2Contents Definition? The Reality Check Operations Strategy Vs Operations ManagementStrategic FitCategories of Business StrategiesStrategy FormulationPrimary Task, Core Competencies, Order winners/qualifiers, competitive priorities, Process strategy matrix, policy deployment2
4Operations Strategy‘… the decisions which shape the long-term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …’
5Why Strategic Perspective in Operations The Reality Check:Why Strategic Perspective in Operations
6Today’s market demands… QualityBeing RIGHTSpeedBeing FASTDependabilityBeing ON TIMECompetitivenessBeing ABLE TO CHANGEFlexibilityCostBeing PRODUCTIVE
7how performance objectives trade-offs between each other and The relative importance of the market requirements and operations resource perspectives change over time,how performance objectives trade-offs between each other andoperations focus can lead to exceptional performanceTRADE-OFFSPerformance objective APerformance objective B?Relative importance of the Operations Resource perspectiveRelative importance of the Market Requirements perspective
8You are commanding Army 1, the objective is to capture the island You are commanding Army 1, the objective is to capture the island. Army 2 has the same objectiveArmy 1IslandArmy 2
11Broad strategic objectives for a parcel delivery operation applied to stakeholder groups SocietyIncrease employmentEnhance community well-beingProduce sustainable productsEnsure clean environmentSuppliersContinue businessDevelop suppliercapabilityProvide transparentinformationCustomersAppropriate product orservice specificationConsistent qualityFast deliveryDependable deliveryAcceptable priceShareholdersEconomic value frominvestmentEthical value from investmentEmployeesContinuous employmentFair payGood working conditionsPersonal development2
12Three Major Trading Regions International Markets and ProducersThree Major Trading RegionsPreviously firms classified as domestic, exporters, or internationalNow have global firms, joint ventures, foreign subsidiaries
14Ginger Hotels No-frills June 2004 No room service, travel desk, swimming poolWi-fiTwo type of room: Rs. 999 and Rs. 1199Prabhat Pani, CEO, RootsCorporation
15BillDesk, a property of IndiaIdeas.com Ltd., 2000 Three Arthur Anderson ExecutivesThird-party bill collection25 Banks, 100 companies
16Op Strategy and Op Management Difference betweenOp Strategy and Op Management
17HospitalMilestoneSoftware producerPresentation of symptomsAwareness of needCustomer decides new software is neededEnquiry decision timeVisit to doctor for advice and testsRequest for informationAsks for specification and estimatesEnquiry timeReceipt of informationTest information confirms diagnosisReceives proposalCustomer decision timeDecide on surgeryRequest for product/servicePlaces orderWaiting timeStart of core processingEnter hospital for surgeryStart of design and codingCore processing timeEnd of core processingProcedure successfully completedSoftware ‘completed’Installation time‘Installed’ product/service fully operationalPatient fully recoveredSoftware fully debugged and workingSignificant ‘milestone’ times for the delivery of two products/services
18Different product groups require different performance objectives First/Business-class cabin, airport lounges, pick-up serviceEconomy cabinWealthy people, business people, VIPsTravellers (friends and family), vacation takers, cost-sensitive business travelWide range, may need to be customisedStandardised cabinRelatively highRelatively lowRelatively low volumeRelatively high volumeMedium to highLow to mediumFirst/Business classEconomy classCustomisation, extra service, comfort features, convenienceQuality (specification and conformance), Flexibility, SpeedPrice, acceptable serviceCost, Quality (conformance)ServicesCustomersService rangeRate of service innovationVolume of activityProfit marginsMain competitive factorsPerformance objectivesDifferent product groups require different performance objectives
19Operations management Operations strategy is different from operations managementExample: capacity decisionsOperations managementOperations strategyShort-termcapacity decisions1–12 monthsDemandLong-termcapacity decisions1–-10 yearsDemandTime scale
20Operations management Operations strategy is different from operations managementOperations managementOperations strategyLevel of analysisMicrolevel of the processMacrolevel of the total operation
21Operations management Operations strategy is different from operations managementOperations managementOperations strategyLevel of aggregationDetailedFor example“Can we give tax services to the small business market in Antwerp?”AggregatedFor example“What is our overall business advice capability compared with other capabilities?”
22Operations management Operations strategy is different from operations managementOperations managementOperations strategyLevel of abstractionConcreteFor example“How do we improve our purchasing procedures?”PhilosophicalFor example“Should we develop strategic alliances with suppliers?”
