earning outcomes

After studying this chapter you should be able to:

4-1 Explain how organizations seek to gain competitive advantage.

4-2 Explain approaches for understanding customer wants and needs.

4-3 Describe how customers evaluate goods and services.

4-4 Explain the five key competitive priorities.

4-5 Explain the role of OM, sustainability, and operations in strategic planning.

4-6 Describe Hill’s framework for operations strategy.

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Operations Management Part 1 Chapter 4

OM 4


any durable products, such as cell phones, televisions, and refrigerators, contain hazardous

materials and cannot be easily reused or recycled. As a result, organizations need to rethink

strategically the environmental challenges that result from obsolete durable goods. Cell

phones, for example, become obsolete quickly as a result of manufacturers making rapid

improvements in design and service providers offering new incentives. The value chain is

complex, and includes original equipment manufacturers (OEMs), retailers, service providers, remanufacturers, recyclers, and

waste-management companies. Some new strategies that have been suggested include:

modular designs that make it easier to reuse parts rather than have to recycle them, or recover valuable materials more easily.

each year, with significant waste and environmental implications.

upgrade to data plans if the prices of the phones can be reduced.

Walmart, and others, but still it only captures 5 percent of retired phones, suggesting that the cell phone value chain has not matured.1



What do you think? Which of the following strategies do you think is best

for major cell phone providers?

Refurbish all phones and sell in developing countries.

Disassemble and recycle domestically 100 percent

of all metals and plastics.

Let other firms and third-party organizations, but

not major cell phone providers, recycle phones.

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4-1 Gaining Competitive Advantage

denotes a firm’s ability to achieve market and financial superiority over its com- petitors. In the long run, a sus- tainable competitive advantage provides above-average perfor-

mance and is essential to survival of the business. Cre- ating a competitive advantage requires a fundamental understanding of two things. First, management must understand customer needs and expectations—and how the value chain can best meet these through the design and delivery of attractive customer benefit packages. Second, management must build and lever- age operational capabilities to support desired com- petitive priorities.

Every organization has a myriad of choices in deciding where to focus its efforts—for example, on low cost, high quality, quick response, or flexibility and customization—and in designing its operations to sup- port its chosen strategy. The opening scenario suggests that cell phone manufacturers and service providers have many strategic choices in designing and operating their domestic and global value chains. These choices should be driven by the most important customer needs and expectations. In particular, what happens in operations— on the front lines and on the factory floor—must sup- port the strategic direction the firm has chosen.

Any change in a firm’s customer benefit package, targeted markets, or strategic direction typically has significant con- sequences for the entire value chain and for operations.

c 4C H A P T E R


. As many as 130 million cell phones are retired each year, having significant waste and environmental implications.


denotes a firm’s ability to achieve market and finan- cial superiority over its competitors.

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Although it may be difficult to change the structure of the value chain, operations managers have considerable freedom in determining what components of the value chain to emphasize, in selecting technology and pro- cesses, in making human resource policy choices, and in making other relevant decisions to support the firm’s strategic emphasis.

4-2 Understanding Customer Wants and Needs

ecause the fundamental purpose of an organization is to provide goods and services of value to customers, it is important to first understand customer desires, and also to understand how custom- ers evaluate goods and services. However, a company usually can-

not satisfy all customers with the same goods and ser- vices. Often, customers must be segmented into several

natural groups, each with unique wants and needs. These segments might be based on buying behavior, geography, demographics, sales volume, profitabil- ity, or expected levels of service. By understanding differences among such segments, a company can design the most ap- propriate customer ben- efit packages, competitive strategies, and processes


to create the goods and services to meet the unique needs of each segment.

To correctly identify what customers expect re- quires being “close to the customer.” There are many ways to do this, such as having employees visit and talk to customers, having managers talk to customers, and doing formal marketing research. Marriott Cor- poration, for example, requires top managers to annu- ally work a full day or more in the hotels as bellhops, waiters, bartenders, front-desk service providers, and so on, to gain a true understanding of customer wants and needs, and the types of issues that their hotel ser- vice providers must face in serving the customer. Good marketing research includes such techniques as focus groups, salesperson and employee feedback, com- plaint analysis, on-the-spot interviews with custom- ers, videotaped service encounters, mystery shoppers, telephone hotlines, Internet monitoring, and customer surveys.

