Competitive Dimensions

Given the choices customers face today, how do they decide which product or service
to buy? Different customers are attracted by different attributes. Some customers are
interested primarily in the cost of a product or service and, correspondingly, some
companies attempt to position themselves to offer the lowest prices. The major
competitive dimensions that form the competitive position of a firm are discussed
next.
Cost or Price: “Make the Product or Deliver the Service Cheap” Within every
industry, there is usually a segment of the market that buys solely on the basis of low
cost. To successfully compete in this niche, a firm must be the low-cost producer, but
even this does not always guarantee profitability and success. Products and services
sold strictly on the basis of cost are typically commodity-like; in other words,
customers cannot distinguish the product or service of one firm from that of another.
This segment of the market is frequently very large, and many companies are lured by
the potential for significant profits, which they associate with the large unit volumes.
As a consequence, however, competition in this segment is fierce—and the failure rate
high. After all, there can be only one low-cost producer, who usually establishes the
selling price in the market.
Price, however, is not the only basis on which a firm can compete (although many
economists appear to assume it is!). Other companies, such as BMW, seek to attract
people who want higher quality— in terms of performance, appearance, or features—
than what is available in competing products and services, even though it means a
higher price.

Quality: “Make a Great Product or Deliver a Great Service” There are two
characteristics of a product or service that define quality: design quality and process
quality. Design quality relates to the set of features the product or service contains.
Obviously, a child’s first two-wheel bicycle is of significantly different quality than
the bicycle of a world-class cyclist. The use of special aluminum alloys and special
lightweight sprockets and chains is important to the performance needs of the
advanced
cyclist. These two types of bicycles are designed for different customers’ needs.
The higher-quality cyclist product commands a higher price in the marketplace due to
its special features. The goal in establishing the proper level of design quality is to
focus on the requirements of the customer. Overdesigned products and services with
too many
or inappropriate features will be viewed as prohibitively expensive. In comparison,
underdesigned products and services will lose customers to products that cost a little
more but are perceived by customers as offering greater value.
Process quality, the second characteristic of quality, is critical because it relates
directly to the reliability of the product or service. Regardless of whether the product
is
a child’s first two-wheeler or a bicycle for an international cyclist, customers want
products without defects. Thus, the goal of process quality is to produce defect-free
products and services. Product and service specifications, given in dimensional
tolerances and/or service error rates, define how the product or service is to be made.
Adherence to these specifications is critical to ensure the reliability of the product or
service as defined by its intended use.
Delivery Speed: “Make the Product or Deliver the Service Quickly” In some markets,
a firm’s ability to deliver more quickly than its competitors is critical. A company that
can offer an onsite repair service in only 1 or 2 hours has a significant advantage over
a competing firm that guarantees service only within 24 hours.
Delivery Reliability: “Deliver It When Promised” This dimension relates to the
firm’s
ability to supply the product or service on or before a promised delivery due date. For
an automobile manufacturer, it is very important that its supplier of tires provide the
needed quantity and types for each day’s car production. If the tires needed for a
particular car are not available when the car reaches the point on the assembly line
where the tires are installed, the whole assembly line may have to be shut down until
they arrive. For a service firm such as FedEx, delivery reliability is the cornerstone of
its strategy.
Coping with Changes in Demand: “Change Its Volume” In many markets, a
company’s ability to respond to increases and decreases in demand, referred to as
agility, is important to its ability to compete. It is well known that a company with
increasing demand can do little wrong. When demand is strong and increasing, costs
are continuously reduced due to economies of scale, and investments in new
technologies can be easily justified. But scaling back when demand decreases may
require many difficult decisions about laying off employees and determining
reductions in assets. The ability to effectively deal with dynamic market demand over
the long term is an essential element of operations strategy.
Flexibility and New-Product Introduction Speed: “Change It” Flexibility, from a
strategic perspective, refers to the ability of a company to offer a wide variety of
products to its customers. An important element of this ability to offer different
products is the time required for a company to develop a new product and to convert
its processes to offer the new product.
Other Product-Specific Criteria: “Support It” The competitive dimensions just
described are certainly the most common. However, other dimensions often relate to
specific products or situations. Notice that most of the dimensions listed next are
primarily services in nature.
Often, special services are provided to augment the sales of manufactured products.
1. Technical liaison and support. A supplier may be expected to provide technical
assistance for product development, particularly during the early stages of design and
manufacturing
2. Ability to meet a launch date. A firm may be required to coordinate with other firms
on a complex project. In such cases, manufacturing may take place while development
work is still being completed. Coordinating work between firms and having them
work simultaneously on a project will reduce the total time required to complete the
project.
3. Supplier after-sales support. An important competitive dimension may be the
ability of a firm to support its product after the sale. This involves the availability of
replacement parts and, possibly, the modification of older, existing products, bringing
them up to new performance levels. The speed of response to these aftersale needs is
often important as well.
4. Environmental impact. A dimension related to criteria such as carbon dioxide
emissions, the use of nonrenewable resources, and other factors that relate to
sustainability.
5. Other dimensions. These typically include such factors as the colors available,
size, weight, location of the fabrication site, the customization available, and product
mix options.
The Notion of Trade-Offs
Central to the concept of operations and supply chain strategy is the notion of
operations
focus and trade-offs. The underlying logic is that an operation cannot excel
simultaneously on all competitive dimensions. Consequently, management has to
decide which parameters of performance are critical to the firm’s success and then
concentrate the resources of the firm on these particular characteristics.
For example, if a company wants to focus on the speed of delivery, it cannot be very
flexible in its ability to offer a wide range of products. Similarly, a low-cost strategy is
not compatible with either speed of delivery or flexibility. High quality also is viewed
as a trade-off to low cost.
A strategic position is not sustainable unless there are compromises with other
positions. Trade-offs occur when activities are incompatible so that more of one thing
necessitates less of another. An airline can choose to serve meals—adding cost and
slowing turnaround time at the gate—or it can choose not to, but it cannot do both
without bearing major inefficiencies.
Straddling occurs when a company seeks to match the benefits of a successful
position
while maintaining its existing position. It adds new features, services, or technologies
onto the activities it already performs. The risky nature of this strategy is shown by
Continental Airlines’ ill-fated attempt to compete with Southwest Airlines. While
maintaining its position as a full-service airline, Continental set out to match
Southwest on a number of pointto-point routes. The airline dubbed the new service
Continental Lite. It eliminated meals and first-class service, increased departure
frequency, lowered fares, and shortened gate turnaround time. Because Continental
remained a full-service airline on other routes, it continued to use travel agents and its
mixed fleet of planes and to provide baggage checking and seat assignments.
Trade-offs ultimately grounded Continental Lite. The airline lost hundreds of millions
of dollars, and the chief executive officer lost his job. Its planes were delayed, leaving
hub cities congested, slowed at the gate by baggage transfers. Late flights and
cancellations generated a thousand complaints a day. Continental Lite could not afford
to compete on price and still pay standard travel agent commissions, but neither could
it do without agents for its full-service business. The airline compromised by cutting
commissions for all Continental flights. Similarly, it could not afford to offer the same
frequent-flier benefits to travelers paying the much lower ticket prices for Lite service.
It compromised again by lowering the rewards of Continental’s entire frequent-flier
program. The results: angry travel agents and full-service customers. Continental tried
to compete in two ways at once and paid an enormous straddling penalty.
STRATEGIES ARE IMPLEMENTED USING OPERATIONS AND SUPPLY
CHAIN ACTIVITIES—IKEA’S STRATEGY

