Service Operations Management Operations Strategy Lecture 2

Team Members Arzina Ackbar Beryl Laure Erica Rath Karen Sham-Laye Valentina Barra

Lecture Outline Definition of business policy and the role of business strategy Definition of operations strategy The development of an Operations Strategy Operations Strategy Model Characteristics of an effective operations strategy

Business Policy; Operations Strategy Business Policy Business Strategy Operations Strategy

Developing a Business Strategy MISSION; “To build a globally recognized brand which, by inspiring exceptional experiences among our guests, instilling pride and integrity in our associates and enhancing both the physical and human environment in which we operate, will deliver attractive returns to our shareholders.” ENVIRONMENTAL SCANING CORE COMPETENCIES

Developing an Operations Strategy 1. Developing a Business Strategy Environmental Scanning: Monitoring the business environment for market trends, threats, and opportunities Core Competencies: Our unique strengths that help us win in the marketplace Mission: Statement that defines what our business is; who our clients are; and how our values define our business Business Strategy: Defined long-range plan for the company

Identifying Competitive Priorities Common priorities include: Cost: Low production costs enables the company to price its product below competitors - Eg: Lincoln Electric reduced costs by $10 million a year for 10 years Quality: Higher performance or a more consistent product can support a price premium - Eg: Ritz-Carlton Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans

Time: Faster delivery or consistent on-time delivery can support a price premium - Eg: Wal-Mart replenishes its stock twice a week Flexibility : Highly customized products or volume flexibility can support a price premium - Eg: Andersen Windows number of products offered grew from 28,000 to 86,000 number of errors are down to 1 per 200 truckloads Common priorities include : cont…

Examples 1. Custom Foot Shoe Store: customer’s feet are scanned electronically to capture measurements custom shoes are mailed to the customer’s home in weeks 2. Ritz-Carlton – Quality reports tracks: guest room preventive maintenance cycles percentage of check-ins with no waiting time spent to achieve industry-best clean room appearance

3. L.L. Bean ships orders the day they are received 4. Southwest Airlines direct flights mean no baggage transfers $30 million annual savings in travel agent commissions by requiring customers to contact the airline directly 5. Hewlett-Packard produces electronic testing equipment in five days Examples

Translate Priorities into Design Design of Operations Structure & Infrastructure Operation Strategy Based on competitive priorities Business Strategy

Structural strategy New product/service development strategy Facilities strategy Technology strategy Infrastructural strategy Workforce and organization strategy Supplier development strategy Planning and control systems strategy

Factors that Influence Strategy Internal External Human resources Economic conditions Facilities and equip Political conditions Financial resources Legal environment Customers Technology Products and services Competition Technology Markets Suppliers

Example: British Airways Corporate Mission: To be the undisputed leader in world travel Operations Mission: Deliver overall superior service and good value to the customer Distinctive Competence: Friendly, professional service Objectives: Well-trained, motivated employees Policies: Fast turnaround at counter, quick complaint responses, etc.

Characteristics of an effective operations strategy: Internally and externally consistent with... – corporate/business strategy – other functional strategies (marketing, finance) – pattern of structural/infrastructure investment – competitive environment (customers, competitors) Builds core operations capabilities – competitive advantages – new opportunities Timeless and enduring Explicit recognition of trade-offs – targets key performance dimensions – sets clear priorities/ promotes clarity

Understand Tradeoffs Example: Made-to-Order Pizza Expensive Ingredients Fresh, Natural Ingredients Toppings Choice Slow to cook Low Volume Ovens QUALITY COST VOLUME FLEXIBILITY QUALITY & DESIGN FLEXIBILITY TIME