Basic customer expectations are generally considered the minimum performance level required to stay in busi- ness and are often called For example, a radio and driver-side air bag are generally expected by all customers for an automobile; for a hotel, cus- tomers expect that the room will be safe and clean. The unexpected features that surprise, entertain, and delight customers by going beyond the expected often make the difference in closing a sale. are goods and service features and performance charac- teristics that differentiate one customer benefit package from another, and win the customer’s business. Colli- sion avoidance systems or a voice-activated music system in an automobile, for example, or free Inter- net and gaming devices in a hotel, can be order win- ners. Over time, however, order winners eventually become order qualifiers as customers begin to expect them. Thus, to stay competitive, companies must con- tinually innovate and improve their customer benefit packages.

Every organization has a myriad of choices in deciding where to focus its efforts—for example, on low cost, high quality, quick response, or flexibility and customization—and in designing its operations to support its chosen strategy.

Basic customer expectations are generally considered the minimum performance level required to stay in business and are often called

are goods and service features and per- formance characteristics that differentiate one customer benefit package from an- other, and win the customer’s business.

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O M 4 C h a p t e r 4 : O p e r a t i o n s S t r a t e g y


J ohn Schnatter, founder of Papa John’s Pizza, described how he got started in the pizza business and identified

Papa John’s key competitive priority as now reflected in the slogan “Better ingredients, better pizza, Papa John’s.”

In 1983, John’s father hired him to run a bar he co-owned that was nearly bankrupt. Thinking back to his college

days when he had a dream of starting a pizza business (where he came up with the name, menu, and recipes), he

believed if they could sell $5 pizzas and 50-cent beer, they’d make a fortune. So he installed a pizza oven and began sell-

ing Papa John’s pizza. He realized early on that Domino’s had the speed, Little Caesars had the price, and Pizza Hut had

variety, and yet they made up only 35 percent or 40 percent of the market. He didn’t understand why pizzas with better

ingredients didn’t win every time. He thought if you had a national chain that acted like an independent as far as qual-

ity, then you’d have the best of all worlds.

The bar was like a laboratory where they

would try things out. He tried pasta, fried

zucchini, and salads as well as sit-down

service. But the customers told him early

on, “We like your pizza delivered—you’re

a delivery chain.” So he focused on the

pizza. Papa John’s strategy is to provide a

high-quality product (the order winner)

with effi cient delivery in a competitive

market (the order qualifier).2AP P

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Listen to Your Customers—Creatively! At IDEO, one of the world’s leading design firms (which designed Apple’s first mouse, standup toothpaste tubes, and the Palm V), design doesn’t begin with a far-out concept or a cool drawing. It begins with a deep understanding of the people who might use whatever product or service eventually emerges from its work, drawing from anthropology, psy- chology, biomechanics, and other disciplines. When former Disney executive Paul Pressler assumed the CEO position at

Gap, he met with each of Gap’s top 50 executives, asking them such standard ques- tions as “What about Gap do you want to preserve and why?” “What about Gap do you want to change and why?” and so on. But he also added one of his own: “What is your most important tool for figuring out what the consumer wants?” Some com- panies use unconventional and innovative approaches to understand customers. Texas Instruments created a simulated classroom to understand how mathematics teachers use calculators; and a manager at Levi Strauss used to talk with teens who were lined up to buy rock concert tickets. The president of Chick-fil-A spends at least one day each year behind the counter, as do all of the company’s employees, and has camped out overnight with customers at store openings. At Whirlpool, when customers rate a competitor’s product higher in satisfaction surveys, engineers take it apart to find out why. The company also has hundreds of consumers fiddle with computer-simulated products while engineers record the users’ reactions on videotape.3AP

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4-3 Evaluating Goods and Services

esearch suggests that customers use three types of attributes in evaluat- ing the quality of goods and services: search, experience, and credence.4

are those that a cus- tomer can determine prior to purchas-

ing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hard- ness, and smell. are those that can be discerned only after purchase or during consumption or use. Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer satisfaction.

are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption. Examples

include the expertise of a surgeon or mechanic, the knowledge of a tax advi- sor, or the accuracy of tax preparation software.

