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O PERATIONS S TRATEGY Eric Germann BusM 463 Marriott School of Management.

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Presentation on theme: "O PERATIONS S TRATEGY Eric Germann BusM 463 Marriott School of Management."— Presentation transcript:

1 O PERATIONS S TRATEGY Eric Germann BusM 463 Marriott School of Management

2 D ISCUSSION O VERVIEW What is Operations Strategy? Application: How does operations strategy apply to my organization? Understanding Strategy Understanding Operations Key differences between Operations Strategy & Operations Management The Nuts and Bolts of Operations Strategy How It Works Real World Example—Southwest Airlines Practice: Analyzing an Operations Strategy—IBM Summary & Review Additional Resources (Reading list) 2

3 T HE C OMPONENTS OF O PERATIONS S TRATEGY Important Definitions: Strategy: The efficient and effective use of a limited set of resources to achieve an objective. Defines the position of the organization relative to its environment Create a competitive advantage over competitors that will help an organization win in the long run Operations: The act of taking raw materials or data as inputs and transforming them into desired goods or services to create and deliver value to an end customer. Operational activities, unlike strategic activities are tactical—focused on the day to day actions of a business 3

4 B USINESS S TRATEGY —T HE L ONG V IEW An organization’s strategy is a set of plans, actions, and guiding principles that help to position it for success in the long run 3 different levels of strategy: Corporate Business Unit Functional There are 4 primary steps that should be followed when formulating a strategy: 1. Define the firm’s primary directive What is it the firm should be doing? 2. Assess the firm’s core competencies What is it that the firm does or could do better than anyone else? 3. Identify what the marketplace is demanding What wins customers’ business? What are the minimum requirements for playing in the space? 4. Decide how the firm will compete Compete on: Price, Quality, Speed, Flexibility 4

5 Strategy is influenced by the interplay of 3 different variables B USINESS S TRATEGY —T HE L ONG V IEW ( CONT ’ D ) Strategy Available Resources Financial Capital Human Capital Organizations Objectives Mission & Vision External Environment Regulations # of competitors Barriers to entry 5

6 O PERATIONS —T HE SHORT VIEW Business operations differ from business strategy in that operations are how a strategy is implemented The specific daily or weekly activities that are undertaken by the firms employees to achieve the organization’s end goal Four primary areas of operations: 1) Sourcing 2) Making 3) Storing 4) Transporting 6

7 O PERATIONS STRATEGY VS. OPERATIONS MANAGEMENT Operations Strategy is fundamentally different from Operations Management: Level of Analysis Level of Aggregation Level of Abstraction Time Horizon 7

8 D ISCUSSION O VERVIEW What is Operations Strategy? Application: How does operations strategy apply to my organization? Understanding Strategy Understanding Operations Key differences between Operations Strategy & Operations Management Operations Strategy—Behind the Curtain How It Works Real World Example—Southwest Airlines Practice: Analyzing an Operations Strategy—IBM Summary & Review Additional Resources (Reading list) 8

9 O PERATIONS S TRATEGY — BEHIND THE CURTAIN Operations Strategy: The pattern of strategic decisions and actions which set the role, objectives, and activities of the operations function Operations Strategy Development Processes: Top Down Bottom Up Market Led Operations Led Operations Strategy Content Structure Infrastructure 9

10 Operations Strategy Development Processes 10 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Operations Strategy Top Down Market Led Bottom Up Operations Led

11 11 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Operations Strategy Top Down Market Led Bottom Up Operatio ns Led Top Down Operations Strategy Approach: a strategy that is developed in direct reaction/relation to upper managements wishes Corporate Strategy Business level Strategy Operations Strategy

12 12 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Operations Strategy Top Down Market Led Bottom Up Operatio ns Led Market Led Operations Strategy Approach: When an organization’s strategy is determined primarily by factors in the external environment 2 Types of Factors in The Market Led Strategy Approach: Market Qualifiers: Qualities/attributes that a good or service must possess in order for an end customer to even consider making a purchase Market Winners: Factors on which customers actually make their decision

