Operations StrategyLecture 1 & 2

‘Operations’ is the activity of managing the resources and processes that produce and deliver goods and services.

All operations transform resource inputs into outputs and can be analysed at three levels.

Operations management contributes to the success of any orgnisation by reducing costs, by increasing revenue, by reducing capital employed and by providing basis of innovation.

What is Operations and its Importance

Operations management uses the input-transformation-output model to analyse business at three levels:

Supply Network Operation Process

Three Levels of Input-Transformation-Output

Strategic decisions are those that Direct an enterprise towards its overall

goal. Stress long-term objectives Deal with total picture rather than

individual activities

What is Strategy?

It is concerned with how the competitive environment is changing and what the operations has to do in order to meet current and future challenges

It is concerned with long term development of a company’s operations, resources and processes so that they can provide the basis for sustainable advantage.

Operations Strategy

Operations Strategy

Top Down

Market Requirements

Bottom up

Operations Resources

Four Perspectives on Operations Strategy

Operations strategy is one of the several functional strategies which are governed by decisions taken at the higher management level and which set the overall strategic direction.

Corporate Strategy Business Strategy Functional Strategy

I. The Top-down Perspective

Many strategic ideas emerge over time from actual experiences.

Day-to day experience of providing goods and services reveals problems and potential solutions which become formulised into operations strategy.

The high level strategic decision making may confirm the consensus and provide the resources to make it happen effectively.

Strategy gradually becomes clearer over time and is based on real-life experiences rather than theoretical positioning.

This known as concept of emergent strategy.

II. The Bottom-up Perspective

The operations strategy adopted by the company should reflect the requirements of the market (market position)

“How can operations help the organisation to compete in its market place?”

Market positioning influenced by: customers and competitors Performance Objectives Operations strategy

III. Market Requirements Perspective

Listing the resources provides first step in understanding the operation.

To understand how the operation works, we need to examine the interaction between its resources.

(“What we have” “What actions we are going to take”)

Combination of formal and informal processes (explicit and tacit knowledge), the resources of the company and the way in which these resources are deployed that describe the effectiveness of operations.

IV. Operations Resource Perspective

Are the four perspectives discussed above in conflict with each other?

Relation between market requirements and operations resources

Complex interaction between the two The objective of operations strategy is to

attempt to align the market requirement with operations resources over time without undue risk to the organisation

Objective of Operations Strategy

Content of Operations Strategy

Tangible an Intangible Resources

Operations Capabilities

Decision Areas

Operations Processes

Performance Objectives

Competitor Actions

Market Positioning

Customer Needs

The market requirements perspective on operations strategy can be summarised into:

Quality Speed Dependability Flexibility Cost

A company while defining its market position does so in terms of number of dimensions, eg, price, quality of service etc. These dimensions are known as competitive factors.

Performance Objectives

This is the set of decisions needed to manage the resources of the operation.

Capacity Strategy: how capacity and facilities in general should be configured

Supply network strategy: All operations need to consider their position in the network

Process technology strategy: Concerns the choice and development of systems, machines and processes which act directly or indirectly to convert resources into finished goods

Decision Areas

Development and Organisation: Concerns the set of broad and long term decisions governing how the operation is run on a continuing basis.

Contd...

What is Trade-off? In order to excel in some particular aspects of

performance, to some extent performance of other aspects are sacrificed.

In making our judgement, two characteristics

are recognised: All measures of performance will not have equal

importance. Recognise that aspects of performance will

trade- off against each other.

Concept of Trade-Offs

Are trade-offs real or imagined? Two schools of thought

Contd...

Some trade-offs are inevitable, however some have been overcome by the new technologies and methodologies of manufacturing.

All trade-offs were real in the very short term, they could all be overcome in the long term.

‘Trading –off’ and ‘Overcoming trade-offs’ are distinct strategies, either of which may be adopted at different times by organisations.

Contd...

Regarded as ‘Operations Segmentation’

Targeting and Operations Focus

The organisation of technologies, staff and processes can be based on several criteria:

Performance Objective Focus: The operation is set-up solely to satisfy the performance requirements of a particular market or market segment.

Geographic Focus: Operations can be segmented in the terms of geographic market they serve.

Types of Focus

Variety Focus: Segmenting a company’s operations in terms of the number of different activities it is engaged in.

Volume Focus: High volume operations, with the emphasis on standardisation and repetition.

Process Requirements Focus: A particular technology is the point of focus.

Contd...

Clarity of Performance Objectives Developing Appropriate Resources Enhanced Learning and Improvement

Benefits of Focused Operations