24Strategic reconciliation Market requirements and operations resources perspectives of operations strategyStrategic reconciliationOPERATIONS STRATEGYOperations resourcesMarket requirementsOperations strategy reconciles the requirements of the market with the capabilities of operations resources
25What you HAVE What you DO What you WANT What you NEED Operations resourcesMarket requirementsStrategic reconciliationWhat you HAVEin terms of operations capabilitiesWhat you DOto maintain your capabilities and satisfy marketsWhat you WANTfrom your operations to help you ‘compete’What you NEEDto ‘compete’ in the market
26Continuous improvement at a strategic level Operations resourcesMarket requirementsDEPLOY operation’s contribution by exploiting superior capabilitiesPotential competitive position in the market placeThe operation’s capabilitiesand performanceDEVELOP operations capabilities through learningMARKET STRATEGYIntended competitive position in the market placeThe operation’s resources and processesDIRECT performanceGetting the fit right
27Operation’s resource capability getting the fit right‘Fit’ means that the operation’s resources and processes are aligned with the requirements of its markets.Line of fitMarket requirementsOperation’s resource capability
28Operation’s resource capability Deviations?Line of fitMarket requirementsOperation’s resource capability
29The four perspectives on operations strategy Top-down perspectiveWhat the business wants operations to doOperations resources perspectiveWhat operations resources can doMarket requirement perspectiveWhat the market position requires operations to doOperations strategyWhat day-to-day experience suggests operations should doBottom-up perspective129
30Top-down and bottom-up perspectives of strategy Corporate strategyBusiness strategyOperations strategyEmergent sense of what the strategy should beOperational experience
31Key strategic decisions Influences on decision making The strategy hierarchyKey strategic decisionsInfluences on decision makingCorporate strategyWhat business to be in?What to acquire?What to divest?How to allocate cash?Economic environmentSocial environmentPolitical environmentCompany values and ethicsBusiness strategyWhat is the mission?What are the strategicobjectives of the firm?How to compete?Customer/market dynamicsCompetitor activityCore technology dynamicsFinancial constraintsFunctional strategyHow to contribute to thestrategic objectives?How to manage thefunction’s resources?Skills of function’s staffCurrent technologyRecent performance of thefunction
32Trade-offs “Do you want it good, or do you want it Tuesday?” “No such thing as a free lunch.”“You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same.” (Skinner)“Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.”
33Market requirements, operations resources and strategic reconciliation at VW over 70 years 1946–1951Implementing strategyEmerging, any working vehicleBuilding up capacity and capabilitySimple design1952–1958Continuity of strategySystemisation of resources and processMaturing, simple robust vehicleStandardised design1959–1964Minor change and continuityMinor reconfiguration for new modelNew 1500 modelMaturing, sophisticated performance, quality
34Market requirements, operations resources and strategic reconciliation at VW over 70 years 1965–1970Search for viable strategyFragmented acquisition of new resourcesMultiple new designsDefined rangeAdapt best practices from enlarged groupUncertain rejection of VW traditional productsClarifying around style, quality and varietyAccommodate new models and acquisitionsSegmentation around performance, style and varietyProduct development pathsOperations resourcesMarket requirements1971–1975Emergent strategy1976–1979Continuing with minor changesStrategic reconciliation
35Market requirements, operations resources and strategic reconciliation at VW over 70 years 1990–1996Major change (internal)Drastic reconfiguration to increase efficiency, reduce costsDesign for low- cost manufactureCommon product platformsContinuous process improvement and cost reductionIncreasingly competitive around priceBranding with price, quality, and styleLean process improvement and more low-cost locationsIncreasingly competitive around price and innovationModular designOperations resourcesMarket requirements1997–2000Implementing strategy2001–2007Strategic reconciliation
37First-to-Market Strategy Products available before competitionStrong applied research capability neededCan set high price to skim market or set lower price to gain market share
38Second-to-Market Strategy Quick imitation of first-to-market companiesLess emphasis on applied research and more emphasis on developmentLearn from first-to-market’s mistakes
39Cost Minimization or Late-to-Market Strategy Wait until market becomes standardized and large volumes demandedCompete on basis of costs instead of product featuresResearch efforts focus on process development versus product development
41Five Steps for Strategy Formulation Defining a primary taskWhat is the firm in the business of doing?Assessing core competenciesWhat does the firm do better than anyone else?Determining order winners and order qualifiersWhat wins the order?What qualifies an item to be considered for purchase?Positioning the firmHow will the firm compete?Deploying StrategyHow corporate strategies will be translated into measurable objectives?
