1. Chapter: FIVE Operations Strategy
This chapter will cover following topics:
Corporate Strategy
Market Analysis
Competitive Priorities and Capabilities
Development Process

2. Operations Strategy
Developing a customer-driven operations strategy begins with corporate strategy which………..
Coordinates the firm’s overall goals with its core process.
Determines the markets the firm will serve and the responses the firm will take to changes in the business and socioeconomic environment.
Provides the resources to develop the firm’s core competencies and core processes, and
Identifies the strategy the firm will employ in international markets.

3. Operations Strategy…..Contd.
Based on the corporate strategy, a market analysis categorizes the firm’s customers, identifies their needs, and assesses competitors’ strengths.
This information is used to develop competitive priorities for processes that deal with external as well as internal customers. Competitive priorities are important to the design of new services or products, the processes that will driven them; and the functional strategies that provide the means by which the capabilities of the firm’s processes are developed.

4. Functional Areas Strategies
Figure 6.1: Competitive Priorities Link Between Corporate Strategy and Functional Strategies
Corporate Strategy
Environmental Scanning
Core Competencies
Core Processes
Global Strategies
Market Analysis
Market Segmentation
Needs Assessment
Competitive Priorities
Cost
Quality
Time
Flexibility
Competitive Capabilities
Current
Needed
Planned
New Services/Product Design
Design
Analysis
Development
Full Launch
Functional Areas Strategies
●Finance ●Operations
●Marketing ●Others

5. Corporate Strategy
Corporate strategy specifies the business or businesses that the company will pursue, isolates new opportunities and threats in the environment, and identifies the growth objectives that it should achieved. Corporate strategy provides an overall direction that serves as the framework for carrying out all the organization’s functions.
Developing a corporate strategy involves three considerations:
Monitoring and adjusting to changes in the business environment (Environmental Scanning)
Identifying and developing the firm’s core competencies (Core Competencies)
Developing the firm’s core processes. (Core Processes)

6. Corporate Strategy………..Environmental Scanning
The external business environment in which a firm competes changes continuously, and an organization needs to adapt to those changes. Adaptation begins with environmental scanning, the process by which managers monitor trends in the socioeconomic environment (including the industry, the marketplace, and society) for potential opportunities or threats. A crucial reason for environmental scanning is to stay ahead of the competition. Competitors may be gaining an edge by broadening service or product lines, improving quality, or lowering costs. New entrants into the market or competitors that offer substitutes for a firm’s service or product may threaten continued profitability. Other important environmental concerns include economic trends, technological changes, political conditions, social changes (such as attitudes toward work), the availability of vital resources, and the collective power of customers or suppliers.

7. Corporate Strategy………..Core Competencies
Core competencies are the unique resources and strengths that an organization’s management considers when formulating strategy. They reflect the collective learning of the organization, especially in how to coordinate diverse processes and integrate multiple technologies. These competencies include the following:
Workforce.
Facilities.
Market and Financial Know-How.
Systems and Technology.

8. Corporate Strategy………..Core Processes
A firm’s core competencies should determine its core processes. There are four types of core processes: customer relationship, new service/product development, order fulfillment, and supplier relationship. Many companies have all four of these core processes. For example, in the newspaper industry, all four processes are tightly integrated. A newspaper typically attracted its own customers-both readers and advertisers (customer’s relationship). It develops most of its product- the news stories printed on its pages (new service/product development). It also manages its own production, delivery, and supply processes (order fulfillment and supplier relationship)

9. Corporate Strategy………..Global Strategies
Identifying opportunities and threats today required a global perspective. A global strategy may include buying foreign services or parts, combating threats from foreign competitors, or planning ways to enter markets beyond traditional national boundaries. Two effective global strategies are:
Strategic Alliances
Location Abroad

10. Corporate Strategy………..Global Strategies
(i) Strategic Alliances: One way for a firm to open foreign markets is to create a strategic alliance. A strategic alliance is an agreement with another firm that may take one of three forms.
One form of strategic alliance is the collaborative effort, which often arises when on firm has core competencies that another needs but is unwilling (or unable) to duplicate.
Another form of strategic alliance is the joint venture, in which two firms agree to produce a service or product jointly. This approach often is used by firms to gain access to foreign markets.

