Chapter 3 Operations Strategy

WHAT IS STRATEGY AND WHAT IS OPERATIONS STRATEGY?

Both military and business strategy can be described in similar ways and include
some of the following:
Setting broad objectives that direct an enterprise towards its overall goal
Planning the path that will achieve these goals
Stressing long-term rather than short-term objectives
Dealing with the total picture rather than stressing individual activities
Being detached from, and above the confusion and distractions of day-to-day
activities

Strategic decisions = those decisions which are widespread in their effect on the
organization to which the strategy refers, define the position of the organization
relative to its environment, and move the organization closer to its long-term goals.
Strategy = the total pattern of the decisions and actions that influence the long-
term direction of the business.

Operations strategy
Operations strategy concerns the patterns of strategic decisions and actions which
set the role, objectives and activities of the operation.

Operations = the resources that create products and services.

Operational = the opposite of strategic, meaning day-to-day and detailed.
So one can examine both the operational and strategic aspects of operations.

Content of the operations strategy = the specific decisions and actions which set the
operations role, objectives and activities.
Process of operations strategy = the method that is used to make the specific
content decisions

From implementing to supporting to driving strategy

Most businesses expect their operations strategy to improve operations
performance over time. In doing this they should be progressing from a state where
they contribute very little to the competitive success of the business through to the
point where they are directly responsible for its competitive success. This means
that they should be able to, in turn, master the skills to first implement, then
support, then drive operations strategy.
Implementing business strategy the most basic role of operations. Without
effective implementation even the most original and brilliant strategy will be
rendered totally ineffective.
Supporting business strategy support strategy goes beyond simply
implementing strategy. It means developing the capabilities which allow the
organization to improve and refine its strategic goals.
Driving business strategy most difficult role of operations, gives the strategy
a unique and long-term advantage.

Operations should try to, progressively, implement, support and drive strategy
Hayes and Wheelwrights four stages of operations contribution
The ability of any operation to play these roles within the organization can be judged
by considering the organizational aims or aspirations of the operations functions.
Hayes and Wheelwright developed a four-stage model which can be used to
evaluate the role and contribution of the operations function.
Stage 1: internal neutrality poorest level of contribution by operations
function. It is holding the company back from competing effectively. It is
inward-looking and, at best, reactive with very little positive to contribute
towards competitive success. It attempts to improve by avoiding making
mistakes.
Stage 2: external neutrality the first step of breaking out of stage 1 is for
operations function to being comparing itself with similar companies or
organizations in the outside market.
Stage 3: internally supportive Stage 3 operations still aspire to be
clearly and unambiguously the very best in the market. They achieve this by
gaining a clear view of the companys competitive or strategic goals and
supporting it by developing appropriate operations resources. The operation is
trying to be internally supportive by providing a credible operations strategy.
Stage 4: externally supportive the company views the operations
function as providing the foundation for its competitive success. It forecasts
likely changes in the market and supply, and it develops the operations-based
capabilities which will be requires to compete in future market conditions.
They are always one step ahead of competitors.
(See figure 3.2, page 72)

Perspectives on operations strategy

Different authors have slightly different views on operations strategy. Between them,
four perspectives emerge:
Operations strategy is a top-down reflection of what the whole group or
business wants to do
Operations strategy is a bottom-up activity where operations improvements
cumulatively build strategy
Operations strategy involves translating market requirements into operations
decisions
Operations strategy involves exploiting the capabilities of operations
resources in chosen markets

None of these four perspectives alone gives the full picture of what operations
strategy is. But together they provide some idea of the pressures which go to form
the content of operations strategy.
(See figure 3.3, page 73)

THE TOP-DOWN AND BOTTUM UP PERSPECTIVES

Top-down strategies
A large corporation will need a strategy to position itself in its global, economic,
political and social environment. This will consist of decision about what types of
business the group want to be in, what parts of the world it wants to operate in, and
so on. Decisions such as these form the corporate strategy of the corporation. Each
business unit within the corporate group will also need to put together its own
business strategy which sets out individual mission and objectives. The business
strategy guides the business in relation to its customers, markets, and competitors,
and also the strategy of the corporate group of which it is a part. Within the
business, functional strategies need to consider what part each function should play
in contributing to the strategic objective of the business. So, one perspective on
operations strategy is that is should take place in this hierarchy of strategies. Its
main influence, therefore will be whatever the business sees as its strategic
direction. (See figure 3.4, page 74)

