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Module 5

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29 views42 pages

Module 5

Uploaded by

sdadhwalmba23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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OPERATIONS STRATEGY:

FORMULATION AND IMPLEMENTATION


KEY QUESTIONS
▪What is the ‘formulation’ of operations strategy?
▪What analysis is needed for formulation?
▪What is operations strategy ‘implementation’?
THIS CHAPTER CONCERNS THE FORMULATION AND
IMPLEMENTATION STAGES OF THE PROCESS OF
OPERATIONS STRATEGY

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
FORMULATING OPERATIONS STRATEGY
▪ Formulation of operations strategy is the practical process of
articulating the various objectives and decisions that make up the
strategy.
▪ Multi-stage models involving some type of performance ‘gap’
analysis – have been developed with these common elements:
▪ A process formally aligning the organisation’s strategic objectives
(usually a business strategy) to resource-level objectives.
▪ Using operations performance objectives as a translation device to
align market positioning objectives and operations strategy.
▪ Judging alignment via assessment of the relative importance of
operations performance objectives (regarding customer preference)
and achieved performance (usually compared against competitor
performance levels).
▪ In other words, formulating an operations strategy is essentially
about different ways of aligning plans, activities and objectives.
WHAT IS THE ROLE OF ALIGNMENT?
• Earlier, we discussed the process of reconciling operational resources with market
requirements so that there is an approximate degree of ‘fit’ or alignment between them.
• When alignment is achieved, the firms’ customers do not need or expect levels of
operations performance that they cannot supply. Nor does the firm have operations
strengths that are either inappropriate for market needs or remain unexploited in the
market.
• The position on the vertical dimension represents the nature and level of market
requirements, reflecting both intrinsic customer needs and/or expectations that the firm’s
marketing activity has shaped.
• Movement up this axis indicates an enhanced level of market performance or market
capabilities, reflecting factors such as strength of brand/reputation, degree of
differentiation, etc.
• The horizontal scale represents the level and nature of the firm’s capabilities, such as
resource efficiency, process control, innovation, etc.
• Movement along the axis indicates a broadly enhanced level of operations capabilities and
performance.
IN OPERATIONS STRATEGY ‘FIT’ IS THE ALIGNMENT BETWEEN MARKET AND
OPERATIONS CAPABILITY

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
THE DIRECTION OF ALIGNMENT
▪ The process of formulating an operations strategy to achieve
alignment can be completed in two different ‘directions’:
▪ Firms start with their market requirements and then align
resources to match them. This direction of alignment also
corresponds with the traditional top-down hierarchy of strategies.
The operations’ role is to support predetermined market decisions.
▪ The alternative approach is for the operation to analyse its resources
and seek market opportunities that align well with it. Not every
business understands its operations capabilities, and many may not
have any ‘distinctive’ capabilities.
MAINTAINING ALIGNMENT OVER TIME
▪ Most new business ventures fail to make it past their first year - firms fail
to reconcile market requirements and operations resources because it is
too easy to misinterpret customer requirements or develop the requisite
operational capabilities.
▪ This emphasises that operations strategy formulation should not be a
one-off event. Strategies will be formed repeatedly to consider changes
in operations resources and market requirements.
▪ At each of these ‘formulation episodes’ (which may be both frequent and
informal), a key objective will likely be the retention of ‘alignment’.
▪ The most successful long-running firms will experience differing
degrees of alignment between market requirements and their
operational resources.
TIME AND TIMING
▪ Jeffrey Williams published a study of sustainability patterns in various industries. He proposed a model that classifies
capability-based advantages according to how fast they can be duplicated. Nothing lasts forever, and competitive success
inevitably attracts imitators who offer superior product features or lower prices.
▪ Slow cycle – Products and services in this class reflect resource positions strongly shielded from competitive pressures
by durable and enduring mechanisms.
▪ Such resources exploit scarcity characteristics that are derived from factors that are impossible (or at least extremely
difficult) to imitate, such as unique geographical locations, longstanding brand reputations, personal client
relationships
▪ Examples: Luxury brands and pharmaceutical companies.
▪ Operations strategy: Focus on maintaining quality, brand reputation, and customer relationships.

▪ Standard cycle – Products and services in this class exploit less specialised resources and, therefore, face higher levels
of resource imitation pressure
▪ Successful companies tend to emphasise discipline (control and coordination) in operations, and products tend to be
standardised for production at high volumes
▪ Examples: Automobiles, consumer electronics.
▪ Operations strategy: Emphasize efficiency, cost reduction, and product differentiation.