This classification has several important implica- tions for operations. For example, the most impor- tant search and experi- ence attributes should be evaluated during design, measured during manu- facturing, and drive key

r operational controls to ensure that they are built into the good with high quality. Credence attributes stem from the nature of services, the design of the service system, and the training and expertise of the service providers.

These three evaluation criteria form an evalua- tion continuum from easy to difficult, as shown in Exhibit 4.1. This model suggests that goods are easier to evaluate than services, and that goods are high in search qualities, whereas services are high in experience and credence attributes. Of course, goods and services are usually combined and configured in unique ways, mak- ing for an even more complex customer evaluation pro- cess. Customers evaluate services in ways that are often different from goods. A few ways are summarized be- low along with significant issues that affect operations.

from personal sources than from nonpersonal sources when evaluating services prior to pur- chase. Operations must ensure that accurate in- formation is available, and that experiences with prior services and service providers result in posi- tive experiences and customer satisfaction.

services than when buying goods. Because ser- vices are intangible, customers cannot look at or touch them prior to the purchase decision. They experience the service only when they actually go through the process. This is why many are hesitant to use online banking or bill-paying.

Dissatisfaction with services is often the result of cus- tomers’ inability to properly perform or co-produce their part of the service. A wrong order placed on the

Exhibit 4.1 How Customers Evaluate Goods and Services

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High goods content High services content

Goods− Services Continuum

Easy to evaluate

Difficult to evaluate

High in search attributes

High in experience attributes

High in credence attributes

Source: Adapted from V. A. Zeithamel, “How Consumer Evaluation Processes Differ Between Goods and Services,” in J. H. Donnelly and W. R. George, eds., Marketing in Services, published by the American Marketing Association, Chicago, 1981, pp. 186–199. Reprinted with permission from the American Marketing Association.

are those that a customer can determine prior to purchasing the goods and/or services.

are those that can be dis- cerned only after purchase or during consumption or use.

are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption.

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75O M 4 C h a p t e r 4 : O p e r a t i o n s S t r a t e g y

Internet can be the result of customer error despite all efforts on the part of the company to provide clear in- structions. The design of services must be sensitive to the need to educate customers on their role in the ser- vice process.

These insights help to explain why it is more diffi- cult to design services and service processes than goods and manufacturing operations.

4-4 Competitive Priorities

represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain. Understanding com- petitive priorities and their rela-

tionships with customer benefit packages provides a basis for designing the processes that create and deliver goods and services. 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 re- sources with its business opportunities. A strong com- petitive advantage is difficult to copy, often because of a firm’s culture, habits, or sunk costs.

Competitive advantage can be achieved in different ways, such as outperforming competitors on price or quality, responding quickly to changing customer needs in designing goods and services, or providing rapid de- sign or delivery. In general, organizations can compete on five key competitive priorities:

1. Cost

2. Quality

3. Time

4. Flexibility

5. Innovation

All of these competitive priorities are vital to success. For example, no firm today can sacrifice quality simply


to reduce costs, or emphasize flexibility to the extent that it would make its goods and services unafford- able. However, organizations generally make trade- offs among these competitive priorities and focus their efforts along one or two key dimensions. For exam- ple, Dell Computer manufactures PCs (1) configured to customer specifications, (2) with high goods qual- ity, and (3) tries to deliver them quickly to custom- ers. However, they are not always the least-expensive machines available, and customers must wait longer to get a Dell computer as opposed to picking one off the shelf at a retail store. Hence, high goods quality and flexibility are top competitive priorities at Dell, whereas cost and delivery time are of somewhat lesser importance.

4-4a Cost Many firms, such as Walmart, gain competitive ad- vantage by establishing themselves as the low-cost leader in an industry. These firms handle high volumes of goods and services and achieve their competitive advantage through low prices. Although prices are generally set outside the realm of operations, low prices cannot be achieved without strict attention to cost and the design and management

General Electric discovered that 75 percent of its manufacturing costs is determined by design.



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represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain.

