Download The Scope and Language of Operations Management

Chapter 3
Performance Excellence,
Competitive Advantage, and
Strategic Management
1
Competitive Advantage
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Competitive advantage: a firm’s ability to
achieve market superiority over its
competitors.
Characteristics:
– Is driven by customer wants and needs
– Makes significant contribution to business success
– Matches organization’s unique resources with
opportunities
– Is durable and lasting
– Provides basis for further improvement
– Provides direction and motivation
2
Product Quality and Business
Performance - PIMS Studies
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Product quality is the most important determinant of
business profitability.
Businesses offering premium quality products and
services usually have large market shares and were
early entrants into their markets.
Quality is positively and significantly related to a
higher return on investment for almost all kinds of
products and market situations.
A strategy of quality improvement usually leads to
increased market share but at a cost in terms of
reduced short-run profitability.
High-quality producers can usually charge premium
prices.
Quality and Profitability
Improved quality
of design
Improved quality
of conformance
Higher perceived
value
Higher
prices
Increased market
share
Increased
revenues
Higher profitability
Lower
manufacturing and
service costs
4
Quality and Business Results
Studies
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General Accounting Office study of Baldrige
Award applicants
Hendricks and Singhal study of quality
award winners
Performance results of Baldrige Award
winners
GAO Study Model
Sources of Competitive
Advantage
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Cost Leadership
Differentiation
People
Quality and Differentiation
Strategies
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Superior product and service design
Outstanding service
High agility
Continuous innovation
Rapid response
Quality and Product Design
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Understanding customer needs and
expectations
Systematic processes for design and product
improvement
Tools and techniques
–
–
–
–
Concurrent engineering
Value analysis
Design reviews
Experimental design
Quality and Outstanding
Service
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Key components of service quality:
employees and information technology
Dimensions of service quality
– Reliability – ability to provide what was promised
– Assurance – knowledge and courtesy of
employees and ability to convey trust
– Tangibles – physical facilities and appearance of
personnel
– Empathy – degree of caring and individual
attention
– Responsiveness – willingness to help customers
and provide prompt service
Quality and Agility

Agility – capacity for flexibility and rapid
change
– Continual monitoring and sensing of
changing customer needs and expectations
– Fast design changes
– Rapid roll out of new products and
processes
– Cross-functional cooperation and
coordination
– Good supplier relations
Quality and Innovation
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Innovation is vital to competing in
today’s world
Innovation creates new customer
needs and expectations and leads to
higher levels of performance
Creativity and breakthrough thinking
are encouraged
Quality and Time
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Cycle time – the time it takes to accomplish one cycle
of a process
Success in today’s markets requires increasingly
shorter cycle times
Major improvements in response time often require
work organizations, processes, and paths to be
simplified and shortened. Simplified processes reduce
opportunities for errors, leading to improved quality.
Improvements in response time often result from
increased understanding of internal customersupplier relationships and teamwork.
Information and Knowledge
for Competitive Advantage

A supply of consistent, accurate, and
timely data across all functional areas
of business provides real-time
information for the evaluation, control,
and improvement of processes,
products, and services to meet both
business objectives and rapidly
changing customer needs.
Need for Performance
Measurement
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To lead the entire organization in a particular
direction; that is, to drive strategies and
organizational change;
to manage the resources needed to travel in
this direction by evaluating the effectiveness of
action plans; and
to operate the processes that make the
organization work and continuously improve
Balanced Scorecard
1.
2.
3.
4.
Financial perspective
Internal perspective
Customer perspective
Innovation and learning
perspective
Leading measures
Lagging measures
Baldrige Classification of
Performance Measures
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Product and service outcomes
Customer-focused outcomes
Financial and market outcomes
Human resource outcomes
Organizational effectiveness outcomes
Leadership and social responsibility
outcomes
17
Strategic Planning
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Strategy – the pattern of decisions that
determines and reveals a company’s goals,
policies, and plans to meet the needs of its
stakeholders
Strategic planning – the process by which
members of an organization envision its
future and develop the necessary
procedures and operations to carry out that
vision
Goals of Strategic Planning
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Plan for the long term, and understand the key
influences, risks, challenges, and other requirements
that might affect the organization’s future
opportunities and directions.
Project the future competitive environment to help
detect and reduce competitive threats, shorten
reaction time, and identify opportunities.
Develop action plans and deploy resources—
particularly human resources—to achieve alignment
and consistency, and provide a basis for setting and
communicating priorities for ongoing improvement
activities.
Ensure that deployment will be effective—that a
measurement system enables tracking of action plan
achievement in all areas.
Strategic Planning Process
Mission
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Definition of products and services,
markets, customer needs, and
distinctive competencies
Example - Procter & Gamble: “We will
provide products of superior quality
and value that improve the lives of
world consumers.”
Vision
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Where the organization is headed and what
it intends to be
–
–
–
–
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Brief and memorable - grab attention
Inspiring and challenging - creates excitement
Descriptive of an ideal state - provides guidance
Appealing to all stakeholders - employees can
identify with
Example – Solectron: “Be the best and
continuously improve”
Values (Guiding Principles)
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Define attitudes and policies for all
employees, which are reinforced through
conscious and subconscious behavior at all
levels of the organization.
Example – Federal express: “We will be
helpful, courteous, and professional to each
other an the public. We will strive to have a
completely satisfied customer at the end of
each transaction.”
Environmental Assessment
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Customer and market requirements,
expectations, and opportunities
Technological and other innovations
Organizational strengths and weaknesses
Financial, societal, ethical, regulatory and
other potential risks
Changes in global or national economy
Factors unique to the organization, such as
partner and supply chain needs
Strategies and Action Plans
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Strategies are broad statements that set the
direction for the organization to take in
realizing its mission and vision.
Strategic objectives are what an
organization must change or improve to
remain or become competitive.
Action plans are things that an organization
must do to achieve its strategic objectives.
Strategy Implementation
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Developing detailed action plans,
defining resource requirements and
performance measures, and aligning
work unit, supplier, or partner plans
with overall strategic objectives.
Policy Deployment
(Hoshin Kanri)
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Top management vision leading to longterm objectives
Deployment through annual objectives
and action plans
Negotiation for short-term objectives and
resources (catchball)
Periodic reviews
27
Hoshin Planning
Linking Human Resource
Plans and Business Strategy
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Changes in strategy often require changes
in HR plans
Examples
– Redesign of the work organization to increase
empowerment or teamwork
– Changes in labor/management partnerships
– Directed training and education
– Improved processes for knowledge sharing
Illustrative Example
Requirements for Effective
Strategic Planning
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A definable approach for developing
company strategy.
A clear company strategy with action plans
derived from it, and human resource plans
related to the action plans.
An approach for implementing action plans.
An approach for monitoring company
performance relative to the strategic plan.
Projections of strategy-related changes in
key indicators of company performance.
Case Studies
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Bronson Methodist Hospital
Branch-Smith Printing Division
Solectron
TQ and Strategic
Management Theory
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Classic strategy formulation addresses
the market environment, competitive
environment, and company capabilities
Other TQ-related factors – financial
and societal risk, human resource
capabilities, and supplier/partner
capabilities – are addressed only
indirectly in the literature