Order-Winning and Order-Qualifying Criteria
Order-Winning and Order-Qualifying Criteria
The terms “order winners” and “order qualifiers” were coined by Terry Hill, professor at the London Business School, and refer to the process of how internal operational capabilities are converted to criteria that may lead to competitive advantage and market success. In his writings, Hill emphasized the interactions and cooperation between operations and marketing. The operations people are responsible for providing the order-winning and order-qualifying criteria—identified by marketing—that enable products to win orders in the marketplace. This process starts with the corporate strategy and ends with the criteria that either keeps the company in the running (i.e., order qualifiers) or wins the customer's business.
COMPETITIVE ADVANTAGE AND COMPETITIVE PRIORITIES
Many factors shape and form the operations strategy of a corporation. For example, these factors include: the ever increasing need for globalizing products and operations, thus reducing the unit cost; creating a technology leadership position; introducing new inventions; taking advantage of mass customization; using supplier partnering; and looking for strategic sourcing solutions. All of these factors require an external or market-based orientation—these are the changes that take place in the external environment of the company.
Traditionally, strategic decisions were thought of as “big decisions” made by general managers. However, big strategic decisions may not be the only source of competitive advantage for the firm. Jay Barney wrote, “Recent work on lean manufacturing suggests that it is the simultaneous combination of several factors that enables a manufacturing facility to be both very high quality and very low cost. This complicated system of numerous interrelated, mutually supporting small decisions is difficult to describe, and even more difficult to imitate, and thus a source of sustained competitive advantage.” Barney contrasted big and small decisions further, “Recognizing that small decisions may be more important for understanding competitive advantages than big decisions suggests that the study of strategy implementation—the process by which big decisions are translated into operational reality—may be more important for understanding competitive advantage than the study of strategy formulation.”
The strategy expressed as a combination of a few big and hundreds of small decisions leads to setting up competitive priorities for improving operational practices through investments in various programs. These competitive priorities place different and diverse demands on manufacturing. These demands, sometimes called manufacturing tasks, can be organized into three distinctly different groups: product-related demands, delivery-related demands, and cost demands.
The emphasis given to these priorities and the state of the organization determine the nature and level of investments deemed necessary to implement the operations strategy. These investments in operational practices are expected to lead to better operational performance, as measured and evaluated internally using indicators like reject rates in the manufacturing process, production schedule fulfillment, and others. Through investments firms create and acquire resources that can isolate them from negative market influences and can serve as a source of competitive advantage for them. These investments can be made in tangible assets (e.g., machinery and capital equipment) and intangible assets (e.g., brand names and the skills of individual employees).
A distinction has to be made between investments aimed at creating resources and those aimed at creating capabilities. Few resources by themselves are productive. Productive activity requires the cooperation and coordination of teams of resources. An operational capability is the capacity for a team of resources to perform some task or activity.
While resources are the source of a firm's capabilities, capabilities are the main source of its competitive advantage. Capabilities are not evaluated in themselves, and they cannot be thought of as absolute values. They have to be evaluated relative to the capabilities of competitors. This is the reason for distinguishing between competitiveness dimensions (like the three Ps from the marketing mix: price, place, and product) and capability-based dimensions (like cost-time-quality measures). They show
the two sides of the same coin: the internal capabilities and their evaluation in the market.
ORDER QUALIFIERS AND ORDER WINNERS
Terry Hill argues that the criteria required in the marketplace (and identified by marketing) can be divided into two groups: order qualifiers and order winners. An order qualifier is a characteristic of a product or service that is required in order for the product/service to even be considered by a customer. An order winner is a characteristic that will win the bid or customer's purchase. Therefore, firms must provide the qualifiers in order to get into or stay in a market. To provide qualifiers, they need only to be as good as their competitors. Failure to do so may result in lost sales. However, to provide order winners, firms must be better than their competitors. It is important to note that order qualifiers are not less important than order winners; they are just different.
Firms must also exercise some caution when making decisions based on order winners and qualifiers. Take, for example, a firm producing a high quality product (where high quality is the order-winning criteria). If the cost of producing at such a high level of quality forces the cost of the product to exceed a certain price level (which is an order-qualifying criteria), the end result may be lost sales, thereby making “quality” an order-losing attribute.