42Constitution, The Corporate directives 01. Primary TaskMission statements express organization’s primary task: What business a company is in?Constitution, The Corporate directives
4302. Assessing Core Competencies Collective knowledge and skills an organization has that distinguish it from the competition.Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services.Building blocks of core capabilities.Are basis on which new outputs are developed.Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products.Identifying and developing core competencies is one of top management’s most important roles.
44Examples of Core Competencies Sony - miniaturization3M- knowledge of substrates, coatings and adhesivesHonda - engines and power trainsCore Competencies Used to Gain Access to Variety of MarketsCannoncore competencies in optics, imaging, and electronic controlsProducts include copiers, laser printers, cameras, and image scanners.Boeingintegrating large scale systemscommercial jetliners, space stations, missiles
45Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.
46Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesMarket analysissegmentationneeds assessmentThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.
47Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesMarket analysissegmentationneeds assessmentCompetitive prioritiesOperations Marketingcostquality Financetimeflexibility OthersThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.
48Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesCost 1. Low-cost operationsQuality 2. High-performance design3. Consistent qualityTime 4. Fast delivery5. On-time delivery6. Development speedFlexibility 7. Customization8. Volume flexibilityMarket analysissegmentationneeds assessmentThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.This slide expands on Competitive Priorities by highlighting the material from the Chapter. This is not part of Figure 2.1 in the text but is drawn from slightly later in the Chapter.
49Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesMarket analysissegmentationneeds assessmentCompetitive prioritiesOperations Marketingcostquality Financetimeflexibility OthersThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.
50Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesMarket analysissegmentationneeds assessmentCompetitive prioritiesOperations Marketingcostquality Financetimeflexibility OthersThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.Functional area strategiesfinancemarketingoperationsothers
51Competitive Priorities Corporate strategygoalscore competenciesenvironmental responsesnew products/servicesglobal strategiesMarket analysissegmentationneeds assessmentCompetitive prioritiesOperations Marketingcostquality Financetimeflexibility OthersCapabilitiescurrentneededplansThe next series of slides presents Figure 2.1. The series builds in steps to the final Figure.Functional area strategiesfinancemarketingoperationsothers
52Strategy and Decisions Corporate strategyEach element of the Figure is added in order.
53Strategy and Decisions Corporate strategyMarket analysis
54Strategy and Decisions Corporate strategyMarket analysisCompetitive priorities
55Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesOperations strategy
56Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesServices ManufacturingStandardized servicesAssemble-to-orderCustomized servicesMake-to-stockMake-to-orderOperations strategyThis slide shows the classic operations strategies in a larger font to facilitate discussion.
58Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesOperations strategyProcess decisionsQuality decisionsCapacity, location, and layout decisionsOperating decisionsServices ManufacturingStandardized servicesAssemble-to-orderCustomized servicesMake-to-stockMake-to-orderThis slide shows the four key decision areas in a larger font to facilitate discussion.
59Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesOperations strategyServices ManufacturingStandardized servicesAssemble-to-orderCustomized servicesMake-to-stockMake-to-orderProcess decisionsQuality decisionsCapacity, location, and layout decisionsOperating decisions
60Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesCapabilitiesOperations strategyServices ManufacturingStandardized servicesAssemble-to-orderCustomized servicesMake-to-stockMake-to-orderProcess decisionsQuality decisionsCapacity, location, and layout decisionsOperating decisions
61Competitive Strategy: The Positioning View Options for firm positioning:Cost leadershipDifferentiationFocusAnd, within each of the three:Variety-basedNeeds-basedAccess-based
62Competitive Strategy: The Resource-Based View Types of capabilitiesProcess-basede.g., McDonald’sSystems- or coordination-basede.g., Ritz-Carltone.g., Southwest AirlinesOrganization-basede.g., Nucor SteelNetwork-basede.g., Dell
63Competitive Strategy: Integrating the Positioning and Resource-Based Views
71Order Winners / Order Qualifiers 03. DeterminingOrder Winners / Order Qualifiers
72Distinguish Order Qualifiers from Order Winners Competitive priorities that a product must meet to even be considered for purchaseGenerally, represented by features shared by all competitors in a given market nicheOrder Winners:Competitive priorities that distinguish the firm’s offerings from competitors & ultimately win the customer’s order
74Delights become Order winners and Order winners become Qualifiers Adding DelightsOrder Winners gain more business the better you areLowHighNegativePositiveNeutralAchieved performanceCompetitive benefitTimeDelightsOrder winnersQualifiersQualifiers are the ‘givens’ of doing business
75What performance objectives are Qualifiers, Order Winners and Delights ? … and in the future ????What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ?TodayTomorrowDelightsOrder winnersQualifiers
76Competitive priorities 04. Positioning The Firm:Competitive priorities
78Which enables you to do things cheaply (cost advantage)? Which enables you to change what you do(flexibility advantage)?Which enables you to do things quickly(speed advantage)?Which enables you to do things on time(dependability advantage)?Which enables you to do things right(quality advantage)?
