Masters Degree in Business Administration & Diploma in Management Studies. Vasiliki Kazantzi, PhD

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1 Technological Education Institute of Larissa Department of Project Management School of Business Administration Staffordshire University, Business School Masters Degree in Business Administration & Diploma in Management Studies Module: Operations Management Lecture 3: Operations Strategy Vasiliki Kazantzi, PhD

2 Outline Mission & Strategy - What is Strategy The Content and Process of Operations Strategy Operations Strategy vs Operations Management The Four Perspectives of Operations Strategy: o o o o Top down Bottom up Market requirements Operations resources Reconciliation of Operations Strategy Strategy Development and Implementation The Impact of Operations Strategy to Decision Areas 2

3 Operations Management Model INPUT TRANSFORMED RESOURCES MATERIALS INFORMATION CUSTOMERS INPUT FACILITIES STAFF INPUT TRANSFORMING RESOURCES ENVIRONMENT DESIGN OPERATIONS STRATEGY Operations management PLANNING AND CONTROL ENVIRONMENT OPERATIONS STRATEGIC OBJECTIVES Operations strategy IMPROVEMENT OUTPUT THE OPERATIONS COMPETITIVE ROLE AND POSITION PRODUCTS AND SERVICES 3

4 Mission & Strategy Mission - where you are going Strategy - how you are going to get there; an action plan J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

5 Mission Mission - where are you going? Organization s purpose for being Provides boundaries & focus Answers What do we provide society? 1995 Corel Corp. J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

6 Sample Mission - Merck The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs - to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

7 Strategy Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies 1995 Corel Corp. J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

8 Mission, Strategy, tactics Mission Strategy Tactics Mission The reason for existence for an organization Strategy A plan for achieving organizational goals Tactics The actions taken to accomplish strategies J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

9 What is Strategy In general, a strategy can be defined as the total pattern of decisions and actions that position the organization in its environment and are intended to achieve its long-term goals Strategy has content the what questions of strategy and process the how questions of strategy 9

10 The nature and content of operations strategy The content of operations strategy The process of operations strategy A statement of the principles and policies which guide the operation s activities The way in which the guiding principles and policies are developed Prioritised performance objectives for each product/service group Strategies for each decision area Design Planning and control Improvement 10

11 Demand Demand Operations strategy is different from operations management Time scale Operations management Short-term for example, capacity decisions Operations strategy Long-term for example, capacity decisions Level of analysis 1-12 months Micro level of the process 1-10 years Macro level of the total operation Level of aggregation Level of abstraction Detailed For example Can we give tax services to the small business market in Antwerp? Concrete For example How do we improve our purchasing procedures? Aggregated For example What is our overall business advice capability compared with other capabilities? Philosophical For example Should we develop strategic alliances with suppliers? 11

12 How is operations strategy different from operations management Operations Management Product/service design Operations Strategy Product/service innovation Process design Layout Technology Job design Capacity management Planning & Control JIT MRP Inventory control Quality control Process technology strategy Human resource strategy Capacity location, planning and dynamics Organization and systems development Supply network strategy Performance and improvement strategy 12

13 Example The Case of Ryanair (I/IV) Today s status: Europe s largest lowcost airline (LCA) Fleet of over 50 Boeing 737 aircrafts Service to 13 countries in Europe 12 million passengers every year Source: 13

14 Example The Case of Ryanair (II/IV) Patterned after Southwest Airlines Operations characteristics: low fare no-frills service only one type of aircraft use of small ( secondary ) airports sale of tickets directly to customers 14

15 Example The Case of Ryanair (III/IV) As a consequence, there is: minimum turnaround times at airports (no meals to be loaded onto the aircraft, improved productivity, use of secondary airports) substantial savings due to the identical types of aircrafts (larger orders to supplier, standardization of parts, maintenance and service) Low landing and service fees (because of the use of small airports) 15

16 Example The Case of Ryanair (IV/IV) Some remarks: Revised operations strategy towards low-cost basic services (one type of aircraft, using secondary airports, low-cost internet booking, etc) Top management decided to implement the strategy Strategy is aligned with the firm s market position Day-to-day experiences of operations managers within operations refine and modify strategic decisions 16

17 The four perspectives on operations strategy Top - down Perspective Operations resources Perspective What operations resources can do What the business wants operations to do Operations strategy What day-to-day experience suggests operations should do Bottom - up Perspective Market requirement Perspective What the market position requires operations to do 17