13 13 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Operations Strategy Top Down Market Led Bottom Up Operatio ns Led Bottom Up Operations Strategy Approach : An approach that focuses on how things have been done over time in reaction to external and internal factors. Operations Strategy Business Level Strategy Corporate Strategy

14 14 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Operations Strategy Top Down Market Led Bottom Up Operatio ns Led Operations Led Operations Strategy Approach: When an organization chooses to rely heavily on its expertise in operations to drive overall operations strategy. This approach relies heavily on the Resource Based View (RBV) of competition. An organization’s true success will come from efficient and effective use of resources instead of how it positions itself in the marketplace. Acquire Develop Deploy Build new capabilities

15 Operations Strategy Content— The What of operations strategy development 15 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Infrastructure Planning & Control Quality Work Organization Human Resources New Product Development Performance Measurement Structure Facilities Capacity Process Technology Supply Network

16 Operations Strategy Content—Structure. 16 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Facilities Capacity Process Technology Supply Network

17 Operations Strategy Content—Infrastructure. 17 O PERATIONS S TRATEGY — BEHIND THE CURTAIN ( CONT ’ D ) Planning & Control Quality Work Organization Human Resources New Product Development Performance Measurement

18 O PERATIONS S TRATEGY — IN THE REAL WORLD. 18 Southwest Airlines is a perfect example of an organization that has chosen a unique operations strategy that has paid large dividends over time. Southwest has chosen to focus on its core competency—transportation—and cut everything else out (In flight entertainment, meals, etc.) Only airline to stay profitable through past 2 tumultuous decades Southwest has chosen an operations strategy that allows them to compete on price. Offers advance booked fares as much as 50% below those of bigger airlines Many airlines have had to defend their markets by attempting to copy Southwest’s operations strategy. The steadiness of its operations strategy has played a large part in helping Southwest to gain significant share of the U.S. market. Southwest relies on an OPERATIONS LED strategy, as the low cost positioning of its service requires incredible efficiency and operating expertise.

19 D ISCUSSION O VERVIEW What is Operations Strategy? Application: How does operations strategy apply to my organization? Understanding Strategy Understanding Operations Key differences between Operations Strategy & Operations Management Operations Strategy—Behind the Curtain How It Works Real World Example—Southwest Airlines Practice: Analyzing an Operations Strategy—IBM Summary & Review Additional Resources (Reading list) 19

20 P RACTICE : A NALYZING AN O PERATIONS S TRATEGY —IBM. Key Understanding Questions: How has IBM’s strategy changed over time? In which aspects of performance has IBM’s operations had to excel in order to compete in its chosen markets Which of the four perspectives of operations strategy best describes the operations strategy process at IBM at the different stages of its history? What is fundamentally different about how IBM positions itself today as opposed to years ago? 20

21 A DDITIONAL R EADING 21 Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge, New York: John Wiley. Slack, N. and Lewis, M. (2002) Operations Strategy, Harlow: Pearson Education. Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy and Technology: Pursuing the Competitive Edge, New York: John Wiley. Mills, J.F., Platts, K.W., Bourne, M.C.S.B and Richards, H. (2002) Competing through Competences, Cambridge: Cambridge University Press.

22 S OURCES 22 Barney, J. (1991) ‘Firm resources and sustained competitive advantage’, Journal of Management 17:99–120. Waters, Donald (2006) Operations Strategy, Operations Straetgy: Cengage 2: Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari, Hemel Hempstead:Prentice Hall. Mintzberg, H. and Quinn, J.B. (1991) The Strategy Process (2nd Edition), Hemel Hempstead: Prentice Hall. Mintzberg, H. and Waters, J.A. (1985) ‘Of strategies, deliberate and emergent’, Strategic Management Journal 6:257–72. Prahalad, C.K. and Hamel, G. (1990) ‘The core competence of the corporation’, Harvard Business Review 68(3):79–91. Slack, N., Chambers, S. and Johnston R. (2004) Operations Management (4th Edition), Harlow: Pearson Education. Slack, N. and Lewis, M. (2002) Operations Strategy, Harlow: Pearson Education. Wernerfelt, B. (1984) ‘A resource based view of the firm’, Strategic Management Journal 5:171–180.


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