UNIT – OPERATION STRATEGY

INTRODUCTION Corporate / organizational strategy is long term planning for achieving organizational goal, supporting mission. Operation strategy is long term vision / planning to improve operational efficiency. Achievement of organizational goal / implementation of organizational strategy relies on incorporation operational strategy while formulating organizational strategy. Therefore while formulating organizational strategy, operational strategy must be taken into consideration. Or operational strategy and organizational strategy must support each other rather than conflicting with each other. Long term plans and policies for best utilization of the resources for gaining competitive advantage.

Linkage between organizational strategy and operational strategy Strategy Hierarchy Corporate strategy Refer scopes Business Unit Strategy Operation stratgy

Scopes of Organizational strategy Potential market or target market definition / ways to serve Market share Target rate of return, cost of capital, Profit or return Whether to expand or not, go for collaboration / vertical / horizontal / conglomerate? Business expansion What, How, where, when, to acquire resources ? Resource acquisition Level of global competition, competitive strategies Etc. Global operation

Scopes/Components of operation strategy - Product/ service strategy : product design, standard, quality and cost (1. make to order 2. make to stock 3. assemble to order ) Process strategy : decision regarding machinery, technology, models, systems (process) Location strategy : area, transportation for (labour, inputs, output to the market), site selection, Layout decisions: effective, efficient utilization of space, productive layout – designing the machinery layout in such a way that ensures minimum waste of time, maximum output Human strategy : level of skills required, HRM issues Procurement and JIT strategy : what where, how, from whom and how quickly to acquire required resources.

Scopes of strategic business unit strategy SBU is a unit in the organization which requires distinct strategies, and resources. SBU can be a product division, a product. E.g. CG’s SBUs Food division, CG electronics, CG educational institutes : Choudhary Institute of management :DAV CG Health – Norvic Hospital Toyota Toyota Motors Lexus

Operation strategy as competitive weapon To compete in market, organizations must have to respond the market condition promptly with greater precision, within affordable price range, with reliable product. Operation strategy aims at reducing waste, minimizing cost, improving quality or in nutshell Operation strategy helps the organization to produce the high quality product at low cost. Operation strategy serves as a competitive weapon in the following ways; Cost and price : low cost – cost leadership Quality : high and consistent quality Dependability: reliability of service or product Flexibility : able to respond market proactively Speed or time : prompt services

Components of operation strategy Product or service strategy Make – to- order : make after receiving the order Make to stock: make the product to stock so as to increase the responsiveness Assemble to order : products are assembled by collecting standard components from different manufacturers after receiving the order. Location strategy Process strategy Layout strategy HR strategy

Manufacturing strategy Consistent pattern of decision making in the manufacturing function linked to the business strategy – Hayes and Wheelwright A tool for effective use of manufacturing strengths as a competitive weapon for achievement of business and corporate goals. “A pattern of decisions, both structural and infrastructural, which determine the capability of a manufacturing system and specify how it will operate, in order to meet a set of manufacturing objectives which are consistent with the overall business objectives”- Platts et al. 1998

Components of manufacturing strategy Competitive priority Decision categories

Competitive priority Quality Delivery Cost Flexibility Manufacturing high quality and conforming performance standard Delivery Reliable and fast delivery of product Cost Production and distribution of the product at low cost Flexibility Ability to handle volume and product mix changes promptly

Decision categories Structural Infrastructural Process choice ( process choice, technology, integration) Facility : ( size, location, focus) Capacity (amount (quantity of production), timing ( time for producing certain amount), increments (capacity increment ) Vertical integration (direction (a) forward vertical integration (b) backward vertical integration ??? , extent – degree ?? Balance Infrastructural Manufacturing planning : system design, decision support Performance measurement : measurement, methods of measurement Organization : Human resource and design – structure – authority responsibility structure. Quality : quality (what is quality – from customer viewpoint), role (who?) tools (quality improvement tools )

Service strategy Service strategy is set of long term plans and policies for achieving service organization’s long term objectives. It is used by service organizations such as airlines, hotels, accounting firms, entertainment etc. components are as follows; Corporate objectives Environment Service concept Performance objectives Operation

Components contd. The following questions must be answered while formulating service strategy Corporate objectives : What are the objectives ? Are they achievable ? What investment is required? What methods for review are in place ? What are the contingencies ? Environment Characteristics of market/ target market ? Is the strategy appropriate to serve the market? Needs and expectation of the customers? Are the needs being served by us or others? What are our SWOT? What might be the competitor’s (if any ) response?

Service concept : a clear statement about the nature of the service The service experience : the customer’s direct experience of the service process, including the way the customers deal with the service provider Service outcome : the end result for the customer The service operation : the way in which the service will be delivered The value of the service: benefit that customers perceive to be inherent in the service weighed against the cost of the service Key questions to be answered ; What is the service concept ? Is there a specific target market? Is the service appropriate for the market? Can it be translated ? i.e. will customers and our employees understand the concept? How to communicate to the customers and providers? Can it be delivered by the operation ? Feasible ?

Performance objective : (objectives must be SMART ) a. what are the objectives ? b. are the objectives achievable ? c. are the objectives measureable ? d. Investment requirement ? e. how to measure if the objectives are achieved or not? f. what are the order winners and qualifiers ? g. what the priorities for changes? Operation What changes are required (process, employees, customer management, infrastructure ? ) How to introduce the change? Required resources for change ? Can new service concept be delivered? Will customers value it ? Etc.