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Operations Operations PerformancePerformance
Chapter 2Chapter 2
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ContentsContentsDefinition?Definition?
The Reality CheckThe Reality Check
Operations Strategy Vs Operations ManagementOperations Strategy Vs Operations Management
Strategic FitStrategic Fit
Categories of Business StrategiesCategories of Business Strategies
Strategy FormulationStrategy Formulation
Primary Task, Core Competencies, Order Primary Task, Core Competencies, Order winners/qualifiers, competitive priorities, winners/qualifiers, competitive priorities, Process strategy matrix, policy deploymentProcess strategy matrix, policy deployment
Definition?Definition?
The Reality CheckThe Reality Check
Operations Strategy Vs Operations ManagementOperations Strategy Vs Operations Management
Strategic FitStrategic Fit
Categories of Business StrategiesCategories of Business Strategies
Strategy FormulationStrategy Formulation
Primary Task, Core Competencies, Order Primary Task, Core Competencies, Order winners/qualifiers, competitive priorities, winners/qualifiers, competitive priorities, Process strategy matrix, policy deploymentProcess strategy matrix, policy deployment
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Operations Strategy: Operations Strategy:
DefinitionDefinition
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Operations StrategyOperations Strategy
‘… ‘… the decisions which shape the the decisions which shape the long-term capabilitieslong-term capabilities of of
the company’sthe company’s operation operationss and their contribution to overall and their contribution to overall
strategy through the on-going strategy through the on-going reconciliationreconciliation of market of market
requirementsrequirements and operations and operations resourcesresources …’ …’
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The Reality Check:The Reality Check:Why Strategic Perspective in OperationsWhy Strategic Perspective in Operations
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Co
mp
etit
iven
ess
Today’s market demands…
Quality Being RIGHT
Speed Being FAST
Dependability Being ON TIME
Cost Being PRODUCTIVE
Being ABLE TO CHANGEFlexibility
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The relative importance of the market requirements and operations resource perspectives change over time,
how performance objectives trade-offs between each other andoperations focus can lead to exceptional performance
TRADE-OFFS
Performance objective A
Per
form
ance
obj
ect
ive
B?
Relative importance of the Operations
Resource perspective
Relative importance of
the Market Requirements perspective
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Island
Army 1
Army 2
You are commanding Army 1, the objective is to capture the island. Army 2 has the same objective
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Island
Army 1Army 2
Burn
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Island
Army 1Army 2
Do not Burn
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Broad strategic objectives for a parcel delivery operation applied to stakeholder groups
SocietyIncrease employmentEnhance community well-beingProduce sustainable productsEnsure clean environment
CustomersAppropriate product or service specificationConsistent qualityFast deliveryDependable deliveryAcceptable price
SuppliersContinue businessDevelop supplier capabilityProvide transparent information
ShareholdersEconomic value from investmentEthical value from investment
EmployeesContinuous employmentFair payGood working conditionsPersonal development
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Three Major Trading Regions
Previously firms classified as domestic, exporters, or internationalPreviously firms classified as domestic, exporters, or internationalNow have global firms, joint ventures, foreign subsidiariesNow have global firms, joint ventures, foreign subsidiaries
International Markets and Producers
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Strategy and Issues During a Product’s Life
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Ginger HotelsGinger Hotels
No-frillsNo-frills
June 2004June 2004
No room service, travel desk, swimming poolNo room service, travel desk, swimming pool
Wi-fiWi-fi
Two type of room: Rs. 999 and Rs. 1199Two type of room: Rs. 999 and Rs. 1199
Prabhat Pani, CEO, RootsCorporationPrabhat Pani, CEO, RootsCorporation
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BillDesk, a property of IndiaIdeas.com Ltd., 2000
Three Arthur Anderson Three Arthur Anderson ExecutivesExecutives
Third-party bill Third-party bill collectioncollection
25 Banks, 100 25 Banks, 100 companiescompanies
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Difference betweenDifference betweenOp Strategy and Op Op Strategy and Op
ManagementManagement
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‘Installed’ product/service fully
operational
End of coreprocessing
Start of coreprocessing
Request for product/service
Receipt ofinformation
Request forinformation
Awareness of need
MilestoneHospital Software producerPresentation of symptoms
Visit to doctor for advice and tests
Test information confirms diagnosis
Decide on surgery
Enter hospital for surgery
Procedure successfully completed
Patient fully recovered
Installation time
Waiting time
Enquiry time
Core processing time
Customer decision time
Enquiry decision time
Asks for specification and estimates
Receives proposal
Places order
Start of design and coding
Software ‘completed’
Software fully debugged and working
