CHAPTER TWO

STRATEGY FOR COMPETETIVE ADVANTAGE

2.1. Identifying Missions and Strategies

2.2. Strategy Formulation
2.3. Achieving Competitive Advantage through Operations
2.4. Focused Operations

2.1 Identifying Missions and Strategies

➢ Mission is (countable) a set of tasks that fulfills a purpose or duty; an

assignment set by an employer

➢ Strategy is the science and art of military command as applied to the overall

planning and conduct of warfare. A plan of action intended to accomplish a

specific goal.
An organization’s mission is the reason for its existence. It is expressed in its mission statement.
For a business organization, the mission statement should answer the question “What business are
we in?” Missions vary from organization to organization, depending on the nature of their
business. Example, Microsoft: To help people and businesses throughout the world to realize their
full potential. Nike: To bring inspiration and innovation to every athlete in the world.

A mission statement serves as the basis for organizational goals, which provide more detail and
describe the scope of the mission. The mission and goals often relate to how an organization wants
to be perceived by the general public, and by its employees, suppliers, and customers. Goals serve
as a foundation for the development of organizational strategies. These, in turn, provide the basis
for strategies and tactics of the functional units of the organization.

Organizational strategy is important because it guides the organization by providing direction for,
and alignment of, the goals and strategies of the functional units. Moreover, strategies can be the
main reason for the success or failure of an organization. There are three basic business strategies:
✓ Low cost.
 ✓ Responsiveness.
✓ Differentiation from competitors.
If you think of goals as destinations, then strategies are the roadmaps for reaching the destinations.
Strategies provide focus for decision making. Generally speaking, organizations have overall
strategies called organizational strategies, which relate to the entire organization. They also have
functional strategies, which relate to each of the functional areas of the organization. The
functional strategies should support the overall strategies of the organization, just as the
organizational strategies should support the goals and mission of the organization.

Tactics are the methods and actions used to accomplish strategies. They are more specific than
strategies, and they provide guidance and direction for carrying out actual operations, which need
the most specific and detailed plans and decision making in an organization. You might think of
tactics as the “how to” part of the process (e.g., how to reach the destination, following the strategy
roadmap) and operations as the actual “doing” part of the process.

Operations strategy

Operations strategy specifies the policies and plans for using the organization’s resources to
support its long-term competitive strategy. The role of operations strategy is to provide a plan for
the operations function. It can make the best use of its resources. The role of operations strategy is
to provide a plan for the operations function so that it can make the best use of its resources.
Operations strategy specifies the policies and plans for using the organization’s resources to
support its long-term competitive strategy.

Remember that the operations function is responsible for managing the resources needed to
produce the company’s products or services. Operations strategy is the plan that specifies the
design and use of these resources to support the business strategy. This includes the location, size,
and type of facilities available; worker skills and talents required; use of technology, special
processes needed, special equipment; and quality control methods. It is the role of operations
strategy to provide an overall plan for the use of all these resources. The operations strategy must
be aligned with the company’s business strategy and enable the company to achieve its long-term
plan.
The following figure had shown us the summary of operations strategy and competitive
priorities.

2.1.1 The role of operations strategy

2.1.2 Operations strategy formulation

The key steps in strategy formulation are:

1. Link strategy directly to the organization’s mission or vision statement.
 2. Assess strengths, weaknesses, threats and opportunities, and identify core
competencies.
3. Identify order winners and order qualifiers.
4. Select one or two strategies (e.g., low cost, speed, customer service) to focus on.

To formulate an effective strategy, senior managers must take into account the core competencies
of the organizations, and they must scan the environment. They must determine what competitors
are doing, or planning to do, and take that into account. They must critically examine other factors
that could have either positive or negative effects. This is sometimes referred to as the SWOT
approach (strengths, weaknesses, opportunities, and threats).

Strengths (Internal)

➢ Things your company does well

➢ Qualities that separate you from your competitors
➢ Internal resources such as skilled, knowledgeable staff
➢ Tangible assets such as intellectual property, capital, proprietary technologies, etc.

Weaknesses (Internal)

• Things your company lacks

• Things your competitors do better than you
• Resource limitations
• Unclear unique selling proposition
Opportunities (External)

❖ Underserved markets for specific products

❖ Few competitors in your area
❖ Emerging needs for your products or services
❖ Press/media coverage of your company

Threats (External)

✓ Emerging competitors
✓ Changing regulatory environment
✓ Negative press/media coverage
✓ Changing customer attitudes toward your company

Strengths and weaknesses have an internal focus and are typically evaluated by operations people.
Threats and opportunities have an external focus and are typically evaluated by marketing people.
SWOT is often regarded as the link between organizational strategy and operations strategy.

In formulating a successful strategy, organizations must take into account both order
qualifiers and order winners.
 Order Qualifiers: Performance dimensions on which customers expect a
minimum level of performance.
 Order winners-Those competitive characteristics that cause a firm’s customer to
choose that firm s goods and services over those of its competitors. Order winners
can be considered to be competitive advantages for the firm. Order winners usually
focus on one (rarely more than two) of the following strategic initiatives price/cost,
quality, delivery speed, delivery reliability, product design, flexibility, after-
market service, and image.

