Lecture Week 4 - PDE4910 Strategic Fit V6

PDE4910
Achieving Strategic Fit
Dr Lindsey Brodie
Today’s Environment
• The business environment is faster moving than ever before
• Major changes are occurring in many industries often as a
result of information technology
• Many organizations have changed in recent years: numerous
acquisitions and mergers; changes in organizational structure
- flatter management structures; contract workers; rise of the
entrepreneurs
• Increasing dependence on information technology: global
supply chains; use of social media; shopping via the Internet
• More change from technology is expected: wearables, RFID,
etc.
PDE4910 - Copyright Middlesex University 2
Impact of Today’s Environment
• Shorter-term planning becomes increasingly

important
• Need for flexibility to cope with change:
– To be able to adapt easily
– To be able to respond rapidly

Strategy
Definition of strategy:
“An integrated set of actions aimed at increasing
the long-term well-being and strength of the
enterprise relative to competitors”
(Porter, 1980)
Not just about operational effectiveness – Porter

What is Strategy Addressing?
• Where is the business trying to get in the long-term? (direction)
• Which markets should a business compete in and what kind of
activities are involved in such markets? (markets/scope)
• How can the business perform better than the competition in
those markets? (competitive advantage)
• What resources (skills, assets, finance, relationships, technical
competence, facilities) are required in order to be able to
compete? (resources)
• What external, environmental factors affect the ability of the
business to compete? (environment)
• What are the values and expectations of those who have power
in and around the business? (stakeholders)
Slightly modified from George Dafoulas’ original slide
Four Key Questions
• Where do we compete?
• What unique value do we bring?
• What resources/capabilities do we utilize?
• How do we sustain that unique value?
Source: “What is Strategy?” David Kryscynski on YouTube

PDE4910 - Copyright Middlesex University
https://www.youtube.com/watch?v=TD7WSLeQtVw 6
Four Key Questions
• Where do we compete?
Which marketplaces?
• What unique value do we bring?
Cost? Differentiation?
• What resources/capabilities do we utilize?
Assets? Skills?
• How do we sustain that unique value?
Barriers that make it difficult for competitors?
Source: “What is Strategy?” David Kryscynski on YouTube
PDE4910 - Copyright Middlesex University https://www.youtube.com/watch?v=TD7WSLeQtVw 7
What is Organisational/Corporate Strategy?
Organisational/Corporate Strategic decisions – means those

decisions which …
• Are widespread in their effect on the organisation to which the strategy refers
• Define the position of the organisation relative to its environment
• Move the organisation closer to its long-term objectives and goals
Source: Modified from Slack et al. (2007)

Where does the Business get
its Competitive Advantage?
The technological
specification of its Product /
product / service? Service
Technology
The way it The way it

positions itself Marketing Operations produces its
in its market? goods and
services?

Source : Slack et al Operations Mgmt Pearson 2001
Strategic Thinking
• Planned Direction:
vision, mission, objectives, goals
Where are we now?
Where do we want to be in the future?
• Differentiation:
How should we be better than others?

Management Levels
Strategic Management Long-term, Years
Tactical Management Months, Weeks
Operational Management Weeks, Days, Hours

Management Levels
Organisational/Corporate Objectives/
Vision and Goals
Strategic Management Long-term, Years
Organisational/Corporate Strategy/
Mission
Tactical Management Months, Weeks
Operational Management Weeks, Days, Hours

Objectives and Strategy
• Cascade down an organization
• Each management level takes their objectives

and decides on their strategy…..
• …….which becomes the objectives for the next

management level down

Alignment
Alignment is when you can follow the chain of
strategy and objectives up through the
management levels to the Corporate level
Important to be able to show that a given

strategy is contributing to the Corporate
Objectives. Likely then to get Senior
Management support and sponsorship (financial
budget)
The Balanced Scorecard
Senior Management set the Kaplan and Norton 1996
Corporate Objectives and Corporate Strategy
Financial
How should we appear to

our shareholders?
Customer Vision Internal

and Business Process
How should we appear to Strategy What business processes
our customers?
must we excel at?
Learning & Growth