Bottom-up strategies
The top-down perspective provides a view of how functional strategies should be
put together. But in fact the relationship between the levels in the strategy hierarchy
is more complex than this. When any group is reviewing its corporate strategy, it will
also take into account the circumstances, experiences and capabilities of the various
businesses that form the group. Similarly, businesses, when reviewing their
strategies, will consult the individual functions within the business about their
constraints and capabilities. They may also incorporate ideas which come from each
functions day to day experience. The bottom-up view therefore says that many
strategic ideas emerge over time from operational experience.
This idea of strategy being shaped by operational level experience over time is
sometimes called the concept of emergent strategies (see figure 3.5, page 75)

THE MARKETS REQUIREMENTS AND OPERATIONS RESOURCES

PERSPECTIVE
Market-requirements-based strategies
No operation that continually fails to serve its market adequately is likely to survive
in the long term. Without an understanding of what markets require, it is impossible
to ensure that operations is achieving the right priority between its performance
objectives.

The market influence on performance objectives

Operations seek to satisfy customers through developing their five performance
objectives. These factors which define the customers requirements are called
competitive factors (see figure 3.6, page 77)

Order-winning and qualifying objectives

A particular useful way of determining the relative importance of competitive factors
is to distinguish between order-winning and qualifying objectives.

Order-winning factors = things which directly and significantly contribute to winning

business. They are regarded by customers as key reasons for purchasing the product
or service.
Qualifying factors = aspects of competitiveness where the operations performance
has to be above a particular level just to be considered by the customer.
Less important factors = neither order-winning nor qualifying, they do not influence
customers in any significant way
(See figure 3.7, page 78)

Different customer needs imply different objectives

If an operation produces goods and services for more than one customer group, it
will need to determine the order-winning, qualifying and less important competitive
factors for each group.
(See table 3.1, page 79)
The product/service life cycle influence on performance objectives
One way of generalizing the behavior of both customers and competitors is to link it
to the life cycle of the products or services that the operation is producing. The
exact form of product/service life cycles will vary, but generally they are shown as
the sales volume passing through four stages.

Introduction stage when a product or service is first introduced, it is likely to be

offering something new in terms of its design or performance, with few competitors
offering the same product or service. The needs of customers are unlikely to be well
understood, so operations management needs to develop the flexibility to cope with
any changes and be able to give the quality to maintain product/service
performance.

Growth stage as volume grows, competitors may enter the growing market.
Keeping up with demand could prove to be the main operations preoccupation.
Rapid and dependable response to demand will help keep demand buoyant, while
quality levels must ensure that the company keeps its share of the market as
competition starts to increase

Maturity stage demand starts to level off. Some early competitors may have left
the market and the industry will probably be dominated by a few larger companies.
So operations will be expected to get the costs down in order to maintain profits or
to allow price cutting, or both.

Decline stage after time, sales will decline with more competitors dropping out of
the market. There might be a residual market, but unless a shortage of capacity
develops the market will continue to be dominated by price competition. Operations
objectives to be dominated by cost.

Introduction Growth Maturity Decline

stage stage Stage Stage
Customers Innovaters Early adopters Bulk of market Laggards
Competitors Few/none Increasing Stable number Declining
numbers number
Likely order Product/servic Availability Low price, Low price
winners e specification Dependable
supply
Likely Quality Price Range Dependable
qualifiers Range Range Quality Supply
Dominant Flexibility Speed Cost Cost
operations Quality Dependability Dependability
performance Quality
objectives

The operations resource perspective

The RBV holds that firms with an above average strategic performance are likely to
have gained their sustainable competitive advantage because of the core
competence (or capabilities) of their resources. This means that the way an
organization inherits, or acquires, or develops its operations resources will, over the
long term, have a significant impact on its strategic success. Furthermore the impact
of its operations resource capabilities will be at least as great as, if not greater
than, that which it gets from its market position.

