Business, Operations and Supply Chain Strategy (BOSCS) Business and Operations Strategy: Introduction to Operations Strategy

Teaching schedule for business and operations strategy TopicCase studies 1Introduction to business strategy 2Key models in business strategy: activity-system view 3Key models in business strategy: resource-based view & capabilities-based view 4Introduction to operations strategyPractice case study 5Strategic management of operations technology 6Strategic management of operations capacityPractice case study 2

Required reading for the lectures given so far Required reading for the previous lectures on business strategy: CIPS level 6 course book (2009), Strategic Supply Chain Management, chapters 1, 3, 5 and 6 Required reading for this lecture on operations strategy: Hayes, Pisano, Upton & Wheelwright (2005), Operations, Strategy, and Technology – Pursuing the Competitive Edge, chapters 1 and 2 3

Primary activities Support activities Human resource management Technology development Procurement Inbound logistics Production operations Outbound logistics Marketing & sales Service Firm infrastructure (e.g. finance, accounting, legal) The internal perspective on the business: the value chain 4 Margin

Explanation of the value chain The value chain depicts the firm as a collection of value- adding activities. Porter distinguishes between: five ‘primary’ activities dealing with the flow of (to-be) transformed resources; four ‘support’ activities for the development of the appropriate transforming resources. Value-adding activities, together with the resources needed for them, are organised in the form of business processes. Operations (production) processes are business processes that are mainly concerned with the production of goods or the provision of services to (external) customers. 5

Primary activities Support activities Human resource management Technology development Procurement Inbound logistics Production operations Outbound logistics Marketing & sales Service Firm infrastructure (e.g. finance, accounting, legal) A narrow view of the domain of operations strategy 6 Margin

Primary activities Support activities Human resource management Technology development Procurement Inbound logistics Production operations Outbound logistics Marketing & sales Service Firm infrastructure (e.g. finance, accounting, legal) A broad view of the domain of operations strategy 7 Margin

A map of operations strategy Industry & market environment Industry & market environment Organisation of operations processes Business strategy Business strategy Business performance Business performance Resources committed to operations Resources committed to operations Activities in the operations domain Activities in the operations domain Endowments of tangible & intangible resources Distinctive capabilities in the operations domain Distinctive capabilities in the operations domain Competitive advantage based on operations Competitive advantage based on operations Competitive priorities for operations Operations strategy Operations strategy 8

Definition of operations strategy The pattern of decisions made in the operations domain that are intended to provide the business with the distinctive operations capabilities required to meet its competitive priorities, and thus to contribute to its pursuit of a sustainable competitive advantage. 9

Implications (1 & 2) 1.The pattern of operations must not only be coherent within its own domain, but must also be consistent with the patterns of decisions in other domains (marketing & sales, and support processes) as well as with the overall business strategy. 2.In order to change operations strategy, management must change the decision pattern in operations in a coherent manner. 10

Implications (3 & 4) 3.The real goal of an operations strategy is to provide a set of distinctive capabilities that are valued by the customer, and that thus contribute strongly to the competitive advantage of the business. The products currently being delivered are merely the operationalised form of these capabilities. But the latter are also the basis on which future products will be developed and delivered 4.We should not just assess the current position of the business, but also – and even more importantly – how its set of distinctive capabilities will evolve over time. 11

Production system To-be-transformed resources (materials, customers, info) Transforming resources (capital equipment, labour, info) Customers External Environment Transformed resources (goods, services) External Environment The organisation as an open system 12

Strategic performance objectives / capabilities of operations processes Strategic performance objectives in operations Quality: quality of design quality of conformance Speed (of delivery) Dependability (of delivery) Flexibility: product flexibility, innovation, customisation, range; volume flexibility; delivery flexibility Selling priceCost of production Customer serviceResource utilisation 13

Production system To-be-transformed resources (materials, customers, info) Transforming resources (capital equipment, labour, info) Customers External Environment Customer service Resource utilisation Transformed resources (goods, services) Capabilities Transforming resources Capabilities External Environment A basic model of a production system 14

Decision areas in operations strategy (1) 1.Capacity management: amount / timing / type of capacity 2.Facilities management: size / location / specialisation of facilities 3.Selection and management of process technology: type of equipment, automation, timing of introduction 4.Supply chain management: vertical integration, supplier development 5.Inventory planning and control: type / location / size of inventories 6.Production planning and control: centralisation, computerisation, decision rules 15

Decision areas in operations strategy (2) 7.Human resource management: selection, training, pay, job security 8.Quality planning and control: failure prevention, methods and measurement 9.New product development 10.Performance measurement 11.Organisational structure and design 16

Effectiveness of operations strategy: consistency (internal and external) The operations strategy should be internally consistent. The operations strategy should be externally consistent with the other functional strategies of the business. Any ‘hand-offs’ (transfers of responsibility) between operations and other business functions should be managed effectively. The operations strategy should be externally consistent with the overall business strategy. In particular, the operations strategy should provide the distinctive operations capabilities that meet the competitive priorities of the business as a whole. 17

Effectiveness of operations strategy: contribution to competitive advantage (1) Decisions in operations should reflect an awareness of industry best practices and technologies, as well as the ability and willingness to implement these, where feasible and appropriate. Trade-offs between strategic performance objectives in operations should be identified clearly and managed effectively. 18

Effectiveness of operations strategy: contribution to competitive advantage (2) The operations strategy should not just concentrate on the exploitation of existing capabilities, but should actively seek to develop the capabilities that may be required by the business in the future. The operations strategy should help to identify new business opportunities and other relevant changes in the industry and market environment. It should aim for a balance between : the need to extract a high level of productivity from the current resource base; the need to maintain an appropriate level of strategic flexibility with regard to the size and nature of its resource commitments, so that new business opportunities can be exploited and other relevant changes in the environment dealt with effectively. 19