Important factors may be internal or external. The following are key external factors:
1. Economic conditions. These include the general health and direction of the economy,
inflation and deflation, interest rates, tax laws, and tariffs.

2. Political conditions. These include favorable or unfavorable attitudes toward

 business, political stability or instability, and wars.

3. Legal environment. This includes antitrust laws, government regulations, trade

restrictions, minimum wage laws, product liability laws and recent court experience,
labor laws, and patents.

4. Technology. This can include the rate at which product innovations are occurring,
current and future process technology (equipment, materials handling), and design
technology.

5. Competition. This includes the number and strength of competitors, the basis of
competition (price, quality, special features), and the ease of market entry.

6. Markets. This includes size, location, brand loyalties, ease of entry, potential for
growth, long-term stability, and demographics.

The organization also must take into account various internal factors that relate to
possible strengths or weaknesses. Among the key internal factors are the following:
1. Human resources. These include the skills and abilities of managers and workers;
special talents (creativity, designing, problem solving); loyalty to the organization;
expertise; dedication; and experience.

2. Facilities and equipment. Capacities, location, age, and cost to maintain or replace
can have a significant impact on operations.

3. Financial resources. Cash flow, access to additional funding, existing debt burden,
and cost of capital are important considerations.

4. Customers. Loyalty, existing relationships, and understanding of wants and needs are
important.

5. Products and services. These include existing products and services, and the potential
for new products and services.
6. Technology. This includes existing technology, the ability to integrate new
technology, and the probable impact of technology on current and future operations.
7. Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and
service are typical considerations.

8. Other. Other factors include patents, labor relations, company or product image,
distribution channels, relationships with distributors, maintenance of facilities and
equipment, access to resources, and access to markets.
2.2 COMPETITIVENESS
Competitiveness: How effectively an organization meets the wants and needs of customers
relative to others that offer similar goods or services.

It is an important factor in determining whether a company prospers, barely gets by, or fails.
Business organizations compete through some combination of their marketing and operations
functions.

Marketing influences competitiveness in several ways, including identifying consumer wants

and needs, pricing, and advertising and promotion.

1. Identifying consumer wants and/or needs is a basic input in an organization’s

decision-making process, and central to competitiveness. The idea is to achieve a
perfect match between those wants and needs and the organization’s goods and/or
services.

2. Price and quality are key factors in consumer buying decisions. It is important to
understand the trade-off decision consumers make between price and quality.

3. Advertising and promotion are ways organizations can inform potential customers
about features of their products or services, and attract buyers.

Operations has a major influence on competitiveness through product and service

design, cost, location, quality, response time, flexibility, inventory and supply chain
management, and service. Many of these are interrelated.
1. Product and service design should reflect joint efforts of many areas of the firm to
achieve a match between financial resources, operations capabilities, supply chain
capabilities, and consumer wants and needs. Special characteristics or features of a
product or service can be a key factor in consumer buying decisions. Other key factors
include innovation and the time-to-market for new products and services.
2. Cost of an organization’s output is a key variable that affects pricing decisions and
profits. Cost-reduction efforts are generally ongoing in business organizations.
Productivity is an important determinant of cost. Organizations with higher
productivity rates than their competitors have a competitive cost advantage. A
company may outsource a portion of its operation to achieve lower costs, higher
productivity, or better quality.

3. Location can be important in terms of cost and convenience for customers. Location
near inputs can result in lower input costs. Location near markets can result in lower
transportation costs and quicker delivery times. Convenient location is particularly
important in the retail sector.

4. Quality refers to materials, workmanship, design, and service. Consumers judge

quality in terms of how well they think a product or service will satisfy its intended
purpose. Customers are generally willing to pay more for a product or service if they
perceive the product or service has a higher quality than that of a competitor.

5. Quick response can be a competitive advantage. One way is quickly bringing new or
improved products or services to the market. Another is being able to quickly deliver
existing products and services to a customer after they are ordered, and still another
is quickly handling customer complaints.

6. Flexibility is the ability to respond to changes. Changes might relate to alterations in

design features of a product or service, or to the volume demanded by customers, or
the mix of products or services offered by an organization. High flexibility can be a
competitive advantage in a changeable environment.

7. Inventory management can be a competitive advantage by effectively matching

supplies of goods with demand.

8. Supply chain management involves coordinating internal and external operations

(buyers and suppliers) to achieve timely and cost-effective delivery of goods
throughout the system.

9. Service might involve after-sale activities customers perceive as value-added, such as

 delivery, setup, warranty work, and technical support. Or it might involve extra
attention while work is in progress, such as courtesy, keeping the customer informed,
and attention to details. Service quality can be a key differentiator; and it is one that
is often sustainable. Moreover, businesses rated highly by their customers for service
quality tend to be more profitable, and grow faster, than businesses that are not rated
highly.
10. Managers and workers are the people at the heart and soul of an organization, and if
they are competent and motivated, they can provide a distinct competitive edge by
their skills and the ideas they create. One often overlooked skill is answering the
telephone.

How complaint calls or requests for information are handled can be a positive or a
negative. If a person answering is rude or not helpful, that can produce a negative
image. Conversely, if calls are handled promptly and cheerfully, that can produce
a positive image and, potentially, a competitive advantage.