Operations and Competition

Operations and competition in today's global marketplace represent critical aspects of business strategy and management. As organizations increasingly face international competition, there is a heightened need for effective operations management, which focuses on productivity, quality, and cost control. Companies must develop sound strategies that enhance their competitive advantage through well-orchestrated value chains, which manage the flow of inputs and outputs while adding value to their products or services.

Strategic planning is essential for defining long-term goals and aligning resources to meet these objectives, allowing businesses to differentiate themselves through lower costs, unique offerings, or niche marketing. The alignment of business processes with these strategies is vital; operational efficiency is achieved by ensuring that all activities—from purchasing to customer service—work seamlessly together. Additionally, maintaining high quality and customer satisfaction is crucial, as increasing competition necessitates a continuous focus on improving product and service standards.

Moreover, employee motivation plays a significant role in executing business strategies effectively. Companies often use performance-based incentives to encourage a high level of employee engagement and contribution toward organizational goals. Overall, navigating operations and competition in a global context requires a multifaceted approach that embraces strategic thinking, process optimization, and quality assurance to thrive.

Published in: 2021

By: Wienclaw, Ruth A.

Subject Terms

Operations and Competition

In many industries today, one no longer needs to be concerned only about competition on a local or national level, but about competition on an international level as well. To be viable in this increasingly competitive environment and to maintain or increase their market share, businesses need to be more concerned than ever with those areas of management that are concerned with productivity, quality, and cost in the operations function as well as strategic planning for the organization. This requires an emphasis on improving various aspects of operational functioning including the development of a sound strategy that will allow the organization to increase its competitive advantage, development of a value chain that will effectively and efficiently distribute inputs to and outputs from the organization while adding value to the product or service that is delivered to the customer, various performance variables including the implementation of a solid infrastructure that supports the business processes, the processes themselves, quality assurance mechanisms, and various human resource considerations including motivation.

In many ways, today's global marketplace offers business many more opportunities than ever before. With the relative ease of transportation, it is significantly easier to provide goods and products to customers across the globe than it was once to provide them to customers across the country. Further, improvements in information technology mean that an increasing number of organizations are trafficking in information and services rather than in tangible products. These things are even better suited to the global marketplace since transportation and storage are typically not issues. In addition, not only does the global economy mean that there are more customers for an organization's goods and services, it also means that there are more opportunities to outsource offshore processes or functions in order to take advantage of cheap labor and production rates in other countries.

On the other hand, globalization also means that there is stiffer competition in many industries. Many organizations no longer need to be concerned only about competition on a local or national level, but about competition on an international level as well. This is true for a wide spectrum of industries. High-tech equipment is more likely to be made abroad than it is domestically. The call for technical help with a software problem may be answered in Manila. The x-ray taken in a local emergency room may be read in Delhi. Local microbrews must compete against the established products of large German breweries.

Importance of Operations Management

To be viable in this increasingly competitive environment and to maintain or increase their market share, businesses need to be more concerned than ever with operations management. This discipline comprises those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization. To successfully compete in the global marketplace, an increasing number of organizations are placing emphasis on becoming high performing organizations -- organizations that consistently outperform their competitors. As shown in Figure 1, this approach requires an emphasis on improving various aspects of operational functioning. These include development of a sound strategy that will allow the organization to increase its competitive advantage, a development of a value chain that will effectively and efficiently distribute inputs to and outputs from the organization while adding value to the product or service that is delivered to the customer, various performance variables including the implementation of a solid infrastructure that supports the business processes, the processes themselves, quality assurance mechanisms, and various human resource considerations including motivation.

