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Operations Strategy

Baker College - Auburn Hills SBM 131

Allison Kneisler

on 8 November 2011

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Transcript of Operations Strategy

Strategy Applying the
Strategy Development Framework: A Case
Study of McDonald’s Understanding
Needs and Wants Competitive
Priorities Strategic
Planning Operations
Strategy Operations Design
Choice and Infra-structure Decisions Building
the Right Infrastructure Satisfiers Dissatisfiers Exciters/Delighters Kano
System of Customer Requirements Attributes Why and How
Evaluation Cost Quality Time Flexi-
bility Inno-
vation Why are these
important? Dissatisfiers

Requirements that are expected in a good or service. In a car a radio and driver-side air bag are expected by the customer as a given. In a hotel the customer assumes the room is clean and safe. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. Satisfiers

Requirements that customers say they want. Many car buyers want a sunroof, power windows, or antilock brakes. A hotel guest may want an exercise room, hot tub, or a restaurant in the hotel. Providing these goods and service features creates customer satisfaction by fulfilling customer’s wants and needs. Exciters/Delighters

New or innovative good or service features that customers do not expect.
The presence of unexpected features leads to surprise and excitement and enhances the customer’s perceptions of value. For instance, A collision avoidance system or a navigational system can surprise a customer and delight the customer and enhance the customer’s feeling of safety. If you add laser lights and music to a clothing store, you can entertain and delight the customer while they shop. These are usually peripheral goods or services. Suggested by
Japanese Professor
Noriaki Kano Kano Classification System In the Kano classification system, dissatisfiers and satisfiers are relatively easy to determine through routine marketing research. The hot-selling Ford F-150 for example, relied on extensive consumer research at the beginning of the redesign process.
As customers become familiar with new goods and service features that delight them, these same features become part of the standard customer benefit package over time.
Eventually exciters/delighters become satisfiers. For example, wireless computer access in hotel rooms once differentiated one hotel from another with business customers but now are an ordinary part of most hotel’s customer benefit package. In fact, the absence of hotel room online computer capability is a dissatisfier today.
Basic customer expectations-dissatisfiers and satisfiers-are generally considered the minimum performance level required to stay in business and are often called order qualifiers.
The unexpected features that surprise, entertain, and delight customers by going beyond the expected often make the difference in closing a sale.
Order Winners: are goods and service features and performance characteristics that differentiate one customer benefit package from another and win the customer’s business. For example, years ago the financing of a car was not important as financing and leasing options today. If three cars offer the same features then an attractive leasing package bundled with other goods and services may very well be the order winner.
Satifiers OVER TIME Exciters/
Delighters Dissatifsfiers Search Experience Credence Research suggests that customers use three types of attributes in evaluating the quality of goods and services: search, experience, and credence.
Color Price Freshness Feel Style Smell hardness Friendliness Taste Wearability Safety Fun Customer
Satisfaction Expertise Knowledge Accuracy 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, cars, and houses are high in search attributes.
Experience Attributes are those that can only be discerned after purchase or during consumption or use.
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, the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software.
In these situations, the customer does not have the opportunity, expertise, or experience to evaluate the quality of the good or service, but can only have faith and trust that the good performs as it should or the service provider has done the job right.
This classification has several important implications for operations.
Customers evaluate services in ways that are often different from the ways they evaluate goods.
Customers seek and rely more on information from personal sources than from non-personal when evaluating services prior to purchase.
Customers use a variety of perceptual features in evaluating services. Safety, friendliness, professionalism, and speed of service can enhance or damage the customer’s perception of the value of the service.
Customers normally adopt innovations in services more slowly than they adopt innovations in goods. Like new medical treatments, different curricula in secondary schools. Service processes must be flexible to accommodate rapid innovation.
Customers perceive greater risks when buying services than when buying goods. Because services are intangible, customers cannot look at or touch them prior to the purchase decision. This is why many are hesitant to use online banking or bill paying.