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of operations. General Electric, for example, discovered that 75 percent of its manufacturing costs is determined by design. Costs accumulate through the value chain, and include the costs of raw materials and purchased parts, direct manufacturing cost, distribution, postsale services, and all supporting processes. Through good design and by chipping away at costs, operations man- agers help to support a firm’s strategy to be a low-price leader. They emphasize achieving economies of scale and finding cost advantages from all sources in the value chain.

Low cost can result from high productivity and high-capacity utilization. More important, improve- ments in quality lead to improvements in productivity, which in turn lead to lower costs. Thus a strategy of continuous improvement is essential to achieve a low- cost competitive advantage.

4-4b Quality The role of quality in achieving competitive advantage was demon- strated by several research studies.6

Researchers have found that

quality goods usually have large market shares and were early entrants into their markets.

– cantly related to a higher return on investment for almost all kinds of market situations.

– ment usually leads to increased market share, but at a cost in terms of reduced short-run profitability.

goods can usually charge premium prices.

Exhibit 4.2 summarizes the impact of quality on profitability. The value of a good or service in the marketplace is influenced by the quality of its de- sign. Improvements in performance, features, and reliability will differen-

tiate the good or service from its competitors, improve a firm’s quality reputation, and improve the perceived value of the customer benefit package. This allows the company to command higher prices and achieve an in- creased market share. This, in turn, leads to increased revenues that offset the added costs of improved de- sign. Improved conformance in production leads to lower manufacturing and service costs through savings in rework, scrap, and warranty expenses. The net ef- fect of improved quality of design and conformance is increased profits.

Operations managers deal with quality issues on a daily basis; these include ensuring that goods are produced defect-free, or that service is delivered flawlessly.


T he only major U.S. airline that has been continuously profitable

over the last several decades is Southwest Airlines. Other airlines

have had to collectively reduce costs by $18.6 billion, or

29 percent of their total operating expenses, to operate at the

same level (cost per mile) as Southwest. The high-cost airlines such as

United and American face enormous pressure from low-fare carriers such

as Southwest Airlines. Mr. Roach, a long-time industry consultant, says

“The industry really is at a point where survival is in question.” In recent

years, airlines have reduced capacity, cut routes, and increased fees for

peripheral services like baggage and food. We have also seen mergers,

such as between Delta and Northwest, and between United and

Continental, to reduce system-wide costs.5

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In many industries, strategies often lead to trade- offs between quality and cost; some company strategies are willing to sacrifice quality in order to develop a low- cost advantage. Such was the case with new automobile startups, especially with Hyundai Motor Co. However, goods quality has evolved over the years and now is generally considered to be an order qualifier. Operations managers deal with quality issues on a daily basis; these include ensuring that goods are produced defect- free, or that service is delivered flaw lessly. In the long run, it is the design of goods and service processes that ultimately defines the quality of outputs and outcomes.

4-4c Time In today’s society, time is perhaps the most important source of competi- tive advantage (see the box on Your Cell Phone Becomes your Wallet). Customers demand quick response, short waiting times, and consis- tency in performance. Many firms, such as CNN, FedEx, and Walmart, know how to use time as a competi- tive weapon to create and deliver supe- rior goods and services.

Speeding up work processes im- proves customer response. Deliveries

can be made faster, and more often on time. However, time reductions in processes and value chains can only be accomplished by streamlining and simplifying them to eliminate non-value-added steps such as rework and waiting time. This forces improvements in quality by reducing the opportunity for mistakes and errors. By reducing non-value-added steps, costs are reduced as well. Thus, time reductions often drive simultaneous

improvements in quality, cost, and productivity. Designing processes and using technology ef-

ficiently to improve speed and time reli- ability are some of the most important

activities for operations managers.

4-4d Flexibility Success in globally competitive mar- kets requires both design and de- mand flexibility. In the automobile industry, for example, new models are constantly being developed. Companies that can exploit flex- ibility by building several different

vehicles on the same assembly line at one time, enabling them to switch

output as demand shifts, will be able to sell profitably at lower volumes. The Spanish clothing company Inditex (which owns the well-known brand Zara) uses

Improved quality of design

Higher perceived value

Increased market share

Higher prices

Increased revenues

Higher profi tability

Improved quality of conformance

Lower manufacturing and service costs

Exhibit 4.2 Interlinking Quality and Profitability Performance

include ensuring that goods are produced defect- free, or that service is delivered flawlessly. In the long run, it is the design of goods and service processes that ultimately defines the quality of outputs and outcomes.

