MANAGEMENT SYSTEMS

O P E R AT I O N S S T R AT E G Y

COURSE INSTRUCTOR- ATANU CHAUDHURI

 AGENDA
Competitive Priorities of Companies
Operations Performance Objectives
Trade-offs and Performance Frontiers
How is an Operations Strategy developed?
 Lets have a discussion
What is the difference between Operations and
Operational?
What is the main objective of strategy
development?
Where do capabilities get created?
How is Operations related to Strategy?
 Strategies for Competitive Advantage

Differentiation better, or at least different

Cost leadership cheaper
Response rapid response
 Operations Performance Objectives
Quality
Speed
Dependability
Flexibility
Cost Efficiency
Meaning of quality for different organizations
Hospital Automobile Plant
Patients receive All parts/assemblies made
appropriate treatment to specification
Treatments are carried out Product is reliable
in correct manner Product is attractive and
Patients are kept informed without blemishes/dents
Staff are courteous and
helpful
Bus tour operator Super market

?
?
Meaning of speed for different organizations
Hospital Automobile Plant
Time between requiring
treatment and receiving
treatment kept to
minimum
Time for test results to be
?
returned kept at minimum
Time from surgery to
discharge kept at minimum
Super market
Bus tour operator Time taken for a customer
to complete the
? transactions and billing
kept to a minimum
On-time availability of
goods
Meaning of dependability for different
organizations
Hospital Automobile Plant
On-time delivery of
vehicles to dealers
On-time delivery of spares
? to service centres

Bus tour operator

Super market
Following published timetable
at all times ?
Ensuring availability of seats to
all booked passengers
Meaning of flexibility for different organizations
Hospital Automobile Plant
Mix- wide range of
products/options
Volume- ability to adjust
production volumes
?
Delivery- ability to
reschedule manufacturing
priorities

Bus tour operator

Mix- large number of locations
served Super market
Volume- ability to adjust
frequency of services ?
Delivery- ability to reschedule
trips as needed
Meaning of cost efficiency for different
organizations
Hospital Automobile Plant
Technology and facility
costs
Staff costs
Purchased materials and
services costs

Bus tour operator

Super market
?

Proportion of the above costs vary by industry

Internal and external benefits of excelling at each
performance objective
Potential internal benefits Performance objective Potential external benefits

Quality

Speed

Dependability

Flexibility

Cost
Internal and external benefits of excelling at each
performance objective
Potential internal benefits
Error free processes
More internal reliability
Lower processing costs
Faster throughput times
Less inventory
Lower processing costs
Fewer contingencies needed
More internal stability
Lower processing costs
Better response to unpredicted
events
Productive processes
Higher margins
Performance objective Potential external benefits
Quality Error free products and
services
Reliable products and services
Speed Short delivery times
Fast response to requests
Dependability On-time delivery of products
and services
Knowledge of delivery times
Flexibility Frequent launch of new
products and services
Wide range of products and
services
Easier Volume adjustments
Easier delivery adjustments
Cost Low prices
Which Dimensions Should Be the
Focus?
Order winners: Criteria that differentiates one firm from
another.
Examples: low cost (RyanAir), service quality (Narayana
Hrudayalaya hospital, India), Flexibility (Dell)

Order qualifier: Criterion that permits the firms

products/services to even be considered for purchase.
Example: basic quality necessary to be considered a
good car
 Order Winners and Qualifiers
Order winners
Performance objectives which directly and significantly
contribute to winning businesses from customers
Considered by customers as key reasons for purchasing a
product or service
Qualifiers
Important but are not major competitive determinants
Must be at some threshold level to be considered by the
customer
Further improvement beyond threshold level unlikely to
result in competitive benefit
What are the order winners and order qualifiers for a AAU
Masters student which a recruiter looks for?
All the performance objectives are important

why not try to excel along every one?

 Competitive Dimensions and Trade-offs

Trade-offs

Trade-offs: Decisions that arise because of the

inability of processes to excel simultaneously
across all competitive dimensions.
 Birth of Operations strategy

Skinner (1969) outlined the process of linking corporate strategy to

manufacturing strategy
Maximizing operational effectiveness requires recognizing the trade-offs in
designing and operating a production system

The notion of a focused factory

Based on a study of 50 plants across 6
industries (Skinner, 1974)
A factory cannot perform well on every
yardstick
A factory serving different markets with
different competitive strategies should
be organized as separate plants within
a plant -focused factories, one for
standardized products and the other
for customized products
 Focus
Performance Objective Focus
Product/service specification focus
Geographic focus
Variety focus
Volume focus
Process requirement focus
How are these images related to trade-offs and
performance frontiers?

Remember, all companies or all business units of a company do not face these
trade-offs
Hence, it is actually possible for some companies/ some individuals to improve
on multiple dimensions simultaneously
 Capabilities get built over a period of time
Sand cone model of capability
accumulation: Empirical evidence
suggests that competitive
Cost
capabilities accumulate in an orderly
Flexibility fashion from quality to delivery to
Delivery flexibility to cost

Quality

Integrating trade-off and sand cone models

Performance frontier: Maximum performance that can be achieved given a set of operating
choices
Where an organization is positioned relative to their performance frontiers determines whether
the trade-off model or sand cone model holds
Trade-offs among capabilities are likely to occur when companies are operating near their
performance frontier

