1. Operations Strategy
There’s nothing here to take by storm; to strategy we must conform. Johann Wolfgang von Goethe (Faust,1808)

2. Competitive Strategy
Principle 1 (Value Maximization) The goal of strategy is to maximize the long run NPV of the organization.
It is not a pure NPV defined for shareholders, it also takes into account stake holders (social responsibilities), as well as environmental impact (sustainability).
Competitive strategy (Business Unit Strategy). Relates a company to its environment. Strengths and weakness of the company (the system) to be related to opportunities and threats in the environment
Chooses an attractive competitive position  by offering a high customer value proposition.

3. Competitive Strategy: Environmental Scanning (Opportunities and Threats)
Competitor activities
Complementor activities
Changes in consumer needs and preferences
Technological changes
Economic trends (GNP, unemployment, inflation, interests, taxes, tariffs)
Legal, political, and environmental issues

4. Competitive Strategy: Competing Edges of the System (Strengths and Weaknesses)
Human Resources (cheap labor, skilled labor, etc.)
Technology, Facilities, and Equipment
Financial Resources
Customers
Product and Services
Suppliers (low material cost, reliable suppliers)
Management Practices (low overhead)

5. Customer Value Proposition
Customer Value Proposition: a set of benefits that the firm offers to customers.
Order Qualifiers: Characteristics that convince customers to consider our product. Order Winners: Characteristics that convince customers to buy our product.
Customers purchase based on the value they derive from a product/service. This value is the greatest amount a customer is willing to pay (the reservation price).
If this value > price, the customer enjoys positive net value (consumer surplus). Customers will buy the service/product that offers highest consumer surplus.
Zara's main business is the design, manufacture, distribution and retailing of clothing. Differentiates itself from rivals  timely fashion for the masses. The customer value proposition  timely yet limited variety at modest cost and quality.

6. Competitive Strategy is Followed by Financial, Marketing, and Operations Strategy
Financial strategy: Source of financial resources and use of funds (how invested).
Marketing and sales strategy:
how the market will be segmented and how the product will be positioned and promoted
Operations Strategy:
Enabling the execution of the competitive strategy- how to best deliver the CVP. What Resources, what Processes, and what Competencies.

7. Organizational Resources
Organization is a bundle of real recourses.
Real Resources
Tangible real resources: human resources (people) and capital resources (property, plant and equipment).
Intangible resources: relationships with suppliers or customers, reputation and brands, technology and know how.
To pay for the real resources, sell pieces of paper; financial resources; securities.

8. Operations Strategy: Resource View
1. How many resources should we invest in? The capacity, in aggregate and per main resources. 2. When should we increase/reduce resources over time? The availability of capacity and the timing of capacity 3. What kinds of resources? HR or CR? The trade-off between capital and human (unsupervised operations). What degree of flexibility? from single-task (hard- targeted towards producing a specific product) to multi-task (flexible- to produce a continuum of products)? 4. Where should the plants be located and what is their roles in the supply chain – each location is responsible for what parts or products. What is the topology connecting these nodes of supply chain? - FedEx: hub-and-spoke, Car companies: tiered or tree. What are the modes of transportation in the network? T? R? A? W? Are the processes standardized or localized; e.g., should Mercedes Benz processes in be similar to the German processes?

9. Operations Strategy: Process View
The process view  how resources perform activities and add value. By starting with inputs (customer demands) and ending with outputs (served customer demands), the process view is compatible with a customer-centric view of the world.
From this customer-centric view, value stream mapping defines value from the perspective of the customer: a value-added activity is an activity that benefits the customer.
The process view: a horizontal view of the organization that cuts through functional silos ( finance, accounting, production, marketing sales, etc). It represents inter-functional relationships as well as the external interfaces with customers and suppliers.

10. Operations Strategy: Process View
1. Sourcing decisions: make or outsource?, supply network (how many suppliers and how to manage them?), vertical integration.
2. Which technologies ? Four types of technology:
Product technology: Is the product designed in modules or as an integral system? Does the design take into account manufacturability and reusability?
Process technology: The transformation process and methods. The physical layout (job shop vs. flow shop) and material (unit load) flow pattern.
Coordination and IT: Centralized vs. distributed planning and control? planning systems (e.g., ERP), communication technology (e.g., Internet, RF).

