-added steps
such as rework and waiting time
Drive improvements in quality, cost,
and productivity
OM5 | CH4
15
Flexibility
Success in global markets requires
design and demand flexibility
Visible in mass customization
strategies
Mass customization: Ability to make
goods and services that the customer
requires at any:
- Volume
- Time for anybody, and for a global
organization
- Place in the world
OM5 | CH4
16
Innovation
Discovery and practical application
or commercialization of a device,
method, or idea that differs from
existing norms
Innovative companies focus on:
- Outstanding product research,
design, and development
- High product quality
- Ability to modify production facilities
to produce new products frequently
OM5 | CH4
17
OM and Strategic Planning

Strategy: Pattern or plan that
integrates an organizations major
goals, policies, and action
sequences into a cohesive whole
Direction an organization takes and
the competitive priorities it chooses
are driven by its strategy
- Effective strategies to develop key
competitive priorities
Low cost or fast service time
Exploit an organizations core
competencies
OM5 | CH4
18
Strategic Planning
Process of determining long-term
goals, policies, and plans for an
organization
Objective - Build a strong position for
the organization to achieve its goals
despite unforeseen external forces
OM5 | CH4
19
Levels of Strategy
Corporate strategy - Businesses in
which the corporation will
participate and develop plans for
the acquisition and allocation of
resources among those businesses
These businesses in which the firm
participates are called strategic
business units (SBUs)
OM5 | CH4
20
Levels of Strategy
Business strategy - Defines the
focus for SBUs
Major decisions involves:
- Pursuing the target markets
- Best way to compete in target
markets
Functional strategy - Set of

decisions that each functional area
develops to support its particular
business strategy
OM5 | CH4
21
Levels of Strategy
Organization will decide on the
execution of its chosen business
strategies
Development - Translating competitive
priorities into operational capabilities
- By making variety of choices and
trade-offs for design and operating
decisions
OM5 | CH4
22
Sustainability
Organizational strategy in many
firms
Dimensions
Environmental
Social
Economic
Requires major changes in the

culture of an organization
OM5 | CH4
23
A Framework for Operations

Strategy
Operations design choices:
Management decisions taken for
the appropriate type of process
structure to be adopted while
producing goods or creating
services
Key areas it addresses
- Types of processes
- Value chain integration and
outsourcing
- Technology, capacity and facilities
OM5 | CH4
24
A Framework for Operations

Strategy
Infrastructure: Focuses on the
non-process
features and capabilities of the
organization
Workforce
Operating plans and control systems
Quality control
Organizational structure
Compensation systems
Learning and innovation systems
Support services
OM5 | CH4
25
Exhib
4.3
it
Hills Strategy Development

Framework
OM5| CH4
26
Exhib
4.4
it
Four Key Decision Loops in

Terry Hills Generic Strategy
Framework
OM5| CH4
27
Operations Strategy at
McDonalds
Vision - World's best quick service
restaurant experience
Worldwide strategies
- Be the best employer
- Deliver operational excellence
- Achieve enduring profitable growth
OM5 | CH4
28
McDonalds
Sustainability initiatives
Build a sustainable McDonalds that
involves all facets of business
Commit to a three-pronged approach
- Reduce
- Reuse
- Recycle
Strive to provide eco-friendly
workplaces and restaurants
OM5 | CH4
29
McDonalds
Sustainability initiatives
Work with suppliers and outside
experts to continuously improve:
- Purchasing decisions
- Evaluation of supplier performance
regarding animal welfare
OM5 | CH4
30
Exhib
4.5
it
McDonalds Customer
Benefit Package
OM5| CH4
31
SUMMARY
Competitive advantage is required
to show the firms ability to
achieve superiority over
competitors
Customers perceive greater risks
when buying services than when
buying goods
Understanding competitive
priorities provides basis for
designing the process that create
and deliver goods and services
OM5 | CH4
32
SUMMARY
When an organization takes a
direction and the decisions on
competitive priorities are driven by
its strategy
Framework for operations strategy
is designed for goods-producing
organization and to be applied to
service-providing firms
OM5 | CH4
33
KEY TERMS
Competitive advantage
Competitive priorities
Credence attributes
Experience attributes
Infrastructure
Innovation
Mass customization
Operations design choices
Operations strategy
OM5 | CH4
34
KEY TERMS
Order qualifiers
Order winners
Search attributes
Strategy
OM5 | CH4
35
OM5 | CH4
36

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COLLIER/EVANS

LEARNING OUTCOMES (continued)

4 Explain the five key competitive

Understanding Customer Wants

Understanding Customer Wants

Evaluating Goods and Services

How Customers Evaluate Goods and Services

Continuous improvement is essential

Interlinking Quality and Profitability

OM and Strategic Planning

Functional strategy - Set of

Requires major changes in the

A Framework for Operations

A Framework for Operations

Hills Strategy Development

Four Key Decision Loops in

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