18 The strategy hierarchy Corporate strategy Key strategic decisions What business to be in? What to acquire? What to divest? How to allocate cash? Influences on decision making Economic environment Social environment Political environment Company values and ethics Business strategy What is the mission? What are the strategic objectives of the firm? How to compete? Customer/market dynamics Competitor activity Core technology dynamics Financial constraints Functional strategy How to contribute to the strategic objectives? How to manage the function s resources? Skills of function s staff Current technology Recent performance of the function 18

19 Operations Strategy Strategy Process Customer Needs Example More Product Corporate Strategy Increase Org. Size Operations Strategy Increase Production Capacity Decisions on Processes and Infrastructure Build New Factory

20 Top-down and bottom-up perspectives of strategy Corporate strategy Business strategy Operations strategy Emergent sense of what the strategy should be Operational experience 20

21 Mintzberg s concept of emergent strategy Intended Strategy Deliberative Strategy Realised Strategy Unrealized Strategy Emergent Strategy 21

22 The market requirements perspective Priority of performance objectives Customers and competitors influence Order-winning, qualifying and less-important factors The impact of the product/service life cycle 22

23 Performance Objectives Cost/Price Quality Speed 23

24 Relative importance of performance objectives The influence of the organization s customers The influence of the organization s competitors The relative importance of each performance objective to the operation The stage of the organization s products and services in its life cycle 24

25 Different competitive factors imply different performance objectives Competitive factors If the customers value these... Low price High quality Fast delivery Reliable delivery Innovative products and services Wide range of products and services The ability to change the timing or quantity of products and services Performance objectives Then, the operations will need to excel at these... Cost Quality Speed Dependability Flexibility (products/services) Flexibility (mix) Flexibility (volume and/or delivery) 25

26 Order-winning, qualifying and less important competitive factors Order-winning factors are those factors which directly and significantly contribute to winning business (key reasons for purchasing the product or service) Qualifying factors are important factors, but not the major competitive determinants of success (operation s performance must be above a particular level. Otherwise, product/service is not even considered by the customer) Less important factors do not influence customers in any significant way, but they may be important in other parts of the operation s activities 26

27 Order-winning, qualifying and less important competitive factors Order-winning factors Competitive benefit Qualifying factors Competitive benefit Less important factors Competitive benefit +ve +ve +ve Neutral Neutral Neutral -ve -ve Qualifying level -ve Performance Performance Performance 27

28 Example of different customer needs - Companion Website 28

29 Competitor activity can affect the relative importance of performance objectives Original Strategy Order winners Fast delivery Competitor s Strategy Order winners Fast delivery Range Qualifiers Performance objectives Range Price Speed Qualifiers Price Performance objectives Speed and flexibility Alternative Strategy 1 Alternative Strategy 2 Alternative Strategy 3 Order winners Fast delivery Range Order winners Faster delivery Order winners Price Qualifiers Price Qualifiers Range Price Qualifiers Fast delivery Range Performance objectives Speed and flexibility Performance objectives Speed Performance objectives Cost 29

30 Growth rate Stages in the Product Life Cycle Introduction Growth Maturity Decline J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

31 The impact of the product life cycle Stage Volume Customers Introduction Growth Maturity Decline Low Rapid growth High and level Declining Innovators Early adopters Bulk of market Laggards Competitors Few/none Increasing number Stable number Declining number Variety of product or service High customization Increasingly standardized Emerging dominant types Commodity standardization Likely order winners Performance or novelty Availability of quality products and services Low price, dependable supply Low price Likely order qualifiers Quality, product range Price, product range Product range, quality Dependable supply Operations performance objectives Flexibility Quality Speed Dependability Quality Cost Dependability Cost 31

32 Sales volume The effects of the product/service life cycle on the organization Volume Customers Competitors Variety of product/ Service design Likely order winners Introduction Growth Maturity Decline Product/service first introduced to market Slow growth in sales Innovators Few/none Possible high customization or frequent design changes Product/service characteristics, performance or novelty Product/service gains market acceptance Rapid growth in sales volumes Early adopters Increasing numbers Increasingly standardized Availability of quality products/services Market needs start to be fulfilled Sales slow down and level off Bulk of market Stable number Emerging dominant types Low price Dependable supply Market needs largely met Sales decline Laggards Declining numbers Possible move to commodity standardization Low price Likely qualifiers Quality Range Price Range Quality Range Dependable supply Dominant operations performance objectives Flexible Quality Speed Dependability Quality Cost Dependability Cost 32