How will we sustain our
ability to change and
improve?
15
The Balanced Scorecard
Kaplan and Norton 1996
Financial
How should we appear to

our shareholders?
Customer Vision Internal

and Business Process
How should we appear to Strategy What business processes
our customers?
must we excel at?
Sustainability?
Learning & Growth
How will we sustain our
ability to change and
improve?
16
The Business Processes in a Supply Chain
Core processes or functions
New Product Marketing Operations Distribution Services

Development and
Sales
Supporting processes or functions
Finance Accounting IT HR

Strategies according to Chopra and Meindl (2016)
Corporate Strategy
Core processes or functions
New Product Marketing Operations Distribution Services

Development and
Sales
Product Marketing
Development and Sales Supply Chain
Strategy Strategy Strategy
Corporate Strategy
Product Marketing Supply Chain

Development and Sales Strategy
Strategy Strategy
Supplier Operations Logistics


Corporate Strategy

Strategy Strategy


Determining an Operations
Strategy
The Four Perspectives on Operations Strategy
Top-down
perspective
What the business
wants operations to
do
Operations Market
resources requirement
perspective Operations
perspective
strategy
What operations What the market
resources can do position requires
operations to do
What day-to-day
experience suggests
operations should do
Bottom-up
perspective
Source: Slack et al. (2007)
How Operations Strategies are put together
Identify what is wanted in the marketplace
Establish how well the operation performs vs. its competitors
Identify what the operation needs to do better
Identify how the operation could do these things better
Implement the strategy

The Benefits of Excelling – System Qualities
Minimum price, highest value
Cost
Quick Dependable
delivery delivery
Minimum cost,
Speed maximum value Dependability
Fast Reliable
throughput Ability to operation
change
Error-free Ability to
[Ed. Product] processes change
Flexibility
Quality
Error-free
products and
Frequent new products,
services
maximum choice
Source: Slack et al. (2007)

http://artuspoint.com/understand-your-order-winners-and-order-qualifiers/

Impact of Competitor Activity
Original Strategy
Order winners Fast delivery
Qualifiers Range, Price
Competitor’s Strategy
Performance Speed
Order winners Fast delivery objectives
Range
Qualifiers Price
Performance Speed and

objectives Flexibility
Alternative Strategy 1 Alternative Strategy 2 Alternative Strategy 3

Order winners Fast delivery Order winners Faster delivery Order winners Price
Range
Qualifiers Price Qualifiers Range, Price Qualifiers Fast delivery
Range
Performance Speed and Performance Speed Performance Cost
objectives Flexibility objectives objectives
What is the role of the
operations function?
Operations Operations Operations

as an Implementer as Supporter as Driver
Strategy Ops
Strategy
Ops
Ops Strategy
Operations Operations Operations
implements strategy supports strategy drives strategy

The four-stage model
of Operations contribution (Hayes and Wheelwright)
Redefining industry STAGE 4

expectations ons Give an
e rati operations
p
ofo advantage
n STAGE 3
utio
Increasing strategic impact
Clearly the best in ib Link strategy y

the industry ntr with operations teg
co tra
si ng
in gs
rea
STAGE 2 iv
As good as the c g Dr
In Adopt best
r tin
competitors practice o
upp egy
S at
STAGE 1 ting str
Holding the Correct worst men
pl e y
organization back problems Im ateg
str
Internally Externally Internally Externally
neutral neutral supportive supportive
Source: Slack et al. (2007) Increasing operations capabilities

See also
https://graelaws.wordpress.com/today-is-tomorrows-yesterday-so-do-not-delay-just-do-it-now/energising/empowerment/operations-and-process/hayes-wheelwright-four-stage-model/

Corporate Strategy

Strategy Strategy


Key Drivers and Strategy
Corporate Strategy
Supply Chain Strategy
Logistical Drivers Facilities Inventory Transportation
Cross-Functional Drivers Information Sourcing Pricing

Key Drivers of Supply Chain Performance
(Chopra and Meindl, 2016)
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

Supply Chain Strategy
“A supply chain strategy determines
the nature of procurement of raw materials
transportation of materials to and from the company
manufacture of the product or operation to provide the
service
distribution of the product to the customer along with any
follow-up service
and specification of whether the processes are performed
in-house or outsourced”
Strategic fit is about alignment of the goals of the various strategies

