Operations Strategy

Hakim L. Malasan
Program Magister Manajemen
Universitas IKOPIN
2023
1
Lecture Outline
• Strategy Formulation
• Competitive Priorities
• Operations’ Role in Corporate Strategy
• Strategy and the Internet
• Strategic Decisions in Operations
• Strategy Deployment
• Issues and Trends in Operations

2
Four Steps for Strategy
Formulation
• Defining a primary task
– What is the firm in the business of doing?
• Assessing core competencies
– What does the firm do better than anyone else?
• Determining order winners and order qualifiers
– What wins the order?
– What qualifies an item to be considered for purchase?
• Positioning the firm
– How will the firm compete?

3
Competitive Priorities
• Cost
• Quality
• Flexibility
• Speed

4
Competitive Priorities: Cost
• Lincoln Electric
– reduced costs by $10 million a year for 10 years
– skilled machine operators save the company millions
that would have been spent on automated equipment
• Southwest Airlines
– one type of airplane facilitates crew changes, record-
keeping, maintenance, and inventory costs
– direct flights mean no baggage transfers
– $30 million annual savings in travel agent
commissions by requiring customers to contact the
airline directly
5
Competitive Priorities: Quality
• Ritz-Carlton - one customer at a time
– Every employee is empowered to satisfy a guest’s
wish
– Teams at all levels set objectives and devise quality
action plans
– Each hotel has a quality leader
– Quality reports tracks
• guest room preventive maintenance cycles
• percentage of check-ins with no waiting
• time spent to achieve industry-best clean room appearance
– Guest Preference Reports are recorded in a database
6
Competitive Priorities: Flexibility
• Andersen Windows
– number of products offered grew from 28,000 to 86,000
– number of errors are down to 1 per 200 truckloads
• Custom Foot Shoe Store:
– customer’s feet are scanned electronically to capture
measurements
– custom shoes are mailed to the customer’s home in weeks
– prices are comparable to off-the-shelf shoes
• National Bicycle Industrial Company
– offers 11,231,862 variations
– delivers within two weeks at costs only 10% above standard
models

7
Competitive Priorities: Speed
• Citicorp - advertises a 15-minute mortgage approval
• L.L. Bean - ships orders the day they are received
• Wal-Mart - replenishes its stock twice a week
• Hewlett-Packard - produces electronic testing equipment
in five days
• General Electric - reduces time to manufacture circuit-
breaker boxes into three days and dishwashers into 18
hours
• Dell - ships custom-built computers in two days
• Motorola - needs less than 30 minutes to build to order
pagers
8
Operations’ Role in Corporate
Strategy
• Operations provides support for a
differentiated strategy
• Operations serves as a firm’s distinctive
competence in executing similar strategies
better than competitors

9
Operations Strategy at Wal-Mart

10
Strategy and the Internet
• Internet can be used to create a distinctive
business strategy
• eBay
– unlimited capacity and a huge market
– all work is done by buyers and sellers and there is no
marginal cost
• Cisco
– integrated value chain is its competitive advantage

11
Strategy and the Internet (cont.)
• Internet can be used to strengthen existing
competitive advantages by integrating new and
traditional activities
– GE’s Trading Process Network: an automated Web-
based purchasing system
• cut average purchasing cost in half
• enabled a much larger group of suppliers to bid on jobs
• customers were able to track their orders through shop in
real time
– Intel
• sells $2 billion a month over the Internet
• purchases 80% of its direct materials online
12
• replaced 19,000 sales-order faxes received daily
Strategy and the Internet (cont.)
• Lessons from the dot com shakedown
– Internet is the great equalizer
• allows innovations to be copied with little
investment
• companies may reach larger market
• customers have more information and can
compare prices and features of their products.
• These benefits are temporary unless…
– Companies provide unique value to customer

13
Strategic Decisions in Operations

Services Process
Products and
Technology

Human
Resources Quality
Capacity

Facilities Sourcing Operating

Systems

14
Operations Strategy:
Products and Services
• Make-to-Order
– products and services are made to customer
specifications after an order has been
received
• Make-to-Stock
– products and services are made in
anticipation of demand
• Assemble-to-Order
– products and services add options according
to customer specifications 15
Production Strategy:
Processes and technology
• Project
– one-at-a-time production of a product to customer
order
• Batch Production
– systems process many different jobs at the same time
in groups (or batches)
• Mass Production
– large volumes of a standard product for a mass
market
• Continuous Production
– used for very high volume commodity products
16
Product-Process Matrix

Source: Adapted from Robert

Hayes and Steven Wheelwright,
Restoring the Competitive
Edge: Competing Through
Manufacturing (New York: John
Wiley & Sons, 1984), p. 209

17
 Continuous Production
A paper manufacturer produces a
continuous sheet paper from wood
pulp slurry, which is mixed, pressed,
dried, and wound onto reels.

Mass Production
Here in a clean room a worker performs
quality checks on a computer assembly line.

Batch Production
At Martin Guitars bindings on the guitar frame are
installed by hand and are wrapped with a cloth
webbing until glue is dried.

