Order-winning and qualifying objectives
A particularly useful way of determining the relative importance of competitive factors is to distinguish between ‘order-winning’ and ‘qualifying’ factors.6Order-winning factorsare those things which directly and significantly contribute to winning business. They are regarded by customers as key reasons for purchasing the product or service. Raising performance in an order-winning factor will either result in more business or improve the chances of gaining more business. Qualifying factorsmay not be the major competitive determinants of success, but are important in another way. They are those aspects of competitiveness where the operation’s per- formance has to be above a particular level just to be considered by the customer. Performance below this ‘qualifying’ level of performance will possibly disqualify the company from being considered by many customers. But any further improvement above the qualifying level is unlikely to gain the company much competitive benefit. To order-winning and qualifying factors can be added less important factorswhich are neither order-winning nor qualifying.
They do not influence customers in any significant way. They are worth mentioning here only because they may be of importance in other parts of the operation’s activities.
Figure 3.7 shows the difference between order-winning, qualifying and less important factors in terms of their utility or worth to the competitiveness of the organization. The curves illustrate the relative amount of competitiveness (or attractiveness to customers) as the operation’s performance at the factor varies. Order-winning factors show a steady and signific- ant increase in their contribution to competitiveness as the operation gets better at providing them. Qualifying factors are ‘givens’; they are expected by customers and can severely dis- advantage the competitive position of the operation if it cannot raise its performance above the qualifying level. Less important objectives have little impact on customers no matter how well the operation performs in them.
Different customer needs imply different objectives
If, as is likely, an operation produces goods or services for more than one customer group, it will need to determine the order-winning, qualifying and less important competitive factors for each group. For example, Table 3.1 shows two ‘product’ groups in the banking industry.
Figure 3.6 Different competitive factors imply different performance objectives
Order-winning factors
Qualifying factors
Less important factors
Here the distinction is drawn between the customers who are looking for banking services for their private and domestic needs (current accounts, overdraft facilities, savings accounts, mortgage loans, etc.) and those corporate customers who need banking services for their (often large) organizations. These latter services would include such things as letters of credit, cash transfer services and commercial loans.
Figure 3.7 Order-winning, qualifying and less important competitive factors
Table 3.1 Different banking services require different performance objectives
Products Customers Product range Design changes Delivery Quality
Volume per service type Profit margins
Retail banking
Personal financial services such as loans and credit cards
Individuals
Medium but standardized, little need for special terms
Occasional Fast decisions
Means error-free transactions Most services are high-volume Most are low to medium, some high
Corporate banking Special services for corporate customers Businesses
Very wide range, many need to be customized
Continual
Dependable service Means close relationships Most services are low-volume Medium to high
Competitive factors
Order winners Price Customization
Accessibility Quality of service
Speed Reliability
Qualifiers Quality Speed
Range Price
Less important Accessibility
Internal performance Cost Flexibility
objectives Speed Quality
Quality Dependability
➡ ➡
➡ ➡
‘It is about four years now since we specialized in the small-to-medium firms market. Before that we also used to provide legal services for anyone who walked in the door. So now we have built up our legal skills in many areas of corporate and business law. However, within the firm, I think we could focus our activities even more. There seem to be two types of assignment that we are given. About forty per cent of our work is relatively routine. Typically these assignments are to do with things like property purchase and debt collection. Both these activities involve a relatively standard set of steps which can be automated or carried out by staff without full legal qualifications. Of course, a fully qualified lawyer is needed to make some decisions; how- ever, most work is fairly routine. Customers expect us to be relatively inexpensive and fast in delivering the service. Nor do they expect us to make simple errors in our documentation, in fact if we did this too often we would lose business. Fortunately our customers know that they are buying a standard service and don’t expect it to be customized in any way. The problem here is that specialist agencies have been emerging over the last few years and they are starting to undercut us on price. Yet I still feel that we can operate profitably in this market and anyway, we still need these capabilities to serve our other clients. The other sixty per cent of our work is for clients who require far more specialist services, such as assignments involving company merger deals or major company restructuring. These assignments are complex, large, take longer, and require significant legal skill and judgement. It is vital that clients respect and trust the advice we give them across a wide range of legal specialisms. Of course they assume that we will not be slow or unreliable in preparing advice, but mainly it’s trust in our legal judgement which is important to the client. This is popular work with our lawyers. It is both interesting and very profitable. But should I create two separate parts to our business, one to deal with routine services and the other to deal with specialist services? And, what aspects of operations per- formance should each part be aiming to excel at?’ (Managing Partner, Branton Legal Services) Analysis
Table 3.2 has used the information supplied above to identify the order winners, qualifiers and less important competitive factors for the two categories of service. As the Managing Partner suspects, the two types of service are very different. Routine services must be relatively inexpensive and fast, whereas the clients for specialist services must trust the quality of advice and range of legal skills available in the firm. The customers for routine services do not expect errors and those for specialist services assume a basic level of dependability and speed. These are the qualifiers for the two categories of service. Note that qualifiers are not ‘unimportant’. On the contrary, failure to be ‘up to standard’ at them can lose the firm business. However, it is the order winner that attracts new business. Most significantly, the performance objectives which each operations partner should stress are very different. Therefore there does seem to be a case for separating the sets of resources (e.g. lawyers and other staff ) and processes (information systems and procedures) that produce each type of service.