Strategic Planning

The first step to be taken in order to become or remain competitive in today's marketplace is to develop a strategic plan that will help clarify the goals and objectives of the organization and develop an approach and processes to achieve these. Strategic planning allows the organization to determine and articulate its long-term goals and to develop a plan to use the company's resources -- including materials, equipment and technology, and personnel -- in reaching these goals. Developing clear goals is essential to achieving and maintaining a competitive advantage in the marketplace. For example, for years, Domino's Pizza tried to differentiate itself from the competition by advertising that it would deliver its pizzas in 30 minutes or less or the pizza was free. Over time, however, Dominos' found that the incentive of fast delivery was insufficient to stay ahead of the plethora of competition from pizza delivery restaurants ranging from other large chains to local mom-and-pop businesses. When a new CEO took over, the reason became clear. Although Domino's did meet its objective of delivering pizza quickly, the new head of the corporation found that not only was the pizza that was delivered not very good, it was also not hot. Steps have been taken to correct this situation so that Domino's can remain competitive in the marketplace.

Approaches for Developing Competitive Strategy

There are a number of approaches to developing a competitive strategy -- a plan of action by which a business attempts to increase its competitive advantage. Typically, this is done in one of three ways. Businesses may achieve a competitive advantage by providing products or services at a lower cost than is done by their competitors. This is the approach used by Walmart, for example. Another approach to achieving a competitive advantage is through differentiating one's product or service from that of the competition. The Domino's example cited above illustrates this approach. A third approach to developing a competitive advantage is by focusing on niche marketing -- a sub-segment of a particular market where the consumers' needs are not being met and on which an organization focuses its efforts. A management consultant who only works with telecommunications companies would be an example of this approach.

Aligning Business Processes with Goals & Objectives

Strategy alone, however, is insufficient to ensure the competitiveness of the organization. Business processes need to support the achievement of the organization's goals and objectives, and an infrastructure needs to be in place that supports the efficiency of the processes. Business processes are any of a number of linked activities that transform an input into the organization into an output that is delivered to the customer. Business processes include management processes, operational processes (e.g., purchasing, manufacturing, marketing), and supporting processes, (accounting, human resources). Business processes take one or more inputs such as data, raw materials, or components parts, and transform them into something that is of value to the customer. For example, a business could take raw demographic data concerning the people who live within a ten-mile radius of a retail store, analyze it, and create a report that tells the store management who lives in the area, what kind of products they need or want, and how to better target their inventory or displays. Another example of a business process would be a computer manufacturing company that takes chips and boards manufactured in other businesses and puts them together to build a custom-designed computer that meets the customer's specifications. An infrastructure needs to be in place that supports the efficiency of the business processes. Increasingly, this means the use of information technology to support business processes. However, investments in technology tend to be expensive. Therefore, technology should be put in place only for those processes in the organization that can increase its effectiveness and deliver added value to the customer. To merely automate processes that add nothing of value to the customer or to the product or service is not a sound investment.

Quality of Products & Services

To be competitive, an organization also needs to consider the quality of its products or services. There are a number of ways that this can be done, ranging from traditional industrial engineering strategies to Total Quality Management, which attempts to raise awareness of quality concerns across the organization. In addition, increased competition means that an organization needs to place increased emphasis on customer satisfaction. Efforts to do this can include the organization's intentional attempts at improving customer satisfaction through the institution of such things as around-the-clock customer service lines or e-mail rebate systems; positioning itself to be perceived as environmentally or socially aware by lessening the environmental impact of a product or instituting a recycling plan; improving quality control methods; or reducing the number of defects per group of products.

Employee Motivation

No matter how well-designed the organization's strategy, business processes, and infrastructure, however, if the employees are not motivated to implement these in such a way as to enable the development of a high performing organization, these things will be insufficient to ensure competitiveness. One thing that can be done to help motivate employees to contribute to the company's high performance is to link the desired performance to rewards. This is frequently done through an approach called "pay for performance." In this approach, employees are rewarded financially for high performance and contributing to the organization's goals. Pay for performance can be effectively applied not only for workers at the bottom of the organizational structure such as production workers, but also all the way up to the chief executive officer.

