An Introduction to Operations Strategy Chapter-01 An Introduction to Operations Strategy

Operations management and strategy requires analysis at three levels Flow between operations Analysis at the level of the supply network Strategic analysis Operational analysis Analysis at the level of the operation Flow between processes Analysis at the level of the process Flow between resources

Operations strategy is … ‘… the total pattern of decisions … … that shape the long-term capabilities … … of any type of operation ... … and their contribution to overall strategy… … through the on-going reconciliation of market requirements and operations resources … … so as to achieve a sustainable fit between the two … … whilst managing the risks of misalignment’.

How is operations strategy different from operations management? Short-term Long-term Timescale e.g. capacity decisions Demand Demand 1 – 10 years 1 – 12 months

How is operations strategy different from operations management? Micro Macro Level of analysis Concerned with the macro operation (level of the firm)

How is operations strategy different from operations management? Level of aggregation (Concerned with resources at an aggregated level) Detailed Operations management Aggregated Operations strategy ‘Can we give tax services to the small business market in Antwerp?’ ‘What is overall business advice capability compared with other capabilities?’

How is operations strategy different from operations management? Level of abstraction (Concerned with the conceptual) Concrete Operations management Philosophical Operations strategy ‘How do we improve our purchasing procedures?’ ‘Should we develop strategic alliances with suppliers?’

What is operations strategy about? The sectoral scope of operations strategy Products or services? Manufacturing or non-manufacturing? For profit or not-for-profit? What is operations strategy about?

The four perspectives on operations strategy – top-down, bottom-up, market requirements and operations resources Top-down Operations strategy should interpret higher level strategy Operations resources Operations strategy should build operations capabilities Market requirements Operations strategy should satisfy the organisation’s markets Operations strategy should learn from day-to-day experiences Bottom-up

Operations strategy must reflect four perspectives – top-down, bottom-up, market requirements, and operations resources Corporate strategy Business strategy Top-down Capacity Quality Supply networks Speed Operations resources Market requirements Process technology Dependability Development and organisation Flexibility Cost Bottom-up Emergent sense of what the strategy should be Operational experience

Top-down and bottom-up perspectives of strategy for the Metrology Company Corporate objectives impact on business objectives which, in turn, influence Operations Strategy Top down Corporate strategy Business strategy Operations strategy Bottom up Day-to-day experience of providing products and services to the market reveals problems and potential solutions which become formalised into Operations Strategy Emergent sense of what the strategy should be Operational experience

Top-down and bottom-up perspectives of strategy for the Metrology Company Operations must have fast and flexible technology, supply relationships, process and staff Modular strategy provides flexibility and innovation at relatively low cost Group building corporate capability in high technology products and services Metrology division competes on ‘fast-to-market’ innovations Experiment with ‘modular’ design of key products and components Customers confused by continual product innovation and costs are increasing Corporate objectives impact on business objectives which, in turn, influence Operations Strategy Bottom up Top down Day-to-day experience of providing products and services to the market reveals problems and potential solutions which become formalised into Operations Strategy

Strategic reconciliation Operations strategy reconciles the requirements of the market with the capabilities of operations resources Strategic reconciliation OPERATIONS STRATEGY Operations resources Market requirements

Operations strategy is the strategic reconciliation of market requirements with operations resources Tangible and intangible resources Operations capabilities Operations processes Operations strategy decision areas Customer needs Market positioning Competitors’ actions Performance objectives Understanding resources and processes Strategic decisions Capacity Supply networks Process technology Development and organisation Required performance Quality Speed Dependability Flexibility Cost Understanding markets

Performance objectives Operations strategy decisions The ‘market requirements’ and ‘operations resource’ analysis of the lighting company Resources Equipment Staff Reputation Relationships (internal and external) Experience Capabilities Application of leading edge lighting and sound technology Articulation of client requirements Processes Integration of equipment supply and client requirements Design process Supplier liaison process Customers Professional theatres (static, low margins) Exhibitions (slow growth, low margins) Conferences etc. (fast growth, higher margins Market position Traditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference market Competitors Big groups dominating professional theatres In-house operations growing in exhibitions market Conference market still fragmented Performance objectives Aesthetically innovative designs Presentation advice High customisation of lighting solutions Fast and dependable supply Operations strategy decisions Location Virtual reality technology Supplier development Equipment racking system Organisational structure Staff meetings

The market perspective analysis of the garment company PERFORMANCE OBJECTIVES MARKET POSITION Differentiation on: CUSTOMERS Segmentation on: Age – youth Purpose – general COMPETITORS Traditionally weak in: Innovative products Time to market Product range Coordinated launches promotion design innovation Dependability Speed of delivery Product mix flexibility Speed to market

The operations resource perspective analysis of the lighting company Resources Tangible: Equipment Staff Intangible: Reputation Relationships (internal and external) Experience Operations strategy decisions Capabilities Location Application of leading-edge lighting and sound technology Virtual reality technology Supplier development Equipment tracking systems Articulation of client requirements Organisational structure Staff meetings Processes Integration of equipment supply and client requirements Design process Supplier liaison process

What you HAVE What you NEED What you WANT What you DO in terms of operations capabilities What you NEED to ‘compete’ in the market Operations resources Market requirements What you WANT from your operations to help you ‘compete’ What you DO to maintain your capabilities and satisfy markets Strategic reconciliation

Operations strategy is ….. ‘… the decisions which shape the long-term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …’

Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy Profit Total assets Output = × Output Total assets Capacity Fixed assets Utilisation Working capital Productivity of fixed assets = × Profit Output Revenue Cost Average revenue Average cost = Operations strategy decision areas Capacity Supply network Process technology Development and organisation

Operations strategy decision areas are partly structural and partly infrastructural Capacity Development and organisation Supply network Process technology Structural issues Infrastructural issues

The operations strategy matrix Resource usage Operations strategy Performance objectives Quality Speed Dependability Flexibility Cost Development and organisation Capacity Supply network Process technology Decision areas Market competitiveness

7-Eleven Japan Largest retailer in Japan Sells 15.X as much per store as nearest rival History of cautious expansion and technical and service innovation ‘Field Counsellors’ spread operations knowledge (also distance training) Expansion by territory to reduce distribution costs Early use of TIS (Total Information System) TIS controls stock replenishment by twice a day delivery (sales analysed twice a day) New systems not Internet-based New service includes: Bank terminals Downloading games Downloading music to MD Internet ordering and collection

Market Competitiveness RESOURCE DEPLOYMENT Distribution centre grouping by temperature  Distribution centres and inventory management systems give fast stock replenishment  TIS allows trends to be forecast and supply adjustments made  Common distribution centers give small frequent deliveries from fewer sources Number and type of distribution centres Order and stock replenishment Information sharing and parenting system spreads service ideas  Field counsellors with sales data help stores to minimise waste and increase sales  Franchisee relationships New product/service development Approach to operations improvement QUALITY of products and services Speed and dependability combined to indicate AVAILABILITY TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily  The Total Information System (TIS) Market Competitiveness FLEXIBILITY of response to sales and customer trends COST in terms of minimising… operating cost capital cost working capital Area dominance reduces distribution and advertising costs  Location of stores Size of stores 7-11 JAPAN  Pivotal  Critical  Secondary DEVELOPMENT AND ORGANISATION PROCESS TECHNOLOGY SUPPLY NETWORKS CAPACITY