▪ Fast cycle – Products and services in this class face the highest levels of resource imitation pressure
▪ These products do not require complex operations to support them and are increasingly outsourced to low-cost,
focused producers. To maintain sustainable alignment, these firms must master competitive routines associated with
innovation and time to market.
▪ Examples: Fashion, technology.
▪ Operations strategy: Prioritize speed, flexibility, and innovation.
TIME AND TIMING (CONTD.)
▪ The implications for management could seem counter-intuitive
for operations managers who are used to emphasising speed and
efficiency as key strategic goals. They include the following:
▪ Determining the correct speed for innovation: Too much innovation can
distract the operation and its customers. The correct speed of innovation
should depend upon the sustainability of the firm’s resources.
▪ Resource cycles should influence diversification: The lack of
understanding and capabilities in dealing with faster
resource/requirement dynamics leaves them with over-engineered
products, missed development lead times, exorbitant production costs,
etc.
▪ Look out for cycle-time shifts: Not all changes necessarily drive markets
towards higher imitation rates. Regardless of the direction of change, such
shifts can be difficult to adjust to and, therefore, need to be actively sought
out and analysed.
STRATEGIC SUSTAINABILITY
▪ Two basic models for assuring sustainability:
1. The use of ‘static’ mechanisms that defend a given position
2. The use of ‘dynamic’ mechanisms that encourage innovation and change

▪ ‘Static’ or defensive approaches to sustainability mechanisms are


concerned with preventing competitors from attacking existing market and
resource positions rather than trying to move to an entirely new position
▪ An operation can seek to identify the market-isolating (barriers to entry) and resource-
isolating (barriers to imitation) mechanisms that minimise change and act to keep a lock on
a specific resource/requirement position.
▪ Internal approaches exploit the idea that operations resources can be considered
particularly valuable if they are scarce, difficult to move, difficult to copy or difficult to find
substitutes for
▪ External mechanisms are based on the idea that the overall performance of a firm will
depend on how well its strategy and its actions take into account the specific structure of
the industry in which it is competing
STRATEGIC SUSTAINABILITY (CONTD.)
▪ ‘Dynamic’ or offensive approaches to sustainability
mechanisms are concerned with exploiting existing barriers to
entry and imitation, operations can raise their game through
innovation and change to achieve sustainability.
▪ Even in the most isolated of market niches, customer requirements evolve,
and, as a result, operational capabilities also need to evolve
▪ Operations can focus on innovation - moving up the line of alignment and
achieving a balance between market requirements and operations
resources at a higher level
WHAT ANALYSIS IS NEEDED FOR FORMULATION?
▪ Formulation is likely to require some significant analysis. The two chief areas of
analysis concern markets and resources.
▪ The practical reason for emphasising the problems with this analysis is to help
reinforce the balanced nature of the reconciliation between resources and
requirements. Both analyses are characterised by ambiguity and uncertainty.
▪ Analysing market requirements: Many practical models help practitioners
assess the marketplace’s requirements. There is a rich and sophisticated
literature on marketing stretching back over modern business history.
▪ Analysing operational resource capabilities: It can be more difficult to
analyse the ‘inside’ of the organisation. This aspect of strategy formulation is
not supported by many practical frameworks. The widely applied strategy
management tool SWOT analysis is a good starting point for the analysis of
operations resources. SWOT analysis is extremely difficult to incorporate into
an effective planning process; SWOT’s ‘strengths and weaknesses’ part is
particularly useful.
CAPABILITIES
▪ Analysing strengths and weaknesses is the starting point for understanding
resources; the next challenge is understanding the capabilities they (may)
represent.
▪ The idea of core capabilities is central to understanding how operations strategy
can be sustained over time. However, the idea of operations capabilities is not
straightforward.
▪ Capabilities derive from strategically important assets – those that are scarce,
difficult to move, copy, and substitute for. But these types of assets are, by definition,
more difficult to manage than well-understood, widely available and easy to copy.
▪ Critical issues in maintaining capabilities:
▪ Definitions (such as, What is capability?) can be important. Keep definitions of capability as
simple as is practical.
▪ The level of aggregation in how capabilities are defined is also critical.
▪ Articulating capabilities in abstract terms may capture their essence but make them difficult
to use. Some degree of operationalisation is usually necessary.
▪ Much of the competence and capability literature regularly uses the words ‘core’ or
‘distinctive’ to emphasise the capabilities most important to the business.
▪ The practical consequences of identifying an operation’s ‘core’ capabilities are usually that
additional resources will be acquired and deployed.
CHALLENGES TO OPERATIONS STRATEGY FORMULATION
▪ In any complex system, there are certain resources and processes that tend
to prevent adaptation/innovation rather than enable it, or, in other words,
organisations are subject to a wide range of inertial forces.
‘While it is difficult to change a company that is struggling, it is next to impossible to change one that
shows all the outward signs of success.Without the spur of a crisis or a period of great stress, most
organisations – like most people – cannot change the habits and attitudes of a lifetime.’