Value Chain Consideration

Development of a competitive strategy, however, requires not only an analysis and understanding of the organization itself, but of its entire value chain. This chain is the network of businesses working together to bring a product or service to the market. Value chains typically comprise one or a few primary suppliers supported by many secondary suppliers, each of whom add value to the product or service before it is offered to the customer. A chain member can add value to a product or service by adding information (e.g., writing a user's guide or technical manual), inventory or warehousing the product, convenience for the customer (e.g., delivering the product to the customer's door or making it available in a retail outlet where the customer can examine or compare products), and so forth.

Value chains comprise both primary and support activities. Primary value chain activities are the basic business processes that are foundational in any industry. These include inbound and outbound logistics, operations, marketing and sales, and service. Support value chain activities support the primary value chain activities, including procurement activities that acquire raw materials, supplies, equipment, facilities, or other things necessary for the business to do its work. Support value chain activities can also include technology development. Human resource management is another support activity that supports the organization in its work through policies and procedures related to managing human beings employed in an organization. These include recruitment and placement, training and development, compensation, and employee relations.

Applications

Business Process Reengineering

Business process reengineering is a management approach that strives to improve the effectiveness and efficiency of the various processes within an organization. According to Hammer, one of the first practitioners to tout this practice in the literature, business process reengineering is much more than a cosmetic fix to refine current business practices and procedures within an organization so that they are more effective. It is a radical reconstruction of business procedures so that they achieve significant improvements in vital organizational performance criteria including cost, quality, service, and speed. Business process reengineering requires organizations to reexamine the assumptions underlying their business operations and to question why they do things the way that they do. In many situations, this analysis will reveal obsolete, erroneous, or inappropriate practices or procedures that do not add value to the product or service being offered by the business. The purpose of this analysis is to get at the root of any business process problems that the organization is experiencing in order to reinvent the way that things are being done as opposed to modifying current practices in a way that is somewhat more effective.

Types of Organizations that Benefit from Business Process Reengineering

Of course, not every organization requires a major overhaul. Business process reengineering is appropriate where more traditional methods fail or where there is a major discrepancy between where the organization is and where the organization needs to be. In general, there are three types of organizations that can benefit from business process reengineering. The first of these are businesses that are in serious trouble. Symptoms of this situation include having costs that are significantly higher than the competition's, customer service that is causing the organization to lose a significant number of customers, or failure rates that are significantly above those for the industry. Organizations that find themselves in such difficulties have little choice than to perform a major overhaul of their business processes if they want to be viable. The second type of organization that can benefit from business process reengineering are those organizations that are not yet in such dire straits but that are headed on a trajectory to that condition. This situation can arise from any number of factors, including increased competition or competitors that have significantly improved their offerings or new customer needs that cannot be adequately met by the current business processes. If business process reengineering is undertaken by organizations in this situation, it may be possible to avoid falling into the first category where reengineering is mandatory if the organization is to survive. The third category of organization that can benefit from business process reengineering comprises top performing organizations with aggressive management that wants to take them further. Business process reengineering in these organizations can help further consolidate their position in the marketplace and create further barriers to their competitors.

Common Results of Business Process Reengineering

There are a number of recurring themes that occur across organizations that reengineer their business processes. First, reengineering frequently results in several jobs being consolidated into one. For example, at IBM Credit, reengineering resulted in several specialist jobs (e.g., credit checker, pricer) being combined into one position. This reduced the need for communication and time delays (as tasks were handed off from person to person), and resulted in a single specialist who better understood the case. In addition, engineering the process in this way gave customers a single point of contact to call when they needed a problem resolved without endlessly repeating the details of their situation. Business process reengineering also often changes processes so that workers who better understand the situation can make decisions rather than submitting these up the line for a supervisor to consider. This results in less delays, lower overhead costs, and higher job satisfaction for the employees. In addition, this reengineered process can help improve customer satisfaction by allowing them quick resolution to their problems. Similarly, business process reengineering often ends up with work being performed where it makes the most sense.