11. Operations Strategy: Process View
Transportation technology: material handling in the plant and transportation network throughout the supply chain. Also includes how insurance policies are moved between the different processing steps.
3. How do we match demand and supply? Demand planning and forecasting, tactical capacity allocation and revenue management; airlines and hotels.
4. How and when do we improve and innovate in products and processes? R&D, continuous improvement, learning and knowledge management.

12. Values
Values are a third factor that affect what an operation (or an organization) can and cannot do.
Values are the standards by which employees set priorities at every level. Some priorities are programmed into a process but many are not. Ex. whether an order or customer is attractive, whether a suggestion to improve a product or process is attractive, whether an investment is worth making.
As organizations become more complex, consistent values are powerful mechanisms for employees to make independent but consistent decisions.
Values constitute the organization’s culture

13. Operations Strategy: Competency View
The competency view characterizes the abilities of the organization's resources, processes, and values. Competencies determine the set of outputs that the operation will be particularly good at providing.
1.Cost, including input costs and resource costs. Is important in low margin markets.
2. Flow time. Responsiveness (short flow time) is important due to changes in customer preferences and technologies. Both Flow time and reliability in flow time (standard deviation).
3. Quality. Quality refers to the degree of excellence of the product and process. It has product dimensions such as performance and features and process dimensions such as durability and reliability (retaining high quality over time). Is a key differentiator in luxury and high precision businesses.
4. Flexibility. Ability to change type and volume of the operations.

14. The Competency View of Operations
Competencies determine the set of outputs that the operation will be particularly good at providing.
A premier management consulting company is good at providing high quality customized advice.
An efficient operation such as Mc­Donald's is good at delivering inexpensive food quickly, but from a standard and limited menu with a well-defined quality level.
Zara is good at quickly delivering a large selection of new designs at a reasonable cost.

15. The Competency View of Operations
Foundations of competencies change over time; they start in resources, gradually migrate to processes, and eventually reside in values.
Most of what gets done in start-up companies is attributable to inputs and resources. Losing a person can be detrimental.
As activities become more recurrent, processes are defined. Alcoa started with low price of electricity, then developed Aluminum smelter processes and exported the processes.
As it becomes clear which business needs should be given highest priority, values emerge. With hundreds of new recruits and departures per year, top management consulting companies remain successful because their processes and values are so strong that project staffing changes have little impact.

16. A Framework For Operations Strategy
Operations strategy could emerge from a giant optimization model identifying the resources, processes, and competencies to maximize NPV. Not possible.
Principle 2 (Alignment) Operations strategy is a plan for developing resources and configuring processes such that the resulting competencies to align with competitive strategy –customer value proposition - to maximize NPV

17. A Framework For Operations Strategy
1. Organization  Customer value proposition for each market segment?
2. Operations  Prioritize competencies for each market segment?
3. Which resources and processes best provide that competency prioritization? For each targeted customer segment, how the resources (sizing, timing, type, and location) and processes (supply, technology, demand, and innovation management) are configured?

18. A Framework for Operations Strategy
Operations Strategy Week #1: Concept & Framework
4/15/2017
Max NPV
Competitive
Strategy
Competencies
Operations Strategy
I found this graphical representation useful to remind me to cover all the key decisions in OS.
We will clarify what each box means and what question to answer for each box using Min-case 1.
This will be a high-level first application of the framework; the textbook applies it to Zara and we’ll have a service banking example later.
The course is structured to cover pretty much one box per week in detail.
Fillers: if I have time leftover: Discuss examples of companies that use one (or some) drivers as key to their OS:
Ford: to survive, the company must drastically shrink its size (bring assets and balance sheet in line with reduced sales).
Main question is what is the right overall capacity, when, where, and which plants to close. I think their main mistake was timing: too slow in cutting capacity
Why did Cerberus buy Chrysler? What is it that they know about running a car company that Daimler does not know?
Is it the assets or the processes?
Could be that two years from now the private equity company sells it to a Chinese company to give them directly an infrastructure in the US (assets) and a distribution and marketing & sales processes
Google: what does ops strat mean for them?
What are their main assets? (servers, people, algorithms/software, advertising partners/customers)
What kind of tech: 4 types: product, process, transportation and coordination (ICT (information and coordination tech).
Perhaps key ops strat is to help answer comp strat questions: what kind of businesses should we enter? Do we have the assets and processes to develop and market open source office software (compete against Microsoft) How does ops help? (compete through web-hosted software;better web presence, capability)
How would you apply this framework to study SCM? Which drivers are most important in SCM?
Resource = mostly inventory of the right amount, time, type and the right location
Processes = mostly coordination (information) of supply by transportation technologies to match demand
Resources
(Asset Portfolio)
Processes
(Activity Network)
Sizing
How much capacity to
invest in?
Timing
When increase or reduce resources?
Type
What kinds of resources are best?
Location
Where should resources be located?
Supply
When outsource & how manage suppliers?
Technology
Coordination, product, process transportation
Demand
How match demand to available supply
Innovation
How and when to improve and innovate?
© Van Mieghem