▪ Specific structural issues that can increase the potential level of inertia:
▪ Operations’ resource profile: Once an investment has been made in tangible
or intangible assets, this inevitably influences subsequent decision-making.
▪ Investment bias: Operations will tend to invest further in those
resource/requirement intersections that have proved successful.
▪ History: Organisations become constrained by their own history.
▪ Organisational structures/political forces: Often overlooked in rational
discussions of operations management, political forces have an enormous
influence.
HOW DO WE KNOW WHEN THE FORMULATION PROCESS IS COMPLETE?
The 4 Cs
▪ Exploring what it means for an
operations strategy to be
comprehensive

▪ Ensuring there is internal coherence


between the different decision areas

▪ Ensuring that decisions taken as part of


the operations strategy process
correspond to the appropriate priority
for each performance objective

▪ Highlighting which
resource/requirement intersections are
the most critical for the broader
financial and competitive priorities of
the organisation
Source: Operations Strategy
(Nigel Slack, Michael Lewis)
HOW DO WE KNOW WHEN THE FORMULATION PROCESS IS COMPLETE?

▪ Comprehensiveness: the ability to notice the potential


impact of a new phenomenon in a holistic perspective, for
instance, new process technology or emerging changes in
their supply network.
▪ Coherence: Coherence is when the choices made in each
decision area do not pull the operation in different directions.
▪ Correspondence: An operation has to achieve a
correspondence between the choices made against each of
the decision areas and the relative priority attached to each of
the performance objectives
▪ Criticality: Some resource/requirement intersections will be
more critical than others
OPERATIONS STRATEGY IMPLEMENTATION
▪ Operations strategy implementation is the way that strategies are
operationalised or executed.
▪ It involves the processes that attempt to ensure that strategies are
achieved.
▪ It is important because no matter how sophisticated a strategy's
intellectual and analytical underpinnings are, it remains only a
document until it has been implemented.
▪ A key aspect of overcoming resistance to the changes implied by
any implementation is to include the people to whom the change
would happen and allow them to influence what changes would
occur.
OPERATIONS STRATEGY:
MONITORING AND CONTROL
KEY QUESTIONS
▪ What are the differences between operational and strategic
monitoring and control?
▪ How is progress towards strategic objectives tracked?
▪ How can the monitoring and control process attempt to control
risks?
▪ How does learning contribute to strategic control?
THIS CHAPTER CONCERNS THE MONITORING AND CONTROL
STAGES OF THE PROCESS OF OPERATIONS STRATEGY

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
DIFFERENCE BETWEEN OPERATIONAL AND
STRATEGIC MONITORING & CONTROL
▪ Strategic monitoring and control ▪ At an operational level, monitoring
involves monitoring and evaluating and controlling an operation’s
activities, plans, and performance to
correct future actions if required. activities is creating a plan for the
▪ The procedure should be capable of
operation, each part of it has to be
providing early indications (or a monitored to ensure that planned
‘warning bell ’) by diagnosing data activities are indeed happening.
and triggering appropriate changes in
how the operations strategy is being ▪ Any deviation from what should be
implemented.
happening (i.e., its plans) can then
▪ At a more strategic level, control is less be rectified through some kind of
clear-cut. It is not always possible (or
necessarily desirable) to articulate intervention in the operation.
every aspect of a strategic decision in
detail, nor should the strategy be trying ▪ Operational control interventions are
to achieve. often repetitive and occurs
▪ Strategic control can be non-repetitive, frequently.
with each implementation task involving
unique projects or investments.
MONITORING AND CONTROL IS LESS CLEAR AT A STRATEGIC LEVEL