Three steps:
• Understand the customer requirements and the uncertainty of
customer demand. Also understand the uncertainty in the
supply chain
• Understand the supply chain capabilities with regard
responsiveness and cost-efficiency
• Tailor the supply chain so that its responsiveness is consistent
with the customer needs, the supply capability and the resulting
implied uncertainty

Customer Requirements
Can vary according to:
– Quantity of product
– Response time
– Variety of product
– Service level
– Price
– Rate of product innovation

Uncertainty of Customer Demand
• Changes in customer requirements lead to demand
uncertainty
• Different customer segments have different needs and so
different demand uncertainty
• Concept of ‘implied demand uncertainty’ introduced as a
metric reflecting some specific segment of customer
demand (a specific subset). For example, a customer
wanting an emergency parts delivery differs from a
customer placing a normal order for the part. The supply
chain has to react differently to satisfy the two types of
order
Customer requirements giving rise to implied
demand uncertainty on the supply chain
• Customer wants to be able to order larger
quantities
• Customer wants product faster
• Customer wants to be able to order a greater
variety of products
• Product can be ordered through multiple
channels
• Rate of innovation for product increases
• Required service level increases
High Implied Demand Uncertainty
Tends to go together with:
• High margins as products are less mature and
have less competition
• Less accurate forecasting
• Less ability to match supply with demand
leading to either overstocking or stockout
• Resulting markdowns

Capabilities of the Supply Chain
Altering from the customer side to the supply chain
side:
How uncertain is supply from the supply chain?
Supply uncertain increases with:
– Frequent breakdowns
– Low yields
– Poor quality
– Limited supply capacity
– Inflexible supply capacity
– Evolving production process
Strategic fit is about designing a supply chain
that copes with all the uncertainty
Want both
Supply chain responsiveness
and
Supply chain cost-efficiency
Notes:
- Textbooks often talk about ‘efficiency’ but they tend to
mean cost-efficiency
- Efficiency differs from effectiveness
A more responsive supply chain
• Responds to a wider range of quantities
• Meets shorter lead times
• Handles a larger variety of products
• Builds highly innovative products
• Meets higher service levels
• Better handles supply uncertainty

Cost-Responsiveness Efficient Frontier
Responsiveness
Frontier
High
Can’t improve
current situation. Has
to radically change
processes/products
X
X Can improve
current processes/products
Low
Cost
High Low
Zone of Strategic Fit
Responsive
Supply Chain
F it
gic
ate
Str
o f
one
Z
Responsiveness
Cost-Efficient
Supply Chain
Certain Uncertain
Uncertainty
Demand PDE4910 - Copyright Middlesex University Demand 42
• Several ways to achieve strategic fit within a
supply chain
• Can look at the individual supply chain stages
and decide which absorb the uncertainty in
demand and supply
• Depends on the flexibility available and cost-
efficiency of each stage

In Practice, Much More Complex
• Many organizations have a more mixed
approach as they have different customer
segments with a variety of products across
multiple distribution channels
• Rate of change in the business world means
there is also an expanding strategic scope.
Move is towards “Agile intercompany scope”

Leanness is an element of agility
• ‘Lean’ means containing little fat
• ‘Agile’ means nimble
Increasingly there is a requirement to produce

multiple product variants for much smaller
market segments in response to known
demand (both lean and agile)

Agile or Lean?
(Christopher, 2011)
High
Agile
Variety /
Variability
Low Lean
Low High
Volume per Variant
Multiple Solutions Needed
• In reality it is likely that in the same business
both lean and agile supply chains are needed
– leading to the notion that multiple supply
chain solutions are needed – there is no ‘one
size fits all’ solution
• So position an organization’s products
according to their supply (lead time
replenishment) and demand characteristics
(predictability/variability of demand)
Generic Supply Chain Strategies
(Christopher, 2011)
Hybrid –
Long Lean - Lean then
Decouple
Lead Plan and Agile
through
Times Optimise e.g. paint
postponement
Supply
Characteristics
Short Kanban –
Lead Agile –
Continuous
Times Quick Response
replenishment
Predictable Unpredictable
Demand Characteristics
Ways to Create the Agile Supply Chain (1)
(Christopher, 2011)
• Synchronize activities through shared information

