Syllabus Point:

Main Point role of operations management

• strategic role of operations management – cost leadership, good/service differentiation

A business will compete either on the basis of:

• cost leadership (lowest average cost of production), or
• differentiation of the good (tangible) or service (intangible).

Overview: This is an overall strategic decision of the business, which has implications for the operations function. A strategy of competing based on cost leadership will mean a very tight focus on cost and efficiency within the operations function. On the other hand, competing based on differentiation will require an increased focus on quality, innovative materials and leading edge (newest) technologies.

Cost Leadership

Aim: To have the lowest costs or be the most price-competitive in the market.

Explanation:

Strategy: keep costs as low as possible

1. Businesses can make a larger profit
2. Businesses can drop their prices creating a competitive advantage. This leads to more customers and marketshare.

How To Achieve:

Businesses could:

• Invest in technology, research and development
• Lower production costs
• Use economies of scale

Cost Leadership Case Studies

Differentiation

Aim: Distinguishing products from competitors based on factors other than price.

Explanation:

Differentiation usually leads to enhanced or additional features. So, Differentiation is creating unique products to achieve brand loyalty.

How To Achieve:

Good Differentiation

Goods can be differentiated by their:

• Features
• Quality
• Augmented features

Service Differentiation

Services can be differentiated by:

• Time taken to deliver the service
• Experience and qualifications
• Quality of materials and technology

Cross-Branding

(or strategic alliances) When two businesses form an alliance so they can offer extra benefits to consumers. eg Uber and Spotify partnering so passengers can listen to their favourite songs on Spotify in their Uber.