– tive weapon to create and deliver supe-

Speeding up work processes im- proves customer response. Deliveries

improvements in quality, cost, and productivity. Designing processes and using technology ef

ficiently to improve speed and time reli ability are some of the most important

activities for operations managers.

Success in globally competitive mar

at one time, enabling them to switch output as demand shifts, will be able

to sell profitably at lower volumes. The Spanish clothing company Inditex (which owns the well-known brand Zara) uses Mike Flippo/

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in-house pattern-cutting operations and subcontracts labor-intensive sewing to smaller regional facilities. Most other fashion retailers outsource these operations to Asia to reduce labor costs, resulting in slow supply chains that require the designers to make early style and volume commitments. Intidex’s supply chain allows it to copy ideas from fashion leaders in Paris and Milan and quickly change styles to capitalize on the hottest trends.

Flexibility is manifest in mass-customization strat- egies that are becoming increasingly prevalent today.

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.8 Some examples include Sign-tic company signs that are uniquely designed for each customer from a standard base sign structure; business consult- ing; Levi’s jeans that are cut to exact measurements; personal Web pages; estate planning; Motorola pagers customized in different colors, sizes, and shapes; per- sonal weight-training programs; and modular furni-

ture that customers can configure to their unique needs and tastes. Cus- tomer involvement might occur at the design (as in the case of custom signs), fabrication (Levi’s jeans), assembly (Motorola pag- ers), or postproduction ( cus tomer-as sembled modular furniture) stages of the value chain. Mass customization requires

companies to align their activities around differentiated customer seg- ments and design goods, services, and operations around flexibility.

4-4e Innovation is the discovery and practi-

cal application or commercialization of a device, method, or idea that differs from existing norms. Over the years, innovations in goods (such as tele- phones, automobiles, computers, op- tical fiber, satellites, and cell phones)

and services (self-service, all-suite hotels, health main- tenance organizations, and Internet banking) have improved the overall quality of life. Within business or- ganizations, innovations in manufacturing equipment (computer-aided design, robots and automation, and smart tags) and management practices (customer sat- isfaction surveys, quantitative decision models, and the Malcolm Baldrige criteria) have allowed organizations to be more efficient and better meet customers’ needs.

Many firms, such as Apple, focus on research and development for innovation as a core component of their strategy. Such firms are on the leading edge of product technology, and their ability to innovate and introduce new products is a critical success factor.


C redit and debit cards and other magnetic-strip-based cards are

on their way out. Mobile payment devices, including your cell

phone, are becoming more prevalent, dramatically speeding up

the time to process payments. Square, for example, provides a

small reader that plugs into a mobile phone or tablet to process cab fares

quickly. Google Wallet uses wireless technology for quick payments and

has tied this capability to Google Off ers, which searches for immediate

coupon discounts. Many other competitors are entering the market, as

total U.S. mobile payments are expected to double each year. 7

is being able to make whatever goods and services the cus- tomer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world.

is the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms.

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Product performance, not price, is the major selling feature. When competition enters the market and profit margins fall, these companies often drop out of the market while continuing to introduce innovative new products. These companies focus on outstanding prod- uct research, design, and development; high product quality; and the ability to modify production facilities to produce new products frequently.

4-5 OM and Strategic Planning

he direction an organization takes and the competitive priorities it chooses are driven by its strategy. The concept of strategy has differ- ent meanings to different people.

is a pattern or plan that inte- grates an organization’s major goals, policies, and action sequences into a

cohesive whole.9 Basically, a strategy is the approach


by which an organization seeks to develop the capa- bilities required for achieving its competitive advan- tage. Effective strategies develop around a few key competitive priorities, such as low cost or fast service time, which provide a focus for the entire organiza- tion and exploit an organization’s which are the strengths that are unique to that organiza- tion. Such strengths might be a particularly skilled or creative workforce, customer relationship manage- ment, clever bundling of goods and services, strong supply chain networks, extraordinary service, green goods and services, marketing expertise, or the ability to rapidly develop new products or change production- output rates.

