In their four-stage model, Hayes and Wheelwright (1984) categorize different types of organizations based on their attitude towards their operations. The four stage model is underpinned by their belief that an organization’s operations can provide a source of competitive advantage. It can only do this if the operations function is managed strategically.
A stage 1 organization finds it impossible to manage its operations strategically, as its operations performance objectives are continually changing between low cost, increased flexibility, improved quality, etc. Because operations managers never have the time to focus on a consistent set of objectives, a stage 1 organization is characterized by a reactive approach to operations management. In such an organization, operations can never provide a source of competitive advantage. A stage 2 organization manages its operations by seeking to emulate those of its competitors. It is likely to copy the prevailing best practices of its industry, such as JIT (just-in-time), TQM (total quality management), BPO (business process outsourcing) etc. However, as they always adopt these techniques in the wake of industry leaders, they are never likely to have developed the same level of expertise in their application.
The best that such an approach can achieve is to match the operations performance of its competitors. Although the combination of operations practices adopted by a stage 2 organization may be considered by some as amounting to an operations strategy in that they are consistent, they will not be overtly linked to business strategy. Indeed, it may be that such an operations strategy is inappropriate for the organization’s business strategy. In any event, a stage 2 organization’s operations cannot provide the basis for competitive advantage.
A stage 3 organization has an operations strategy that is linked to and derived from its business strategy. This means that its operations performance objectives are aligned with, and supportive of, its business objectives, offering the possibility that operations can provide the means of achieving a competitive advantage. The chances of achieving competitive advantage will be considerably increased if the organization has adopted industry best practice in its operations.
A stage 4 organization is radically different to one at any of the other stages. It uses its operations excellence as the basis for its business strategy – an perations-based strategy. The operations of a stage 4 organization are at the forefront of developments in best practice in that they set industry standards in ways that delight customers. Thus, the organization’s operations enable it to retain its existing customers and attract new ones. For an operations-based competitive advantage to be sustainable, the organization must continually develop its operations, as any source of advantage is liable to be imitated by competitors.
To remain at stage 4, an organization needs to learn how to make the most of its existing resources and competences to learn how to develop new capabilities. Recent advances in the understanding of organizational performance have emphasized the importance of path dependency (i.e. how organizations got to their present position), the dynamic nature of the capabilities on which organizational success ultimately depends and the role of organizational learning.