The Nature of Strategy

What is Strategy?  concerned with meeting existing market needs as well as exploiting opportunities for potential market segments (Kimand Mauborgne, 2002; Nunes and Cespedes, 2003);

What is Strategy?  about making the best use of resources, and to leverage these resources either alone or with partners (Wernerfelt, 1984;Barney, 1991; Dierickx and Cool, 1989; Lamming, 1993;Hines, 1994; Stump et al., 2002; Ireland et al., 2002);

What is Strategy?  the ultimate responsibility of senior-level managers within the firm – of course, we recognize the vital of importance of a range of stakeholders in the process, both within the firm and with external linkages to the enterprise (Frambach et al., 2003;Hax and Majluf, 1991; Dougherty and Corse, 1995);

What is Strategy?  about devising and implementing processes that will enable the enterprise to compete and, ideally, to create competitive advantage (Whittington, 2001; Hamilton et al., 1998);

What is Strategy?  concerned with developing capabilities within the firm’s operations that are superior to other competitors and that other competitors either cannot copy or will find it extremely difficult to copy (Teece et al., 1997; Eisenhardt and Martin, 2000).

 These indications of what strategy is about are important because they are all linked to operations management in various ways. That is not necessarily a problem in itself: the problem is that firms often do not organize themselves in a way that will allow them to make the best possible use of their operational capabilities. This is true of both manufacturing and service organizations.

 Businesses face increasing levels of competition, which is becoming more global in nature in many industries. Coping with this competition demands that strategies are in place, because being prepared and poised to act rarely, if ever, comes about by accident or ‘just happens’ by chance.

 The success of operations strategy has nothing to do with how long the planning process has taken, nor has it to do with how nicely or how wonderfully articulately the strategy is presented to the firm’s employees –if indeed strategy is articulated to employees! Rather, the success of operations strategy will be determined by the extent to which it will focus operations’ efforts into an integrated set of capabilities.

 These capabilities should, in turn, enable the firm to compete in the increasingly competitive environment common to many industries. It is not argued that manufacturing/operations managers should necessarily take the lead in business strategy, but that they should be an integral part of the strategic planning process. Without operations managers’ capabilities, the best marketing and corporate plans have little chance of being achieved.

The importance of being able to accomplish the strategic vision once it has been formed was highlighted by Fortune (8 March 2004):

The Basic Strategy Model

Using Operations Capabilities in Strategy Formulation

Understanding the Process and Content of Strategy

The Vital Role of Strategy

Four Characteristics that Tend to Distinguish Strategic from Tactical Decisions

Role of Senior Management  We can say that strategy formulation tends to be the prerogative of senior managers within the firm and the final decisions regarding the direction of the firm will rest with these senior- level managers. However, other levels of the firm may also be involved in the development of strategic plans and these other levels will certainly be involved in their implementation (for a good discussion on strategic formulation, see Johnson and Scholes, 2003).

Creating Competitive Advantage  Strategic decisions are intended to create competitive advantage for the firm or, at the very least, to allow the firm to continue to compete in its chosen markets. The term ‘strategy’, as used in the ‘business strategy’ sense, originated in military terminology. This analogy is not liked by some writers (for example, see Kay, 1993) because strategy is not always about obliterating the competition. However, it should fall under the realm of strategists within the firm to determine and exploit opportunities and, at the same time, to be aware of, and diffuse, potential threats from other players.

The Profound Consequences of Strategic Decisions  A strategic decision can profoundly alter, and have major consequences for, the firm.  An operations strategy concerned with supply may lead to a reshaping of the organization, including outsourcing and in-sourcing operations, and configuring an internal supply chain, thus profoundly altering its nature.

Long-Term Horizons  Strategic decisions can have long-term implications for the firm and hence the factor of time is an important one for strategists (Das, 1991; Itami and Numagami, 1992). It is important to note that strategic planning is not simply crystal-ball gazing into the far future; for strategy to be effective, it also needs to have a sense of timing and urgency in its implementation.

Tactical and strategic concerns in manufacturing operations.

What is Operations Strategy?

 There is no one best way to formulate strategy and the debate on whether strategy should be internal, resource-based or fully externally market-driven may be seen as of intellectual interest only. In practice, many organizations will combine both internal and external considerations in the same way that they tend to innovate as a result of both ‘push technology’ (from internal developments) and ‘pull demand’ (from market requirements).

 These capabilities are not limited to operations only but they must include operations capabilities, including quality, innovation, flexibility of volume and variety requirements, delivery speed and reliability. While excellent marketing skills need to be in place within an organization, they are of little use if there are not world-class operations management capabilities (internal and external) also in place to support the marketing intentions of the organization.

The Content of the Strategy Should Include:  process choice – the selection of the right approach to producing goods or delivering service;  innovation – the adaptation or renewal of the organization’s processes or outputs to ensure they adapt to changes in the external environment;

 supply chain management – the external management of relationships with suppliers to ensure the effective and efficient supply of inputs;  control of resources – the internal management of inventories;

 production control – the effective and efficient management of processes;  work organization – the management and organization of the workforce within the organization;  customer satisfaction – the management of quality.

Specifically, an operations strategy must include at least the following:  amounts of capacity required by the organization to achieve its aims;  the range and locations of facilities;  technology investment to support process and product developments;  formation of strategic buyer–supplier relationships as part of the organization’s ‘extended enterprise’;

 the rate of new product or service introduction;  organizational structure – to reflect what the firm ‘does best’, often entailing outsourcing of other activities.

Understanding Manufacturing and Operations Strategy

 Manufacturing strategy was the forerunner of the wider aspects of operations strategy.  For manufacturing strategy to be useful, it needs to have consistency among decisions that affect business-level strategy, competitive priorities and manufacturing infrastructure.

 Much of the degree to which manufacturing strategy will be effective relies on the internal consistency of manufacturing strategy, manufacturing capabilities, marketing – manufacturing congruence, and their effects on manufacturing performance

Hayes and Wheelwright’s Four Stages of Strategy

 The scope of structural/infrastructure areas that can form part of manufacturing strategy is wide-ranging and can include quality capabilities (including quality requirements that a plant might demand from its supplier base), manufacturing processes, investment requirements, skills audits, capacity requirements, inventory management throughout the supply chain and new product innovation.

 Manufacturing strategy is concerned with combining responsibility for resource management (internal factors) as well as achieving business (external) requirements.  Manufacturing strategy is viewed as the effective use of manufacturing strengths as a competitive weapon for the achievement of business and corporate goals.

Why is Operations Strategy Important?

 One of the key tasks for operations managers in developing strategy is that these managers are aware of competitive factors and as a result are able to put in place capabilities to deal with such competitive requirements.

 All capabilities depend, to a very large extent, on managing production/ operations in a strategic manner.  Forming an operations strategy that links into, and forms part of, the overall business strategy can also be a vital factor in uniting the organization.

 In today’s turbulent competitive environment, a company more than ever needs a strategy that specifies the kind of competitive advantage that it is seeking in the market-place and articulates how that advantage is to be achieved.

The link between operations and competitive factors

Service operations – the service profit chain

 Fundamental to the service profit chain is the idea that in order to achieve profits and growth for the firm, an operations strategy must be in place.  Service Delivery System is the specific combination of facilities, layout, equipment, procedures, technology and employees needed to achieve this strategy. and employees needed to achieve this strategy.

The Service Profit Chain