(e.g. Tesco Information Exchange)
• Work smarter, not harder – strive to remove non-
value adding activities. Lead-time is a major
element of process-time. Business Process
Redesign (BPR) is used to simplify/reshape the
business processes
• Partner with Suppliers to reduce in-bound lead
times
(Christopher, 2011)
• Seek to reduce complexity as it reduces agility

and adds cost - from sources such as multiple
variants of the same product, frequent
product changes, and cumbersome processes
• Postpone the final
configuration/assembly/distribution of
products. A variant is spatial postponement

(Christopher, 2011)
• Manage processes not just functions – introduce

cross-functional teams. Look also at empowerment
– remove multi-level decision-making
• Utilize appropriate performance metrics that
promote agility
– For example, time-based metrics rather than cost-based
– Also customer-based metrics, e.g. perfect order
achievement
– Customer responsiveness is key – ‘Time to Market’ is an
important metric
Metrics
For each of the key drivers, various metrics can be
used
For example, for Transportation:
• Average inbound transportation cost
• Average inbound shipment size
• Average inbound transportation cost per shipment
• .....Similar for outbound transportation
• Fraction transported by mode

Challenges to Maintaining Strategic Fit
• Increase in product variety

• Decrease in product lifecycle
• Globalization increasing uncertainty and risks
• Fragmentation of supply chain ownership
• Changing technology and business
environment
• Meeting sustainability requirements

Definition of Sustainability
• The 1987 UN Brundtland Commission suggests
sustainability is about “meeting the needs of
the present without compromising the ability
of future generations to meet their own
needs” quoted in (Christopher, 2011)
• Think about this in terms of the triple bottom
line: planet, people, profit
or
environment, society, economy
Definition of Sustainability
• The 1987 UN Brundtland Commission suggests
sustainability is about “meeting the needs of
the present without compromising the ability
of future generations to meet their own
needs” quoted in (Christopher, 2011)
• Think about this in terms of the triple bottom
line: planet, people, profit A subject for a
later lecture!
or
environment, society, economy
Questions?

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PDE4910

Achieving Strategic Fit

• Shorter-term planning becomes increasingly

PDE4910 - Copyright Middlesex University 3

Not just about operational effectiveness – Porter

• What unique value do we bring?

• What resources/capabilities do we utilize?

• How do we sustain that unique value?

Source: “What is Strategy?” David Kryscynski on YouTube

Organisational/Corporate Strategic decisions – means those

• Define the position of the organisation relative to its environment

• Move the organisation closer to its long-term objectives and goals

Source: Modified from Slack et al. (2007)

The way it The way it

PDE4910 - Copyright Middlesex University 9

PDE4910 - Copyright Middlesex University 10

Strategic Management Long-term, Years

Tactical Management Months, Weeks

Operational Management Weeks, Days, Hours

PDE4910 - Copyright Middlesex University 11

Tactical Management Months, Weeks

Operational Management Weeks, Days, Hours

PDE4910 - Copyright Middlesex University 12

• Each management level takes their objectives

• …….which becomes the objectives for the next

PDE4910 - Copyright Middlesex University 13

Important to be able to show that a given

How should we appear to

Customer Vision Internal

Learning & Growth

How should we appear to

Customer Vision Internal

Core processes or functions

New Product Marketing Operations Distribution Services

Supporting processes or functions

PDE4910 - Copyright Middlesex University 17

Core processes or functions

New Product Marketing Operations Distribution Services

Product Marketing Supply Chain

Supplier Operations Logistics

PDE4910 - Copyright Middlesex University 19

Product Marketing Supply Chain

Supplier Operations Logistics

PDE4910 - Copyright Middlesex University 20

Identify what is wanted in the marketplace

Establish how well the operation performs vs. its competitors

Identify what the operation needs to do better

Identify how the operation could do these things better

Implement the strategy

PDE4910 - Copyright Middlesex University 23

Minimum price, highest value

Source: Slack et al. (2007)

PDE4910 - Copyright Middlesex University 25

Qualifiers Range, Price

Performance Speed and

Alternative Strategy 1 Alternative Strategy 2 Alternative Strategy 3

Operations Operations Operations

PDE4910 - Copyright Middlesex University 27

Redefining industry STAGE 4

Clearly the best in ib Link strategy y

Source: Slack et al. (2007) Increasing operations capabilities

PDE4910 - Copyright Middlesex University 28

Product Marketing Supply Chain

Supplier Operations Logistics