Table 3.2 Competitive factors and performance objectives for the legal firm
Service category Routine services Specialist services
Examples Property purchase Company merger deals
Debt collection Company restructuring
Order winner Price Quality of service
Speed Range of skills
Qualifiers Quality (conformance) Dependability
Speed
Less important Customization Price
Operations partners Cost Quality of relationship
should stress Speed Legal skills
Quality Flexibility
Worked example
The product /service life cycle influence on performance objectives
One way of generalizing the behaviour of both customers and competitors is to link it to the life cycle of the products or services that the operation is producing. The exact form of product /service life cycleswill vary, but generally they are shown as the sales volume passing through four stages – introduction, growth, maturity and decline. The important implication of this for operations management is that products and services will require operations strategies in each stage of their life cycle (see Figure 3.8).
Introduction stage. When a product or service is first introduced, it is likely to be offering something new in terms of its design or performance, with few competitors offering the same product or service. The needs of customers are unlikely to be well understood, so the operations management needs to develop the flexibility to cope with any changes and be able to give the quality to maintain product/service performance.
Growth stage. As volume grows, competitors may enter the growing market. Keeping up with demand could prove to be the main operations preoccupation. Rapid and dependable response to demand will help to keep demand buoyant, while quality levels must ensure that the company keeps its share of the market as competition starts to increase.
Maturity stage. Demand starts to level off. Some early competitors may have left the market and the industry will probably be dominated by a few larger companies. So operations will be expected to get the costs down in order to maintain profits or to allow price cutting, or both. Because of this, cost and productivity issues, together with dependable supply, are likely to be the operation’s main concerns.
Decline stage. After time, sales will decline with more competitors dropping out of the market.
There might be a residual market, but unless a shortage of capacity develops the market will continue to be dominated by price competition. Operations objectives continue to be dominated by cost.
Product /service life cycles
Figure 3.8 The effects of the product /service life cycle on operations performance objectives
The operations resources perspective
The fourth and final perspective we shall take on operations strategy is based on a particu- larly influential theory of business strategy – the resource-based view(RBV) of the firm.7 Put simply, the RBV holds that firms with an ‘above-average’ strategic performance are likely to have gained their sustainable competitive advantage because of the core competences (or capabilities) of their resources. This means that the way an organization inherits, or acquires, or develops its operations resources will, over the long term, have a significant impact on its strategic success. Furthermore, the impact of its ‘operations resource’ capabilities will be at least as great as, if not greater than, that which it gets from its market position. So under- standing and developing the capabilities of operations resources, although often neglected, is a particularly important perspective on operations strategy.
Resource constraints and capabilities
No organization can merely choose which part of the market it wants to be in without considering its ability to produce products and services in a way that will satisfy that market.
In other words, the constraints imposed by its operations must be taken into account.
For example, a small translation company offers general translation services to a wide range of customers who wish documents such as sales brochures to be translated into another language. A small company, it operates an informal network of part-time translators who enable the company to offer translation into or from most of the major languages in the world. Some of the company’s largest customers want to purchase their sales brochures on a
‘one-stop shop’ basis and have asked the translation company whether it is willing to offer a full service, organizing the design and production, as well as the translation, of export brochures. This is a very profitable market opportunity; however, the company does not have the resources, financial or physical, to take it up. From a market perspective, it is good business; but from an operations resource perspective, it is not feasible.
