Competitive Advantage and Operations Strategy

Competitive Advantage and Operations Strategy Competitive Advantage is Achieved by Positioning yourself in a unique, defensible niche in your market ...
0 downloads 3 Views 485KB Size
Competitive Advantage and Operations Strategy

Competitive Advantage is Achieved by Positioning yourself in a unique, defensible niche in your market or industry, and/or Developing capabilities along performance dimensions that are both valued by customers and superior to those of competitors © Harvard Business School

1

The Strategy Hierarchy Corporate Strategy

Functional Strategy

Functional Strategy

What Businesses should we be in? Business Strategy

Business Strategy

Example Questions

Functional Strategy

How should we compete?

e.g. What should our facilitiesIT networks look like?

© Harvard Business School

An historical Perspective ~ 1985 Asian Competition, based primarily on operations Get our “House in Order” – – – –

Reduce costs Eliminate Waste Just-In-Time Increase Flexibility & Productivity

Catch up! © Harvard Business School

2

The 2000’s Operations, and its associated Information Technology have become a critical part of competitive strategy (eg Schwab, Cisco, Dell) Operations/I.T. increasingly a critical Competitive Weapon – Why?

© Harvard Business School

Competing Through Operations and IT What does it involve? – Being explicit... ...within each business – Configure the system to develop operational capabilities that provide A Competitive Advantage in the marketplace

© Harvard Business School

3

What competitive advantage(s) are you seeking? Lowest price/cost – delivered vs. lifetime

Highest quality – product/service performance, tolerances, purity – customer service

Most dependable/reliable – product or service – delivery or availability – field service/repair © Harvard Business School

What competitive advantage(s) are you seeking? Most flexible – broad product line – customized products & services – fast response/delivery times

Most innovative – new products & services – latest technologies/methodologies © Harvard Business School

4

Question to the CEO: Which of the advantages listed above do you want? “ALL OF THEM!” “That’s exactly the list I came up with last night before our planning meeting this morning!” “I want you to be WORLD CLASS on all these dimensions.” Unfortunately, there are tradeoffs… so you have to pick one or two and concentrate your attention and resources on them Otherwise you end up with something that looks like the next slide © Harvard Business School

Committing to “Excellence”? Our Charter This company will be provide the highest quality and lowest cost, along with outstanding flexibility and customer service. We commit to generating the most innovative products and services at the leading-edge of technology. We pride ourselves on our safety, environmental consciousness, and concern for our people. We seek to be world-class on every dimension. (The Strategic Planning Team - please post) (anyone ever seen one of these?) © Harvard Business School

5

Order “Winners” versus “Qualifiers” Some competitive dimensions are more important than others – Which one(s) depends on your competitive environment and strategy Qualifier* - the minimum level that must be achieved in order to be considered a viable candidate Winner – the single most important attribute to your targeted customers (that you must excell in) * The terms “Order Qualifier” and “Order Winner” are attributed to Prof. Terry Hill © Harvard Business School

Why distinguish? Like any system, an Operations Organization can’t do everything exceptionally well So, it must concentrate its resources on doing one or two of the most important things exceptionally well Which implies that its operations strategy must be centered on a dominant FOCUS © Harvard Business School

6

A Strong Competitor with an Operations Advantage "Superior performance on dimensions with the highest priorities

"Acceptable range of performance on each Competitive dimension" X

Cost

X Quality/Product Performance

X Dependability /reliability

X Flexibility

X Innovativeness

© Harvard Business School

An Obvious Prescription: Build Operations Strategies that – meet the qualifiers – excel on the winners

But….. there’s a problem…..

© Harvard Business School

7

Things Change! Winners and Qualifiers change, and jockey for position over time, Consider the US auto industry in the late 1950s. – order winner: price (& length!) => narrow product range – Japanese car imports competed first at low end, then progressively emphasized quality – Quality/reliability became the new order winner! © Harvard Business School

Auto-industry (cont.) Big scramble to catch up! – Improvement through TLAs* (TQM, SPC, MRP, etc. etc) – “Quality is JOB #1”

Now… after many years…. the US/European auto companies can deliver roughly the same degree of quality as their Japanese counterparts. but Once everyone is at the same level on an “order winner”…..it becomes an…. (* TLA = Three Letter Acronym)

© Harvard Business School

8

Auto Industry Example …..Order Qualifier! So what’s the next order winner going to be? – Features? Fuel Efficiency? Safety? Electronics? (None of these are particularly difficult to imitate) Note: Toyota can now custom produce a car in Japan, through its plants, in 5 DAYS. (vs. 12 weeks in the US & Europe) – Could this be the next “across-the-industry” order winner? – Very difficult to imitate, and delivers value to the customer

Takeaway: Operations are *DIFFICULT* - and therefore, can be great sources of sustained advantage. © Harvard Business School

Configuring an Operating System to Achieve the Desired Competitive Priorities Have to make strategic choices in 11 categories Why 11? (10 is too few and 12 is too many!) – These 11 provide a good start when characterizing a company’s operations strategy