Resource constraints and capabilities

No organization can merely choose which part of the market is want to be in without
considering its ability to produce services and products in the way that it will satisfy
that market. In other words, the constraints imposed by its operations must be taken
into account.
However, the operations resource perspective may identify constraints to satisfy
some markets but it can also identify capabilities which can be exploited in other
markets.

Intangible resources
An operations resource perspective must start with an understanding of the
resource capabilities and constraints within the operation. An obvious starting point
here is to examine the transforming and transformed resource inputs to the
organisation. However, merely listing the type of resources an operation has does
not give a complete picture of what it can do.
An operations intangible resources include such things as relationships with its
suppliers, the reputation it has with its customers, etc. These intangible resources
may not always be obvious within the operation, but they are important and have
real value. It is these intangible resources together with tangible resources that an
operation needs to deploy in order to satisfy its market.

Strategic resources and sustainable competitive advantage

The resource-based explanation of why some companies manage to gain
sustainable competitive advantage is that they have accumulated better or more
appropriate resources. Resources can have a particularly influential impact on
strategic success if they exhibit some or all of the following properties.
They are scarce unequal access to resources, so that not all competing firms
have scarce resources can strengthen competitive advantage.
They are not very mobile some resources are difficult to move out of a firm
(knowledge)
They are difficult to imitate or substitute for these two factors help define
how easily a resource-based advantage can be sustained over time.

Structural and infrastructural decisions

A distinction is often drawn between the strategic decisions which determine an
operations structure and those which determine its infrastructure.

Structural decisions = decisions which have classed as primarily influencing design

activities
Infrastructural decisions = decisions which influence the workforce organization and
the planning and control, and improvement activities.
(See table 3.3, page 84-85)

HOW CAN OPERATIONS STRATEGY BE PUT TOGETHER?

The four stages of the process of operations strategy:
1. Operations strategy formulation
2. Operations strategy implementation
 3. Operations strategy monitoring
4. Operations strategy control

Operations strategy formulation

Formulation of operations strategy is the process of clarifying the various objectives
and decisions that make up the strategy, and the links between them. The
complete process of formulating an entirely new operations strategy will be a
relatively infrequent event.

What should the formulation process be trying to achieve?

Clearly it should provide a set of actions that, have provided the best outcome for
the organization. But that really does not help us.
Is operations strategy comprehensive? does it include all important issues
Is operations strategy coherent? do the choices made in each decision area
all direct the operation in the same strategic direction, with all strategic
decisions complementing and reinforcing each other in the promotion of
performance objectives
Does operations strategy have correspondence? the strategies pursued in
each part of the strategy should correspond to the true priority of each
performance objective.
Does operations strategy identify critical issues? the more critical the
decisions , the more attention it deserves.

Operations strategies should be comprehensive, coherent, correspond to stated

objectives and identify the critical issues.

Operations strategy implementation

Operations strategy implementation is the way that strategies are operationalized or
executed. It means attempting to make sure that intended strategies are actually
achieved. The way one implements any strategy will very much depend on the
specific nature of the changes implied by that strategy, and the organizational and
environmental conditions that apply during its implementation. However, three
issues are often mentioned by strategy practitioners as being important in achieving
successful implementation.
Clarity of strategic decisions with clarity it should be easier to define the
intent behind the strategy, the few important issues that need to be
developed to deliver the intent, the way the projects will be led and
resourced, who will be responsible for each task and so on.
Motivational leadership leadership that motivates, encourages and provides
support is a huge advantage in dealing with the complexity of
implementation. It is needed to bring sense and meaning to strategic
aspirations etc.
Project management implementation means breaking a complex plan into a
set of relatively distinct activities. There is a well-understood collection of
ideas of how to do this, project management.

Operations strategy monitoring

Especially in times when things are changing rapidly, as during strategic change,
organizations often want to track ongoing performance to make sure that the
changes are proceeding as planned. Monitoring should be capable of providing early
indications by diagnosing data and triggering appropriate changes in how the
operations strategy is being implemented.

Operations strategy control

Strategic control involves the evaluation of the results from monitoring the
implementation. Activities, plans and performance are assessed with the intention of
correcting future action if that is required.