Chapter 3 Operations strategy

Slack et al.’s model of operations management What is operations management? Operations performance Operations strategy Direct Operations management Design Develop Topic covered in this chapter Deliver Figure 3.1 This chapter examines operations strategy

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?

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.

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

The strategic role of the operations function The three 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 four-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 Figure 3.2 The four-stage model of operations contribution

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 Figure 3.3 The four perspectives on operations strategy 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 Figure 3.5 The bottom-up perspective of operations strategy and its application to the printing services group

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 Figure 3.4 The top-down perspective of operations strategy and its application to the printing services group

Different competitive factors and 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) Figure 3.6 Different competitive factors imply different performance objectives 3

Order-winning competitive factors Order-winning factors +ve Competitive benefit Neutral ve Performance Figure 3.7 Order-winning, qualifying and less important competitive factors

Qualifying competitive factors Qualifying factors +ve Competitive benefit Neutral ve Performance Figure 3.7 Order-winning, qualifying and less important competitive factors (Continued)

Less important competitive factors Less important factors +ve Competitive benefit Neutral ve Performance Figure 3.7 Order-winning, qualifying and less important competitive factors (Continued)

Different banking services require different performance objectives Retail banking Corporate banking Products Personal financial services such as loans and credit cards Special services for corporate customers Customers Individuals Businesses Product range Medium but standardized, little need for special terms Very wide range, many need to be customized Design changes Occasional Continual Delivery Fast decisions Dependable service Quality Means error-free transactions Means close relationships Volume per service Most service are high volume Most services are low volume Profit margins Most are low to medium, some high Medium to high Competitive factors Order winners Price Customization Accessibility Quality of service Speed Reliability Qualifiers Range Less important Internal performance objectives Cost Flexibility Dependability Table 3.1 Different banking services require different performance objectives

The effects of the product/service life cycle Introduction Product/ service characteristics Quality Range Flexibility Innovators Few/none Growth Availability Quality Price Range Speed Dependability Quality Early adopters Increasing Maturity Low price Dependable supply Quality Range Cost Dependability Bulk of market Stable Decline Time Low price Dependable supply Cost Laggards Declining Sales volume Customers Competitors Likely order winners Likely qualifiers Dominant performance objectives Figure 3.8 The effects of the product/service life cycle on operations performance objectives 6

Structural and infrastructural strategic decision areas Structural strategic decisions Typical questions which the strategy should help to answer New product/service design How should the operation decide which products or services to develop and how to manage the development process? Supply network design Should the operation expand by acquiring its suppliers or its customers? If so, what customers and suppliers should it acquire? How should it develop the capabilities of its customers and suppliers What capacity should each operation in the network have? What number of geographically separate sites should the operation have and where should they be located? What activities and capacity should be allocated to each plant Process technology What types of process technology should the operation be using? Should it be at the leading edge of technology or wait until the technology is established? Table 3.3 Structural and infrastructural strategic decision areas

Structural and infrastructural strategic decision areas (Continued) Infrastructural strategic decisions Typical questions which the strategy should help to answer Job design and organization What role should the people who staff the operation play in its management? How should responsibility for the activities of the operations function be allocated between different groups in the operation? What skills should be developed in the staff of the operation? Planning and control How should the operation forecast and monitor the demand for its products and services? How should the operation adjust its activity levels in response to demand fluctuations? What systems should the operation use to plan and control its activities? How should the operation decide the resources to be allocated to its various activities? Table 3.3 Structural and infrastructural strategic decision areas (Continued)

Structural and infrastructural strategic decision areas (Continued) Infrastructural strategic decisions Typical questions which the strategy should help to answer Inventory How should the operation decide how much inventory to have and where it is to be located? How should the operation control the size and composition of its inventories? Supplier development How should the operation choose its suppliers? How should it develop its relationship with its suppliers? How should it monitor its suppliers’ performance? Table 3.3 Structural and infrastructural strategic decision areas (Continued)

Structural and infrastructural strategic decision areas (Continued) Infrastructural strategic decisions Typical questions which the strategy should help to answer Improvement How should the operation’s performance be measured? How should the operation decide whether its performance is satisfactory? How should the operation ensure that its performance is reflected in its improvement priorities? Who should be involved in the improvement process? How fast should the operation expect improvement in performance to be? How should the improvement process be managed? Failure prevention risk and recovery How should the operation maintain its resources so as to prevent failure? How should the operation plan to cope with a failure if one occurs? Table 3.3 Structural and infrastructural strategic decision areas (Continued)

Strategic resources and sustainable competitive advantage Operations resources can give sustainable competitive advantage if they are... Scarce Not very mobile Difficult to imitate Difficult to substitute for

The four stages of the process of operations strategy formulation Operations strategy implementation Operations strategy monitoring Operations strategy control Figure 3.9 The four stages of the process of operations strategy Source: Operations Strategy, 3rd ed., pearson education Limited (slack, n. and Lewis, M.a. 2011) p.33, Figure 1.12, © nigel slack and Michael Lewis 2002, 2008, 2011

The challenge of operations strategy formulation An operations strategy should be pass the following questions… Is it comprehensive? Is it coherent? Does it correspond with strategic objectives? Does it identify critical issues?

Chapter 3 ‘end-of-chapter’ case Long Ridge Gliding Club Source: Alamy Images/Corbis Bridge

Evaluate the service to club members and casual flyers Product Customers Product range Design changes Delivery Quality Volume per service type Profit margins Provision of facilities and instruction to pursue the sport The experience of gliding Enthusiasts Thrill seekers Novice to competition gliding Short introductory flights None Variety of packages Club/team activity, co-producer of product Dependable flight Good flying conditions Support, care and attention 300 members 750 trial flights Negligible Mostly profit

Evaluate the service to club members and casual flyers (Continued) Competitive factors Order winners Qualifiers Less important Internal performance objectives Price Availability Location Price Flexibility Dependability Range of products Quality of service Location Cost Flexibility Dependability Speed Dependability Flexibility Quality

Chart the five performance objectives Developing a scale for the performance objectives... 0 5 Cost High price Low price Depend-ability Not likely to be able to fly Able to fly as arranged Flexibility Single product Do anything anytime Product quality Dangerous gliders and poor instruction Well maintained gliders and excellent instruction Quality of facilities Very basic facilities 5* facilities Service quality Non-existent service Helpful, attentive and available staff Speed Wait all day Fly immediately

Club member expectation Casual flyer expectations Chart the five performance objectives (Continued) Using the scale to rate the performance objectives for... Club member expectation Casual flyer expectations Service delivered Cost 3 1 Dependability 5 2 Flexibility 4 Product quality Quality of facilities Service quality Speed

Chart the five performance objectives (Continued) Using the ‘polar diagram’ format... 5 4 3 2 1 Cost (Low price) Dependability (reliable flying) Product quality (high quality gliders and instruction) Flexibility (change and choice) Speed (fly immediately) Service quality (high quality care and attention) Quality of facilities (high quality facilities) Casual flyer expectations Service delivered Club member expectations

What advice would you give to the club chairman? The options... Do nothing End trial flights Create two processes to look after the two types of customers Amend the process Better manage casuals’ expectations