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Operations Strategy

How Operations Strategy
fits the Operations Management

Operations As a Competitive
Operations Strategy
Project Management Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout Supply Chain Strategy
Lean Systems Location
Inventory Management
Sales and Operations Planning
Resource Planning

1. Starbucks
2. Operations Strategy
3. Corporate Strategy
4. Customer-Driven
Operations Strategy
5. Competitive Priorities and Capabilities
6. New Service or Product Development
7. Operation Strategy as a Pattern of Decisions

 If someone says, “Lets go out for coffee,”

Starbucks often comes to mind.
 Entrepreneur Howard Schultz had an
operations strategy in mind in 1990 when he
bought the 17-store Seattle chain and turned
it into a global success.
 Service strategy was key.
 Offering a variety of specialized products
and services, such as Internet access,
phone ahead ordering, and CD burning,
all in a socially interactive atmosphere.
Operations Strategy

 Operations strategy is the means by which

operations implements the firm’s corporate
strategy and helps to build a customer-driven
 It links long-term and short-term operations
decisions to corporate strategy.
 It is the core of managing processes and
value chains.

Operations Strategy

 Corporate strategy views the organization

as a system of interconnected parts, each
working with the others to achieve desired
 Operations Strategy supports the
corporate strategy and requires continuous
cross-functional interaction.
 The operations strategy should be customer
Developing a Corporate
 Developing a corporate strategy involves
three considerations:
Ø Monitoring and adapting to the environment
Ø Identifying and developing core competencies
Ø Developing the firm’s core processes
 Adapting requires environmental scanning
to monitor trends for opportunities and
 Core Competencies are the unique
resources and strengths an organization
Core Competencies

 Core competencies include…

 A well-trained and flexible Workforce
 Having well-located & flexible Facilities
 Having Market and Financial Know-How.
 Expertise in Systems and Technology.
 The core competencies should determine
the firm’s core processes.
 These can include customer relations, new
service/product development, order fulfillment,
and supplier relationships.
 A firm may have all of these or focus on a subset
of them, as determined by its core competencies.
Global Strategies

 A global strategy may include buying

foreign services or parts and entering or
expanding foreign markets.
 Two effective global strategies are:
Ø Strategic Alliances
Ø Collaborative efforts
Ø Joint ventures
Ø Technology licensing
Ø Locating abroad

Market Analysis

 A Market Analysis is one key to developing

a customer-driven strategy, and is
accomplished in two parts.
 Market Segmentation, which identifies groups of
customers with enough in common to warrant
developing services and/or products for them.
 Needs Assessment identifies the needs of each
market segment. Needs include such things as:
 Service or product needs
 Delivery system needs
 Volume needs
Arriving at the
Competitive Priorities
Corporate Strategy
• environmental scanning
• core competencies
• core processes
• global strategies

Market analysis
• segmentation
• needs analysis

Competitive priorities
• cost
• quality
• time
• flexibility
Competitive Priorities

Cost 1. Low-cost operations

Quality 2. Top quality
3. Consistent quality
Time 4. Delivery speed
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Variety
9. Volume flexibility
Competitive Capabilities

 The Competitive Capabilities are the cost,

quality, time and flexibility dimensions of
competitive priorities that a process or value
chain actually possesses and is able to
 Low Cost means delivering a service or
product at the lowest possible cost to the
satisfaction of the customer.

Quality as a
Competitive Capability

 Top Quality: Delivering an outstanding

service or product.
 Considerable interaction with the customers
may be required to determine what that
 Consistent Quality: Producing services
or products that meet design
specifications on a consistent basis.
Time as a
Competitive Capability

 Delivery Speed is quickly filling a

customer’s order.
 Lead Time is the time between receipt of an
order and filling the order.
 On-Time Delivery means meeting the
delivery time promises.
 Development Speed is quickly introducing
a new service or product.
 Time-Based Competition is a strategy
that focuses on development speed and
delivery speed.
Flexibility as a
Competitive Capability

 Customization means satisfying the unique

needs of each customer by changing the
service or product designs.
 Variety involves handling a wide assortment
of services or products efficiently.
 Volume Flexibility requires accelerating or
decelerating the rate of production quickly to
handle large fluctuations in demand.
Northrup Grumman
Newport News Ship Building

 The world’s only producer of full-sized

aircraft carriers
 Long lead times of 8 years or more
often involve many changes.
 Their processes have a high degree of
flexibility to handle changes in design.
 Flexibility in workforce skills as well as
process flexibility is necessary.
Order Winners
and Order Qualifiers
 These are criteria used by customers in
service or product selection.
 Order Winners are criteria for
differentiating services or products of one
firm from those of another.
 Price, quality, time, flexibility, after sales
support, reputation, etc.
 Order Qualifiers are demonstrated levels
of performance required to do business in
a particular market segment.
Service or Product
Development Strategies

 Product Variety: Offering a wide assortment.

 Design: Ease of use and desirable features.
 Innovation: Translate new technology into new
 Service: Products with services added.
 Leader: Being first to introduce new services and/or
 Middle of the Road: Wait for the leaders to
introduce new services and/or products.
 Laggard: Wait to see if the leader’s new services
and/or products catch on in the market.
Service Package

 A Service Package is a collection of goods and

services provided by a service process to its
customers. It consists of four features:
Ø Supporting Facility: The physical resources
that must be in place before a service can be
Ø Facilitating Goods: The materials purchased
or consumed by the customer or the items
provided by the customer to receive a service.
Ø Explicit Services: The readily observable
Ø Implicit Services: Psychological benefits.
Quality Function
Deployment (QDF)

 Quality Function Deployment (QDF) is a means of

translating customer requirements into the appropriate technical
requirements for service or product development. Questions it
seeks to answer are…
Ø What do our customers want?
Ø How well are we doing relative to our competition?
Ø What technical measures relate to our customers’ needs?
Ø What are the relationships between what our customers
want and the technical measures?
Ø How does our service or product performance compare to
the competition?
Ø What are the potential technical trade-offs?

“House of Quality”
Deployment Voice of

Voice of Competitive
the Correlations Analysis

Technical Comparison

© 2007 Pearson Education
Development Process

Service or product
not profitable

Specifications are
developed for new Need to rethink
services or products Analysis the idea.

A critical review of how

it will be produced,
resource requirements Development review
and capabilities.

process design. Full Launch
Sales & promotion 23/27
Concurrent Engineering

 Concurrent Engineering brings product

engineers, process engineers, marketers,
buyers, information specialists, quality
specialists, and suppliers together to design
a product and the processes that will meet
customer expectations.

 This is an essential cross-functional effort during

the service and/or product development phase to
insure a timely and well-coordinated process that
brings value to the customer.
Corporate Strategy and Key
Operations Management Decisions
Corporate strategy

Market analysis

Competitive priorities

New Service/
Product Development
Operations strategy

• Managing Processes
• Managing Value Chains

Matching Capabilities
to Priorities
The table below shows how a credit card division
matched their capabilities to their priorities and
uncovered gaps in their operating strategy.

Case Study
1.Case Study in page 65 of your
2. Answer the questions. (group)