Customer decides new software is needed
Significant ‘milestone’ times for the delivery of two products/services
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First/Business-class cabin,airport lounges, pick-up service
Economy cabin
Wealthy people, businesspeople, VIPs
Travellers (friends and family), vacation takers, cost-sensitive business travel
Wide range, may need to be customised
Standardised cabin
Relatively high Relatively low
Relatively low volume Relatively high volume
Medium to high Low to medium
First/Business class Economy class
Customisation, extra service, comfort features, convenience
Quality (specification andconformance), Flexibility, Speed
Price, acceptable service
Cost, Quality (conformance)
Services
Customers
Service range
Rate of service innovation
Volume of activity
Profit margins
Main competitive factors
Performance objectives
Different product groups require different performance objectives
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Operations strategy is different from operations management
Example: capacity decisions
Time scaleTime scaleShort-termShort-term
capacity decisionscapacity decisions
1–12 months1–12 months
Dem
and
Dem
and
Long-termLong-termcapacity decisionscapacity decisions
1–-10 years1–-10 years
Dem
and
Dem
and
Operations managementOperations management Operations strategyOperations strategy
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Operations strategy is different from operations management
Level of Level of analysisanalysis
Operations managementOperations management Operations strategyOperations strategy
MicroMicrolevel of the processlevel of the process
MacroMacrolevel of the total operationlevel of the total operation
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Operations strategy is different from operations management
Level of Level of aggregationaggregation
Operations managementOperations management Operations strategyOperations strategy
DetailedDetailed
For exampleFor example
““Can we give tax services Can we give tax services to the small business to the small business market in Antwerp?”market in Antwerp?”
AggregatedAggregated
For exampleFor example
““What is our overall What is our overall business advice capability business advice capability
compared with other compared with other capabilities?”capabilities?”
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Operations strategy is different from operations management
Level of Level of abstractionabstraction
Operations managementOperations management Operations strategyOperations strategy
ConcreteConcrete
For exampleFor example
““How do we improve our How do we improve our purchasing procedures?”purchasing procedures?”
PhilosophicalPhilosophical
For exampleFor example
““Should we develop Should we develop strategic alliances with strategic alliances with
suppliers?”suppliers?”
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Strategic Fit for Strategic Fit for
reconciliationreconciliation
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Operations resources
Market requirements
Strategic reconciliation
Operations strategy reconciles the requirements of the market with the capabilities of operations resources
OPERATIONS STRATEGY
Market requirements and operations resources perspectives of operations strategy
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What you HAVE
in terms of operations capabilities
What you NEEDNEED
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
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Continuous improvement at a strategic level
Market requirementsOperations resources
Intended competitive
position in the market place
DEPLOY operation’s contribution by exploiting superior capabilities Potential
competitive position in the market place
MARKET STRATEGY
DEVELOP operations capabilities through learning
The operation’s capabilities
and performance
Getting the fit right
The operation’s resources and
processes
DIRECT performance
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getting the fit right
‘Fit’ means that the operation’s resources and processes are aligned with the requirements of its markets.
Line of fit
Mar
ket
requ
irem
ents
Operation’s resource capability
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Deviations?
Line of fit
Mar
ket
requ
irem
ents
Operation’s resource capability
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Top-down Top-down perspectiveperspective
What the What the business wants business wants operations to dooperations to do
Operations Operations resources resources
perspectiveperspective
What operations What operations resources can doresources can do
What day-to-day What day-to-day experience suggests experience suggests
operations should operations should dodo
Bottom-up Bottom-up perspectiveperspective
Market Market requiremenrequirement t pperspectiveerspective
What the market What the market position requires position requires operations to dooperations to do
Operations Operations strategystrategy
The four perspectives on operations strategy
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Corporate strategy
Business strategy
Emergent sense of what the strategy should be
Operational experience
Top-down and bottom-up perspectives of strategy
Operations strategy
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The strategy hierarchyThe strategy hierarchy
Key strategic Key strategic decisions decisions
Influences on Influences on decision makingdecision making
Business Business strategystrategy
What is the mission?What are the strategic
objectives of the firm?How to compete?
