PRELIM COVERAGE: DIRECTING THE OPERATION

• Operations Management
1. Operations Performance
2. Operations Strategy
3. Products and Service Innovation
4. The Structure and Scope of Operations
OPERATIONS STRATEGY
 STRATEGY DEFINED
from the Greek word strategos , meaning ‘leading an
army’.

Both military and business strategy can be described in similar ways,

and include some of the following:
✔Setting broad objectives that direct an enterprise towards its overall goal.
✔Planning the path (in general rather than specific terms) that will achieve
these goals.
✔Stressing long-term rather than short-term objectives.
✔Dealing with the total picture rather than stressing individual activities.
✔Being detached from, and above, the confusion and distractions of day-to-day
activities.
Strategy is the total pattern of decisions and
actions that position the organization in its
environment and that are intended to achieve
its long-term goals.
 OPERATIONAL STRATEGY
Operations strategy concerns the pattern of strategic
decisions and actions which set the role, objectives and
activities of the operation.
Operations strategy has content and process. The content
concerns the specifi c decisions which are taken to achieve
specifi c objectives. The process is the procedure which is
used within a business to formulate its strategy.
From implementing to supporting to driving
strategy
Most businesses expect their operations strategy to
improve operations performance over time. In doing this
they should be progressing from a state contributing very
little to the competitive success of the business through to
the point where they are directly responsible for its
competitive success.
This means that they should be able to, in turn, master the
skills first to ‘implement’, then ‘support’ and then ‘drive’
operations strategy.
 Implementing business strategy
The most basic role of operations is to implement strategy.
For example, if an insurance company has a strategy of
moving to an entirely online service, its operations
function will have to supervise the design of all the
processes which allow customers to access online
information, issue quotations, request further information,
check credit details, send out documentation, and so on.
Without effective implementation even the most original
and brilliant strategy will be rendered totally ineffective.
 Supporting business strategy
Support strategy goes beyond simply implementing
strategy. It means developing the capbilities which allow
the organization to improve and refine its strategic goals.
For example, a mobile phone manufacturer wants to be
the first in the market with new product innovations, so its
operations need to be capable of coping with constant
innovation. It must develop processes flexible enough to
make novel components, organize its staff to understand
the new technologies, develop relationships with its
suppliers which help them to respond quickly when
supplying new parts, and so on.
 Driving business strategy
The third, and most difficult, role of operations is to drive
strategy by giving it a unique and long-term advantage.
For example, a specialist food-service company supplies
restaurants with frozen fish and fish products. Over the years
it has built up close relationships with its customers (chefs) as
well as with its suppliers around the world (fishing companies
and fish farms). In addition it has its own small factory which
develops and produces a continual stream of exciting new
products. In fact the whole company’s success is based largely
on these unique operations capabilities. The operation drives
the company’s strategy.
 What is the difference between a ‘top-down’
and a ‘bottom-up’ view of operations strategy?
The ‘top-down’ perspective views strategic decisions at a
number of levels. Corporate strategy sets the objectives
for the different businesses which make up a group of
businesses. Business strategy sets the objectives for each
individual business and how it positions itself in its
marketplace. Functional strategies set the objectives for
each function’s contribution to its business strategy.
The ‘bottom-up’ view of operations strategy sees overall
strategy as emerging from day-to-day operational
experience.
 Market-requirements-based strategies
No operation that continually fails to serve its markets
adequately is likely to survive in the long term.
Without an understanding of what markets require, it is
impossible to ensure that the operation is achieving the right
priority between its performance objectives (quality, speed,
dependability, flexibility and cost).
The market influence on performance objectives
Operations seek to satisfy customers through developing their
five performance objectives.
When it is important that products or services are delivered
exactly when they are promised, the performance objective of
dependability will be essential for the operation.
When customers value products or services that have been
adapted or designed specifically for them, flexibility will be
vital, and so on.
The key point is that whatever competitive factors are
important to customers should influence the priority of each
performance objective.
Order-winning and qualifying objectives
Order-winning factors are those things which directly and
significantly contribute to winning business. They are regarded by
customers as key reasons for purchasing the product or service.
Raising performance in an order-winning factor will either result in
more business or improve the chances of gaining more business.
Qualifying factors may not be the major competitive determinants
of success, but are important in another way. They are those
aspects of competitiveness where the operation’s performance has
to be above a particular level just to be considered by the customer.
less important factors which are neither order winning nor
qualifying. They do not influence customers in any significant way.
The product/service life cycle influence on
performance objectives
The exact form of product/service life cycles will vary, but
generally they are shown as the sales volume passing
through four stages: introduction, growth, maturity and
decline.
The implication of this for operations management is that
products and services will require different operations
strategies in each stage of their life cycle.
 Introduction Stage
When a product or service is first introduced, it is likely to
be offering something new in terms of its design or
performance, with few competitors offering the same
product or service.
The needs of customers are unlikely to be well understood,
so operations management needs to develop the flexibility
to cope with any changes and be able to give the quality to
maintain product/service performance.
 Growth Stage
As volume grows, competitors may enter the growing
market. Keeping up with demand could prove to be the
main operations preoccupation.
