MGT 563 OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

Recap Lecture 07 Current Trends in Trade Emerging business models Operations Manager

Operations performance can make or break any organisation Operations strategy, and the resulting performance that it brings can either ‘make’ or ‘break’ any business. Not just because the operations function is large and, in most businesses, represents the bulk of its assets and the majority of its people, but because the operations function gives the ability to compete by providing the ability to respond to customers and by developing the capabilities that will keep it ahead of its competitors in the future.

‘Stakeholder’ perspective on operations performance Stakeholders are the people and groups who have a legitimate interest in the operation’s strategy. Some are internal, for example the operation’s employees External, for example customers, society or community groups, and a company’s shareholders. External stakeholders may have a direct commercial relationship with the organisation, for example suppliers and customers; others may not, for example, industry regulators.

Stakeholders

Corporate Social Responsibility (csr) CSR is essentially about how business takes account of its economic, social and environmental impacts in the way it operates – maximising the benefits and minimising the downsides... Specifically, we see CSR as the voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society.’

‘Corporate Social Responsibility... is listening and responding to the needs of a company’s stakeholders. This includes the requirements of sustainable development. We believe that building good relationships with employees, suppliers and wider society is the best guarantee of long-term success. (Marks & Spencer)

Market Competitiveness Speed Flexibility Cost Dependability Quality The operations function can provide a competitive advantage through its performance at the five competitive objectives Being RIGHT Being FAST Being ON TIME Being ABLE TO CHANGE Being PRODUCTIVE Five generic performance objectives

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

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

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. What is strategy?

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. Strategic decisions

‘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? The time scale is longer Short-term for example, capacity decisions 1–12 months Demand Long-term for example, capacity decisions 1–10 years Demand Operations managementOperations strategy

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

The level of aggregation is higher Operations managementOperations 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?’ How is operations strategy different to operations management? (Continued)

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

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

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

The 4 stage model of operations contribution Increasing contribution of operations Increasing strategic impact Increasing operations capabilities Externally supportive Redefining industry expectations STAGE 4 Give an operations advantage Driving strategy After Hayes and Wheelwright 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 Internally neutral STAGE 1 Correct the worst problems Holding the organization back

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

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

The strategy hierarchy Key strategic decisions Influences on decision-making 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 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 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

Introduction Growth Maturity Decline Sales volume 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 The effects of the product / service life cycle Time

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

Different competitive factors imply different performance objectives Competitive factors 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)

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

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

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

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

What you HAVE 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 Reconciling market requirements and operations resources

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.