Customer/market dynamicsCompetitor activityCore technology dynamicsFinancial constraints
Corporate Corporate strategystrategy
What business to be in?What to acquire?What to divest?How to allocate cash?
Economic environmentSocial environmentPolitical environmentCompany values and ethics
Functional strategy
How to contribute to the strategic objectives?
How to manage the function’s resources?
Skills of function’s staffCurrent technologyRecent performance of the
function
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Trade-offsTrade-offs
““Do you want it good, or do you want it Tuesday?”Do you want it good, or do you want it Tuesday?”
““No such thing as a free lunch.”No such thing as a free lunch.”
““You can’t have an aircraft which flies at the speed of You can’t have an aircraft which flies at the speed of
sound, carries 400 passengers and lands on an aircraft sound, carries 400 passengers and lands on an aircraft
carrier. Operations are just the same.” (Skinner)carrier. Operations are just the same.” (Skinner)
““Trade-offs in operations are the way we are willing Trade-offs in operations are the way we are willing
to sacrifice one performance objective to achieve to sacrifice one performance objective to achieve
excellence in another.”excellence in another.”
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1946–1951Implementing
strategy
Building up capacity and capability Simple design
Standardised design
Systemisation of resources andprocess
Emerging, any working
vehicle
Maturing, simple robust vehicle
Minor reconfiguration for new model
Maturing, sophisticated performance, quality
New 1500 model
Operations resources
Market requirements
1952–1958Continuity of
strategy
1959–1964Minor change and continuity
Strategic reconciliation
Market requirements, operations resources and strategic reconciliation at VW over 70 years
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1965–1970Search for
viable strategy
Fragmented acquisition of new resources
Multiple new designs
Defined rangeAdapt best practices from enlarged group
Uncertain rejection of VW traditional
products
Clarifying around style, quality and
variety
Accommodate new models and acquisitions
Segmentation around performance, style and
variety
Product development
paths
Operations resources
Market requirements
1971–1975Emergent strategy
1976–1979Continuing with minor changes
Strategic reconciliation
Market requirements, operations resources and strategic reconciliation at VW over 70 years
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1990–1996Major change
(internal)
Drastic reconfiguration to increase efficiency, reduce costs
Design for low- cost manufacture
Common product platforms
Continuous process improvement and cost reduction
Increasingly competitive
around price
Branding with price, quality, and
style
Lean process improvement and more low-cost locations
Increasingly competitive around price and
innovationModular design
Operations resources
Market requirements
1997–2000Implementing
strategy
2001–2007Implementing
strategy
Strategic reconciliation
Market requirements, operations resources and strategic reconciliation at VW over 70 years
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Categories of Categories of
Business StrategiesBusiness Strategies
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First-to-Market StrategyFirst-to-Market Strategy
Products available Products available beforebefore competition competition
Strong Strong applied researchapplied research capability capability
neededneeded
Can set high price to Can set high price to skimskim market or market or
set lower price to gain market shareset lower price to gain market share
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Second-to-Market StrategySecond-to-Market Strategy
Quick Quick imitationimitation of first-to-market of first-to-market
companiescompanies
Less emphasis on applied research and Less emphasis on applied research and
more emphasis on more emphasis on developmentdevelopment
Learn from first-to-market’s Learn from first-to-market’s mistakesmistakes
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Cost Minimization orLate-to-Market Strategy
Wait until market becomes Wait until market becomes standardizedstandardized and and largelarge volumes demanded volumes demanded
Compete on basis of Compete on basis of costscosts instead of instead of product featuresproduct features
Research efforts focus on Research efforts focus on processprocess development versus product developmentdevelopment versus product development
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Strategy FormulationStrategy Formulation
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Five Steps for Strategy Formulation
Defining a primary taskDefining a primary task What is the firm in the business of doing?What is the firm in the business of doing?
Assessing core competenciesAssessing core competencies What does the firm do better than anyone else?What does the firm do better than anyone else?