Order winners and qualifiers are both market-specific and time-specific. They work in different combinations in different ways on different markets and with different customers. While, some general trends exist across markets, these may not be stable over time. For example, in the late 1990s delivery speed and product customization were frequent order winners, while product quality and price, which previously were frequent order winners, tended to be order qualifiers. Hence, firms need to develop different strategies to support different marketing needs, and these strategies will change over time. Also, since customers' stated needs do not always reflect their buying habits, Hill recommends that firms study how customers behave, not what they say.
When a firm's perception of order winners and qualifiers matches the customer's perception of the same, there exists a “fit” between the two perspectives. When a fit exists one would expect a positive sales performance. Unfortunately, research by Sven Horte and Hakan Ylinenpaa, published in the International Journal of Operations and Production Management, found that for many firms a substantial gap existed between managers' and customers' opinions on why they did business together. The researchers found that favorable sales performance came about when there was a good fit between a firm's perception of the strengths of a product and customer perception of the product. Conversely, when firms with high opinions about their competitive strengths had customers who did not share this opinion, sales performance was negative.
PRODUCT LIFE CYCLE
Over time, product sales follow a pattern called the product life cycle. The different stages of the product life cycle also influence a product's set of order winners and order qualifiers. The length of and the sales at each stage of the cycle, as well as the overall length of the life cycle, vary from product to product and depend on such factors as the rate of technological change, the amount of competition in the industry, and customer preferences.
In the early portion of a product's life, product design is critical. A product's early users are almost always more interested in product performance than in price. This stage is characterized by a large number of product innovations. A considerable amount of product design is undertaken to make the product more useful and desirable for its users. Abernathy referred to this early phase of product technology as the search for dominant design. Dominant designs are those that “make a market,” such as Ford's Model T car, the DC-3 airplane, and the IBM PC. At this stage, the production process is most likely to be a job shop or close to a job shop.
As the dominant design gets more accepted, cost reduction becomes increasingly important. Thus, process innovation—geared primarily toward lowering costs, increasing yield, and improving throughput time—becomes more important. Changes become less radical as the product, the process, and the organization become more standardized. The production process moves closer to the continuous flow end of the process spectrum. When this happens, both the product and the process become increasingly vulnerable to the introduction of new offerings of similar function (i.e., substitute products) by other producers. Then, the company has to decide when and how to abandon the product and process that they perfected and in which they invested so much.
As the product moves through its life cycle, the requirements for the product and for the production process change. During the early part of the life cycle a production facility with high flexibility (i.e., a job shop) can generate order winners such as customization. For a mature product a dedicated facility (i.e., a flow shop) can produce high quality and low cost, which are the order winners for many, but not all, mature products.
Terry Hill noted that different product characteristics require different production processes, and without communication between marketing, which identifies the order winners and qualifiers, and operations, which develops the operational capabilities to deliver these characteristics,
market success cannot be achieved. Hill developed a tool—product profiling—to ascertain a certain level of fit between process choices and the order-winning criteria of the products. The purpose of profiling is to provide comparison between product characteristics required in the market and the process characteristics used to manufacture the products and make the necessary adjustments.
Social and cultural changes can also affect order winning and qualifying criteria. For example, midway through the first decade of the twenty-first century, environmental issues became a public concern. This development had vast implications for companies and managers. Medhi Shahbazpour and Rainer Seidel argued that sustainable and environmentally sensitive practices needed to become an integral part of the manufacturing process. Sustainability can be either an order winner or order qualifier. As Shahbazpour and Seidel note, “Whether sustainability is categorized as order or order qualifier depends on the specific market, industry, and society the firm operates in.”
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Horte, Sven Ake, and Hakan Ylinenpaa. “The Firm's and Its Customers' Views on Order-Winning Criteria.” International Journal of Operations and Production Management 17, no. 10 (1997): 1006–1019.
Shahbazpour, Mehdi, and Rainer H. Seidel. “Using Sustainability for Competitive Advantage.” Proceedings of LCE 2006. Available from: http://www.mech.kuleuven.be/lce2006/166.pdf
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