OPERATIONS STRATEGY

Chapter 2
 Outline
1. Operations Strategy Model
2. Emphasis on Operations Objectives
3. Linking Strategies
4. Operations Competence
5. Global Scope of Operations
 Operations Strategy

Operation Strategy is concerned with the

development of long term plan for determining
how to best utilize the major resources of the
firm so that there is high degree of compatibility
between these resources and firm’s long term
goal.
Operations Corporate strategy

Strategy Model
(Figure 2.1) Business strategy

Operations Strategy
Internal
Mission Functional strategies in
analysis
marketing, finance,
Distinctive engineering, human
Competence resources, and
information systems
External Objectives
analysis (cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)

Consistent pattern of decisions

Results
 Corporate Strategy
 Defines what business the company is in.

Business Strategy
 How the a particular business will compete.
 Business Strategies

 Cost Leadership
 Low cost item

 Differentiation

 New Development
 External Analysis
 External environment includes
 Competition (Global Competition)
 Customer (Changing attitude of customers)
 Economics (Inflation rates, currency fluctuations)
 Social Conditions (Social awareness, Changing
demands of workforce labours not servants)

PEST Analysis
 Internal Environment
 Internal Environment includes
 Availability of Resources
 Skills and ability of workforce
 Location (Place)
 Control Systems

SWOT Analysis
 Operation Mission
 What we want to do
 Defines the purpose of operation function with
respect to business and corporate strategies
 Giving the priority among the operation
objectives
 Cost
 Quality
 Delivery
 Flexibility
 Distinctive Competence

Something an organization does better than any

competing organization that adds value for the

customer.
Distinctiveness Competence
 Leads to
 Competitive Advantage
 Not easily to intimate (Copy)

 Requires operations to concentrate on what it

must do
Distinctiveness Can be
 Skilled Workers

 Cheap labour
 Operations Strategic Objectives
Results that operation is expected to achieve in short or long
term goal
 Quality-Customer Satisfaction Measurement

 Flexibility

 New Product Development

 Time to make large number of products

 Delivery-when and where the customer need the product or

service
 Time

 Reliability

 Cost efficiency

 Lower cost products

How does a firm use them to gain a competitive advantage

 Operations Policies
 How the objectives of the operation achieved.
 Operation Policy should be developed for each of the five
decision categories
 Quality

 Process

 Capacity

 Inventory

 Work Force

Policy can emphasis on

 Highly skilled work force

 Develop a superior control system

Examples of Important Policies in Operations (Table 2.2)
Policy Type Policy Area Strategic Choices
Process Span of process Make or buy
Automation Handmade or machine–made
Process flow Flexible or specialized
Job specialization Project, batch, line, or continuous
Supervision Centralized or empowered workers

Quality Approach Prevention or inspection

Systems Training Technical or managerial training
Suppliers Selected on quality or cost

Capacity Facility size One large or several small facilities

Location Near markets, labor, or materials
Investment Permanent or temporary

Inventory Amount High or low levels of inventory

Distribution Centralized or decentralized
warehouses
Control Systems Control in great detail or less detail
Policy types = decisions in Chapter 1.
 Linking Operations to Business Strategies

 Business strategy alternatives

 Product imitator

 Operations must focus on keeping costs low.

(generic drugs, general products)

 Product innovator

 Operations must maintain flexibility in processes,

labor and suppliers.

 Order qualifiers and Winners
 Qualifiers: why you consider the product

 Winners: why you choose the product

Operations Competence

To be sustainable,
distinctive competence
must not only be unique,
it must be
difficult to imitate or copy.
Examples of Operations Distinctive Competence

 Skills of employees
 Equipment or processes
 Rapid continuous improvement
 Well developed partnerships
 Location
 Organizational knowledge
 Proprietary information or control systems
 Strategy Formulation
 Defining a Primary Task
 What is the firm in the business of doing.
 Example: Amazon-Fastest, Easiest and most Enjoyable Shopping
Experience.
 Paramount-Business of Communication: Not Making Movies.
 Core Competence
 What does the firm do better than others
 Order Qualifiers
 What qualifies an item to be considered for purchase
 Order Winners
 What wins the order
 Positioning of the Firm
 How will firm compete- Where we will serve
 Competitive Priorities
Competing on
 Cost