19. Competitive Product Space
Competitive Product Space: A representation of the firm’s product portfolio in the four dimensional space: Q, C, Var., Res.
Cost Efficiency (1/cost)
Variety B A
Responsiveness
Another firm: expensive and customized products.
One firm: low cost and standardized products

20. Strategic Positioning
Defines those positions that the firm wants to occupy in its competitive product space. The current position, direction, and goal position.
Price
Responsiveness B A
High
Low

21. Operational Effectiveness
What distinguishes an effective business process?
Operational effectiveness: developing operations strategy (resources, processes, values, competencies) that support the strategic positioning (customer value proposition) better than the competitors.
How does effective differ from efficient?
Cost Efficiency: achieving an output with minimal level of input and resources
Effective Process: supports execution of company’s strategy

22. Focused Strategy, Focused Operations
Focused Strategy: Committing to a limited, congruent set of objectives in terms of demand (product, market) and supply (input, technologies, and volumes).
Aravind Eye Hospital, 100 cataract surgeries a day, operational excellence, 40% gross margin, 70% of patients pay almost nothing, and the hospital does not depend on donations.
A focus process is not limited to a few products.
Focused process: one whose products all fall within a small region of the 4 dimensional product space.

23. Plant Within Plants (PWP)
PWP: The business strategy is diverse. But the entire business is divided into several mini-plants each with focused processes. One PWP may focus on low cost, the other on quick response.
To sustain competitive advantage, a firm must ensure that its competitors are not able to imitate its chosen position. An sculpture not a block.
Supporting the strategic position with multiple mutually reinforcing activities creates a sustainable competitive advantage. It is harder for competitors to imitate an array of interlocked activities.

24. Shouldice Hospital, Corolla, Ferrari
Corolla: flow shop, decentralized assembly plants close to market, short flow time, low cost
Ferrari: job shop, only a single plant in Italy, longer flow time, high cost

25. Focus and the Efficient Frontier in Health-care sector
Cost efficiency
Responsiveness
World-class
Emergency Room
(non-emergency)
Hospital
One general
facility
Efficient operations
frontier

26. Strategic Positioning and Operational Effectiveness
Firms located on the same ray share strategic priorities.
World class firms are on the efficient frontier.
Responsiveness
efficient
frontier A B C
Price
High
Low
the minimal curve containing all current positions in an industry

27. Efficient Frontier
Firms not on the EF, are not on strict trade-off, they can make simultaneous improvement on more than one dimension.
Firms on EF need to trade-off
Trade-off: decreasing on one dimension to increase on the other dimension.
World class firms also try to push the EF outward.
As technology and management practices advances, the EF moves upward. But the impact is not the same in all industries. Internet impact
In book industry pushes EF along both the dimensions of cost and variety
In grocery increases the quality of service to customers, but increases the cost and reduces the responsiveness and variety

28. Strategic Positioning and Operational Effectiveness
Strategic positioning defines the direction of the improvement from current position, and thus the position on the EF the company wants to occupy.
Operational effectiveness measures the distance of the current position to the operations frontier along the direction of improvement. To bring a company closer to a frontier or to push the frontier. (direction is not horizontal)

29. Wal-Mart Operations Strategy Inventory at retail stores
Short flow times
Low inventory
Inventory at retail stores
Wal-Mart: twice a week
Industry: once every two weeks.
Sales per square foot
Wal-Mart: $102 in 1985 to $140 in 1991
Industry: $112 in 1985 to $110 in 1991
Operations Structure
Cross docking
EDI
Fast transportation system
Focused locations
Communication between retail stores

30. Market Driven, Technology Driven Strategies
This "top-down and outside-in" ensures that operations reflect the intended market position. Market driven strategy creates a customer-driven organization.
In “a bottom-up and inside-out”, the building blocks of strategy are not products and markets, but processes and resources. The value proposition offered to customers seeds in the operational capabilities. The technology driven strategy creates a resource-driven organization.