He Strategic Role and Objectives of Operations: Source: Honda Motor Company

The strategic role and objectives
of operations
Source: Honda Motor Company
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Learning Objective
Understand the
• Role of Operations management
• Performance Objectives
Strategy
Corporate Strategy:
Porter’s Three Generic Strategies
• Professor Michael Porter (Harvard Business School) is one of the key scholars
in the strategy literature.
• Porter describes three different corporate strategies that firms can use to
generate a sustainable competitive advantage.
• Firms that try to pursue multiple strategies are likely to become “stuck in the
middle” of the market with suboptimal financial performance.
• Important not to use a mixture of different strategies in the same business unit.
(1). Cost leadership strategy
• Firms using a cost leadership strategy provide products and

services that are a lower cost the competing products in the market.
• Firms using a cost leadership strategy often use economies of scale

to lower the cost of manufacturing a high volume of products.
• Following a cost leadership strategy often enables firms to capture a

large market share and dominate the industry.
• However, a cost leadership strategy is also risky, especially when

customer preferences change and they demand higher product
quality or innovative new products.
Strategies to fight low cost rivals
• Firms can use a number of different strategies to compete against

low cost rivals.
• These include:
• Strategy 1: Differentiate your offerings
• Strategy 2: Add a low-cost business unit
• Strategy 3: Switch to selling solutions
• Strategy 4: Become exclusively a low-cost provider
A framework
for responding to low cost rivals:
(2). Differentiation strategy
• Occurs when firms provide products or services that are

differentiated from their competitor’s product offerings.
• Often firms using a differentiation strategy will develop innovative

new product features or better service that customers are willing to
pay a price premium.
• A higher price is required to cover the additional costs of

manufacturing and supplying the differentiated product.
• However, this strategy does not work when the customers are highly
price sensitive or when it is hard to differentiate the product.
(3). Focus strategy
• Firms using a focus strategy will target their products and services at
a particular market segment within the industry.
• Instead of providing products that meet the requirements of every

customer, these firms specialise small market niches or a single
market segment.
• Over time, the firm becomes a market leader in the single market
segment.
• E.g. Honda developed a reputation of developing reliable and high

quality motorbikes.
Blue Ocean Strategy
• Developed by Kim and Mauborgne from INSEAD who argue that the choice
between a cost leadership and differentiation strategy is sub-optimal
• They argue that competing head-to-head with your main competitors in an

existing market often results in a “bloody red ocean of rivals fighting over a
shrinking profit pool”.
• In a red ocean market successive price wars result in diminishing profit

margins and returns.
• Their research on 150 strategic moves over 100 years shows that firms can
be more successful by developing and entering new markets.
• Rather than battling competitors in red oceans, firms should create ‘blue
oceans of uncontested market space ripe for growth’
• e.g. Nintendo Wii
Blue Ocean Strategy
• Firms diversifying into a related or unrelated industry are able to develop a

blue ocean strategy, often by launching a innovative new product.
• Blue ocean strategies enable firms to use a cost leadership strategy (to deter
new market entrants) and a differentiation strategy (a range of new products)
as they face few competitors within the new industry.
• They argue that blue ocean strategies aim to create:
• Value Innovation = Differentiated product + Low Cost
Disruptive Innovation Strategy
• “Disruptive innovation” occurs when a small firm with limited resources is able
beat large established competitors by targeting the low end of the market.
• A disruptive innovation helps to lower production costs so that existing products

become cheaper and more affordable for a wider range of customers.
• Disruptive Innovation can be defined as:
"Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf

components put together in a product architecture that was often simpler than prior approaches. They
offered less of what customers in established markets wanted and so could rarely be initially employed
there. They offered a different package of attributes valued only in emerging markets remote from, and
unimportant to, the mainstream.”
(Clayton Christensen, 1997)
Source: adapted from Christensen et al (2015) What is

