Chapter 3 Operations strategy Photodisc. Cartesia

Slack et al.’s model of operations management Operation’s performance Operations strategy Operations strategy Design Improvement Operations management Planning and control

Key operations questions In Chapter 3 – Operations strategy – Slack et al. identify the following key questions: What is strategy and what is operations strategy? What is the difference between a ‘top-down’ and a ‘bottom-up’ view of operations strategy? What is the difference between a ‘market requirements’ and an ‘operations resources’ view of operations strategy? How can an operations strategy be put together?

Operations strategy at Flextronics and Ryanair For each of these companies: What do they have to be good at to compete in their markets? How do their operations help them to achieve this?

Operations strategy at Flextronics Operations strategic decisions Industrial parks, with low cost but close locations and co-located suppliers Flextronics Market requirements Low costs Responsiveness Flexibility

Operations strategy at Ryanair Operations strategic decisions Stripped down service One technology Cheap airport locations Fast turnround Ryanair Market requirements Low prices Reliability Basic service

What is strategy? Setting broad objectives that direct an enterprise towards its overall goal. Planning the path (in general rather than specific terms) that will achieve these goals. Stressing long-term rather than short-term objectives. Dealing with the total picture rather than stressing individual activities. Being detached from, and above, the confusion and distractions of day-to-day activities.

Strategic decisions Strategic decisions are those decisions which: are widespread in their effect on the organization to which the strategy refers, define the position of the organization relative to its environment and move the organization closer to its long-term goals.

‘Operations’ is not the same as ‘operational’ ‘Operations’ are the resources that create products and services. ‘Operational’ is the opposite of strategic, meaning day-to-day and detailed. So, one can examine both the operational and the strategic aspects of operations.

How is operations strategy different to operations management? Short-term for example, capacity decisions 1–12 months Demand Long-term for example, capacity decisions 1–10 years Demand The time scale is longer

Operations management How is operations strategy different to operations management? (Continued) Operations management Operations strategy Micro-level of the process Macro-level of the total operation The level of analysis is higher

How is operations strategy different to operations management How is operations strategy different to operations management? (Continued) Operations management Operations strategy Detailed For example: ‘Can we give tax services to the small business market in Antwerp?’ Aggregated For example: ‘What is our overall business advice capability compared with other capabilities?’ The level of aggregation is higher

How is operations strategy different to operations management How is operations strategy different to operations management? (Continued) Operations management Operations strategy Concrete For example: ‘How do we improve out purchasing procedures?’ Philosophical For example: ‘Should we develop strategic alliances with suppliers?’ The level of abstraction is higher

What is the role of the operations function? Operations as implementer of strategy Operations implements strategy Strategy Operations Operations supports strategy Operations as supporter of strategy Strategy Operations Operations drives strategy Operations as driver of strategy Strategy Operations

The strategic role of the operations function The 3 key attributes of operations strategy Operations contribution Implementing be Dependable Operationalize strategy explain Practicalities Supporting be Appropriate Understand strategy Contribute to decisions Driving be Innovative provide Foundation of strategy Develop long-term Capabilities

The 4 stage model of operations contribution Externally supportive Redefining industry expectations STAGE 4 Give an operations advantage Driving strategy Increasing contribution of operations Internally supportive Clearly the best in the industry STAGE 3 Link strategy with operations Supporting strategy Externally neutral As good as competitors STAGE 2 Adopt best practice Implementing strategy Increasing strategic impact Internally neutral STAGE 1 Correct the worst problems Holding the organization back After Hayes and Wheelwright Increasing operations capabilities

The four perspectives on operations strategy Top-down perspective What the business wants operations to do Operations resources perspective What operations resources can do Market requirement perspective What the market position requires operations to do Operations strategy What day-to-day experience suggests operations should do Bottom-up perspective 1

Top-down and bottom-up perspectives of strategy Corporate strategy Business strategy Operations strategy Emergent sense of what the strategy should be Operational experience

The strategy hierarchy Key strategic decisions Influences on decision-making Corporate strategy What business to be in? What to acquire? What to divest? How to allocate cash? Economic environment Social environment Political environment Company values and ethics Business strategy What is the mission? What are the strategic objectives of the firm? How to compete? Customer/market dynamics Competitor activity Core technology dynamics Financial constraints Functional strategy How to contribute to the strategic objectives? How to manage the function’s resources? Skills of function’s staff Current technology Recent performance of the function

The effects of the product / service life cycle Introduction Growth Maturity Decline Sales volume Time Volume Customers Competitors Variety of product/ service design Slow growth in sales Innovators Few/none Customization or frequent design changes Rapid growth in sales volume Early adopters Increasing numbers Increasingly standardized Sales slow and level off Bulk of market Stable number Emerging dominant types Market needs largely met Laggards Declining numbers Possible move to commodity standardization 6

The effects of the product / service life cycle (Continued) Introduction Growth Maturity Decline Sales volume Time Likely order winners Likely qualifiers Dominant performance objectives Product/ service characteristics Quality range Flexibility quality Availability quality Price range Speed dependability quality Low price dependable supply Quality range Cost dependability Low price Dependable supply Cost 6

Different competitive factors imply different performance objectives If the customers value these … Performance objectives Then, the operations will need to excel at these … Low price Cost High quality Quality Fast delivery Speed Reliable delivery Dependability Innovative products and services Flexibility (products/services) Wide range of products and services Flexibility (mix) The ability to change the timing or quantity of products and services Flexibility (volume and/or delivery) 3

Order-winning, qualifying and less important competitive factors Order-winning factors +ve Competitive benefit Neutral –ve Performance

Order-winning, qualifying and less important competitive factors (Continued) Qualifying factors +ve Competitive benefit Neutral –ve Performance

Order-winning, qualifying and less important competitive factors (Continued) Less important factors +ve Competitive benefit Neutral –ve Performance

Deliberative strategy Mintzberg’s concept of emergent strategy Deliberative strategy Intended strategy Realized strategy Emergent strategy Unrealized strategy

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

The challenge of operations strategy formulation An operations strategy should be: Appropriate… Comprehensive… Coherent… Consistent over time…

An implementation agenda is needed When to start? Where to start? How fast to proceed? How to co-ordinate the implementation programme?

The five P’s of operations strategy implementation Purpose — a shared understanding of the motivation, boundaries and context for developing the operations strategy. Point of Entry — the point in the organization where the process of implementation starts. Process — How the operations strategy formulation process is made explicit. Project Management — The management of the implementation. Participation — Who is involved in the implementation.