79Competing on Cost Eliminate all waste Invest in Updated facilities & equipmentStreamlining operationsTraining & development
80Competing on Quality Please the customer Understand customer attitudes toward and expectations of quality
81Competing on Flexibility Produce wide variety of productsIntroduce new productsModify existing products quicklyRespond to customer needs
82Competing on SpeedFast movesFast adaptationsTight linkages
84Operations Strategy: Products and Services Make-to-orderproducts and services are made to customer specifications after an order has been receivedMake-to-stockproducts and services are made in anticipation of demandAssemble-to-orderproducts and services add options according to customer specifications
85Strategy and Decisions Corporate strategyMarket analysisCompetitive prioritiesServices ManufacturingStandardized servicesAssemble-to-orderCustomized servicesMake-to-stockMake-to-orderOperations strategyThis slide shows the classic operations strategies in a larger font to facilitate discussion.85
86Market Orientation and Customer Experienced Lead Time
88Product-Process Matrix Source: Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge: Competing Through Manufacturing (New York: John Wiley & Sons, 1984), p. 209
89More Standardized – Higher Volume Continuous ProductionA paper manufacturer produces a continuous sheet paper from wood pulp slurry, which is mixed, pressed, dried, and wound onto reels.More Standardized – Higher VolumeMass ProductionHere in a clean room a worker performs quality checks on a computer assembly line.Batch ProductionAt Martin Guitars bindings on the guitar frame are installed by hand and are wrapped with a cloth webbing until glue is dried.ProjectConstruction of the aircraft carrier USS Nimitz was a huge project that took almost 10 years to complete.
90Service-Process Matrix Source: Adapted from Roger Schmenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27(3):29
91Less Customized-Less Labor Intensive Service FactoryElectricity is a commodity available continuously to customers.Less Customized-Less Labor IntensiveMass ServiceA retail store provides a standard array of products from which customers may choose.Service ShopAlthough a lecture may be prepared in advance, its delivery is affected by students in each class.Professional ServiceA doctor provides personal service to each patient based on extensive training in medicine.
94Policy DeploymentHoshin KanriFocuses employees on common goals & prioritiesTranslates strategy into measurable objectivesAligns day-to-day decisions with strategic plan
95Balanced ScorecardFinance — How should we look to our shareholders?Customer — How should we look to our customers?Processes — At which business processes must we excel?Learning and Growing — How will we sustain our ability to change and improve?
96Key Performance Indicators Source:Robert Kaplan and DavidNorton, Strategy Maps:Converting IntangibleAssets into TangibleOutcomes (Boston:Harvard Business SchoolPress, 2004), Figure 3-2,p. 67
98Operations Strategy: Capacity and Facility Capacity strategic decisions include:When, how much, and in what form to alter capacityFacility strategic decisions include:whether demand should be met with a few large facilities or with several smaller oneswhether facilities should focus on serving certain geographic regions, product lines, or customersfacility location can also be a strategic decision
99Operations Strategy: Human Resources What is skill levels and degree of autonomy required to operate production system?What are training requirements and selection criteria?What are 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?
100Operations Strategy: Human Resources 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?
101Operations Strategy: Quality What is target level of quality for our products and services?How will it be measured?How will employees be involved with quality?What will be the responsibilities of the quality department?
102Operations 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?
103Operations Strategy: Sourcing Vertical integrationdegree to which a firm produces parts that go into its productsStrategic DecisionsHow much of 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?
104Operations 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?
105Operations Strategy: Operating Systems How will operating systems execute strategic decisions?How to align information technology and operations strategic goals?How information technology supports both customer and worker demands for rapid access, storage, and retrieval of information?How information technology support decisions making process related to inventory levels, scheduling priorities, and reward systems?
106Changing Corporation Characteristic Organization Focus Style Source: John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87 by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.Characteristic20th-CenturyCorporation21st-CenturyOrganizationFocusStyleSource of strengthStructureResourcesLeadershipWorkersJob expectationsPyramidInternalStructuresStabilitySelf-sufficiencyPhysical assetsDogmaticEmployeesSecurityWebExternalFlexibleChangeInterdependenciesInformationInspirationalFree agentsPersonal growth