Operations Strategy

and
Competitiveness

Dr.Gyanesh Kumar Sinha 1

 What is Strategy?

Strategy is defined as the direction and scope of an

organization over the long-term to gain competitive
advantage through its configuration of resources, with
the aim of fulfilling stakeholder’s expectation

Three levels of Strategy

-Corporate Level
-Business Level
-Functional Level

Dr.Gyanesh Kumar Sinha 2

Business/Functional Strategy

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 Developing a Business Strategy

◼ A business strategy is developed after taking into

many factors and following some strategic decisions
such as;
◼ What business is the company in (mission)
◼ Analyzing and understanding the market (environmental
scanning)
◼ Identifying the companies strengths (core competencies)

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Three Inputs to a Business Strategy

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 Examples from Strategies
◼ Mission: Dell Computer- “to be the most successful computer
company in the world”
◼ Environmental Scanning: political trends, social trends,
economic trends, market place trends, global trends
◼ Core Competencies: strength of workers, modern facilities,
market understanding, best technologies, financial know-how,
logistics

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Business Strategy
◼ Concentration
◼ Market Development
◼ Product Development
◼ Innovation
◼ Horizontal Integration
◼ Vertical Integration
◼ Joint Venture
◼ Diversification
◼ Turnaround
◼ Divestiture
◼ Liquidation Dr.Gyanesh Kumar Sinha 7
Developing an Operations Strategy

◼ Operations Strategy is a plan for the

design and management of operations
functions
◼ Operation Strategy developed after the
business strategy
◼ Operations Strategy focuses on specific
capabilities which give it a competitive
edge – competitive priorities

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The Role of Operations Strategy

◼ Provide a plan that makes best use of

resources which;
◼ Specifies the policies and plans for using
organizational resources
◼ Supports Business Strategy

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Operations Strategy – Designing the
Operations Function

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Competitive Priorities- The Edge

◼ Four Important Operations Questions:

Will you compete on –
Cost?
Quality?
Time?
Flexibility?
◼ All of the above? Some? Tradeoffs?
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Competing on Cost?
◼ Offering product at a low price relative to competition
◼ Typically high volume products
◼ Often limit product range & offer little
customization
◼ May invest in automation to reduce unit costs
◼ Can use lower skill labor
◼ Probably use product focused layouts
◼ Low cost does not mean low quality
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Competing on Quality?
◼ Quality is often subjective
◼ Quality is defined differently depending on who is
defining it
◼ Two major quality dimensions include
◼ High performance design:
◼ Superior features, high durability, & excellent customer service

◼ Product & service consistency:

◼ Meets design specifications
◼ Close tolerances
◼ Error free delivery
◼ Quality needs to address
◼ Product design quality – product/service meets requirements
◼ Process quality – error free products

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Competing on Time?
◼ Time/speed one of most important
competition priorities
◼ First that can deliver often wins the race
◼ Time related issues involve
◼ Rapid delivery:
◼ Focused on shorter time between order placement and delivery
◼ On-time delivery:
◼ Deliver product exactly when needed every time

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Competing on Flexibility?
◼ Company environment changes rapidly
◼ Company must accommodate change by being
flexible
◼ Product flexibility:
◼ Easily switch production from one item to another
◼ Easily customize product/service to meet specific requirements
of a customer

◼ Volume flexibility:
◼ Ability to ramp production up and down to match market
demands

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Examples: Competitive Priorities
Cost Quality
Maruti Suzuki Sony, Philips
Big Bazar Subway
Tata Nano Toyota, Honda Activa, Audi
Wal-Mart Lexus, Xerox
Indio Airlines Dineyland

Flexibility Speed
Google Citicorp - advertises a 15-minute mortgage approval
3M Domino’s Pizza
HP Hewlett-Packard - produces electronic testing equipment in
Burger King five days
General Electric - reduces time to manufacture circuit-
breaker boxes into three days and dishwashers into 18
hours
Dell - ships custom-built computers in 2-3 days
Zara
Samsung Dr.Gyanesh Kumar Sinha 16
The Need for Trade-offs
◼ Decisions must emphasis priorities that support business
strategy
◼ Decisions often required trade offs
◼ Decisions must focus on order qualifiers and order winners
◼ Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since everyone expects it

◼ Which priorities are “Order Winners”?

e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility

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Translating to Production Requirements

◼ Specific Operation requirements include

two general categories
◼ Structure – decisions related to the

production process, such as characteristics

of facilities used, selection of appropriate
technology, and the flow of goods and
services
◼ Infrastructure – decisions related to

planning and control systems of operations

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Translating to Production Requirements

◼ Dell Computer example – structure & infrastructure

◼ They focus on customer service, cost, and speed
◼ ERP system developed to allow customers to order
directly from Dell
◼ Product design and assembly line allow a “make to
order” strategy – lowers costs, increases turns
◼ Suppliers ship components to a warehouse within
15 minutes of the assembly plant - VMI
◼ Dell set up a shipping arrangement with UPS

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Operations Strategy at Wal-Mart

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Strategic Role of Technology
◼ Technology should support competitive
priorities
◼ Three Applications: product technology, process
technology, and information technology
◼ Products - Teflon, CD’s, fiber optic cable
◼ Processes – flexible automation, CAD
◼ Information Technology – POS, EDI, ERP, B2B

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Technology for Competitive
Advantage