Determining order winners and order qualifiersDetermining order winners and order qualifiers What wins the order? What wins the order? What qualifies an item to be considered for purchase?What qualifies an item to be considered for purchase?
Positioning the firmPositioning the firm How will the firm compete?How will the firm compete?
Deploying StrategyDeploying Strategy How corporate strategies will be translated into measurable objectives?How corporate strategies will be translated into measurable objectives?
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01. Primary Task
Mission statementsMission statements express express organization’s primary task: What organization’s primary task: What
business a company is in?business a company is in?
Constitution, The Corporate directivesConstitution, The Corporate directives
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02. Assessing Core Competencies
CollectiveCollective knowledge and skills an organization has that knowledge and skills an organization has that
distinguish it from the competition.distinguish it from the competition.
Typically Typically center oncenter on an organization’s an organization’s abilityability to integrate a variety of to integrate a variety of
specific technologies and skills in the development of new specific technologies and skills in the development of new
products and services.products and services.
Building Building blocksblocks of core capabilities. of core capabilities.
Are Are basisbasis on which new outputs are developed. on which new outputs are developed.
Better to think of organization in terms of its Better to think of organization in terms of its portfolioportfolio of core of core competencies than as a portfolio of products.competencies than as a portfolio of products.
IdentifyingIdentifying and and developingdeveloping core competencies is one of top core competencies is one of top management’s most important roles.management’s most important roles.
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Examples of Core Competencies
Sony - miniaturization3M- knowledge of substrates, coatings and
adhesivesHonda - engines and power trains
CannonCannoncore competencies in optics, imaging, and electronic controlscore competencies in optics, imaging, and electronic controlsProducts include copiers, laser printers, cameras, and image scanners.Products include copiers, laser printers, cameras, and image scanners.
BoeingBoeingintegrating large scale systemsintegrating large scale systemscommercial jetliners, space stations, missilescommercial jetliners, space stations, missiles
Core Competencies Used to Gain Access to Variety of Markets
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
Competitive prioritiesOperations Marketing• cost• quality Finance• time• flexibility Others
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
Cost 1. Low-cost operationsQuality 2. High-performance design
3. Consistent qualityTime 4. Fast delivery
5. On-time delivery6. Development speed
Flexibility 7. Customization8. Volume flexibility
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
Competitive prioritiesOperations Marketing• cost• quality Finance• time• flexibility Others
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Competitive PrioritiesCompetitive PrioritiesCorporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
Competitive prioritiesOperations Marketing• cost• quality Finance• time• flexibility Others
Functional area strategies• finance• marketing• operations• others
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Competitive PrioritiesCompetitive Priorities
Capabilities• current• needed• plans
Corporate strategy• goals• core competencies• environmental responses• new products/services• global strategies
Market analysis• segmentation• needs assessment
Competitive prioritiesOperations Marketing• cost• quality Finance• time• flexibility Others
Functional area strategies• finance• marketing• operations• others
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Strategy and DecisionsStrategy and DecisionsCorporate strategy
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Strategy and DecisionsStrategy and Decisions
Market analysis
Corporate strategy
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Strategy and DecisionsStrategy and Decisions
Market analysis
Competitive priorities
Corporate strategy
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Strategy and DecisionsStrategy and Decisions
Operations strategy
Market analysis
Competitive priorities
Corporate strategy
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Strategy and DecisionsStrategy and Decisions
Operations strategy
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
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Strategy and DecisionsStrategy and Decisions
Operations strategy
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
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Strategy and DecisionsStrategy and Decisions
Operations strategy
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
• Process decisions• Quality decisions• Capacity, location, and layout decisions• Operating decisions
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Strategy and DecisionsStrategy and Decisions
Operations strategy
• Process decisions• Quality decisions• Capacity, location, and layout decisions• Operating decisions
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
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Strategy and DecisionsStrategy and Decisions
Operations strategy
• Process decisions• Quality decisions• Capacity, location, and layout decisions• Operating decisions
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
Capabilities
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Competitive Strategy: The Positioning View
Options for firm positioning:Cost leadershipDifferentiationFocus
And, within each of the three:Variety-basedNeeds-basedAccess-based
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Competitive Strategy: The Resource-Based View
Types of capabilitiesProcess-based
e.g., McDonald’sSystems- or coordination-based
e.g., Ritz-Carltone.g., Southwest Airlines
Organization-basede.g., Nucor Steel