Project
Construction of the aircraft carrier USS Nimitz was a huge
project that took almost 10 years to complete.

18
Service Strategy:
Processes and Technology
• Professional Service
– highly customized and very labor intensive
• Service Shop
– customized and labor intensive
• Mass Service
– less customized and less labor intensive
• Service Factory
– least customized and least labor intensive

19
Service-Process Matrix

Source: Adapted from Roger

Schmenner, “How Can Service
Businesses Survive and
Prosper?” Sloan Management
Review 27(3):29

20
 Service Factory
Electricity is a commodity available
continuously to customers.

Mass Service
A retail store provides a standard array of
products from which customers may choose.

Service Shop
Although a lecture may be prepared in advance, its
delivery is affected by students in each class.

Professional Service
A doctor provides personal service to each patient based
on extensive training in medicine.

21
Operations Strategy:
Capacity and Facility
• Capacity strategic decisions include:
– When, how much, and in what form to alter
capacity
• Facility strategic decisions include:
– Whether demand should be met with a few
large facilities or with several smaller ones
– Whether facilities should focus on serving
certain geographic regions, product lines, or
customers
– Facility location can also be a strategic decision
22
Operations Strategy: Human
Resources
• What are the skill levels and degree of autonomy
required to operate production system?
• What are the training requirements and selection
criteria?
• What are the policies on performance evaluations,
compensation, and incentives?
• Will workers be salaried, paid an hourly rate, or
paid a piece rate?
• Will profit sharing be allowed, and if so, on what
criteria?
23
Operations Strategy: Human
Resources (cont.)
• Will workers perform individual tasks or work in
teams?
• Will they have supervisors or work in self-
managed work groups?
• How many levels of management will be
required?
• Will extensive worker training be necessary?
• Should workforce be cross-trained?
• What efforts will be made in terms of retention?
24
Operations Strategy: Quality
• What is the target level of quality for our
products and services?
• How will it be measured?
• How will employees be involved with
quality?
• What will the responsibilities of the quality
department be?

25
Operations Strategy: Quality
(cont.)
• What types of systems will be set up to
ensure quality?
• How will quality awareness be
maintained?
• How will quality efforts be evaluated?
• How will customer perceptions of quality
be determined?
• How will decisions in other functional
areas affect quality? 26
Operations Strategy: Sourcing
• Vertical Integration
– degree to which a firm produces parts that go
into its products
• Strategic Decisions
– How much work should be done outside the
firm?
– On what basis should particular items be
made in-house?
– When should items be outsourced?
– How should suppliers be selected? 27
Operations Strategy: Sourcing
(cont.)
– What type of relationship should be
maintained with suppliers?
– What is expected from suppliers?
– How many suppliers should be used?
– How can quality and dependability of
suppliers be ensured?
– How can suppliers be encouraged to
collaborate?

28
Operations Strategy: Operating
Systems
• How will operating systems execute strategic
decisions?
• How does one align information technology and
operations strategic goals?
• How does information technology support both
customer and worker demands for rapid access,
storage, and retrieval of information?
• How does information technology support
decisions making process related to inventory
levels, scheduling priorities, and reward
systems? 29
Strategic Planning

Mission
and Vision

Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy
30
Policy Deployment

Translating corporate
strategy into measurable
objectives

31
Key
Performance
Indicators

Source:
Robert Kaplan and David
Norton, Strategy Maps:
Converting Intangible
Assets into Tangible
Outcomes (Boston:
Harvard Business School
Press, 2004), Figure 3-2,
p. 67

32
Balanced Scorecard

Dashboard
Radar Chart

33
Issues and Trends in Operations
• Global Markets, Global Sourcing, and
Global Operations
• Virtual Companies
• Greater Choice, More Individualism
• Emphasis on Service
• Speed and Flexibility

34
Issues and Trends in Operations
(cont.)
• Supply Chains
• Collaborative Commerce
• Technological Advances
• Knowledge and Ability to Learn
• Environmental and Social Responsibilities

35
Changing Corporation
20th-Century 21st-Century
Characteristic Corporation Corporation
Organization • Pyramid • Web
Focus • Internal • External
Style • Structures • Flexible
Source of • Stability • Change
strength
• Self- • Interdependencies
Structure sufficiency
Resources • Physical • Information
assets
Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.

36
Changing Corporation (cont.)
20th-Century 21st-Century
Characteristic Corporation Corporation
• Operations • Vertical integration • Virtual integration
• Products • Mass production • Mass customization
• Reach • Domestic • Global
• Financials • Quarterly • Real-time
• Inventories • Hours
• Months
• Strategy • Bottom-up
• Top-down

Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
37
Changing Corporation (cont.)
20th-Century 21st-Century
Characteristic Corporation Corporation
Leadership • Dogmatic • Inspirational
Workers • Employees • Employees, free agents
Job expectations • Security • Personal growth
Motivation • To compete • To build
Improvements • Incremental • Revolutionary
Quality • Affordable best • No compromise

Source: Reprinted from John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87
by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.

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