Strategic plan- ning is the process of determining long- term goals, policies, and plans for an or- ganization. The ob- jective of strategic planning is to build

Solved Problem

Define the customer benefit package (CBP) for a health club, recreation center, or gymnasium you frequent. (Check out the Web site of your favorite club, center, or gym for more information.) Use this information to help describe the organization’s strategic mission, strat- egy, competitive priorities, and how it wins customers.

One example is depicted below.

Healthy Mind and


Massage Services

Diet and Nutrition

Exercise Classes

FoodChild Care

Personal Trainer

Swim Lessons

Mission: The mission of our health club is to offer many pathways to a healthy living style and body.

Strategy: We strive to provide our customers with superior:

being of the body and mind.

food service, and the like.

– tion, schedules, etc.).

Competitive Priorities: #1 Priority: Many pathways to healthy living and a healthy body (design flexibility); #2 Priority: Friendly, professional staff and service encounters (service quality); #3 Priority: Everything is super-clean (goods, facility, and environmental qual- ity); #4 Priority: Customer convenience in all respects (time); and #5 Priority: Price (cost).

How to win customers? Providing a full-service health club with superior service, staff, and facilities. (Although you would not see this in company litera- ture, this health club provides premium service at pre- mium prices.)

Remember that each primary or peripheral good or ser- vice in the customer benefit package requires a process to create and deliver it to customers, and therefore OM skills are needed.

is a pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.

are the strengths that are unique to an organization.

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a position that is so strong in selected ways that the or- ganization can achieve its goals despite unforeseeable external forces that may arise. Strategy is the result of a series of hierarchical decisions about goals, directions, and resources; thus, most large organizations have three levels of strategy: corporate, business, and functional. At the top level, 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. The businesses in which the firm will participate are often called strategic business units (SBUs), and are usually defined as fami- lies of goods or services having similar characteristics or methods of creation. For small organizations, the cor- porate and business strategies frequently are the same.

The second level of strategy is generally called busi- ness strategy, and defines the focus for SBUs. The major decisions involve which markets to pursue and how best to compete in those markets—that is, what com- petitive priorities the firm should pursue.

Finally, the third level of strategy is functional strat- egies, the means by which business strategies are ac- complished. A functional strategy is the set of decisions that each functional area (marketing, finance, opera- tions, research and development, engineering, and so on) develops to support its particular business strategy.

Our particular focus will be on operations strategy—how an organization’s processes are designed and organized to produce the type of goods and ser- vices to support the corporate and business strategies.

4-5a Operations Strategy An defines how an organization will execute its chosen business strategies. Developing an op- erations strategy involves translating competitive pri- orities into operational capabilities by making a variety of choices and trade-offs for design and operating deci- sions. That is, operating decisions must be aligned with achieving the desired competitive priorities. For exam- ple, Progressive automobile insurance has developed a competitive advantage around superior customer ser- vice. To accomplish this, its operating decisions have included on-the-spot claims processing at accident sites; “Total Loss Concierge” service to help customers

with unrepairable vehicles get a replacement vehicle; and the industry’s first Web 2.0 site with easier navigation, customization, and video content.

What kind of an operations strategy might a com- pany like Pal’s Sudden Service (see Chapter 1) have? Consider the operations management implications of key elements of the company’s vision: To be the pre- ferred quick-service restaurant in our market achieving the largest market share by providing

1. The quickest, friendliest, most accurate service available. To achieve quick and accurate service, Pal’s needs highly standardized processes. The staff at each Pal’s facility is organized into process teams along the order-taking, processing, packag- ing, and order-completion line. The process layout is designed so that raw materials enter through a delivery door and are worked forward through the store with one process serving the next. Employees must have clearly defined roles and responsibili- ties, understanding of all operating and service procedures and quality standards, and job flex- ibility through cross-training to be able to respond to volume cycles and unplanned reassignments to work activities. To ensure friendly service, Pal’s uses specific performance criteria to evaluate and select employees who demonstrate the aptitude, talents, and characteristics to meet performance standards; invests heavily in training; and pays close attention to employee satisfaction.

2. A focused menu that delights customers. Employees must understand their customers’ likes and dislikes of their products and services as well as those of their competitors. Operations must address such questions as: What capabilities will we need to support a new menu offering? Do our suppliers have the capacity to support this new offering? Is the appropriate technology available?