 Elimination of Waste e.g. Wall Mart, Southwest

Airlines
 Quality

 Minimizing defect rates, meet the requirements of

design
 Flexibility

 Is the ability to adjust to changes-high volume of

existing, new product development

 Speed

 Fast delivery. e.g. Dell, Wall Mart

 Strategic Decisions

 Products and Services

 Process and Technology
 Capacities and Facilities
 Human Resource
 Quality
 Sourcing
 Operating Systems
 Strategic Decision in Operations
 Products and Services

Types of Products and Services

 Make To Order -Products and Services are made to

Customer’s Specification after an order has been received.
E.g. Professional Services, Customized Products or
Services .

 Make To Stock- Products and Services are made in

anticipation of demand. e.g. Books, Fast Consumer Goods.

 Assemble To Order -Products and Services add options

according to Customer Specification. E.g. Computer
Systems, Corporate Training etc.
 Process and Technology
 Project-One at a time production of a product to Customer order
 Shipbuilding, Construction Project, New Product Development
etc.
 Batch-System process many different jobs at the same time in
group or batches.
 Bakeries, Education, Furniture Making.
 Mass Production-Produces large volumes of a standard product
for a mass market.
 PCs, TV, Fast Food.
 Continuous Production-Used for very high volume products.
 Refined oil, Water Plant.
For Services, Professional Service (Doctors, Consulting), Service
Shop (Professor Classroom ), Mass Service (Retail Store) ,
Service Factory (Electricity)
Sourcing
 Vertical Integration
Is the degree to which a firm produces the parts that go
into its products.

Outsourcing
 Stages in Integration of Operation Strategy to the Corporate goals
Manufacturing Organization
 Internally Neutral (Stage 1)
 Minimizing manufacturing negative potential.
 Outside experts hired for strategic manufacturing decisions.
 Manufacturing is kept flexible and reactive.
 Externally Neutral (Stage 2)
 Achieve parity (matching) with competitors.
 Industry practice is followed.
 Capital investment for catching up competition.
 Internally Supportive (Stage 3)
 Provide credible support to business strategy.
 Manufacturing investments are consistent & long term goals are addressed.

 Externally Supportive (Stage 4)

 Pursue a manufacturing based competitive edge.
 Long range programs for acquiring capabilities of future (Proactive).
 Stage 1:Internally Neutral

At this stage the operations function is attempting to reach a

certain minimum standard. It is seen as a hindrance in the
delivery of competitive advantage by the other business
functions. Its focus is on avoiding mistakes so it tends to be
inward-looking and is reactive. The bad publicity that comes
from organizations
being let down by their operations can be damaging.
 Stage 2: External Neutrality

Here the operations function compares its performance with

competitor organizations. Benchmarking its performance
against its competitors enables it to identify the best ideas
to copy. In trying to match the benchmarks it has identified,
the operations function is attempting to be externally
neutral.
 Stage 3: Internally supportive

At Stage 3 operations are broadly up there with the best but

have aspirations to continue to improve and be the very best
in the market. The operations function has developed
appropriate operations processes and resources to excel in
those areas in which the company needs to compete
effectively. The internally supportive element comes from
the development of a credible operations strategy which
supports the corporate strategy.
 Stage 4: Externally supportive

At this level the operations function is playing a lead role in

strategy-making and is forming the foundation for future
competitive success. It might be doing so by organizing
resources in innovative ways or in designing in flexibility
so it is capable of adapting as markets change. At stage 4 a
long term perspective is taken and capabilities developed
that will enable the organization to compete in future
market conditions. It is about redefining the market and its
expectations.
 What is the role of the operations function?

Operations Operations Operations

as effector as follower as leader

Strategy Ops
Strategy

Ops
Ops Strategy

Operations Operations Operations

implements strategy supports strategy drives strategy
 The Strategic Role of the Operations Functions

The 3 key attributes Operations Contribution

of operations

Implementing be Dependable
Operationalise (to put something to use
or into operation) strategy

be Appropriate
Supporting
Understand strategy
Contribute to decisions

Driving be Innovative
provide Foundation of strategy
Develop long-term Capabilities
Hayes and Wheelwright’s Four
Stage model

1. Internally Neutral
2. Externally Neutral
3. Internally Supportive
4. Externally Supportive
 How can the contribution of the
operations function be assessed?