There’s a big differences between “Structural” and “Infrastructural” Decisions – Bricks & mortar vs. systems and policies – “Hardware” vs. “Software” © Harvard Business School

9

The “Architecture” of an Operations Strategy Structural 1. Capacity 2. Facilities 3. Technology 4. Sourcing

Infrastructural 5. Capital/Resource Allocation 6. Human Resources 7. Work Planning/Control 8. Quality Management 9. Measurement/Rewards 10. Prod./Proc. Development 11. Organization

© Harvard Business School

1. Capacity How much capacity to provide – Above, below or to the forecast? How should it be provided? – In large or small chunks? – using overtime? extra shifts? – by expanding existing facilities or building new ones? © Harvard Business School

10

2. Facilities A few large facilities versus many small ones Specialize (Focus) by – – – –

products/services? process stages? product or service age or volume? geographic region?

Location – Near Markets? Low cost materials? Low cost labor? Skills?

© Harvard Business School

3. Process Technology Labor Intensive versus Automated – Labor usually more flexible – Automation: higher output, lower cost, higher c/o cost

Purchase versus Develop In-House – May not want to share proprietary technology – Build internal capabilities vs. “stick to your knitting”? – Create an additional source of competitive differentiation?

Follower or Leader in Process Technology? – Which processes? – Dependence vs. Alliance vs. Proprietary? © Harvard Business School

11

4. Sourcing/Vertical Integration Will you make or buy critical parts or services? – Cost vs. Skill Building vs. Dependence

Independent vs. Captive – What % of a supplier’s sales do you want to have? – Do you want to control them? – Will you be at arm’s length or form partnerships?

Own vs. Control critical assets – Particularly Intellectual & Intangible assets © Harvard Business School

5. Capital/Resource Allocation Operations’ role in the evaluation process Integrating proposals with strategy Which methodologies and measures to use Managing the approval protocol

© Harvard Business School

12

6. Human Resources Selection and Skill base – Criteria for Selecting Human Resources – How will you attract people? Retain them? – How train/develop them?

Depth vs. Breadth – Emphasize organization/industry-specific skills or those that are relatively easy to transfer? © Harvard Business School

7. Work Planning and Control Types of Inventory (in services, as well!) – Raw Materials (or customers waiting for service) – Work-In-Process (or customers being serviced) – Finished Goods

“Pull” System versus “Push” System – MRP as a “push” system – Kanban as a “pull” system – Both try to be “Just-In-Time”! © Harvard Business School

13

8. Quality Management Quality Systems – What measures of “quality” will you emphasize? – Build quality in or test it in? – What systems/methodologies will you use? (SPC?)

Roles and Responsibilities – Central, Quality “department”, line organization – Distributed Quality Awareness (how involve your people?) © Harvard Business School

9. Measurement & Rewards Who does the measuring? What is measured, and over what time period How are performance gaps identified & addressed? What kind of rewards—or penalties—are assigned, based on the performance results? – Salaries vs. Incentive Bonuses vs. Equity/Long-term © Harvard Business School

14

10. Product/Process Development Encouraging a rich mix of possible projects Selecting the ones that best fit the organization’s strategy & resources Managing projects through the development funnel Creating and overseeing the project portfolio

© Harvard Business School

11. Organization & Control Organizational Structure and Control Systems – Centralization vs. decentralization – Facility “charters” vs. Prescribed procedures

Roles of “Staff” vs. Line organization – At what level do people become “staff”?

How control remote units? – Autonomous vs. Regional hubs vs. Direct © Harvard Business School

15

Key features of a Good Operations Strategy - a checklist (a) Adopt a Focused competitive strategy – excelling on your order winners (& meeting the qualifiers)

(b) Maintain External Consistency – fit with the way you want to compete

(c) Monitor Internal Consistency – all the strategic structure/infrastructural pieces fit together (e.g. facility location with workforce and quality and capacity with process technology) © Harvard Business School

Reasons for Inconsistent Operations Structures (1) Operations’ strategic mission never made explicit - -> so little incentive to change Emphasis on shoring up weaknesses - and inadvertently compromising strengths Enlisting the help of “Experts” whose goals – while valid and accepted in their professions, are – not congruent with the firm’s competitive strategy • engineers/IT, cost accountants, management consultants © Harvard Business School

16

Reasons for Inconsistent Operations Structures (2) Successful operations attract added responsibilities! – More and more products and processes are piled in – Often results in a futile attempt to meet the operating requirements of a variety of markets, technologies, and competitive strategies Î “Success breeds Failure” © Harvard Business School

Reasons for Inconsistent Operations Structures (3) Successful companies build systems to support their “proven recipe for success” – structure (hardware) – infrastructure (software)

Then the environment changes – and they have a juggernaut headed in the wrong direction.... ΓSuccess breeds Failure” © Harvard Business School

17

Suggest Documents