20
 Reaching the performance frontier
is similar to reaching the end of an
Innovation cycles innovation cycle

Delivery

Quality
Innovation
Flexibility Cost
L
cycle 2

Cost Performance frontiers

Innovation
cycle 1
Delivery

Quality
Flexibility Cost H
L H
Responsiveness
L = Low, H = High
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Theory of Competitive Progression
 Group Exercise 2.1
Identify performance measures for quality,
speed, dependability, flexibility and cost for
the companies you have been working on,
indicate their relative importance and decide
which are the order winners and qualifiers
with justifications
Operations strategy is ..
the decisions which shape the long-term capabilities of the
companys operations and their contribution to overall strategy
through the on-going reconciliation of market requirements and
operations resources

Strategic
Reconciliation

Operations OPERATIONS Market

Resources STRATEGY Requirements

Operations strategy reconciles the requirements of the market

with the capabilities of operations resources
 Tactical Operations Operations strategy
Short-term Long-term
for example, capacity for example, capacity
decisions decisions
Time scale

Demand

Demand
1-12 months 1-10 years

Micro Macro
level of the process level of the total operation
Level of
analysis

Detailed Aggregated
Level of For example For example
What operational capabilities do What is our overall capabilities in
aggregation
we need to cater to the rural market emerging markets with respect to
in India? competitors?
Concrete Abstract
Level of For example For example
abstraction How do we improve our Should we develop strategic
purchasing procedures? alliances with suppliers?
 Corporate strategy

Business strategy

Operations strategy

Emergent sense of what the

strategy should be

Operational
experience

Top-down and bottom-up perspectives of strategy

Preconditions for developing Operations
Strategy
One must understand:
Strengths and weaknesses of competitors and possible
new entrants into the market
Current and prospective environmental, technological,
legal, and economic issues
The product life cycle
Resources available within the firm
 Developing an Operations Strategy
1. Segment the market according to the product group.
Example: need based segmentation

2. Identify (a) product requirements, (b) demand patterns,

Example: seasonal, low demand
3. Determine the order winners and order qualifiers.
Example: delivery speed (winner), cost (qualifier)

4. Convert order winners into specific performance

requirements. Example: Must sell at or below 1000 DKK
 Developing an Operations Strategy
The next step is to analyze at the process level

1. Define the complexity and volume of your

product/service.
2. Define whether you offer few specific products/services
or highly customized products/services.
3. Finalize product design, process design, supply chain
design, supplier relations, capacity management plan &
technology choice
 Operations Role in Corporate Strategy

Operations provides support for a

differentiated strategy
Operations serves as a firms distinctive
competence in executing strategies better
than competitors
 Customer
Needs

Performance Market
Objectives Positioning

Competitors
Actions

Required Understanding
performance markets

The market perspective on operations strategy

 CUSTOMERS
Segmentation on:
Age - youth
Purpose - general
Customer needs

PERFORMANCE OBJECTIVES
MARKET POSITION
Wide variety Differentiation on:
Product mix flexibility Innovative designs
Speed to market Time to market
Product range
Coordinated launches

COMPETITORS
Traditionally weak in:
promotion
design innovation
responsiveness

The market perspective analysis of a garment company

 Tangible and
Intangible
Resources

Operations Operations
Capabilities Strategy Decision
Areas

Operations
Processes

Understanding Strategic
resources and decisions
processes

The operations resource perspective on

operations strategy
 Resources
Tangible
Equipment
Staff
Intangible
Reputation
Relationships
(internal and external)
Experience

Capabilities
Application of leading-
edge lighting technology
Articulation of client
requirements
Service and installation
Operations Strategy
Decisions
Location
Virtual reality technology
Supplier development
Equipment tracking system
Organizational structure

Processes
Integration of equipment
supply and client
requirements
Design process
Supplier liaison process
The operations resource perspective analysis of a theatre lighting company
 Tangible and
Customer
Intangible
Needs
Resources

Operations Operations Market

Performance
Capabilities Strategy Decision Positioning
Objectives
Areas

Operations Competitors
Processes Actions

Understanding Strategic Required Understanding

resources and decisions performance markets
processes

Operations strategy is the strategic reconciliation of market

requirements with operations resources
Operations has to cope with the clash between the
nature of external markets and the nature of
internal resources

Operations Resources Market Requirements

are. are.
Difficult to change Dynamic
Technically Heterogeneous
constrained
Ambiguous
Complex
 Operations Strategy Decision Areas
Capacity Strategy
Supply Network Strategy
Process Technology Strategy
Development and Organization
 Operations Strategy Matrix

Source: Operations Strategy by Slack and Lewis, 3rd edition

Discussion on Seven-Eleven Japan
 Group Exercise 2.2
Conduct market requirements and operations
resources analysis for the companies you
have worked on in session 1
 Evolution of Positioning Strategies
The characteristics of production systems tend to
evolve as products move through their product
life cycles.
Operations strategies must include plan for
modifying production systems to a changing set
of competitive priorities as products mature.
The capital and production technology required
to support these changes must be provided.
 Product Life Cycle
Introduction
Product design and
Growth Maturity Decline
development Forecasting critical Standardization Little product
critical differentiation
Product and process Less rapid product
Product and reliability changes more Cost
process design
Competitive product minor changes minimization
OM Strategy/Issues

Short production improvements and Optimum capacity Overcapacity in

runs options the industry
Increasing stability
High production Increase capacity of process Prune line to
costs eliminate items
Enhance distribution
Limited models not returning
Long production good margin
Attention to quality runs
Product
improvement and Reduce capacity
cost cutting