3. Daily excellence in product, service, and systems execution. Successful day-to-day operations require employees to effectively apply Pal’s On-Line Quality Control process, consisting of four simple steps: standardize the method or process, use the method, study the results, and take control. Each employee is thoroughly trained and coached on precise work procedures and process standards, focusing on developing a visual reference to verify product quality.

4. Clean, organized, sanitary facilities. Pal’s focuses on prevention—eliminating all possible causes of accidents—first, then finding and eliminating causes of actual incidents. In-house health and safety inspections are conducted monthly using the Food and Drug Administration (FDA) Food Service

An defines how an organization will execute its chosen busi- ness strategies.

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Sanitation Ordinance. Results are compiled and distributed to all stores within 24 hours, with any identified improvements applied in each store.

5. Exceptional value. Through methods of listening and learning from customers and studies of industry standards and best practices, Pal’s has designed the following items into its operations: convenient locations with easy ingress and egress, long hours of operation (6:00 a.m. to 10:00 p.m.), easy-to-read 3-D menus, direct fact-to- face access to order taker and cashier/order deliverer, fresh food (cooked hot dogs are discarded after 10 minutes if not purchased), a 20-second delivery target, and a Web site for contacting corporate office and stores. Pal’s selects suppliers carefully to ensure not only product quality and on-time delivery, but also the best price for the volume level purchased. Overall supply chain costs are minimized by maintaining only a few, long-term core suppliers.

From this discussion of Pal’s Sudden Service, it is clear that how opera- tions are designed and implemented can have a dramatic effect on business performance and achievement of the strategy. Therefore, operations require close coordination with functional strategies in other areas of the firm, such as marketing and finance.

4-5b Sustainability and Operations Strategy Sustainability is defined in previous chapters using three dimensions—environmental, social, and economic sus- tainability. Stakeholders such as the community, green ad- vocacy groups, and the government drive environmental sustainability. Social sustainability is driven by ethics and human ideals of protecting the planet and its people for the well-being of future generations. Economic sustain- ability is driven by shareholders such as pension funds and insurance companies. Therefore, sustainability is an organizational strategy—it is broader than a competitive priority. Sustainability requires major changes in the cul- ture of the organization (see box on General Electric).

Many companies, such as Dell, Kaiser Permanente, and Nike, view sustainability as a corporate strategy. A majority of global consumers believes that it is their re- sponsibility to contribute to a better environment and would pay more for brands that support this aim. Like- wise, retailers and manufacturers are demanding greener

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S ocial sustainability, sometimes called ethical sustainability, is driven

by ethics and human ideals of protecting the planet and its people

for the well-being of future generations. It begins with a vision of

the business and a strategy. Donald Schoendorfer, an entrepreneur

and founder of Free Wheelchair Mission (FWM), travelled to many developing

countries and noticed family and friends carrying disabled people because

they could not afford to buy a wheelchair. Some 100 million people world-

wide face this situation. He researched this problem but found no solution.

Mr. Schoendorfer, who held more than 50 patents in the medical

industry, decided to make a simple and inexpensive but rugged wheelchair

using commonly available components such as plastic patio furniture for

the seat, old wheelchair frames, and used mountain bike parts and tires.

The cost of the first wheelchair was $28 and it could be shipped anywhere

in the world for about $41. The chairs are manufactured in China and

shipped to some of the most remote regions in the world in ocean-going

containers. Once they arrive at the port, carefully-selected distribution

partners assume financial, logistical, and distribution control of the chairs

for local qualified beneficiaries. They have shipped hundreds of thousands

of these wheelchairs, achieving the goal “to lift someone up off the ground

and change a life forever.10

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products and supply chains. In 2007, Walmart Stores Inc. announced that it would transition toward selling only concentrated laundry detergents, which use much less water and therefore require less packaging and space for transport and storage. Every major supplier in the deter- gent industry was involved. Government actions are also driving these initiatives. The 2009 U.S. stimulus package earmarked $70 billion for the development of renewable and efficient energy technologies and manufacturing. The European Union has set targets for reducing emis- sions to 20 percent of 1990 levels by 2020.

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