◼ Technology has positive and negative

potentials
◼ Positive
◼ Improve processes
◼ Maintain up-to-date standards
◼ Obtain competitive advantage
◼ Negative
◼ Costly
◼ Promotes dependency
◼ Risks such as overstating benefits
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Technology for Competitive Advantage

◼ Technology should
◼ Support competitive priorities
◼ Can require change to strategic plans
◼ Can require change to operations strategy

◼ Technology is an important strategic

decision

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 Strategy and the Internet
◼ Internet can be used to create a distinctive
business strategy
◼ Amazon
◼ Supply chain management expertise
◼ eBay
◼ unlimited capacity and a huge market
◼ all work is done by buyers and sellers and there is no
marginal cost
◼ Cisco
◼ integrated value chain is its competitive advantage
◼ flipKart
◼ free delivery, familiarity with local market

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 Strategy and the Internet (Cont..)
◼ Internet can be used to strengthen existing
competitive advantages by integrating new and
traditional activities
◼ GE’s Trading Process Network: an automated Web-based
purchasing system
◼ cut average purchasing cost in half
◼ enabled a much larger group of suppliers to bid on jobs
◼ customers were able to track their orders through shop in real
time
◼ Intel
◼ sells $2 billion a month over the Internet
◼ purchases 80% of its direct materials online
◼ replaced 19,000 sales-order faxes received daily

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 Strategy and the Internet (Cont..)
◼ Lessons from the dot com shakedown
◼ Internet is the great equalizer
◼ allows innovations to be copied with little investment
◼ companies may reach larger market
◼ customers have more information and can compare
prices and features of their products.
◼ These benefits are temporary unless…
◼ Companies provide unique value to customer

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Operations Strategy: Capacity and Facility

◼ Capacity strategic decisions include:

◼ When, how much, and in what form to alter
capacity
◼ Facility strategic decisions include:
◼ Whether demand should be met with a few
large facilities or with several smaller ones
◼ Whether facilities should focus on serving
certain geographic regions, product lines, or
customers
◼ Facility location can also be a strategic decision
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 Operations Strategy: Human Resources
◼ What are the skill levels and degree of autonomy
required to operate production system?
◼ What are the training requirements and selection
criteria?
◼ What are the policies on performance evaluations,
compensation, and incentives?
◼ Will workers be salaried, paid an hourly rate, or paid a
piece rate?
◼ Will profit sharing be allowed, and if so, on what
criteria?

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Operations Strategy: Human Resources (cont.)
◼ Will workers perform individual tasks or work in
teams?
◼ Will they have supervisors or work in self-managed
work groups?
◼ How many levels of management will be required?
◼ Will extensive worker training be necessary?
◼ Should workforce be cross-trained?
◼ What efforts will be made in terms of retention?

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 Operations Strategy: Quality

◼ What is the target level of quality for our

products and services?
◼ How will it be measured?
◼ How will employees be involved with quality?
◼ What will the responsibilities of the quality
department be?

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Operations Strategy: Quality (cont.)

◼ What types of systems will be set up to

ensure quality?
◼ How will quality awareness be maintained?
◼ How will quality efforts be evaluated?
◼ How will customer perceptions of quality be
determined?
◼ How will decisions in other functional areas
affect quality?

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 Operations Strategy: Sourcing

◼ Vertical Integration
◼ degree to which a firm produces parts that go
into its products
◼ Strategic Decisions
◼ How much work should be done outside the
firm?
◼ On what basis should particular items be made
in-house?
◼ When should items be outsourced?
◼ How should suppliers be selected?
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Operations Strategy: Sourcing (cont.)

◼ What type of relationship should be maintained

with suppliers?
◼ What is expected from suppliers?
◼ How many suppliers should be used?
◼ How can quality and dependability of suppliers
be ensured?
◼ How can suppliers be encouraged to
collaborate?

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Operations Strategy: Operating Systems

◼ How will operating systems execute strategic

decisions?
◼ How does one align information technology and
operations strategic goals?
◼ How does information technology support both
customer and worker demands for rapid access,
storage, and retrieval of information?
◼ How does information technology support decisions
making process related to inventory levels,
scheduling priorities, and reward systems?
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Issues and Trends in Operations

◼ Global Markets, Global Sourcing, and Global

Operations
◼ Virtual Companies
◼ Greater Choice, Increased customization
◼ Emphasis on Service
◼ Speed and Flexibility

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Issues and Trends in Operations (cont.)

◼ Supply Chains
◼ Collaborative Commerce
◼ Technological Advances
◼ Knowledge and Ability to Learn
◼ Environmental and Social Responsibilities

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Changing Corporation

20th-Century 21st-Century
Characteristic Corporation Corporation
◼ Organization ◼ Pyramid • Web
◼ Focus ◼ Internal • External
◼ Style ◼ Structures • Flexible
◼ Source of strength ◼ Stability • Change
◼ Self-
◼ Structure sufficiency • Interdependencies
◼ Resources ◼ Physical
assets • Information

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Changing Corporation (cont.)

20th-Century 21st-Century
Characteristic Corporation Corporation
◼ Operations ◼ Vertical integration • Virtual integration
◼ Products ◼ Mass production • Mass customization
◼ Reach ◼ Domestic • Global
◼ Financials ◼ Quarterly
• Real-time
◼ Inventories • Hours
◼ Months
◼ Strategy • Bottom-up
◼ Top-down

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