Chapter 2

Operations Strategy and

Competitiveness
Strategic Planning
 A process for getting from where the
company is today to where company
would like to be in the future.
 A process for getting from “here” to
“there.”
Strategic Planning Steps
 Preparing a mission statement
 Creating a vision
 Setting goals
 Formulating strategies
 Designing tactics
 Evaluating process and taking corrective
action
 Measuring results or outcomes
Strategic Planning Steps
 Mission
 What is our business? (Who we are?)
 Focus is on “today” (Here!)
 Vision
 What we hope to be.
 Focus is on “future” (There!)
Strategic Planning Steps
 Goals
 What we must do to achieve vision.
 Should be measurable.
 Strategies
 In broad terms, what must we do to
achieve goal?
 Does not say how.
Strategic Planning Steps
 Depends on opportunities and threats
 Conduct environmental scan
 Also depends on companies strengths
(core competencies) and weakness
 Conducting an environmental scan and
identifying companies strengths and
weakness is a SWOT analysis.
 SWOT

Internal S = Strengths W= Weakness

External O = Opportunities T = Threats

Strategic Planning Steps
 Tactics
 What must we do to make strategies work?
 Evaluation and corrective action
 Are tactic working?
 Are they moving you closer to achieving
goal?
 If not, take corrective action by changing
tactics.
Strategic Planning Steps
 Outcome
 Outcome of strategic planning process
 Tells us if strategic planning process was
successful.
 Was goal was achieved?
 If not, repeat.
Example 1: Strategic Plan
Mission Sue is a 17 yr. old high school senior
Vision Be successful in business
Goal Become a CFO of a major co. at 35
Strategies Get a business degree
Tactics Go to CSUN, major in Finance, get
internship with Fidelity Investments,
become president of SFA, get 3.8 or
better GPA
Evaluation/ Are tactics working?
Corrective action
Outcome Position at age 35
Example 2: Strategic Plan
Mission Ed is a 42 yr. old overweight male

Vision Look better, feel better

Goal Lose 80 lbs. in 6 mos.
Strategies Diet, exercise
Tactics Go on Jenny Craig diet, join 24 Hr.
Fitness Center, get a trainer, go to
gym 5 days/wk.
Evaluation/ Track weight loss weekly; adjust
Corrective action tactics if necessary
Outcome Weight lost at end of 6 mos.
Example 3: Strategic Plan
Mission We are in business of selling men’s
dress shoes in SFV
Vision Expand market area to include So. Ca.
Goal Capture 30% of So. Ca. market in 1 yr.
Strategies Expand product line, increase
marketing effort
Tactics Carry women’s shoes; carry more
shoe lines including athletic shoes and
sandals; Advertise in major
newspapers.
Evaluation/ Are tactics working?
Corrective action
Outcome Market share 1 year from now
 Starbuck’s Strategic Plan
 Mission statement
 'Establish Starbucks as the premier purveyor of
the finest coffee in the world while maintaining
our uncompromising principles while we grow.‘
 What’s wrong with Starbuck’s mission
statement?
 Starbuck’s Strategic Plan
 Goal
 To establish Starbuck’s as the most
recognized and respected brand in the
world.
 What is requirement that goal should
meet?
 Does Starbuck’s goal meet it?
Starbuck’s Strategic Plan
 To achieve this goal, the Starbuck’s
plans to
 rapidly expand its retail operations,
 grow its specialty sales and other
operations, and
 selectively pursue opportunities to
leverage the Starbuck’s brand through the
introduction of new products and
 the development of new distribution
channels.
Starbuck’s Strategic Plan
 Are these steps strategies or tactics?
Answer
 They are Strategies - board statement
of what company will do to achieve
goals, but doesn’t say how.
 Tactics would tell us, for example, how
the company plans to expand retail
operations.
 For example, open more retail stores in
airports and malls.
 FedEx’s Mission