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
TYPES OF OPERATION STRATEGY MONITORING & CONTROL
▪ Expert Control: If objectives are unambiguous, yet the effects of interventions are
relatively well understood, but the activity is not repetitive, control can be
delegated to an ‘expert’ – someone for whom such activities are repetitive because
they have built their knowledge on previous experience elsewhere.
▪ Trial-and-error control: If strategic objectives are relatively unambiguous but the
effects of interventions are not known, while, however, the activity is repetitive, the
organisation can gain knowledge of how to control successfully through its own
failures.
▪ Intuitive Control: If strategic objectives are relatively unambiguous but the effects
of interventions are not known, nor is strategic decision-making repetitive, learning
by trial and error is impossible. Therefore, the organisation must view strategic
control as more of an art than a science. In these circumstances, control must be
based on the management team’s innate intuition to make strategic control
decisions.
▪ Negotiated control: The most difficult circumstance for strategic control is when
objectives are ambiguous. This type of control involves reducing ambiguity in some
way by making objectives less uncertain. Or, as Hofstede (who calls it ‘political’
control) puts it, ‘resolving ambiguities so that external uncertainties become
internal certainties’.
MONITORING AND CONTROL TYPES

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
TRACKING PROGRESS TOWARDS STRATEGIC OBJECTIVES
▪ Monitoring involves detecting change by tracking
performance, scanning the environment, interpreting
the information it detects and responding
appropriately.
▪ To do this successfully, any operations strategy process
should:
▪ be tracking the appropriate elements so that progress
can be assessed;
▪ compare progress against some aspiration or target and
▪ have some idea as to what risks the implementation faces.
TRACKING THE APPROPRIATE ELEMENTS
▪ Implementations with different strategic objectives will
focus on different operations objectives. Because of this,
it is difficult to generalise. However, it is important to
distinguish between two types of implementation
objectives:
▪ Project Objectives: is the strategy being implemented as planned?
▪ Process Objectives: are the results produced by the strategy as they were
intended?
TRACKING THE APPROPRIATE ELEMENTS (CONTD.)
▪ Project objectives help define the endpoint, which can be used
to monitor progress and identify when success has been
achieved. This can be judged in terms of what is usually called
the ‘three objectives of project management’ – cost, time and
‘quality’.
▪ Process objectives are so-called because, when monitored, they
measure the impact of the implementation on the process within
the operation. The effect an implementation on the five basic
objectives, i.e. quality, speed, dependability, flexibility and
cost, should be assessed as the core ‘performance objectives’ of
operations strategy.
THE BALANCED SCORECARD APPROACH
▪ The balanced scorecard retains traditional financial measures.
However, financial measures tell the story of past events, which is
adequate for industrial-age companies for which investments in long-
term capabilities and customer relationships were not critical for
success.
▪ These financial measures are inadequate for guiding and evaluating
information-age companies’ journey to create future value through
investment in customers, suppliers, employees, processes, technology,
and innovation.
▪ In particular, a balanced range of measures enables managers to
address the following questions:
▪ How do we look to our shareholders (financial perspective)?
▪ How do our customers see us (from the customer perspective)?
▪ What must we excel at (internal process perspective)?
▪ How can we continue improving and building capabilities (the learning
and growth perspective)?
THE MEASURES USED IN THE BALANCED SCORECARD

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
EXAMPLE OF BALANCED SCORECARD

Source:
https://www.intrafocus.com/2016/06/
balanced-scorecard-example/
EXAMPLE OF BALANCED SCORECARD

Source:
https://www.intrafocus.com/2016/06/
balanced-scorecard-example/
MONITORING AND CONTROL AS AN ATTEMPT TO CONTROL RISK
▪ The basic motivation for considering risk in the monitoring and
control phase of the operations strategy process is simply to ‘be
prepared’ for the events that could cause the implementation to
deviate from its intended course.
▪ Six aspects of risk that are particularly relevant to operations strategy:
1. The dynamics of monitoring and control
2. The risk of market and operations performance becoming out of
balance
3. The distinction between pure and speculative risk
4. Controlling risk through prevention, mitigation and recovery
5. Adjustment cost risk
6. Intervention risk
DYNAMICS OF MONITORING AND CONTROL
▪ As implementation proceeds and monitoring indicates its
progress, the implementation trajectory may change.
Competitive activity or more general environmental change
could affect the level of performance required, or the change may
need to be more fundamental with changes in strategy direction
and extent.
▪ How easily an operation finds a change of direction will depend
on its agility, which, in turn, will depend partly on how tightly its
operations resources are aligned with its market requirements.
EXCESSIVELY TIGHT ‘FIT’ CAN INCREASE THE RISKS OF MISALIGNMENT BETWEEN
MARKET REQUIREMENTS AND OPERATIONS RESOURCES CAPABILITY

• If the alignment between operations


capabilities and market requirements is
too ‘tight’ or ‘narrow’, this could mean
that what was previously aligned
between the two can (relatively) move
off the line of fit.
• A looser or broader set of capabilities
and market relationships, however, can
provide some insurance against these
unexpected shifts.

