Chapter 4Operations Strategy

TRUE/FALSE
1. Operational capabilities must be built before a firm should identify competitive priorities.
ANS: F

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2. The ability to achieve market and financial superiority over competitors is called strategic planning.
ANS: F

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3. While it is generally difficult to change the structure of a value chain, operations managers can make
strategic choices about technology and human resources.
ANS: T

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4. The customer benefit package that a firm designs is meant to appeal to all customers.
ANS: F

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5. Traditional market research may not always provide accurate information about customer needs.
ANS: T

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6. Formal marketing research, such as surveys and focus groups, is the only useful approach to learn
about customer needs and expectations.
ANS: F

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7. Order satisfiers are new or innovative good or service features that customers do not expect.
ANS: F

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8. Eventually, order qualifiers become order winners.

ANS: F

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9. A clean bed in a hotel would be considered as an order satisfier.

ANS: T

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10. Being able to access the Internet in an automobile at any speed and in any location would be
considered an order satisfier.
ANS: F

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11. Order qualifiers are goods and service features and performance characteristics that differentiate one
customer benefit package from another and win a customer's business.
ANS: F

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12. Of the three types of attributes customers use to evaluate goods and services, goods are high in search
attributes while services are high in experience and credence attributes.
ANS: T

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13. The color and size of an iPod would be considered credence attributes.
ANS: F

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14. The ease by which one can create original music compositions using a software package such as Band
in a Box or Apples' Garage Band would be an example of an experience attribute.
ANS: T

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15. Customers generally perceive greater risk when buying goods than when buying services.
ANS: F

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16. Employee training is an example of a key competitive priority.

ANS: F

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17. Apple's primary competitive priority would probably be innovation while Dell's would be flexibility.
ANS: T

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18. Southwest Airlines has gained competitive advantage by focusing on cost as a key competitive priority.
ANS: T

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19. Quality improvement initiatives generally increase market share in the long term and also increase
profitability in the short term.
ANS: F

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20. Improving design quality usually allows a firm to charge higher prices and thus increase revenue and
profit.
ANS: T

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21. Reductions in flow time generally lead to a deterioration of quality.

ANS: F

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22. In today's global market, mass customization has become less important than it was in the past.
ANS: F

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23. Core competencies are the strengths that are unique to an organization, such as a creative workforce or
a strong supply chain.
ANS: T

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24. An operations strategy provides the direction on which corporate strategy is based.
ANS: F

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25. A flexibility strategy requires capacity for both design and demand flexibility.
ANS: T

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26. Innovation does not necessarily involve practical application or commercialization.

ANS: F

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27. Because of the importance of supplying goods or services, operations strategy has historically received
significant high-level management attention.
ANS: F

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28. The infrastructure of an organization must support process choices and provide managers with timely
and accurate information to make good decisions.
ANS: T

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29. Professor Terry Hill's operations strategy framework provides a systems perspective of how operations
is linked to corporate and marketing strategies.
ANS: T

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30. Because McDonald's and Pal's Sudden Service are both in the quick service restaurant business, we
would expect their operations strategies to be nearly identical.
ANS: F

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MULTIPLE CHOICE
1. Which of the following is not generally considered a competitive priority?
a. Time
b. Flexibility
c. Innovation
d. Infrastructure
ANS: D

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2. Using the Four Key Decision Loops in Professor Terry Hill's Generic Strategy Framework, which
statement is true?
a. The four loops are highly integrated and require improvement cycles.
b. The first loop ties strategy to operations.
c. Operations has no input loop into corporate strategy or marketing strategy.
d. Infrastructure decisions must come before marketing strategy decisions.
ANS: A

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3. Which one of the following statements in the Lawn Care Company (LCC) case study is true?
a. The LCC already had experience and capabilities in the residential lawn application
service and market segment, and was considering using this expertise to enter the golf and
park market segment.
b. The gross margin on grass seed and fertilizer were higher than on the lawn application
service.
c. Service management skills play a major role in the LCC current strategy and vision of the
business.
d. The order winner for the current strategy at LCC is high physical goods quality.
ANS: D