All the activities that make up a firm’s operation relate to one another. To make these
activities efficient, the firm must minimize its total cost without compromising
customers’ needs.
To demonstrate how this works, consider how IKEA, the Swedish retailer of home
products, implements its strategy using a set of unique activities. IKEA targets young
furniture buyers who want style at a low cost. IKEA has chosen to perform activities
differently than its rivals.
Consider the typical furniture store, where showrooms display samples of the
merchandise. One area may contain many sofas, another area displays dining tables,
and there are many other areas focused on particular types of furniture. Dozens of
books displaying fabric swatches or wood samples or alternative styles offer
customers thousands of product varieties from which to choose. Salespeople escort
customers through the store, answering questions and helping them navigate the maze
of choices. Once a customer decides what he or she wants, the order is relayed to a
third-party manufacturer. With a lot of luck, the furniture will be delivered to the
customer’s home within six to eight weeks. This is a supply chain that maximizes
customization and service, but does so at a high cost.
In contrast, IKEA serves customers who are happy to trade service for cost. Instead of
using sales associates, IKEA uses a self-service model with roomlike displays where
furniture is shown in familiar settings. Rather than relying on thirdparty
manufacturers, IKEA designs its own lowcost, modular, ready-to-assemble furniture.
In the store, there is a warehouse section with the products in boxes ready for delivery.
Customers do their own picking from inventory and delivery. Much of its low-cost
operation comes from having customers service themselves, yet IKEA offers extra
services, such as in-store child care and extended hours. Those services align well
with the needs of its customers, who are young, not wealthy, and likely to have
children, and who need to shop at odd hours. Exhibit 2.3 shows how IKEA’s strategy
is implemented through a set of activities
designed to deliver it. Activity-system maps such as the one for IKEA show how a
company’s strategy is delivered through a set of tailored activities. In companies with
a clear strategy, a number of higher-order strategic themes (shown on the left) can be
identified and implemented through clusters of tightly linked activities. This type of
map can be useful in understanding how good the fit is between the system of
activities and the company’s strategy. Competitive advantage comes from the way a
firm’s activities fit with and reinforce one another.