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Chapter 2 Operation Strategy

Dr Unity N. Nyakudya
Gaborone Campus Plot No:50661, Fairgrounds International, P/Bag 137, Gaborone, Botswana Tel: (+267)3953 062 Fax: (+267)3919 118
Francistown Plot No:31403, Moffat Street, P/Bag 137, Francistown, Botswana Tel: (+267)2410 558 Fax:(+267)2410 534
The students will be able to:

1.Define operations strategy

2.Describe the role of operations strategy
3.Explain the formulation of operations
strategy
4.Describe how to assess the importance of
OM to a business
5.Describe the competitive priorities
 Definition of Operational Strategy

Operations strategy is the total pattern of decisions which shape the long-term
capabilities of any type of operations and their contribution to the overall strategy.
(Slack et. Al.)

An operations strategy should guide the structural decisions and the evolution of
operational capabilities needed to achieve the desired competitive position of the
company as a whole. (Laseter, 2017)

A business operational strategy is a decision-making process that shapes an

organization's long-term plans to achieve the objectives in its mission statement. It
comprises specific actions management wants to take to achieve a specific aspect of a
company's operations. Operational strategies connect the firm's programs, policies,
guidelines and workforce in a way that allows each branch to support others in
achieving a common goal.
The Role of Operations Strategy

Provide a plan that makes best use of

resources which;

Specifies the policies and plans for

using organizational resources
Supports Business Strategy as
shown on next slide
Business/Functional Strategy
 Companies often do not understand the
differences between operational
Operationalefficiency
efficiency and strategy
Strategy is a plan for
is performing tasks
Importanc well, even better than
competitors
competing in the
marketplace

e of
Operations
Strategy
Operations strategy is to ensure all tasks
performed are the right tasks
Operations Strategy –
Designing the Operations
Function

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 Mission/Strategy/Tactics

Mission Strategy Tactics

Mission: The reason for existence for an organization

Mission Statement: States the purpose of an organization
Goals: Provide detail and scope of mission
Strategy: Plans for achieving organizational goals
Tactics: The methods and actions taken to accomplish strategies

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Planning and Decision Making
• Mission: Live a good life
• Goal: Successful career, good income
• Strategy: Obtain a college education
Mission • Tactics: Select a college and a major
• Operations: Register, buy books, take
courses, study, graduate, get a job
Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures
procedures

© Wiley 2010 9
Strategy Formulation

•Distinctive competencies
•Environmental scanning
•SWOT
• Order qualifiers:
• Characteristics that customers perceive as minimum
standards of acceptability to be considered as a potential
purchase
• Order winners:
• Characteristics of an organization’s goods or services that
cause it to be perceived as better than the competition

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 How can the contribution of
the operations function be assessed?

Neutral Supportive

Stage 1 Stage 3

Internally Objective is to minimise Objective is for ‘operations’

the negative impact of to provide credible support
‘operations’. for the business strategy.

Stage 2 Stage 4

Externally Objective is for ‘operations’ Objective is for ‘operations’

to help the business to provide a source of
maintain parity with its competitive advantage.
competitors.

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Deciding Factors in Strategy
Decisions
Internal Factors External Factors
• Human Resources • Economic
• Facilities and equipment conditions
• Financial resources • Political conditions
• Customers • Legal environment
• Products and services • Technology
• Technology • Competition
• Suppliers. • Markets

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 Strategy Analysis A strong competitive advantage is
difficult to copy, often because of a
Distinctive Competencies firm’s culture, habits, or sunk costs.
The special attributes or
abilities that give an Low-cost strategy firms: Businesses with quality goods usually
organization a competitive Honda Motor Co. have large market shares
Marriott's Fairfield Inns I-Pod and Samsung
edge. Wal-Mart; Sam's Club Quality is positively related to a higher
return on investment
Strategy Factors Can reshape industry Toyota and RR
o Price Southwest Airlines
McDonald’s
Profitability: Short term decrease; Long
term increase –
o Quality Quality is free (Philip Crosby)
Warning: High quality producers can usually
o Time Do not lower quality. charge premium prices
Wal-Mart vs. Target Rolex and Mont Blanc
o Flexibility
o Service Two types of time performance measures:
1. Speed of doing something (Fast delivery)
o Location 2. Reliability of doing something (On-time delivery)

• Processing time: the time it takes to process/perform a task.

• Queue time: the time spent waiting.
• Cycle time: time from beginning of work to finish
OR time between two units at output.
• Lead time: time between release of an order and shipment.
13 • Purchasing lead time: time required to obtain purchased item.
 •Operations Strategy is a plan for the
design and management of operations
functions
Developin •Operation Strategy developed after the
g an business strategy

Operation •Operations Strategy focuses on specific

capabilities which give it a competitive

s Strategy edge – competitive priorities

Competitive Priorities- The Edge
 Five Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
Dependability
 All of the above? Some? Tradeoffs?
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 Operations Strategy
• Operations strategy
• The approach, consistent with organization strategy, that is used to guide the
operations function.
Decision Area What the Decisions Affect
Product and service design Costs, quality, liability, and environmental issues
Capacity Cost, structure, flexibility
Process selection and Costs, flexibility, skill level needed, capacity
layout
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems
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Student Slides
Relative Importance of Performance
Objectives
Polar diagrams are used to indicate the relative importance of
each performance objective to an operation or process.

