Chapter-01

Operations StrategyOperations Strategy

An Introduction to Operations

Strategy

Operations management and strategy requires analysis at three levels

Flow between operations Analysis at the

level of the supply network

Analysis at the level of the operation

Flow between processes

Analysis at the level of the process Flow between resources

Strategic analysis

Operational analysis

Operations strategy is …

‘… the total pattern of decisions …

… whilst managing the risks of misalignment’.

… through the on-going reconciliation of market requirements and operations resources …

… and their contribution to overall strategy…

… of any type of operation ...

… that shape the long-term capabilities …

… so as to achieve a sustainable fit between the two …

How is operations strategy different from operations management?

Timescalee.g. capacity

decisions Dem

and

1 – 12 months

Short-term

Operations management

Long-term

De

ma

nd

1 – 10 years

Operations strategy

How is operations strategy different from operations management?

Level of analysisConcerned with the

macro operation (level of the firm)

Micro

Operations management

Macro

Operations strategy

How is operations strategy different from operations management?

Level of aggregation(Concerned with resources at an aggregated level)

Detailed

Operations management

Aggregated

Operations strategy

‘Can we give tax services to the small business market in

Antwerp?’

‘What is overall business advice

capability compared with other

capabilities?’

How is operations strategy different from operations management?

Level of abstraction(Concerned with the conceptual)

Concrete

Operations management

Philosophical

Operations strategy

‘How do we improve our purchasing

procedures?’

‘Should we develop strategic alliances

with suppliers?’

Products or services?

Manufacturing or non-manufacturing?

What is operations strategy about?

For profit or not-for-profit?

The sectoral scope of operations strategy

The four perspectives on operations strategy – top-down, bottom-up, market requirements and operations

resourcesTop-down

Operations strategy should interpret higher level strategy

Operationsresources

Operations strategy should build operations

capabilities

Operations strategy should learn from

day-to-day experiences

Bottom-up

Market requirements

Operations strategy should satisfy the

organisation’s markets

Operations strategy must reflect four perspectives – top-down, bottom-up, market requirements, and operations

resources

Top-down

Bottom-up

Corporate strategy

Business strategy

Emergent sense of what the strategy

should be

Operational experience

Operations

resources

CapacitySupply networksProcess technologyDevelopment and organisation

Market requirements

QualitySpeed

DependabilityFlexibility

Cost

Top-down and bottom-up perspectives of strategy for the Metrology Company

Corporate objectives impact on business objectives which, in turn, influence Operations

Strategy

Top down

Corporate strategy

Business strategy

Bottom up

Day-to-day experience of providing products and services to the market

reveals problems and potential solutions which become formalised

into Operations Strategy

Emergent sense of what the strategy should be

Operational experience

Operations strategy

Operations must have fast and flexible technology, supply

relationships, process and staff

Modular strategy provides flexibility and innovation at

relatively lowcost

Group building corporate capability in high technology products and

servicesMetrology division competes on

‘fast-to-market’ innovations

Experiment with ‘modular’ design of key products and components

Customers confused by continual product innovation and costs are increasing

Corporate objectives impact on business objectives which, in

turn, influence OperationsStrategy

Bottom up

Top down

Day-to-day experience of providing products and services to the market

reveals problems and potential solutions which become formalised

into Operations Strategy

Top-down and bottom-up perspectives of strategy for the Metrology Company

Operations strategy reconciles the requirements of the market with the capabilities of operations

resources

Operations resources

Market requirements

Strategic reconciliation

OPERATIONS STRATEGY

Operations strategy is the strategic reconciliation of market requirements with

operations resources

Tangible and intangible resources

Operations capabilities

Operations processes

Operations strategy

decision areas

Customer needs

Market positioning

Competitors’ actions

Performance objectives

Understanding resources

and processes

Strategic decisionsCapacitySupply networksProcess

technologyDevelopment and organisation

Required performanceQuality

SpeedDependabilityFlexibilityCost

Understanding markets

The ‘market requirements’ and ‘operations resource’ analysis of the

lighting companyResourcesEquipmentStaffReputationRelationships (internal

and external)Experience

CapabilitiesApplication of leading edge lighting and sound technologyArticulation of client requirements