Slack, Chambers anddisruptive innovation,
Johnston, Operations ManagementHarvard
5 Edition ©Business
th
Review.
Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Disruptive Innovation Model
Customer Demand Trajectories:
Incumbent’s Sustaining Trajectory: The blue lines show customers’
As incumbent firms introduce higher quality products willingness to pay for performance
Product Performance:
how the product improves to satisfy the high end of the market, they overshoot
over time the needs of low-end customers and many
mainstream customers. This leaves an opening for
entrants to find footholds in the less profitable
segments that incumbents are neglecting.
Customer distribution
Entrant’s Disruptive Trajectory:
Entrants on a disruptive trajectory improve the
performance of their offerings and move upmarket
andandchallenge
Slack, Chambers the dominance
Johnston, Operations Managementof5 ththe incumbents
Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations & its role
Operations Strategy:
The basic aim of operations strategy
The business The needs and

of the operations strategy wants of the
organisation customer or client
… how to get there!
“The aim of strategy is to plan how the firm will achieve its future goals.
This means having a very good understanding of the organisation’s
current capabilities and limitations; actively searching for new market
opportunities; exploiting existing capabilities in quality; innovation,
processes and so on; examining the way of improving in-house
capabilities; searching for partners and linking with other firms.”
(Brown et al., 2001)

Strategic Role of Operations
Management
• Case: TNT Express
• It is a make or break activity
Make or Break - example
Coke Products Are Ordered Off the

Shelves in Four Countries - New York
Times
The New York Times | June 16, 1999 | Copyright
In the biggest recall in Coke history, the Governments of

France, Belgium, Luxembourg and the Netherlands have
ordered products from the Coca-Cola Company off their
shelves after dozens of people who drank the soft drinks
became ill. The move comes on the heels of a health
scare over food contaminated with dioxin that began in
Belgium and spread across Europe.
Make or Break - example
Toyota Ranks Highest in Overall Customer
Satisfaction in Germany for Fourth
Consecutive Year
Toyota, BMW, Mercedes-Benz Capture Top Model
Awards in Germany Study
MUNICH: 29 June 2005 — Toyota ranks highest
in overall customer satisfaction in Germany for
the fourth consecutive year, according to the
J.D. Power and Associates 2005 Germany
Customer Satisfaction Index (CSI)
What is the role of the Operations function?
Operations as Operations Operations
implementer as as driver
supporter
Operations
Strategy Strategy
Operations Operations
Strategy
Operations Operations supports Operations
implements strategy strategy drives strategy
The strategic role of the Operations function
The 3 key attributes
Operations contribution
of Operations
Implementing Be dependable
Operationalize strategy
Explain practicalities
Supporting Be appropriate
Understand strategy
Contribute to decisions
Driving Be innovative
Provide foundation of strategy
Develop long-term capabilities
Four stages of judging operations
contribution to strategy
Hayes & Wheelwright (1988) model
Give an Redefine the

industry’s Stage 4:
Operations
expectations Externally
Advantage
supportive
Link Strategy Be clearly
With the best Stage3:
Operations in the Internally
industry supportive
Be as good
Adopt best as Stage 2:
Practice competitors Externally
neutral
Stop holding
Correct the the Stage 1:
Worst organisation Internally
Problems back neutral
STAGE 1 STAGE 2 STAGE 3 STAGE 4
The
The The ability ability
ability to to
to support Drive strategy
Implement Strategy
Slack, Chambers th
and Johnston, Operations Management 5 Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

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The strategic role and objectives

• Firms using a cost leadership strategy provide products and

• Firms using a cost leadership strategy often use economies of scale

• Following a cost leadership strategy often enables firms to capture a

• However, a cost leadership strategy is also risky, especially when

• Firms can use a number of different strategies to compete against

• Strategy 1: Differentiate your offerings

• Strategy 2: Add a low-cost business unit

• Strategy 3: Switch to selling solutions

• Strategy 4: Become exclusively a low-cost provider

• Occurs when firms provide products or services that are

• Often firms using a differentiation strategy will develop innovative

• A higher price is required to cover the additional costs of

• Instead of providing products that meet the requirements of every

• E.g. Honda developed a reputation of developing reliable and high

• They argue that competing head-to-head with your main competitors in an

• In a red ocean market successive price wars result in diminishing profit

• e.g. Nintendo Wii

• Firms diversifying into a related or unrelated industry are able to develop a

• They argue that blue ocean strategies aim to create:

• Value Innovation = Differentiated product + Low Cost

• A disruptive innovation helps to lower production costs so that existing products

• Disruptive Innovation can be defined as:

"Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf

(Clayton Christensen, 1997)

Source: adapted from Christensen et al (2015) What is

The business The needs and

(Brown et al., 2001)

• Case: TNT Express

• It is a make or break activity

Coke Products Are Ordered Off the

In the biggest recall in Coke history, the Governments of

Give an Redefine the

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