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Chapter 2

bu385 Chapter 2 – Competitiveness, Strategic Planning, and Productivity

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Wilfrid Laurier University
David Wheatley

B385 Op. Mgmt. Chapter 2 – Competitiveness, Strategic Planning, and Productivity  Competitiveness: ability and performance of an organization in the marketplace compared to other organizations that offer similar goods/services  Strategy: LT plans that determine direction an organization takes to become/remain competitive  Strategic planning: managerial process that determines strategy for the organization COMPETITIVENESS  The reason a company prospers, barely gets by, or fails  Depends on capabilities and performance of the company in its marketplace  Capabilities (core competencies) ***: collective knowledge/skills an organization has that distinguishes it from the competition. It can be developed by focusing on a limited range of goods/services/technology to integrate technology/production skills to develop new products. o Performance depends on expectations of customers for purchase of goods/services  mainly the key purchasing criteria: major elements influencing purchase: price, quality, variety, timeliness o Price: amount a customer must pay for the goods/service. If all other factors are equal, customers choose the one with the lowest price. o Quality: characteristics of goods/service determined by its design, material, workmanship, performance, and consistency.  customers are willing to settle for lower quality things o Variety: choices of models/options available; more variety = wider range of potential customers o Timeliness: availability of goods/services when they’re needed by the customer, being on time  think of organization in terms of its portfolio of core competencies (vs. products)  Key characteristics of Core Competencies*** 1) Should be used to gain access to a variety of markets 2) Should be strongly related to key benefits provided by products/services 3) Should be difficult to imitate  Other purchasing factors include customer service and convenient location  Most customers trade off price vs. other purchasing criteria and choose the best buy/value:  In complex purchases, customers use 2 categories of purchasing criteria 1) Order qualifiers: min standards (the ante) of acceptability  not enough to get a customer to buy it  something all/most organizations provide because they have to in order to enter the market  company loses customers and market share if an order qualifier is under stress 2) Order winners: criteria that cause the organization to be perceived as better than competition, “wins” the purchase  company will not gain market share if an order winner is under stress  Price, on-time delivery, delivery speed, quality  can be qualifier or winner  Situations where delivery speed is an order-winning criterion to be provided by manufacturing 1) When process lead time in manufacturing > customer’s delivery requirement 2) customer’s delivery requirement < (existing order backlog/forward load) + (process lead time in manufacturing)  Marketing must determine the set of order qualifiers/winners and communicate it to operations  Competitive priorities***: importance given to operations characteristics: cost, quality, flexibility, delivery  key purchasing criteria in goods/services o Cost: unit production of a good/performance of services to the organization. Organizations that compete based on cost emphasize lowering operating costs. 1 | N a t a s h a P a r k B385 Op. Mgmt. o Quality: determining customers’ quality requirements, translating these into specifications for goods/services, and consistently producing good/performing services to these specifications. o Flexibility: being able to produce a variety of goods/services in the same facility; customization, quantity flexibility  usually achieved by having general equipment, excess capacity, etc. o Delivery: being able to consistently meet promised due dates  communication, planning and control, and reliable equipment/workers are important  If a firm is not competitive, it can improve many competitive priorities simultaneously, but as the firm is more competitive, it can improve a priority only by reducing focus on other priorities  most companies focus on quality, then delivery reliability, low-cost operations, and then flexibility. STRATEGIC PLANNING  Process of determining a strategy, LT plans for new direction, implementing it through allocation  Some companies only perform strategic planning only when they face a crisis, unlike more progressive organizations which do it on a regular basis (ex: annually)  Steps: top mgmt. solicit performance of current strategy  commission market research of industry for next 1-5 years  adjust mission and vision, based on values and goals  evaluate alternative ways and strategies  chosen strategy is implemented by determining set of action plans  SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) is used to build strength to take advantage of market opportunities and to avoid/neutralize weaknesses t defend against threats  A more detailed strategic planning process involves answering 1) Getting started: what is the scope of business? Is the current strategy working? What are the issues? 2) Analyze the industry and source of competitive advantage: how intense is the competitive rivalry? How large is the bargaining power of suppliers/customers? How hard is it for new entrants to enter? Are there substitutes? How would trends affect the industry? How do we get competitive advantage? 3) Analyze customers: what are the market segments? What are customers’ key purchasing criteria? 4) Analyze competitors: what are the strategies and positions of winners and loser? Why do competitors behave as they do? Can we influence them? How has strategy changed over time? 5) Assess our relative position: what are our products strength/weaknesses in customer POV? 6) Assess the state of our business: what are the major issues? What should our goals be? 7) Develop and evaluate alternative strategies: can strategies be found for each major issue? What investments should we make? Do financial returns justify each alternative? 8) Choose and refine the recommended strategy: what strategy to choose? What actions and policies are required? Do they fit? What resources are needed? Timetables? Expected results 9) Identify major actions and implement: how can we coordinate actions and monitor progress? Mission, Vision, and Values  Mission: where the organization is going now  Vision: where the organization desires to be in the future  Values: shared beliefs of firm’s stakeholders  should drive culture, mission/vision, strategy  Goals & objectives: mission/vision provides a general direction for a company and should lead to goals which provide substance to the overall mission/vision. An objective is a specific goal containing numerical values.  Strategies: LT plans that will determine direction to become/remain competitive. The firm usually has overall organizational strategy, which used to be dominated by LT 2 | N a t a s h a P a r k B385 Op. Mgmt. financial and marketing plans, but recently LT operating plans have dominated. LT functional plans are called function strategies (financial or marketing or operations strategy). The functional strategies, if different from organizational strategy, should be congruent with it.  Tactics: medium term plans used as parts of strategy  Action plan: medium/ST project to accomplish a specific objective, assigned to someone with a deadline & resources  overall relationship from mission/vision down to actual policies and action plans is hierarchical in nature  for a strategic planning process, after conducting market research and identifying issues, each goal can be subdivided into sub-goals or objectives before making policies or action plans. 3 | N a t a s h a P a r k B385 Op. Mgmt. Operations Strategy***  operations strategy: master plan that sets overall direction for decision making and guides the operations function  comprises a set of well-coordinated policies, objectives, and action plans, directly affecting operations function, which is aimed at securing a LT sustainable advantage over the competition (the goal of business strategy)  Goal of business strategy*** is to establish and maintain a unique strength/focus o Long range: 3-5 years o Specifies what the competitive advantage will be o Focuses on few key areas o Pattern of decisions made over time reveals the business strategy  ops must cooperate with all other functions; these should collectively monitor external markets  creation of ops strategy occurs at company level AND at functional level  a firm’s decisions on resources, structure, and infrastructure should fit with competitive priorities  At company level, the role of ops should be identified. Usually, ops’ objectives & performance measures are determined in terms of competitive priorities. Recall that trade-offs must be made among these priorities
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