Dissatisfaction with services is often the result of customers’ inability to properly perform or coproduce their part of the service.
A wrong order on the internet can be the result of customer error despite all efforts on the part of the company to provide clear instructions.
These insights help to explain why it is more difficult to design services and service processes than goods and manufacturing operations. This classification has several important implications for operations.
Example, the most important search and experience attributes should be evaluated during design, measured during manufacturing, and drive key 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 and evaluation continuum from easy to difficult.
Goods are easier to evaluate than services, in that goods are high in search qualities and services are high in experience and credence attributes.
Implications Show how customer wants and needs drive strategic thinking in a firm and their consequences for designing and managing within the value chain.
Because the fundamental purpose of an organization is to provide goods and services of value to customers, it is important to first understand customer needs and requirements and how they evaluate goods and services.
However, a company usually cannot satisfy every customer with the same goods and services. Customers must be segmented into several natural groups, each with unique wants and needs. These segments might be based on a number of factors, buying behavior, geography, demographics, sales volume, profitability, or expected levels of service.
By understanding the difference in each group a company can design the most appropriate customer benefit package, competitive strategies, and processes to create the goods and services to meet the unique needs of each segment. All five competitive priorities are vital to success
Most organizations make trade-offs among these and focus their efforts along one or two key dimensions
Example: BMW
Focuses on speed, flexibility, and quality
Many firms gain competitive advantage 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.
Southwest Airlines was the only major airline that was profitable in 2001-2002.Their low cost strategy caused other airlines to reduce their cost by 29% to operate at the same level (cost per mile).
A low cost strategy can reshape industry structure and allow the firm to survive in an economic downturn.
Improvements in quality lead to improvements in productivity, which lead to lower costs. Thus a strategy of continuous improvement is essential to achieving a low cost competitive advantage. Quality is positively and significantly related to a higher return on investment for almost all kinds of market situations.
High good quality producers can usually charge premium prices.
The value of a good or service in the market place is influenced by the quality of its design.
Operations Managers deal with this daily ensuring goods are produced defect free or service is flawless.
In the long run, it is the design of goods and service processes that ultimately define the quality of outputs and outcomes. Time is the most important source of competitive advantage.
Customers demand quick response, short waiting times, and consistency in performance.
Organizations know how to use time as a competitive weapon to create and deliver superior goods and services. Success in globally competitive markets requires a capacity for both design and demand flexibility.
Enablers of design flexibility include:
Close relationships with customers to understand their emerging wants and needs.
Outsourcing and make-versus-buy trade-off.
Empowering employees as decision makers.
Effective manufacturing and information technology and close supplier and customer relationship. Innovation is 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. As global competition increases, the ability to innovate has become almost essential for remaining competitive. Work
Force Operating
Plans and Control
Systems Quality
Control Organization
Structure Compensation
Systems Learning
and Innvoation
Systems Support
Services Management of work force has important long-term implications for operations strategy
-> How work and jobs are designed to promote empowerment, innovation, and problem solving
-> Amount of training provided to employees
-> Recognition and rewards
-> Incentive and compensation systems
-> Sustaining a positive and motivating work environment
Other Considerations
-> Employees with customer contact must have good social skills
-> Employees managing people must have good leadership skills
->Employees managing processing must have good technical skills How operations are planned affects cost, quality, and dependability
-> Scheduling
-> Material control
-> Capacity allocation
-> Waiting lines
-> Day-to-day quality control Whatever dimensions of quality a company chooses to emphasize should reflect customer needs and expectations
-> What characteristics to monitor/measure
-> Where in the process to measure
-> How often to measure and analyze data
-> What actions to take when problems are discovered Organizational structure greatly influences the ability of a company to satisfy it’s customers
Traditional Structure
-> Traditional top-down org chart