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4. With regard to the three types of attributes customers use in evaluating the quality of goods and
services, a vacation would best be classified as high in
a. Search attributes
b. Experience attributes
c. Credence attributes
d. Competitive advantage attributes
ANS: B

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5. In time sequence, which of the following needs to be accomplished first?

a. Understand customer wants and needs
b. Design and deliver customer benefit package
c. Build and leverage operational capabilities
d. Hire creative engineers
ANS: A

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6. A firm's ability to achieve market and financial superiority over its competitors is called
a. Operations strategy
b. Strategic planning
c. Competitive advantage
d. Competitive priority
ANS: C

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7. In an automobile, which of the following would not be considered an order winner?

a. Self-parking capability
b. Voice-activated music system
c. Front-seat airbags
d. Collision-avoidance system
ANS: C

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8. Requirements that are expected in a good or service are called

a. Order Qualifiers
b. Order Satisfiers
c. Order Exciters
d. Order Winners
ANS: A

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9. Goods and service features that differentiate one customer benefit package from another are called
a. Order Qualifiers
b. Order Satisfiers
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c. Order Exciters
d. Order Winners
ANS: D

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10. With regard to the three types of customer attributes in evaluating the quality of goods and services,
those associated with buying furniture would best be classified as
a. search attributes
b. experience attributes
c. credence attributes
d. reflect attributes
ANS: A

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11. The ____ of a firm defines the strengths that are unique to that organization.
a. strategy development
b. strategic mission
c. vision statement
d. core competencies
ANS: D

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12. ____ attributes are most likely to be experienced by the customer when using estate planning services.
a. Search attributes
b. Experience attributes
c. Credence attributes
d. Order winners
ANS: C

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13. With regard to the three types of customer attributes in evaluating the quality of goods and services,
those associated with having a meal in a restaurant such as taste of the food and courtesy of the server
would best be classified as
a. search attributes
b. experience attributes
c. credence attributes
d. reflect attributes
ANS: B

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14. With regard to the three types of customer attributes in evaluating the quality of goods and services,
those associated with the features of a new laptop computer such as processor speed and hard disk
capacity would best be classified as
a. search attributes
b. experience attributes
c. credence attributes
d. reflect attributes
ANS: A

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15. In regard to ways customers evaluate services compared to their evaluation of goods, which of the
following is not true?
a. For services, customers seek and rely more on personal sources of information.
b. Customers normally adopt innovations in services faster.
c. Customers perceive greater results when buying services.
d. Dissatisfaction with services is often the result of a customer's inability to properly
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perform or co-produce their part of the service.

ANS: B

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16. Which of the following does not describe how customers evaluate services in a manner that differs
from the way they evaluate goods?
a. Customers rely on more information from personal sources.
b. Customers perceive greater risks.
c. Customers cannot form a priori expectations of expected service quality.
d. Dissatisfaction often results from a customers inability to properly co-produce the
service.
ANS: C

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18. Regarding quality, which statement is not true?

a. Businesses offering premium quality goods usually have larger market share and are early
entrants into their market.
b. Quality is positively and significantly related to higher return on investment for almost all
kinds of market situations.
c. A strategy of quality improvement usually leads to increased market share but at a cost in
terms of reduced short-run profits.
d. High goods quality producers can usually excel by charging low prices.
ANS: D

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19. Families of goods or services having similar characteristics or methods of creation are called
a. Core competencies
b. Corporate strategy
c. Strategic business units
d. Functional strategy
ANS: C

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20. Which of the following would not constitute an element of operations infrastructure?
a. Market segmentation
b. Workforce
c. Quality control
d. Learning and innovation systems
ANS: A

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21. Operations design choices include all of the following except

a. Operating plans and controls
b. Type of processes
c. Value chain integration and outsourcing
d. Inventory and service capacity
ANS: A

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22. Professor Terry Hill has presented a four-loop framework for operations strategy through an
iterative and integrated process. The initial loop is
a. Operations evaluates the implications of competitive priorities in terms of process choices
and infrastructure
b. Operations determines if process choice decisions and capabilities are consistent with
infrastructure capabilities
c. Operations input into corporate and marketing strategy
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d. Ties together corporate strategy and marketing strategy