11. Corporate Strategy………..Global Strategies
Finally, technology licensing is a form of strategic alliance in which one company licenses its service or production methods to another. Licenses may be used to gain access to foreign markets.
(ii) Location Abroad: Another way to enter global markets is to locate operations in a foreign country. However, managers must recognize that what works well in their home country might not work well elsewhere. The economic and political environment or customers’ needs may be very different.

12. Market Analysis (ii) Needs Assessment
One key to success in formulating a customer-driven operations strategy for both service and manufacturing firms, understands what the customer wants and how to provide it better than the competition does. Market analysis first divides the firm’s customers into market segments and then identifies the needs of each segment. That means market analysis is done through:
(i) Market Segmentation, and
(ii) Needs Assessment

13. Market Analysis….Market Segmentation
Market segmentation is the process of identifying groups of customers with enough in common. In general, to identify market segments, the analysts must determine the characteristics that clearly differentiate each segment. Once the firm has identified a market segment, it can incorporate the needs of customers into the design of the service or product and the processes for its production. The following characteristics are among those that can be used to determine market segments.
Demographic Factors
Psychological Factors
Industry Factors

14. Market Analysis….Market Segmentation
i. Demographic Factors: Age, income, educational level, occupation, and location can differentiate markets.
ii. Psychological Factors: Factors such as pleasure, fear, innovativeness, and boredom can serve to segment markets.
iii. Industry Factors: Customers may utilize specific technologies (e.g. electronics, robotics, or microwave telecommunication); use certain materials (.g. rubber, oil, or wood); or participate in a particular industry (e.g. banking, health care, or automotive). These factors are used for market segmentation when the firm’s customers use its goods or services to produce other goods or services.

15. Market Analysis….Needs Assessment
Needs assessment identifies the needs of each segment and assesses how well competitors are addressing those needs. Once it has made this assessment, the firm can differentiate itself from its competitors. The needs assessment should include both the tangible and the intangible service or product attributes and features that a customer desires.
Market need may be grouped as follows:
i. Service or product needs. Attributes of the service or product, such as price, quality, and degree of customization desired.

16. Market Analysis….Needs Assessment
ii. Delivery system needs. Attributes of the processes and the supporting systems and resources need to deliver the service or product, such as availability, convenience, courtesy, safety, accuracy, reliability, delivery speed, and delivery dependability.
iii. Volume needs. Attributes of the demand for the service or product, such as high or low volume, degree of variability in volume, and degree of predictability in volume.
iv. Other needs. Other attributes, such as reputation and number of years in business, after-sale technical support, ability to invest in international financial markets, competent legal services, and service or product design capability.

17. Competitive Priorities and Capabilities
A customer-driven operations strategy reflects a clear understanding of the firm’s long term goals as embodied in its corporate strategy. A customer-driven operations strategy also addresses the needs of the internal customer of the firm’s processes because the overall performance of the firm is dependent upon the performance of its core and supporting processes. Competitive priorities are the critical dimensions a process must possess to satisfy its internal or external customers, both now and in the future.

18. Competitive Priorities and Capabilities
There are nine broad competitive dimensions, which fall into four groups.
Cost
1. Low-cost Operations
Quality
2. Top Quality
3. Consistent Quality
Time
4. Delivery Speed
5. On-time Delivery
6. Development Speed
Flexibility
7. Customization
8. Variety
9. Volume Flexibility

19. Competitive Priorities and Capabilities
1. Cost: Lowering prices increased demands for services or products, but it also reduces profit margins if the service or product cannot be produced at lower cost. Low-cost operations is delivering a service or producing a product at the lowest possible cost to the satisfaction of the process’s external or internal customers. To reduce costs, processes must be designed and operated to make them very efficient, often addressing workforce, methods, scrap or rework, overhead, and other factors to lower the cost per unit of the service or product.

20. Competitive Priorities and Capabilities
Quality: quality is a dimension of a service or product that is defined by the external and internal customers. Two important competitive priorities deal with quality, top quality and consistent quality.
2. Top quality is delivering an outstanding service or product. This priority may require a high level of customer contact, and high levels of helpfulness, and availability of servers from a service process. Alternatively, it may require superior product features, close tolerances, and greater durability from a manufacturing process. Processes delivering top quality need to be designed to more demanding requirements than other processes.