However, the operations resource perspective is not always so negative. This perspective may identify constraintsto satisfying some markets but it can also identify capabilitieswhich can be exploited in other markets. For example, the same translation company has recently employed two new translators who are particularly skilled at web site development. To exploit this, the company decides to offer a new service whereby customers can transfer documents to the company electronically, which can then be translated quickly. This new service is a ‘fast response’ service which has been designed specifically to exploit the capabilities within the operations resources. Here the company has chosen to be driven by its resource capabilities rather than the obvious market opportunities.
Intangible resources
An operations resource perspective must start with an understanding of the resource cap- abilities and constraints within the operation. It must answer the simple questions, what do we have, and what can we do? An obvious starting point here is to examine the trans- forming and transformed resource inputs to the operation. These, after all, are the ‘building blocks’ of the operation. However, merely listing the type of resourcesan operation has does not give a complete picture of what it can do. Trying to understand an operation by listing its resources alone is like trying to understand an automobile by listing its component parts.
To describe it more fully, we need to describe how the component parts form the internal mechanisms of the motor car. Within the operation, the equivalent of these mechanisms is its processes. Yet, even for an automobile, a technical explanation of its mechanisms still does not convey everything about its style or ‘personality’. Something more is needed to describe these. In the same way, an operation is not just the sum of its processes. In addition, the operation has some intangible resources. An operation’s intangible resources include such things as its relationship with suppliers, the reputation it has with its customers, its knowledge of its process technologies and the way its staff can work together in new product and service development. These intangible resources may not always be obvious within the
Resource-based view
Intangible resources
operation, but they are important and have real value. It is these intangible resources, as well as its tangible resources, that an operation needs to deploy in order to satisfy its markets. The central issue for operations management, therefore, is to ensure that its pattern of strategic decisions really does develop appropriate capabilities within its resources and processes.
Structural and infrastructural decisions
A distinction is often drawn between the strategic decisions which determine an operation’s structureand those which determine its infrastructure. An operation’s structural decisions are those which we have classed as primarily influencing design activities, while infrastruc- tural decisions are those which influence the workforce organization and the planning and control, and improvement activities. This distinction in operations strategy has been com- pared to that between ‘hardware’ and ‘software’ in computer systems. The hardware of a computer sets limits to what it can do. In a similar way, investing in advanced technology and building more or better facilities can raise the potential of any type of operation. Within the limits which are imposed by the hardware of a computer, the software governs how effective the computer actually is in practice. The most powerful computer can only work to its full potential if its software is capable of exploiting its potential. The same principle applies with operations. The best and most costly facilities and technology will only be effective if the operation also has an appropriate infrastructure which governs the way it will work on a day-to-day basis. Table 3.3 illustrates both structural and infrastructural decision areas, arranged to correspond approximately to the chapter headings used in this book. The table also shows some typical questions which each strategic decision area should be addressing.
Structure Infrastructure
The founder and boss of Amazon, Jeff Bezos, was at a conference speaking about the company’s plans.
Although Amazon was generally seen as an Internet book retailer and then a more general Internet retailer, Jeff Bezos was actually pushing three of Amazon’s
‘utility computing’ services. These were: a company that provides cheap access to online computer storage, a company that allows program developers to rent computing capacity on Amazon systems, and a service that connects firms with other firms that perform
specialist tasks that are difficult to automate. The problem with online retailing, said Bezos, is its seasonality. At peak times, such as Christmas, Amazon has far more computing capacity than it needs for the rest of the year.
At low points it may be using as little as 10 per cent of its total capacity. Hiring out that spare capacity is an obvious way to bring in extra revenue. In addition, Amazon had developed a search engine, a video download business, a service (Fulfilment By Amazon) that allowed other companies to use Amazon’s logistics capability including the handling of returned items, and a service that provided access to Amazon’s ‘back-end’ technology.
Amazon’s apparent redefinition of its strategy was immediately criticized by some observers. ‘Why not’, they said, ‘stick to what you know, focus on your core