Network-basede.g., Dell
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Competitive Strategy: Integrating the Positioning and Resource-Based Views
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How Strategy Is Made
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Levels of Strategy-Making
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Business Strategy: Focus on the Customer
Types of customer needsMust havesLinear satisfiersDelightersNeutral
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Strategy-Making in Context
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Strategy-Making: Cross-Functional Participation
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Operations Strategy: Decision Categories
Structural decisions Vertical integration Process technology Capacity Facilities
Infrastructural decisions Sourcing Information technology Supply chain
coordination Business processes and
policies Capabilities development
Lean operation Quality Flexibility
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Integrated Strategy-Making Framework
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03. Determining 03. Determining
Order Winners / Order Order Winners / Order
QualifiersQualifiers
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Distinguish Order Qualifiers from Order Winners
Order Qualifiers:Competitive priorities that a product must
meet to even be considered for purchaseGenerally, represented by features shared by
all competitors in a given market niche
Order Winners:Competitive priorities that distinguish the
firm’s offerings from competitors & ultimately win the customer’s order
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NeutralNeutral
+ve
–ve
PerformancePerformance
Competitive benefit Order-winning factorsOrder-winning factors
NeutralNeutral
+ve
–ve
PerformancePerformance
Competitive Competitive benefitbenefit
Qualifying Qualifying levellevel
Order-Qualifying factors
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Delights become Order winners and Order winners become Qualifiers
Adding Delights
Order Winners gain more business the better you are
Low HighNegative
Positive
Neutral
Achieved performance
Com
petit
ive
bene
fit
Time
Delights
Order winners
Qualifiers
Qualifiers are the ‘givens’ of doing business
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What performance objectives are Qualifiers, Order Winners and Delights ?
Delights
Order winners
Qualifiers
Today Tomorrow
… and in the future ?
???
What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ?
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04. Positioning The 04. Positioning The
Firm:Firm:
Competitive Competitive
prioritiespriorities
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Competitive Priorities
CostCostQualityQualityFlexibilityFlexibilitySpeedSpeed
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Which enables you to Which enables you to do things cheaply do things cheaply (cost advantage)?(cost advantage)? Which enables you to Which enables you to
change what you do change what you do
(flexibility advantage)?(flexibility advantage)?
Which enables you to Which enables you to do things quickly do things quickly
(speed advantage)?(speed advantage)?
Which enables you to do Which enables you to do things on time things on time
(dependability advantage)?(dependability advantage)?Which enables you to Which enables you to
do things rightdo things right(quality advantage)?(quality advantage)?
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Competing on Cost
Eliminate all wasteEliminate all waste Invest inInvest in
Updated facilities & equipmentUpdated facilities & equipment Streamlining operationsStreamlining operations Training & developmentTraining & development
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Competing on Quality
Please the customerPlease the customer Understand customer Understand customer
attitudes toward and attitudes toward and expectations of quality expectations of quality
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Competing on Flexibility
Produce wide variety of Produce wide variety of productsproducts
Introduce new productsIntroduce new products Modify existing products Modify existing products
quicklyquickly Respond to customer Respond to customer
needsneeds
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Competing on Speed
Fast movesFast moves Fast adaptationsFast adaptations Tight linkagesTight linkages
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Product / Service Product / Service
Design StrategiesDesign Strategies
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Operations Strategy: Products and Services
Make-to-orderMake-to-orderproducts and services are made to customer products and services are made to customer
specifications after an order has been receivedspecifications after an order has been received
Make-to-stockMake-to-stockproducts and services are made in anticipation of products and services are made in anticipation of
demanddemand
Assemble-to-orderAssemble-to-orderproducts and services add options according to customer products and services add options according to customer
specificationsspecifications
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Strategy and DecisionsStrategy and Decisions
Operations strategy
Market analysis
Competitive priorities
Corporate strategy
Services Manufacturing• Standardized services• Assemble-to-order• Customized services
• Make-to-stock• Assemble-to-order• Make-to-order
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Market Orientation and Customer Experienced Lead Time
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Process StrategyProcess Strategy
MatrixMatrix
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Product-Process Matrix
Source: Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge: Competing Through Manufacturing (New York: John Wiley & Sons, 1984), p. 209
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Mor
e Sta
ndar
dize
d –
Hig
her V
olum
e
Mor
e Sta
ndar
dize
d –
Hig
her V
olum
e
ProjectConstruction of the aircraft carrier USS Nimitz was a huge project that took almost 10 years to complete.
