Operations strategy

Reference: Ch. 3-Slack, N., Chambers, S., & Johnston,

R. (2010). Operations management. Pearson
Education.

By: Rosa Hendijani, PhD

Photodisc. Cartesia
Operations Strategy
The means by which operations implements
the firm’s corporate strategy and helps to
build a customer-driven firm
Operations Strategy
Corporate Strategy
• Environmental scanning Market Analysis
• Core competencies • Market segmentation
• Core processes • Needs assessment
• Global strategies
Competitive Priorities
• Cost
• Quality
• Time
• Flexibility

New Service/
Product Development
• Design
• Analysis No
• Development
• Full launch
Performance
Yes Gap?
Operations Strategy

Competitive Capabilities
Decisions • Current
• Managing processes
• Needed
• Managing supply chains
• Planned
Corporate Strategy

 Corporate Strategy
 Provides an overall direction that serves as
the framework for carrying out all the
organization’s functions
 Environmental Scanning
 Core Competencies

 Core Processes

 Global Strategies
Market Analysis

 Market Analysis
 Understand what the customers want and
how to provide it.
 Market Segmentation
 Needs Assessment
Operations strategy reconciles the requirements
of the market with the capabilities of
operations resources-Operations Strategy Content

Strategic
reconciliation

Operations Operations Market requirements

resources strategy
Competitive Priorities and Capabilities

Competitive Competitive
Priorities Capabilities
The critical The cost, quality, time,
dimensions that a and flexibility dimensions
process or supply that a process or supply
chain must possess chain actually possesses
to satisfy its internal and is able to deliver.
or external
customers, both now
and in the future.
Order Winners and Qualifiers
Order Winners Order Qualifiers
A criterion Minimum level
customers use to required from a set
differentiate the of criteria for a firm
services or to do business in a
products of one particular market
firm from those of segment.
another.
Order Winning Factors
Order-winning factors

+ve

Competitive Neutral
benefit

–ve

Performance
Qualifying Factors
Qualifying factors

+ve

Competitive Neutral
benefit

–ve

Performance
Less Competitive Factors
Less important factors

+ve

Competitive Neutral
benefit

–ve

Performance
Order Winners and Qualifiers
COST Definition Process Considerations Example
1.Low-cost Delivering a service Processes must be Costco
operations or a product at the designed and operated to
lowest possible cost make them efficient

QUALITY

2.Top quality Delivering an May require a high level of Rolex

outstanding service customer contact and may
or product require superior product
features

3.Consistent Producing services Processes designed and McDonald’s

quality or products that monitored to reduce errors
meet design and prevent defects
specifications on a
consistent basis

Table 1.3
Costco
Order Winners and Qualifiers
TIME Definition Process Considerations Example

4.Delivery speed Quickly filling a Design processes to reduce Netflix

customer’s order lead time

5.On-time Meeting delivery- Planning processes used to United Parcel

delivery time promises increase percent of Service (UPS)
customer orders shipped
when promised

6.Development Quickly Cross-functional integration Zara

speed introducing a new and involvement of critical
service or a external suppliers
product

Table 1.3
Order Winners and Qualifiers
Process
FLEXIBILITY Definition Example
Considerations
7.Customization Satisfying the Low volume, close Ritz Carlton
unique needs of customer contact,
each customer by and easily
changing service reconfigured
or product designs
8.Variety Handling a wide Capable of larger Amazon.co
assortment of volumes than m
services or processes
products supporting
efficiently customization
9.Volume Accelerating or Processes must be The United
flexibility decelerating the designed for excess States
rate of production capacity and excess Postal
of services or inventory Service
products quickly (USPS)
to handle large
fluctuations in
demand
Table 1.3
 Operations Strategy at Flextronics
and Ryanair

For each of these companies:

• What are their competitive priorities?

• How do their operations help them to achieve these?
 Operations Strategy at Ryanair

Operations strategic Ryanair Market

decisions requirements
•Stripped down
•Low prices
service
•One technology •Reliability
•Cheap airport •Basic service
locations
•Fast turnround
•Internet booking
Operations Strategy at Flextronics

Operations strategic Flextronics Market

decisions requirements
•Industrial parks,
•Low costs
with
–low cost but •
close to major
markets Responsiveness
– and co-located • Flexibility
suppliers
• Vertical Integration
Productivity

19
A measure of competitiveness:
Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)
Outputs
Productivity =
Inputs
Measures of productivity
Partial Output Output Output Output
measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Value of Goods or Services Produced

measure Value of all inputs used to produce them
Productivity Measurements

 Can be calculated for a specific product,

for an employee, for a department, for the
organization, for the industry, or even for
the nation.
 Should be monitored and improved
continuously.
 Are more difficult to calculate in service
organizations than in manufacturing
organizations.
Productivity Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000

What is the labor productivity?

Example-Labor Productivity

10,000 units/500hrs = 20 units/hour

Or we can arrive at a unitless figure

(10,000 unit* $10/unit)/(500hrs* $9/hr) =
22.22

Can you think of any advantages or

disadvantages of each approach?
Example--Multifactor Productivity

MFP = Output
Labor + Materials

MFP = (10,000 units)*($10)

(500)*($9) + ($5000) + ($25000)

MFP = 2.90
 Suppose we hire very efficient workers
who can finish the job in 350 hours. What
is now the MFP with labor rate of $9/hr.