21. Competitive Priorities and Capabilities
3. Consistent Quality: The second quality priority, consistent quality, is producing services or products that meet design specifications on a consistent basis. External customers want services or products that consistently meet the specification they contracted for, have come to expect, or saw advertised. For example, bank customers expect that the bank’s accounting process will not make errors when recording transactions.
4. Delivery Speed: The first, delivery speed, is quickly filling a customer’s order. Delivery speed is often measured by the elapsed time between the receipt of a customer order and filling it, often referred to as lead time. You increase delivery speed by reducing lead time.

22. Competitive Priorities and Capabilities
5.On-Time Delivery: The second time priority, on-time delivery, is meting delivery-time promises. Manufacturing may measure on-time delivery as the percent of customer orders shipped when promised, with 95 percent often considered as the goal.
6. Development Speed: The third time priority, development speed, is quickly introducing a new service or product. Development speed is measured by the elapsed time from idea generation through the final design and introduction of the service or product. Achieving a high level of development speed requires a high level of cross-functional coordination.

23. Competitive Priorities and Capabilities
7. Customization: Customization is satisfying the unique needs of each customer by changing service or product designs. Customization typically implies that the service or product has low volume. There are some exceptions to that generalization. For example, a customization plastic bottle design for a shampoo manufacturing may be produced in large volumes until the design of the bottle is changed.

24. Competitive Priorities and Capabilities
8. Variety: The second flexibility priority is variety, which is handling a wide assortment of services or products efficiently. Processes with a variety priority must have the capability to focus on the needs of their internal or external customers and to efficiently shift their focus across a variety of predefined services or products.
9. Volume Flexibility: The third flexibility priority is volume flexibility which is accelerating or decelerating the rate of production of services or products quickly to handle large fluctuations in demand. Volume flexibility is an important priority that often supports other competitive priorities, such as delivery speed or development speed.

25. Development Process Design Analysis
Full Launch
Development Strategy
Ideas generation and screening
Service package or product architecture formulation
Production feasibility
Detailed review of market potential and production costs
Detailed specifications
Process design
Marketing program design
Personnel training
Testing and pilot runs
Market promotions
Sales personnel briefed
Distribution processes activated
Old services or products withdrawn
Production of new offering and ramp-up
Need to rethink the new offering or production processes
Post-launch review
Figure : New Service or Product Development Process
Service or product not profitable

26. Development Process Design
The first stage, design, is critical because it links the creation of new services or products to the corporate strategy of the firm. Within the framework of corporate strategy, the development strategy specifies the thrust the firm wants to take with its offerings. Given the development strategy, ideas for new offerings are generated and screened for feasibility and market worthiness. For services, these ideas specify how the customer interfaces with the service provider, the service benefits and outcomes for the customer, the value of the service, and how the service will be delivered. The specific service package is then formulated for the best idea, the competitive priorities are assigned to the processes, and the manner in which the service package will be delivered is proposed and checked for feasibility.

27. Development Process
For manufacturing products, the new ideas include a specification of the product’s architecture. There are two basic types: Modular and Integrated.
Using a modular architecture, the product is an assembly of components, several varieties of products can be made quickly using the same standardized components.
With the integrated product architecture, the product’s functions are performed by only a few components that are specifically designed for it. Integrated product structures often lead to higher product performance and are not easily imitated; however, the design lead-time is high and the ability to produce a variety of products is limited.

28. Development Process Analysis
The second stage, analysis, involves a critical review of the new offering and how it will be produced to make sure that it fits the corporate strategy, is compatible with regular standards, presents and acceptable market risk, and satisfies the needs of the intended customers. The resources requirements for the new offerings must be examined from the perspective of the core capabilities of the firm and the need to acquire additional resources or secure strategic partnerships with other firms.

29. Development Process Development
The third stage, development, brings more specificity to the new offering. Here the new and the required competitive priorities are used as inputs to the design (or redesign) of the processes that will be involved in delivering the new offering. The processes are diagrammed; each activity is designed to meet its required competitive priorities and to add value to the service or product. Once the new offering is specified and the processes have been designed, the market program can be designed. Finally, personnel are trained and some pilot runs can be conducted to iron out the kinks in the production of the new offering.

30. Development Process Full Launch
The final stage, full launch, involves the coordination of many of the firm’s processes. Promotions for new offering must be initiated, sales personnel briefed, distribution processes activated, and old services or products that the new offering is to replace must be withdrawn.