Batch ProductionAt Martin Guitars bindings on the guitar frame are installed by hand and are wrapped with a cloth webbing until glue is dried.
Mass Production Here in a clean room a worker performs quality checks on a computer assembly line.
Continuous ProductionA paper manufacturer produces a continuous sheet paper from wood pulp slurry, which is mixed, pressed, dried, and wound onto reels.
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Service-Process Matrix
Source: Adapted from Roger Schmenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27(3):29
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Professional ServiceA doctor provides personal service to each patient based on extensive training in medicine.
Service ShopAlthough a lecture may be prepared in advance, its delivery is affected by students in each class.
Mass ServiceA retail store provides a standard array of products from which customers may choose.
Service FactoryElectricity is a commodity available continuously to customers.
Less
Cus
tom
ized
-Les
s La
bor I
nten
sive
Less
Cus
tom
ized
-Les
s La
bor I
nten
sive
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X
Cost efficiency
Var
iety
A
C
D
B
The ‘efficient frontier’ A
X C
D
Cost efficiencyV
arie
ty
B
The new ‘efficient frontier’
B1
The ‘efficient frontier’ view
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Deploying StrategyDeploying Strategy
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Policy Deployment
Hoshin KanriHoshin Kanri Focuses employees on common Focuses employees on common
goals & prioritiesgoals & priorities Translates strategy into measurable Translates strategy into measurable
objectivesobjectives Aligns day-to-day decisions with Aligns day-to-day decisions with
strategic planstrategic plan
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Balanced Scorecard
FinanceFinance — — How should we look to How should we look to our shareholders?our shareholders?
CustomerCustomer — — How should we look How should we look to our customers?to our customers?
ProcessesProcesses — — At which business At which business processes must we excel?processes must we excel?
Learning and Growing Learning and Growing — — How How will we sustain our ability to will we sustain our ability to change and improve?change and improve?
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Key Performance
Indicators
Source: Source: Robert Kaplan and DavidRobert Kaplan and DavidNorton, Norton, Strategy Maps:Strategy Maps:Converting IntangibleConverting IntangibleAssets into TangibleAssets into TangibleOutcomes Outcomes (Boston:(Boston:Harvard Business SchoolHarvard Business SchoolPress, 2004), Figure 3-2,Press, 2004), Figure 3-2,p. 67p. 67
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Strategic Decisions in Strategic Decisions in
OMOM
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Operations Strategy:Capacity and Facility
Capacity strategic decisions includeCapacity strategic decisions include: : WhenWhen, , how muchhow much, and in , and in what what form to alter capacityform to alter capacity
Facility strategic decisions include: Facility strategic decisions include: whether demand should be met with a few large facilities or whether demand should be met with a few large facilities or
with several smaller oneswith several smaller ones
whether facilities should focus on serving certain geographic whether facilities should focus on serving certain geographic regions, product lines, or customersregions, product lines, or customers
facility location can also be a strategic decisionfacility location can also be a strategic decision
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Operations Strategy: Human Resources
What is What is skill levelsskill levels and and degree of autonomydegree of autonomy required to required to operate production system?operate production system?
What are What are training requirementstraining requirements and selection criteria? and selection criteria?
What are policies on What are policies on performanceperformance evaluationsevaluations, , compensation, and incentives?compensation, and incentives?
Will workers be salaried, paid an hourly rate, or paid a piece Will workers be salaried, paid an hourly rate, or paid a piece rate?rate?
Will Will profit sharingprofit sharing be allowed, and if so, on what criteria? be allowed, and if so, on what criteria?
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Operations Strategy: Human Resources
Will workers perform individual tasks or work in Will workers perform individual tasks or work in teamsteams??