-> Divides organization into functions – marketing, finance, operations, etc.
-> Clear chain of command
-> Can inhibit agility and process improvement
Process Based Organization
-> Teams or people are dedicated to a specific process or project
-> Teams are often self-managed
-> Promotes speed, flexibility, and internal cooperation
Matrix Organization
-> Blends the two above methods Individual Focus
-> Encourages independence and empowerment
-> Rewards higher-performing employees
Team Based Focus
-> Encourages communication and teamwork
-> Strength through diversity
-> Requires supporting organization and training on team communication and brainstorming skills Decisions Recognition and reward
Advancement opportunities Training and continued education Benefits Team building and communication Empowerment Negotiation Work environment Job shift and displacement policies Important The basis for continuous improvement
How to record and disseminate knowledge accurately and quickly?
What training and support does each job need?
How do we manage legacy knowledge systems while new knowledge is acquired?
How to we prevent having to reinvent the wheel?
How can we institutionalize learning?
Support services often represent 30 to 70 percent of the cost of being in business
Superior documentation, measurement, evaluation, management, and continuous improvement of support services represents a significant cost savings
Strategic Planning is the direction an organization takes and the competitive priorities it chooses are driven by its strategy.
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 - which means the strengths unique to that organization. Levels of Strategy Level 1 - Corporate strategy
It is necessary to define the business in which the corporation will participate and develop plans for the acquisition and allocation of resources among those businesses.
Level 2 - Business strategy
In this level 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.
-> In small businesses, levels one and two may be combined Level 3 - Functional strategies
The means by which business strategies are accomplished.
-> Functional areas - marketing, finance, operations, research and development, and engineering. The Strategic Planning Process Mission and Values Steps of the Process 1st Strategy development refers to a company’s approach, formal or informal for making key long-term business decisions.
2nd Strategy implementation refers to the development of specific action plans derived from strategy that clearly describe the things that need to be done Two Main Parts In most businesses mission and values drive strategy.
Mission defines its reason for existence
Vision describes where the business is headed and what it intends to be.
A firm’s strategic mission and values guides the development of strategies by establishing the context within which daily operating decisions are made and how resources are allocated and setting on available strategic options.
Gather and Analyze Strategic Performance Data
Review/Analyze Existing Strategic Directions/Documents
Revise/Develop Strategy
Deploy Objectives and Action Plans
Review Progress and Results
Continually Evaluate and Improve Strategic Planning Process
Supply Chain
Integration and Outsourcing Technology Capacity and
Facilities Inventory Trade-Off
Analysis Should we make components in our facilities or purchase them from external suppliers?
Should we outsource support functions such as software integration or benefits administration?
Should we acquire suppliers or distributors or merge with them?
Should we use one or several suppliers?
Should we enter into alliances with suppliers, intermediaries, or customers
What market to enter global or local? Types of
Processes Value creation processes- that focus on primary goods and service creation and delivery.
Support processes- that provide the infrastructure for value creation processes.
General management- processes that coordinate the value creation and support processes. Impact cost
Innovativeness OM spotlight on McDonald’s
Facilities influence cost and customer service Capacity to meet the demand
Operations manger needs to consider where to position inventory with supply chain and how much to have at each chain. Capacity and service
Manual and automated equipment
Alternative process designs, inventory
Cost and service
Quality and cost
The number and location of service facilities The End Loop #1 - Ties together Coporate Strategy Is the input for Loop #2 Loop #2 - Describes how operations evaulates
the implications of competitive priorities
in terms of process choice and infrastructure Drives a rank ordering of
competitive priorities for
each market segment Loop #3 - Determines if process choice
decisions and capabilities are consistent with infrastructure decisions and capabilities Loop #4 - Represents operations' input
into the corporate and marketing strategy 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

Infrastructure focuses on the nonprocess features and capabilities of the organization and includes the workforce, operations plan and control systems, quality control, organizational structure, compensation systems, learning and innovation systems, and support services. hello btjumnbrthngkum
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