ANS: D

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23. Considering the work force component of infrastructure, which term does not fit with the others in a
service environment?
a. Customer contact skills
b. Cross-training
c. Task-oriented
d. Empowered
ANS: C

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24. The text uses McDonald's to exemplify Professor Terry Hill's Generic Strategy Framework. The
operating design choices of resource scheduling, inventory placement and control and standardized
operational and job procedures relate best to the corporate objective of
a. Profitable growth
b. Operational excellence
c. Leverage strengths through innovation and technology
d. Diversity
ANS: B

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25. Which one of the following statements best represents McDonald's approach to global business?
a. One brand cannot be all things to all people.
b. Extensive use of outside trainers
c. Using alternative technologies to make French fries
d. Use of primarily manual information systems
ANS: A

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26. Which one of the following statements is true with respect to McDonald's operations and strategy?
a. The #1 competitive priority is demand flexibility.
b. Prof. Terry Hill's strategy framework cannot be applied to services such as McDonald's.
c. There is only one standardized way (process) to make French fries in over 30,000
stores worldwide.
d. McDonald's vision is to produce the world's best hamburger.
ANS: C

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SHORT ANSWER
1. With regard to the Lawn Care Company case study, explain how the (a) physical product (i.e., grass
seed and fertilizer) and (b) lawn application service life cycles are related? What are the implications?
You might also want to use a graph.
ANS:

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If you cover in class you can draw a product life cycle (PLC) with each stage for the grass seed and
fertilizer (the physical good). Then in another color you can draw an overlay of the service application
life cycle. Most will argue the service Life cycle (SLC) for the application service leads (lags) the
physical goods PLC (i.e., due to the application service it "pulls" more grass seed and fertilizer through
the supply chain). The focus should be on both PLC and SLC interactions and implications to Lawn
care, not how you draw it as either leading or lagging. By the way, once Lawn Care had many
application services in about a dozen big cities they had to build a second factory! The repurchase
frequency (repeatability) of the application service is a good business strategy that pulls physical
goods from the factory.
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2. What do managers need to understand in order to create a sustainable competitive advantage?
ANS:
Creating a competitive advantage requires a fundamental understanding of two things. First,
management must understand customer wants and needs, and how the value chain can best meet these
needs through the design and delivery of customer benefit packages that are attractive to customers.
Second, management must build and leverage operational capabilities to support desired competitive
priorities.
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3. Explain the difference between an order qualifier and an order winner. Provide some examples.
ANS:
Basic customer expectations - dissatisfiers and satisfiers - are generally considered the minimum
performance level required to stay in business and are often called order qualifiers. Order winners
are goods and service features and performance characteristics that differentiate one customer benefit
package from another and win the customer's business. The book describes an example of automobile
leasing that is a possible order winner.
PTS: 1
4. Explain the concept of search, experience, and credence attributes.
ANS:
Search attributes are those that a customer can determine prior to purchasing the goods and/or
services. These attributes include things like color, price, freshness, style, fit, feel, hardness, and smell.
Experience attributes are those that can only be discerned after purchase or during consumption or
use. Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer
satisfaction. Credence attributes are any aspects of a good or service that the customer must believe
in, but cannot personally evaluate even after purchase and consumption. Examples would include the
expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation
software.
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5. How do customers evaluate services differently from manufacturing, and what implications do these
have for operations?
ANS:
Customers seek and rely more on information from personal sources than from non-personal sources
when evaluating services prior to purchase. Operations must ensure that accurate information is
available, and that experiences with prior services and service-providers results in positive experiences
and customer satisfaction.
Customers perceive greater risks when buying services than when buying goods. Because services are
intangible, customers cannot look at or touch them prior to the purchase decision. They only
experience the service when they actually go through the process. This is why many are hesitant to use
on-line banking or bill-paying.
Dissatisfaction with services is often the result of customers' inability to properly perform or coproduce their part of the service. A wrong order placed on the Internet can be the result of customer
error despite all efforts on the part of the company to provide clear instructions. The design of services
must be sensitive to the needs to educate customers on their role in the service process.
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6. What are competitive priorities? Provide some examples of how OM influences the five major types of
competitive priorities.
ANS:
Competitive priorities represent different areas of focus by which a firm can achieve competitive
advantage. In general, organizations can compete on five key competitive priorities:
Cost