Rapid and dependable response to demand will help to
keep demand buoyant, while quality levels must ensure
that the company keeps its share of the market as
competition starts to increase.
 Maturity Stage
Demand starts to level off. Some early competitors may
have left the market and the industry will probably be
dominated by a few larger companies.
So operations will be expected to get the costs down in
order to maintain profits or to allow price cutting, or both.
Because of this, cost and productivity issues, together with
dependable supply, are likely to be the operation’s main
concerns.
 Decline Stage
After time, sales will decline with more competitors
dropping out of the market.
There might be a residual market, but unless a shortage of
capacity develops, the market will continue to be
dominated by price competition.
Operations objectives continue to be dominated by cost.
 The operations resources perspective
The resource-based view (RBV) holds that firms with an
‘above-average’ strategic performance are likely to have
gained their sustainable competitive advantage because of
the core competences (or capabilities) of their resources.
Understanding and developing the capabilities of
operations resources, although often neglected, is a
particularly important perspective on operations strategy.
 Resource constraints and capabilities
No organization can merely choose which part of the
market it wants to be in without considering its ability to
produce services and products in a way that will satisfy that
market.
In other words, the constraints imposed by its operations
must be taken into account.
This perspective may identify constraints to satisfying
some markets but it can also identify capabilities which can
be exploited in other markets.
 Intangible resources
An operation’s intangible resources include such things as its
relationship with suppliers, the reputation it has with its
customers, its knowledge of its process technologies and the
way its staff can work together in new product and service
development.
These intangible resources may not always be obvious within
the operation, but they are important and have real value.
It is these intangible resources, as well as its tangible
resources, that an operation needs to deploy in order to
satisfy its markets.
Strategic resources and sustainable competitive
advantage
The ‘resource-based’ explanation of why some companies
manage to gain sustainable competitive advantage is that
they have accumulated better or more appropriate
resources.
Resources can have a particularly influential impact on
strategic success if they exhibit some or all of the following
properties:
Strategic resources and sustainable competitive
advantage
1. They are scarce – Unequal access to resources so that not
all competing firms have scarce resources such as an ideal
location, experienced engineers, proprietary software, etc.,
can strengthen competitive advantage.
2. They are not very mobile – Some resources are difficult to
move out of a firm.
3. They are difficult to imitate or substitute for – These two
factors help define how easily a resource-based advantage
can be sustained over time.
What is the difference between a ‘market requirements’ and
an ‘operations resources’ view of operations strategy?
A ‘market requirements’ perspective of operations
strategy sees the main role of operations as satisfying
markets. Operations performance objectives and
operations decisions should be primarily influenced by a
combination of customers’ needs and competitors’
actions. Both of these may be summarized in terms of the
product/service life cycle.
The ‘operations resources’ perspective of operations strategy
is based on the resource-based view (RBV) of the firm and sees
the operation’s core competences (or capabilities) as being the
main influence on operations strategy. Operations capabilities
are developed partly through the strategic decisions taken by
the operation. Strategic decision areas in operations are
usually divided into structural and infrastructural decisions.
Structural decisions are those which define an operation’s
shape and form. Infrastructural decisions are those which
influence the systems and procedures that determine how the
operation will work in practice.
How can operations strategy form the basis for
operations improvement?
An operations strategy can provide the foundation for
improvement by achieving a fit between an operation’s
market requirements and its operations capabilities.
A ‘line of fit’ diagram can illustrate this. It is a conceptual
model intended to illustrate some ideas around the
concept of strategic improvement.
During improvement it may not be possible to maintain a
balance between market requirements and operations
performance. When markets expect something that the
operation cannot deliver, or when operations have
capabilities that cannot be exploited in the market, there
are strategic risks deriving from the deviation from the
‘line of fit’.
The importance–performance matrix positions competitive
factors according to their importance and the operation’s
success at achieving them to determine relative
improvement priorities.
How can an operations strategy be formulated?
The process of operations strategy
Putting an operations strategy together is called ‘the
process’ of operations strategy.
There are four stages in the process of operations strategy,
which can be viewed as a cycle:
✔ Formulation – which is the process of clarifying the
various objectives and decisions that make up the
strategy, and the links between them. This should
produce strategies that are comprehensive, coherent,
provide correspondence and prioritize the most critical
activities or decisions.
✔ Implementation – the way that strategy is
operationalized or executed. Three issues are often
mentioned by strategy practitioners as being important
in achieving successful implementation: the clarity of
the strategy, the nature of the leadership provided by
top management, and effective project management.
✔ Monitoring – involves tracking ongoing performance
and diagnosing data to make sure that the changes are
proceeding as planned and providing early indications
of any deviation from the plan.
✔ Control – involves the evaluation of the results from
monitoring the implementation so that activities, plans
and performance can be assessed with the intention of
correcting future action if that is required.
 REFERENCES

✔ Operations Management 8th Edition by Nigel

Slack, Alistair Brandon-Jones and Robert
Johnston
 ASSIGNMENT
Explain how the four perspectives of operations strategy
would apply to SSTL (read and analyze the ‘Operations in
action’ Changing the economics of space exploration in
page 75).
What do you think are the qualifying or order-winning
factors for Pret A Manger described in Chapter 1?
(Operations in Practice: Customer service at Pret A
Manger in page 18)