 However we have to pay higher wages for

the more efficient workers. How much
extra can we pay without reducing
productivity from the original level?
‘Operations’ is not the same as
‘operational’
‘Operations’ are the resources that create products and
services.

‘Operational’ is the opposite of strategic, meaning day-to-

day and detailed.

So, one can examine both the operational and the

strategic aspects of operations.
How is operations strategy different
to operations management?
Operations management Operations strategy

Short-term Long-term
for example, for example,
capacity decisions capacity decisions
The time
Demand

Demand
scale is
longer

1–12 months 1–10 years

Operations strategy Vs. operations
management
Operations management Operations strategy

Micro-level Macro-level
of the process of the total operation

The level of
analysis is
higher
Operations strategy vs. operations
management
Operations management Operations strategy

Concrete Philosophical

For example: For example:

The level of
abstraction ‘How do we improve out ‘Should we develop
is higher purchasing procedures?’ strategic alliances with
suppliers?’
The strategic role of the operations function
The 3 key attributes
Operations contribution
of operations strategy

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
 What is the role of the operations function?
Operations as Operations as
supporter of Operations as
implementer of
strategy driver of strategy
strategy

Strategy Strategy Operations

Operations Operations Strategy

Operations Operations Operations

implements strategy supports strategy drives strategy
 Service Paradox

Reference: Gebauer, H., Fleisch, E., &

Friedli, T. (2005). Overcoming the
service paradox in manufacturing
companies. European Management
Journal, 23(1), 14-26.
 Service Revenue in Manufacturing
Industry

Reference: Gebauer, H., Fleisch, E., & Friedli, T. (2005). Overcoming the service paradox in manufacturing companies. European
Management Journal, 23(1), 14-26.
 The 4 stage model of operations contribution

Redefining n s STAGE 4
io
ra t
industry Give an
expectations o pe operations
o f advantage
n
Increasing strategic impact

tio
Clearly the u STAGE 3
trib Link strategy
Driving
best in the
c on with strategy
industry g
a sin operations
r e
As good as Inc STAGE 2
Supporting
Adopt best
competitors practice strategy

Holding the STAGE 1

Correct the Implementing
organization worst strategy
back problems

Internally Externally Internally Externally

After Hayes and neutral neutral supportive supportive
Wheelwright
Increasing operations capabilities
The four perspectives on operations strategy
Top-down
perspective
What the
business wants
operations to do
Operations Market
resources requirement
perspective perspective
Operations
What operations strategy What the market
resources can position requires
do operations to do
What day-to-day
experience
suggests operations
should do

Bottom-up
perspective
Top-down and bottom-up perspectives of strategy

Corporate strategy

Business strategy

Operations strategy

Emergent sense of what the

strategy should be

Operational experience
Top-down and bottom-up perspectives of strategy
for the metrology company-Operations Strategy Process

Group building corporate capability in high

technology products and services
Corporate objectives impact on business

Top-down
objectives which, in turn, influence
operations strategy Metrology division competes on ‘fast-to-market’
innovations

Operations must have fast and flexible

technology, supply relationships,
process and staff

Modular strategy provides flexibility and

innovation at relatively low cost

Experiment with ‘modular’ design of key

products and components
Day-to-day experience of providing products and
Bottom-up

services to the market reveals problems and

potential solutions which become formalised into
operations strategy
Customers confused by continual product innovation
and costs are increasing

Top-down and bottom-up perspectives of strategy for a metrology company

Figure 1.6
(Continued)
The strategy hierarchy
Key strategic Influences on
decisions decision-making

What business to be in? Economic environment

Corporate What to acquire? Social environment
strategy What to divest? Political environment
How to allocate cash? Company values and ethics

What is the mission? Customer/market dynamics

Business What are the strategic Competitor activity
objectives of the firm? Core technology dynamics
strategy
How to compete? Financial constraints

How to contribute to the Skills of function’s staff

Operations strategic objectives? Current technology
strategy How to manage the Recent performance of the
function’s resources? function
 The effects of the product / service life cycle

volume
Sales

Time
Introduction Growth Maturity Decline

Volume Slow growth Rapid growth in Sales slow and Market needs
in sales sales volume level off largely met

Customers Innovators Early adopters Bulk of market Laggards

Competitors Few/none Increasing Stable number Declining

numbers numbers

Variety of Customization Increasingly Emerging Possible move

product/ or frequent standardized dominant types to commodity
service design standardization
design changes
 The effects of the product / service life cycle

volume
Sales

Time
Introduction Growth Maturity Decline

Likely order Product/ Availability Low price Low price

winners service quality dependable
characteristics supply

Likely Quality Price Quality Dependable

qualifiers range range range supply

Dominant Flexibility Speed Cost Cost

performance quality dependability dependability
objectives quality
The challenge of operations strategy formulation

An operations strategy should be:

Comprehensive
Coherent

Correspondent
Critical
An implementation agenda is
needed
When to start?

Where to start?

How fast to proceed?

How to co-ordinate the implementation

program?
The five P’s of operations strategy implementation
Purpose — a shared understanding of the motivation,
boundaries and context for developing the operations
strategy.
Point of Entry — the point in the organization where the
process of implementation starts.
Process — How the operations strategy formulation
process is made explicit.
Project Management — The management of the
implementation.

Participation — Who is involved in the implementation.