Quality

Time

Flexibility

Innovation

Cost: Costs accumulate through the value chain and include the costs of raw materials and purchased
parts, direct manufacturing cost, distribution, post-sale services and all supporting processes. Design
significantly affects the costs of manufacturing, warranty and field repair and such non-value-added
costs as redesign and rework. Through good design and by chipping away at costs, operations
managers help to support a firm's strategy to be a low price leader.
Quality: The value of a good or service in the marketplace is influenced by the quality of its design.
Improvements in performance, features and reliability will differentiate the good or service from its
competitors, improve a firm's quality reputation and improve the perceived value of the customer
benefit package. Many OM decisions focus on improving quality.
Time: Reductions in flow time speed up work processes so that customer response is improved but can
only be accomplished by streamlining and simplifying processes and value chains to eliminate nonvalue-added steps such as rework and waiting time. Developing processes and using technology
efficiently to improve speed and time reliability are some of the most important activities for
operations managers.

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Flexibility: Enablers of design flexibility include close relationships with customers to understand
their emerging wants and needs, outsourcing and make versus buy tradeoffs, empowering employees
as decision makers, effective manufacturing and information technology and close supplier and
customer relationships.
Innovation: OM supports innovation by helping companies introduce new goods and services that
provide a competitive advantage. This includes processes that lead to outstanding goods and services
research, design and development; high product and/or service quality; and the ability to modify
operating systems and infrastructure to produce new goods and services frequently.
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7. Is it possible for a world-class organization to achieve superiority in all five major competitive
priorities - price (cost), quality, time, flexibility and innovation? Explain. Justify. Provide examples pro
or con.
ANS:
It is generally not possible for a world-class organization to achieve superiority in the five major
competitive priorities because tradeoffs usually exist among them. For example, Dell competes on
quality, time and flexibility, and therefore mass customization. However, Dell is not a low cost
producer and is not particularly innovative in technology. Some fast food restaurants focus more on
cost and time at the expense of flexibility. However, many firms today, such as Toyota, Procter &
Gamble and Vanguard Mutual Funds, are building capabilities in all of these areas in order to establish
leadership superiority in their markets and meet the diversity of customer needs.
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8. What is the difference between corporate, business and functional strategy?
ANS:
At the top level, corporate strategy is necessary to define the businesses in which the corporation will
participate and develop plans for the acquisition and allocation of resources among those businesses.
The second level of strategy is generally called business strategy, and defines the focus for SBUs.
The major decisions involve which markets to pursue and how best to compete in those markets; that
is, what competitive priorities the firm should pursue. Finally, the third level of strategy is functional
strategies, the means by which business strategies are accomplished. A functional strategy is the set
of decisions that each functional area - marketing, finance, operations, research and development,
engineering, and so on - develops to support its particular business strategy.
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9. What do we mean by core competencies?
ANS:
Core competencies are the strengths unique to an organization. Such strengths might be a particularly
skilled or creative work force, customer relationship management, clever bundling of goods and
services, strong supply chain networks, extraordinary service, marketing expertise or the ability to
rapidly develop new products or change production-output rates.
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10. Explain Professor Hill's strategy development framework. What are the key elements of operations
strategy within this framework?
ANS:
This framework defines the essential elements of an effective operations strategy in the last two
columns - operations design choices and building the right infrastructure. Operations design choices
are the decisions management must make as to what type of process structure is best suited to produce
goods or create services. Infrastructure focuses on the non-process features and capabilities of the
organization and includes the work force, operating plans and control systems, quality control,
organizational structure, compensation systems, learning and innovation systems and support services.
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