FedEx provides access to a growing

global marketplace through a network of
supply chain, transportation, business and
related information services.
 Lexus’ Mission
Lexus has revolutionized the luxury motoring
experience through its passionate commitment
to the finest products and the most satisfying
automobile ownership experience.
We vow to value the customer as an important
individual; to do things right the first time; and
to always exceed expectations.
We brought together these principles in the
Lexus Covenant, which inspires our dealers and
associates to treat customers as they would treat
guests and to go to any lengths to serve them
better.
More on Lexus
 “In order to make certain that a Lexus
is a Lexus no matter where it is built,
the entire workforce at Cambridge was
trained to follow the Passionate Pursuit
of Perfection that drives Lexus
associates worldwide.”
 Is there any connection between Lexus
and McDonald’s?
CSUN College of Business/Econ
Mission
 The College of Business and Economics at
California State University, Northridge is dedicated
to educating the leaders of tomorrow.
 By offering a challenging curriculum, smaller class

sizes, state-of-the-art facilities, and nationally

recognized programs, the College offers a truly
unique educational experience.
Developing an Operations
Strategy
 Operations Strategy is a plan for using
the operational capabilities of a
company to decide how it will compete.
 Will it compete on
 Price,
 Quality,
 Time,
 Flexibility?
 One, some or all?
Competing on Price?
 Offering product at a lower price
relative to competition
 Works if there are many competitors
offering same product or service.
 If you of a product with a high degree
of customization, does it make sense
for you to compete on price?
 Must also have lower ??? relative to
competitors.
 Competing on Quality?
 Quality of product
 Quality of service
 Both
 Does competing on quality mean that a
company can’t compete on price
because it, if it offers better quality, it
will charge a higher price?
 Depends on how quality affects ???
 If it increases ????, yes.
 If it decreases ???, not necessarily.
 Competing on Time?
 Time/speed one of most important
competition priorities
 Time related issues involve
 Rapid delivery:
 Focused on shorter time between order
placement and delivery

 On-time delivery:
 Deliver product exactly when needed every
time
Competing on Flexibility?

 Product flexibility:
 Easily switch production from one item to
another
 Easily customize product/service to meet
specific requirements of a customer

 Volume flexibility:
 Ability to ramp production up and down to
match market demands
 Measuring Productivity

 Productivity is a measure of how efficiently

inputs are converted to output.

Output
Productivity =
Inputs
Measuring Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 Uses some but not all inputs
 output/(multiple inputs)

 Total measure
 uses all inputs
 output/($ value of all inputs)
 Measures of Productivity

Partial Output Output Output

measures Labor Machine Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure $ value of all inputs used to produce them
Examples of Partial Productivity Measures

Labor Units of output per labor-hour

Dollar value of output per labor-hour
Productivity
Machine Units of output per machine-hour
Dollar value of output per machine-
Productivity hour
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity
Numerical Example
Output Labor Machine
Units 500 x x
Hours x 26 6
Cost/unit x $8 $3
Price/unit $15 x x
Partial Measures

Units Produced
Labor Productivi ty 
Labor hrs.

500
Labor Productivi ty   19.3
26

Explain meaning?
 Partial Measures

Dollar Value of Output

Labor Productivi ty 
Labor hrs.

500 x $15/unit $7,500

Labor Productivi ty    $288.46
26 hrs. 26 hrs.

Explain meaning?
 Partial Measures

Units Produced
Labor Productivi ty 
Labor cost

Units Produced

(Labor hrs.) x (Labor cost/hr.)

50
Labor Productivi ty   2.4
26 x $8

Explain meaning?
Partial Measures

Units Produced
Machine Productivi ty 
Machine hrs.

500
Machine Productivi ty   83.3
6

Explain meaning?
 Multi-factor

Units Produced
MFP 
Machine Cost  Labor Cost

Units Produced

(Machine hrs.) x (Machine cost/hr.)  (Labor hrs.) x (Labor cost/hr.)
 Multi-factor

Units Produced
MFP 
(Machine hrs.) x (Machine cost/hr.)  (Labor hrs.) x (Labor cost/hr.)

500

6 x $3  26 x $8

 2.21
 Measuring Productivity

Measure Outputs Inputs

Partial Units or dollars Units or dollars

Multi-factor Units or dollars Dollars

Total Units or dollars Dollars

Summary
 Output in units/Input in hrs. = Output
per input hour
 Output in $/Input in hrs. = X
Produced output worth $X per input hr.
 Output in units/Input in $ = Y
Produced Y units per $ spent on input
 Output in $/Input in $ = Z
Produced Z units per $ spent on input
Bottleneck Operation

30
units
Sanding 50 units/hr /hr
Polishing
Machine

Bottleneck
operation
Improving Productivity
 Eliminate bottleneck operations
 Eliminate non-value added steps
 Use improved technology
 Improve quality
 Less rework
 More good units produced the first time
 Productivity should measure number of good
units produced the first time