Another frequent result of reengineering a business process is that steps in the process are performed in a natural order rather than an artificial order that does not add value to the product or service. One of the principal tenets of business process reengineering is that tasks and activities associated with the process need to add value to it. For example, in a manufacturing company, a process might analyze the customer requirements and then translate these into internal product codes, transmit this information to various plants and warehouses, receive the various components, assemble the components into a finished product, and deliver and install the equipment, requiring the involvement of a different organization for each step in the process. These steps might traditionally be performed sequentially. However, if, for example, some of the data collected are not needed until delivery, time could be saved by not waiting until all of these steps were completed before starting the rest of the process. In addition, reengineered processes frequently have different versions. Standardization of business processes works fine in an assembly line, but many jobs today do not need this degree of structure. For example, many technical support agencies have a script for their technicians that helps them walk through the troubleshooting process with their callers step by step. Most of these procedures, however, are based on the assumption that the caller knows little or nothing about computers or troubleshooting. Therefore, even if an experienced user calls for technical support s/he is forced to repeat the steps s/he has already performed in the troubleshooting process. This situation often ends up with an irritated customer who is determined at a minimum to never call for technical assistance again (which harms the profitability of the call center) or to never buy from the hardware manufacturer again. Allowing the technician more flexibility, however, could potentially avoid both these possibilities and ensure continuing customer loyalty instead.

Terms & Concepts

Business Process: Any of a number of linked activities that transforms an input into the organization into an output that is delivered to the customer. Business processes include management processes, operational processes (e.g., purchasing, manufacturing, marketing), and supporting processes, (accounting, human resources).

Business Process Reengineering (BPR): A management approach that strives to improve the effectiveness and efficiency of the various processes within an organization.

Competitive Advantage: The ability of a business to outperform its competition on a primary performance goal (e.g., profitability).

Competitive Strategy: A plan of action by which a business attempts to increase its competitive advantage.

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside the constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

High-Performing Organization: Businesses that consistently out-perform their competitors.

Information Technology: The use of computers, communications networks, and knowledge in the creation, storage, and dispersal of data and information. Information technology comprises a wide range of items and abilities for use in the creation, storage, and distribution of information.

Logistics: In business, logistics is the way companies plan, execute, and control the flow and storage of goods, services, and information in an effective way as to ensure customer satisfaction.

Market Share: The proportion of total sales of a given type of product or service that are earned by a particular business or organization.

Operations Management: Those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization.

Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources -- including materials and personnel -- in reaching these goals.

Strategy: In business, a strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities.

Total Quality Management (TQM): A management strategy that attempts to continually increase the quality of goods and services as well as customer satisfaction through raising awareness of quality concerns across the organization.

Value Chain: A network of businesses working together to bring a product or service to the market. Value chains typically comprise one or a few primary suppliers supported by many secondary suppliers, each of whom add value to the product or service before it is offered to the customer.

Bibliography

Eboreime, O. F., & Adedoyin, S. (2013). Strategies for making competition irrelevant in the global market for developing economies. Journal of Emerging Trends in Economics & Management Sciences, 4 (3), 297-301. Retrieved November 20, 2013 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90267135&site=ehost-live

Hammer, M. & Champy, J. (1993). Reengineering the corporation: A manifesto for business revolution. New York: HarperBusiness.

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McShane, S. L. & Von Glinow, M. A. (2003). Organizational behavior: Emerging realities for the workplace revolution (2nd ed). Boston: McGraw-Hill/Irwin.

Piercy, N. (2012). Business history and operations management. Business History, 54 (2), 154-178. Retrieved November 20, 2013 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=74491476&site=ehost-live

Senn, J. A. (2004). Information technology: Principles, practices, opportunities (3rd ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

Operations and Competition

On this Page

Subject Terms

Operations and Competition

Importance of Operations Management

Strategic Planning

Approaches for Developing Competitive Strategy

Aligning Business Processes with Goals & Objectives

Quality of Products & Services

Employee Motivation

Value Chain Consideration

Applications

Business Process Reengineering

Types of Organizations that Benefit from Business Process Reengineering

Common Results of Business Process Reengineering

Terms & Concepts

Bibliography

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