Operations Strategy and Competitiveness

Strategy in Operations

• Formulation• Competitive issues• Corporate Strategy• Decision Making• Deployment

Operations Strategy

• The operations strategy is a statement of how operations function will contribute to the achievement of corporate goals.

Steps in Strategy Formation• Define primary task

– What is the firm’s main business• Assess core competencies

– Where do you have advantage over others • What will win the order? • Positioning the firm

– So that it compete with others• Demand Management and Forecasting

Factors to Consider for Competitive Advantage

• Cost – Southwest airlines

• Quality – Japanese auto industry

• Flexibility – Raymond suits

• Speed – Citibank, Dell

Operations Role in Strategy

• Can differentiate the firm from other competitors

• Provide the support

Wal-Mart Example

• Low prices everyday• Strategy– Low inventory– Sort flow lines

• Support structure – All store linked – Fast transportation

• High volume / low unit margin

Internet

• Banking • Amazon • Back-office support

Corporate Strategy Design ... 1

• Integration of Finance, Marketing and Operations function

• Financial perspective : ROI, ROCE, EVA – Build new sources of revenue and Enhance the value of

existing accounts – Improve cost structure and asset utilization

• Customer perspective – Product leadership (Sony, Intel) – Customer intimacy (HDFC Bank) – Operational excellence (Jet, Reliance)

Corporate Strategy Design ... 2

• Internal perspective : defines the business processes and the specific activities the organization must master to support the customer value proposition.

• Learning and Growth : – Strategic competencies – Strategic technologies – Climate for action ... Culture, motivation,

empowerment

Strategic Fit

• All activities relate to each other • Making these efficient means reducing the

cost • Making them effective means the combined

set of activities support the company’s strategy

Southwest Airline

• Only 737 in the fleet • No connections, only direct flights • Smaller airports • Multi tasking by staff • Quick turnaround • More hours in the air for pilots• No meals, baggage transfers, seat allocation

Strategy for Delivering Products and Services

• Make to order • Make to stock• Assemble to order

Production Systems

• Project (Low standardization, low volume)• Batch (Low-medium standardization, low-

medium volume)• Mass Production (Medium standardization,

medium volume)• Continuous production (High standardization,

High volume)

Services

• Professional service – highly specialized, e.g. Lawyer

• Service shop – customized , e.g. Teacher • Mass service – less customized, e.g. Retail

store • Service factory – e.g. Electricity

Capacity and Facility

• Capacity – When, How much, in what form • Facility – Centralization vs. De-centralization – Specialized facilities – Location

Manpower Resources

• Skill levels, education • Training needs • Comp and benefits, promotion and increment

policies • Structure of employment – permanent or

contract • Bonus, profit sharing, stock options

Quality

• Definition of quality • Measurement of quality • Who is responsible for quality • Training and awareness • Customer feedback

Make vs. Buy

• What are all the components made by the company (e.g. Car assembly)

• Suppliers– Who – When – Selection process – How much – How many – Relationship with the suppliers

Productivity Measurement

• Productivity = output / input• Productivity = output / resources consumed• Productivity = Output /

(Labour+Capital+Energy)• Economic productivity = value / cost• Productivity is a relative measure • IT examples: Function Point Analysis, Lines of

Code

Balanced Scorecard

• Developed by David Norton and Robert Kaplan• Strategic Performance Management Tool • Mixture of Financial and non-financial

measures • Comparison with the target values within a

common report

Balances Scorecard Design

• Translate the vision into operational goals• Communicate the vision and link it to

individual performance• Business planning, index setting• Feedback and learning, and adjusting the

strategy accordingly• SMART metrics (Specific, Measurable,

Achievable, Realistic and Timely)

Examples of key Performance Indicators

• Marketing – Customer attrition, new customers

• Manufacturing – Cycle time, utilization • IT – Availability, MTBF

Manpower

Customers

Products

SuppliersPartners

Cycle Time

Defect Density

0

10

20

Last YearThis year