ProcessesIntegration of equipment supply and client requirementsDesign processSupplier liaison process

Operations strategy decisions

LocationVirtual reality technologySupplier developmentEquipment racking systemOrganisational structureStaff meetings

CustomersProfessional theatres (static, low margins)Exhibitions (slow growth, low margins)Conferences etc. (fast growth, higher margins

Market positionTraditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference market

CompetitorsBig groups dominating professional theatresIn-house operations growing in exhibitions marketConference market still fragmented

Performance objectives

Aesthetically innovative designsPresentation adviceHigh customisation of lighting solutionsFast and dependable supply

The market perspective analysis of the garment company

PERFORMANCE OBJECTIVES MARKET POSITION Differentiation on:

CUSTOMERS Segmentation on:

Age – youthPurpose – general

COMPETITORS Traditionally weak in:

Innovative productsTime to marketProduct rangeCoordinated launches

promotiondesign innovation

DependabilitySpeed of deliveryProduct mix flexibilitySpeed to market

Capabilities

Resources Tangible:

EquipmentStaff

Processes

ReputationRelationships (internal

and external)Experience

Intangible:

Application of leading-edge lighting and sound technologyArticulation of client requirements

Integration of equipment supply and client requirementsDesign processSupplier liaison process

Operations strategy decisionsLocationVirtual reality technologySupplier developmentEquipment tracking systemsOrganisational structureStaff meetings

The operations resource perspective analysis of the lighting company

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

Operations strategy is …..

‘… the decisions which shape the long-

term

capabilities of the company’s operations

and

their contribution to overall strategy

through

the on-going reconciliation of market

requirements and operations resources …’

ProfitTotal

assets

OutputTotal

assets

ProfitOutput= ×

Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy

OutputTotal

assets

OutputCapacity

Fixed assetsTotal

assets

CapacityFixed assets

Utilisation Working capital

Productivity of fixed assets

= × ×

ProfitOutput

RevenueOutput

CostOutput

Average revenue

Average cost

=

Operations strategy decision areas

Capacity Supply network

Process technology

Development and

organisation

Operations strategy decision areas are partly structural and partly infrastructural

Capacity

Development and organisation

Supply network Process technology

Structural issues

Infrastructural issues

Operations strategy

Per

form

ance

obj

ectiv

es Quality

Speed

Dependability

Flexibility

Cost

Development and

organisationCapacity

Supply network

Process technolog

yDecision areas

Mar

ket c

ompe

titiv

enes

s

The operations strategy matrixResource usage

7-Eleven Japan

Sells 15.X as much per store as nearest rival

History of cautious expansion and technical and service innovation

‘Field Counsellors’ spread operations knowledge (also distance training)Expansion by territory to reduce distribution costs

Early use of TIS (Total Information System)

TIS controls stock replenishment by twice a day delivery (sales analysed twice a day)

New systems not Internet-based

New service includes:

Bank terminals

Downloading games

Downloading music to MD

Internet ordering and collection

Largest retailer in Japan

COST in terms of minimising…•operating cost•capital cost•working capital

QUALITY of productsand services

Speed anddependability combinedto indicate AVAILABILITY

FLEXIBILITY ofresponse to sales and customer trends

Area dominancereduces distributionand advertising costs

•Location of stores•Size of stores

Distribution centre grouping by temperature

Distribution centresand inventory management systems give fast stock replenishment

TIS allows trends tobe forecast andsupply adjustments made

Common distribution centers give small frequent deliveriesfrom fewer sources

•Number and type of distribution centres•Order and stock replenishment

TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily

•The Total Information System

(TIS)

Information sharingand parenting system spreads serviceideas

Field counsellors with sales data helpstores to minimise waste and increase sales

•Franchisee relationships

•New product/service development•Approach to operations improvement

DEVELOPMENT AND ORGANISATION

PROCESS TECHNOLOGY

SUPPLY NETWORKS CAPACITY

RESOURCE DEPLOYMENT

Ma

rke

t C

om

pe

titi

ve

ne

ss

Pivotal Critical Secondary

7-11 JAPAN