They can also be used to indicate the difference between different

products and services produced by an operation or process.
Cost

Speed Dependa-
bility

Quality Flexibility
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Competing •Offering product at a low price relative to
competition
on Cost? • Typically high volume products
• Often limit product range & offer
little customization
• May invest in automation to reduce
unit costs
• Can use lower skill labor
• Probably use product focused layouts
• Low cost does not mean low quality
 Competing on Quality?

Quality is often subjective

Quality is defined differently depending on who is defining
it
Two major quality dimensions include
High performance design:
Superior features, high durability, & excellent customer service

Product & service consistency:

Meets design specifications
Close tolerances
Error free delivery
Quality needs to address
Product design quality – product/service meets requirements
Process quality – error free products
 Competing on Time?

Time/speed one of most important competition

priorities
First that can deliver often wins the race
Time related issues involve
Rapid delivery:
Focused on shorter time between order placement and
delivery
On-time delivery:
Deliver product exactly when needed every time
 Competing on Flexibility?

Company environment changes rapidly

Company must accommodate change by being flexible
Product flexibility:
Easily switch production from one item to
another
Easily customize product/service to meet specific
requirements of a customer

Volume flexibility:
Ability to ramp production up and down to match
market demands
 Competing on dependability

  Customers receiving their goods and/or services

as and when promised.
 Influences whether the customer returns to make
a future purchase or recommends your business.
 Providing the reliable delivery of service and
products.
 The Need for Trade-offs

Decisions must emphasis priorities that support business

strategy
Decisions often required trade offs
Decisions must focus on order qualifiers and order
winners
Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since everyone
expects it
Which priorities are “Order Winners”?
e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
Strategic Role of Technology

Three Applications:
Technology should product technology,
support competitive process technology,
priorities and information
technology

Information
Products - Teflon, Processes – flexible
Technology – POS,
CD’s, fiber optic cable automation, CAD
EDI, ERP, B2B
 Technology for Competitive Advantage

Technology should
Support competitive priorities
Can require change to strategic
plans
Can require change to operations
strategy

Technology is an important strategic

decision
 • Technology has positive and negative potentials
• Positive
• Improve processes
• Maintain up-to-date standards
• Obtain competitive advantage
• Negative
• Costly
• Promotes dependency
• Risks such as overstating benefits

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Define the role of Business Strategy
Explain how a Business strategy is developed
Explain the role of Operations Strategy in the
organization
Explain the relationship between business strategy
and operations strategy
Describe how an operations strategy is developed
Identify competitive priorities for the operations
function
Explain the strategic role of technology
• Business Strategy is a long-range plan and vision. Each individual
business function develop needs to support the business strategy
• An organization develops its business strategy by doing
environmental scanning and considering its mission and its core
competencies.
• The role of operations strategy is to provide a long-range plan for
the use of the company’s resources in producing the company’s
primary goods and services.
• The role of business strategy is to serve as an overall guide for the
development of the organization’s operations strategy.

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• The operations strategy focuses on developing specific
capabilities called competitive priorities.
• There are five categories of competitive priorities: cost, quality,
time, depandability and flexibility
• Technology can be used by companies to gain a competitive
advantage and should be acquired to support the company’s
chosen competitive priorities
• Productivity is a measure that indicates how efficiently an
organization is using its resources
• Productivity is computed as the ratio or organizational outputs
divided by inputs

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DTE's journey into the distributed-energy business began in 1994 when
CEO Anthony Earley took over Detroit Edison. Convinced that the utility
industry was on an eventual collision course with customer needs…
Distributed generation soon became a strategic goal of the company.
The idea behind distributed generation is that a school, hospital, or
office complex can produce its own power just as cheaply as it can buy
it from the grid. When rates go up, it can produce extra energy and sell
it back to the grid. When rates go lower, it can shut down its generator
and buy the cheaper electricity from the utility. This approach allows
customers to get slightly cheaper electricity from a more stable source
that won't suffer interruptions (which is especially important to
computer-intensive companies) and can flexibly meet changing
demands.
http://www.businessweek.com/bwdaily/dnflash/jul2001/nf2001072_224.htm?chan=search

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 Brabeck's other strategic goal is transforming Nestle from a set of
far-flung operations into a single global machine. He has inked a
$200 million deal with SAP to link its five e-mail systems and permit
Nestle's headquarters in Vevey, Switzerland, to know for the first
time how many raw materials its subsidiaries buy, in total, from
around the world. The company then will be able to negotiate better
contracts with suppliers and centralize production. Last year alone,
Brabeck closed 38 different factories. All told, he has slashed $1.6
billion in costs, without labor strife.

http://www.businessweek.com/magazine/content/01_24/b3736644.htm?chan=search

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