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Published: November 24, 2009
 / Winter 2009 / Issue 57

 
 

An Essential Step for Corporate Strategy

In Porter’s defense, many operations executives also do not think about building unique capabilities, but instead mindlessly pursue “best practices.” In other words, they try to develop the capabilities that their fiercest competitors have already mastered. The concept of “best practices,” in fact, reinforces the flawed mind-set that triggered Porter’s attack on operational effectiveness. There are no universally superior methods that should be applied by all industry participants. Such a model yields competitive convergence and the often destructive model of pure cost-based competition. Instead, capabilities should be nurtured with a clear focus on the company’s desired, differentiated position in the marketplace.

But where does one start? Ideally, the operations strategist should identify the key operations processes for the specific industry in which the company competes. To illustrate the concept, we will look at six general processes that provide reasonably comprehensive coverage of most operational contexts. 

1. Innovation and product development. To generate a competitive advantage, an operations capability must support the firm’s competitive position. Consider again Inditex/Zara, which competes by quickly copying ideas from the Paris and Milan catwalks as well as the nightclubs of New York and Tokyo. Unlike the fashion leaders, Inditex has not built an innovation and product development capability around big-name designers who create the next fashion trend. Its approach of using teams of designers does not represent a general “best practice,” but it provides a competitive advantage given the positioning of the Zara brand. These teams work collaboratively, gathering insight from more than 500 Zara store managers who report daily on what is selling.   

2. Customer service management. The auto insurer Progressive Corporation has built its reputation through the way it manages claims processing. The company has developed a competitive advantage through on-the-spot claims settlement with its ubiquitous fleet of white SUVs. More recently, in selected markets, Progressive has taken its customer service a step further. Rather than issuing a claim check quickly, it now offers to take care of the repair. Customers drop their vehicle off at a Progressive customer service center and the company returns it with repairs guaranteed for as long as the customer owns the car. Progressive didn’t raise its prices to cover these increased service levels. Instead, it self-funded those capabilities through savings in managing the repair process more effectively than the customer would.

3. Operations planning and control. Amazon made a strategic decision, as discussed above, to vertically integrate into fulfillment. To leverage that structural investment, Amazon has built a competitively advantaged capability under the generic banner of operations planning and control. For example, Amazon informs the customer of the precise cutoff time for ordering to receive a delivery the next day. No competitor manages such a broad product range with such precision. To leverage its scale and strengthen its operational competitive advantage, Amazon continues to pursue some of the most daunting Internet retailing challenges, such as selling groceries and shoes.

4. Purchasing and supplier development. Over the past 20 years, Honda of America Manufacturing Inc. has invested heavily to develop its local supply base, leveraging a capability in purchasing and supplier development inherited from its parent in Japan. Given a strategic need to localize and a domestic supply base incapable of meeting its quality standards, Honda had little choice but to invest in supplier development initially, but over time it reaped huge rewards; the suppliers now play a key role in its continual pursuit of affordable, mass-produced cars such as the Accord.

5. Quality management. A company’s approach to quality management also represents an opportunity to build a capability to support a differentiated competitive position. For example, the Palm Restaurant and McDonald’s Corporation both have strong quality management capabilities, but they focus on different quality positionings. The Palm Restaurant chain, with nearly 30 locations from London to Los Angeles, has built its reputation on ample servings of hand-cut, aged steaks cooked to the individual tastes of the customer. McDonald’s quality management process focuses on delivering consistent meals in 31,000 restaurants in more than 100 countries worldwide. In quality management parlance, the Palm competes on “quality of spec” (short for “specification”) and McDonald’s competes on “quality to spec.” Each has tailored its quality management capability to support its quality positioning.

 
 
 
 
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