Will they have supervisors or work in Will they have supervisors or work in self-managedself-managed work work groups?groups?
How many How many levelslevels of management will be required? of management will be required?
Will Will extensiveextensive worker training be necessary? worker training be necessary?
Should workforce be Should workforce be cross-trainedcross-trained??
What efforts will be made in terms of What efforts will be made in terms of retentionretention??
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Operations Strategy: Quality
What is What is targettarget level of quality for our products and level of quality for our products and services?services?
How will it be How will it be measuredmeasured? ?
How will employees be How will employees be involvedinvolved with quality? with quality?
What will be the What will be the responsibilitiesresponsibilities of the quality of the quality department? department?
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Operations Strategy: Quality (cont.)
What types of What types of systemssystems will be set up to ensure quality? will be set up to ensure quality?
How will quality How will quality awarenessawareness be maintained? be maintained?
How will quality How will quality effortsefforts be evaluated? be evaluated?
How will How will customer perceptionscustomer perceptions of quality be of quality be determined? determined?
How will decisions in How will decisions in otherother functional areas affect functional areas affect quality?quality?
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Operations Strategy: Sourcing
Vertical integrationVertical integration
degree to which a firm produces parts that go into its degree to which a firm produces parts that go into its productsproducts
Strategic DecisionsStrategic Decisions
How much of work should be done outside the firm? How much of work should be done outside the firm?
On what basis should particular items be made in-house?On what basis should particular items be made in-house?
When should items be outsourced?When should items be outsourced?
How should suppliers be selected?How should suppliers be selected?
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Operations Strategy: Sourcing (cont.)
What type of relationship should be maintained What type of relationship should be maintained with suppliers?with suppliers?
What is expected from suppliers?What is expected from suppliers?
How many suppliers should be used?How many suppliers should be used?
How can quality and dependability of suppliers How can quality and dependability of suppliers be ensured?be ensured?
How can suppliers be encouraged to How can suppliers be encouraged to collaborate?collaborate?
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Operations Strategy: Operating Systems
How will operating systems execute strategic decisions?How will operating systems execute strategic decisions?
How to align information technology and operations strategic How to align information technology and operations strategic goals?goals?
How information technology supports both customer and worker How information technology supports both customer and worker demands for rapid access, storage, and retrieval of information?demands for rapid access, storage, and retrieval of information?
How information technology support decisions making process How information technology support decisions making process related to inventory levels, scheduling priorities, and reward related to inventory levels, scheduling priorities, and reward systems?systems?
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Changing CorporationSource:: John Byrne, “Management by Web,” John Byrne, “Management by Web,” Business Week Business Week (August 28, 2000), p. 87 by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.(August 28, 2000), p. 87 by special permission, copyright 2000 by The McGraw-Hill Companies, Inc.
Characteristic 20th-Century
Corporation
21st-Century
Corporation
OrganizationOrganization
FocusFocus
StyleStyle
Source of strengthSource of strength
StructureStructure
ResourcesResources
LeadershipLeadership
WorkersWorkers
Job expectationsJob expectations
PyramidPyramid
InternalInternal
StructuresStructures
StabilityStability
Self-sufficiencySelf-sufficiency
Physical assetsPhysical assets
DogmaticDogmatic
EmployeesEmployees
SecuritySecurity
WebWeb
ExternalExternal
FlexibleFlexible
ChangeChange
InterdependenciesInterdependencies
InformationInformation
InspirationalInspirational
Free agentsFree agents
Personal growthPersonal growth
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Changing Corporation
Characteristic 20th-Century
Corporation
21st-Century
Corporation
OperationsOperations
ProductsProducts
ReachReach
FinancialsFinancials
InventoriesInventories
StrategyStrategy
MotivationMotivation
ImprovementsImprovements
QualityQuality
Vertical integrationVertical integration
Mass productionMass production
DomesticDomestic
QuarterlyQuarterly
MonthsMonths
Top-downTop-down
To competeTo compete
IncrementalIncremental
Affordable bestAffordable best
Virtual integrationVirtual integration
Mass customizationMass customization
GlobalGlobal
Real-timeReal-time
HoursHours
Bottom-upBottom-up
To buildTo build
RevolutionaryRevolutionary
No compromiseNo compromise