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
MARKET AND OPERATIONS PERFORMANCE BECOMING OUT OF BALANCE
▪ When changes in both market positioning and operations
resources are likely, the possibility of deviating from the ‘line of
fit’ is very real.
▪ ‘Operationsrisk is the potential for unwanted negative
consequences from an operations-related event.’

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
PURE AND SPECULATIVE RISK
▪ Pure risks: involving events that will produce the possibility only
of loss, or negative outcomes.
▪ Speculative risks: which emerge from competitive scenarios
and hold the potential for loss or gain – positive outcomes.

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
CONTROLLING RISK
▪ A simple structure for describing generic mechanisms for controlling risk uses
three approaches:
1. Prevention strategies – where an operation seeks to completely prevent (or
reduce the frequency of) an event occurring. Example: Regular maintenance,
employee training, security (alarm) systems, quality control, etc.
2. Mitigating strategies – where an operation seeks to isolate an event from any
possible negative consequences. Example: Insurance, Diversification,
Redundancy, contingency planning.
3. Recovery strategies – where an operation analyses and accepts the
consequences of an event but undertakes to minimize, alleviate or compensate
for them. Examples: Business Continuity Plan, Incident Response Plan, Crisis
Management Plan, Insurance.
ADJUSTMENT COST RISK
▪ The implementation costs include the direct and/or investment costs of
providing whatever additional resources the strategy requires, as well as
what could be termed the adjustment cost of making any changes.
▪ By adjustment costs, we mean the losses that could be incurred before the
new strategy functions as intended.
▪ Key Sources of Adjustment Cost: Learning Cost, Implementation Cost,
Disruption Cost, Organizational Change Costs.
▪ Adjustment costs stem from unforeseen mismatches between the new
technology’s capabilities and needs and the existing operation.
▪ New technology rarely behaves as planned, and as changes are made, their
impact ripples throughout the organisation.
INTERVENTION RISK – GETTING PERFORMANCE BACK ON TRACK
▪ Monitoring involves tracking how an implementation is progressing and interpreting the
tracking data.
▪ Control requires decision and intervention.

▪ Decisions are needed as to whether to intervene or not and how to intervene. Intervention
means doing something to bring the implementation closer to its objectives and learning from
the intervention so that future interventions will be better targeted.
▪ Type I and type II errors in control: Type I and type II errors are commonly used in
operational control and useful in understanding strategic control. It concerns the possibility of
deciding whether to intervene wrong, although one can apply the idea to any decision.
▪ Type I error is when an intervention is made to the implementation when it was not
necessary;
▪ Type II error is when there is a failure to intervene in an implementation even though an
intervention is necessary.

Source: Operations Strategy


(Nigel Slack, Michael Lewis)
ORGANISATIONAL LEARNING THROUGH OPERATIONAL ERROR
▪ Both type I and type II errors will be reduced as an organisation and its managers
increase their situational knowledge through learning.
▪ The more uncertain the environment, the more an operation needs to emphasise this
form of strategic flexibility and develop its ability to learn from events.
▪ Single-loop learning occurs when there is a repetitive association between input and
output factors. Every time an operational error or problem is detected, it is corrected
or solved and more is learned about the process, but without questioning or altering
the underlying values and objectives of the process.
▪ Double-loop learning, by contrast, questions fundamental objectives, service or
market positions or even the underlying culture of the operation. This kind of learning
implies an ability to challenge existing operating assumptions fundamentally, seeking
to reframe competitive questions and remain open to any changes in the competitive
environment.
▪ An operation needs both the limited single-loop learning, so it can develop specific
capabilities, and the more expanded experience of double-loop learning.
▪ Single-loop learning is needed to create consistency and stability. At the same
time, operations need double-loop learning for continual reflection upon their
internal and external objectives and context.
SINGLE AND DOUBLE-LOOP LEARNING

Single-loop learning

Double-loop learning
questions the
appropriateness of
operations
performance

Source: Operations Strategy


(Nigel Slack, Michael Lewis)

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