Neutral Supportive

Stage 1 Stage 3
Objective is to minimize the Objective is for ‘operations’
Internally negative impact of to provide credible support
‘operations’. for the business strategy.

Stage 2
Objective is for ‘operations’
Externally to help the business
maintain parity with its
competitors.
Stage 4
Objective is for ‘operations’
to provide a source of
competitive advantage.
 The strategic role of operations can be defined
(Hayes and Wheelwright)

Give an Redefine the

industry’s Externally
Operations
ons supportive
i
Advantage r at expectations
o pe
Link Strategy of Be clearly
n
With tio the best in Internally
Operations r i bu the supportive
o nt
c industry
g
sin
rea Be as good
Adopt best c Externally
In as
Practice competitors neutral

Stop holding
Correct the the Internally
Worst organisation neutral
Problems back
STAGE 1 STAGE 2 STAGE 3 STAGE 4
The
The The ability ability
ability to to
to support Drive strategy
Implement Strategy
 Issues and Trends in Operations
 Global Markets, Global Sourcing, Global Operations
 Virtual Companies
 Business organization collaborates with one another
 Strategic alliances
 Organizations Boundaries are hard to define
 Emphasis on Service
 Manufacturing & Service Companies both concentrate on service delivery
 Speed and Flexibility
 Speed of innovation, delivery, communication, information
 Supply Chain
 Managing the supply chain, virtual integration
 Issues and Trends in Operations (contd)
 C-Commerce
 When business partners share data, collaborate on design issues,
synchronize activities.
 Reduce time to market, economies of scale, purchasing cost etc.
 Technological Advancements
 IT, Telecom, e-Commerce etc
 Knowledge
 R&D, Learn from the mistakes, learn outside the organization.
 Environment and Social Responsibility
 Impact on environment, social awareness.
Competitiveness:

How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services
Businesses Compete Using
Marketing
 Identifying consumer wants and
needs
 Pricing
 Advertising and promotion
Businesses Compete Using
Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response
Businesses Compete Using
Operations
 Flexibility
 Inventory management
 Supply chain management
 Service
Why Some Organizations Fail
 Too much emphasis on short-term
financial performance
 Failing to take advantage of strengths
and opportunities
 Failing to recognize competitive
threats
 Neglecting operations strategy
Why Some Organizations Fail
 Too much emphasis in product and
service design and not enough on
improvement
 Neglecting investments in capital and
human resources
 Failing to establish good internal
communications
 Failing to consider customer wants and
needs
 Mission/Strategy/Tactics
Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
Strategy
 Strategies
 Plans for achieving organizational goals
 Mission
 The reason for existence for an organization
 Mission Statement
 Answers the question “What business are we in?”
 Goals
 Provide detail and scope of mission
 Tactics
 The methods and actions taken to accomplish
strategies
Planning and Decision Making
Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
Strategy Example
Rita is a high school student. She would like
to have a career in business, have a good
job, and earn enough income to live
comfortably
Mission: Live a good life
 Goal: Successful career, good income
 Strategy: Obtain a college Education

 Tactics: Select a college and a major

 Operations: Register, buy books, take courses, study, graduate, get job
Examples of Strategies
 Low cost
 Scale-based strategies
 Specialization
 Flexible operations
 High quality
 Service
Strategy and Tactics
 Distinctive Competencies
 The special attributes or abilities that give an
 organization a competitive edge.
 Price
 Quality
 Time
 Flexibility
 Service
 Location
Examples of Distinctive
Competencies
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Nordstroms

Location Convenience Banks, ATMs

Operations Strategy
 Operations strategy – The approach,
consistent with organization strategy,
that is used to guide the operations
function.
Strategy Formulation
 Distinctive competencies
 Environmental scanning
 SWOT
 Order qualifiers
 Order winners
Strategy Formulation
 Order qualifiers
 Characteristics that customers perceive
as minimum standards of acceptability to
be considered as a potential purchase
 Order winners
 Characteristics of an organization’s
goods or services that cause it to be
perceived as better than the competition
End of Chapter Two