[MUSIC] Hi. Welcome to session three. Session one introduced the capability view of operations as the natural link between competitive strategy and operations. While session two takes an external view of operations, in this session we will take an internal view of the operating system and investigate the link between the competitive strategy and the operations in greater depth, and use the capability view to assess the competitive risk the firm faces. A good operations strategy clearly stipulates which capabilities are critical and which are secondary importance. One can't have it all. Operational capabilities exhibit trade-offs, and superior performance requires making choices. But where do these trade-offs come from, and how can operations shape them to our competitive advantage? That is the subject of this session. Two key questions every manager must ask are whether the firm is facing a competitive risk, and whether the current strategic position is defensible. The answers to these questions are complex and should be addressed from both the marketing side and the operational side. From the marketing side the question is whether there is another firm that may have better access to your customers. From the operational side the question is whether there is another firm that can provide the product or the service better, cheaper, faster, more customized, or at higher quality. This session will focus on the operational side of the question. >> Looking at recent history there are many instances where a new entrant into the market began by taking the position of lower quality, cheaper product, or exposing the higher quality incumbent to low immediate risk. Yet, in his seminal book, The Innovators Dilemma, Clay Christensen observed that these low cost, low quality entrants are usually fast learners. They quickly began to improve their quality, thereby posing a threat to the incumbent before the latter recognizes the risk and can act upon it. The emergence of the Japanese auto maker Toyota as a competitor to General Motors, Ford, and Chrysler began when the former entered the market with lower cost compact cars. Only after Toyota had established itself in that arena did it begin producing more expensive and higher quality cars, like Lexus. We observe a similar pattern with the Korean auto makers posing a threat to Toyota and Honda today. In the watch making industry, Seiko and the Japanese watch makers also posed a similar threat to Swiss manufacturers. In this session we will propose a framework aimed at helping firms assess the competitive threat, and determine whether or not their current position is defensible given their current operating system. These frameworks will also show that the operating system itself may be helpful in assisting the firm to attack another firm. But also used to prioritize improvements and to make sure that cost is being controlled as the firm scales its operations. [MUSIC]