33 Operations can kick-start two virtuous cycles Internal Understanding of the processes and Competitiveness External Strong marketing Competencies embedded in the operation Capabilities enhance innovation and improvement World Class Operations Investment High margin Developing the resources which let the operation s performance stay ahead of the competition Developing customers, competitors and stockholders perceptions and expectations 33

34 Market requirements and operations resources perspectives of operations strategy Strategic Reconciliation Operations Resources OPERATIONS STRATEGY Market Requirements Operations strategy reconciles the requirements of the market with the capabilities of operations resources 34

35 Operations strategy is.. the decisions which shape the longterm capabilities of the company s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources 35

36 The market perspective on operations strategy Customer Needs Performance Objectives Market Positioning Competitors Actions Required performance Understanding markets 36

37 The operations resource perspective on operations strategy Understanding of. What we HAVE AND What we can DO Tangible and Intangible Resources + Processes to maintain capabilities and satisfy markets Operation s Intangible Resources include: - its relationship with suppliers and the reputation it has with its customers; - its knowledge of and experience in handling its process technologies; - the way its staff can work together in new product and service development 37

38 The operations resource perspective on operations strategy Tangible and Intangible Resources Operations Capabilities Operations Strategy Decision Areas Operations Processes Understanding resources and processes Structural and Infrastructural decisions Strategic decisions 38

39 Strategic Decisions Structural decisions are those which define an operation s shape and form Infrastructural decisions are those which influence the systems and procedures that determine how the operation will work in practice 39

40 Operations strategy is the strategic reconciliation of market requirements with operations resources Tangible and Intangible Resources Customer Needs Operations Capabilities Operations Strategy Decision Areas Performance Objectives Market Positioning Operations Processes Competitors Actions Understanding resources and processes Strategic decisions Required performance Understanding markets 40

41 Strategic Reconciliation Operations Resources Market Requirements What you HAVE What you DO What you WANT What you NEED in terms of operations capabilities to maintain your capabilities and satisfy markets from your operations to help you compete to compete in the market Strategic Reconciliation 41

42 Performance objectives Market competitiveness The operations strategy matrix Resource usage Quality Specialized quality monitoring equipment can be developed at one location Speed Dependability Common planning and control allow urgent orders to be given priority Performance monitoring systems give early notice of missed deadlines Flexibility Cost Increases scale on one site allows simultaneous production of different products Focusing all manufacture at one site reduces cost Structural decisions Strategic decisions Infrastructural decisions 42

43 Where does the business get its competitive advantage? The technological specification of its product/service? PRODUCT/SERVICE TECHNOLOGY The way it positions itself in its market? MARKETING OPERATIONS The way it produces its goods and services? 43

44 The contribution of each area will change over time PRODUCT / SERVICE TECHNOLOGY MARKETING OPERATIONS PRODUCT / SERVICE TECHNOLOGY PRODUCT / SERVICE TECHNOLOGY MARKETING OPERATIONS MARKETING OPERATIONS 44

45 How operations strategies are put together Identify what is wanted in the market place Establish how well the operation performs versus its competitors Identify what the operation needs to do better Identify how the operation could do these things better Implement the strategy 45

46 The challenge of operations strategy formulation An operations strategy should be: Appropriate... Comprehensive... Coherent... Consistent over time... 46

47 The process of operations strategy The procedures used to formulate operations strategies Several different methodologies Two well-known procedures are: The Hill methodology The Platts-Gregory procedure 47

48 The process of operations strategy The Hill methodology Based on the idea of making connections between different levels of strategy making A five-step procedure based on top-down and market requirements perspectives Step 1: identify long-term corporate objectives Step 2: understand marketing strategy to achieve the objectives Step 3: translate marketing strategy into competitive factors Step 4: Process choice (structural decisions) Step 5: Infrastructure (infrastructural decisions) Operations Strategy 48

49 The process of operations strategy The Platts-Gregory methodology Based on identification of the gaps between market requirements regarding operations and operations performance with respect to market requirements A three-stage procedure Stage 1: determine the market position of the organization Stage 2: assess capabilities of operation Stage 3: develop new operations strategies 49

50 An implementation agenda is needed When to start? Where to start? How fast to proceed? How to co-ordinate the implementation program? 50

51 Preconditions - To Implement a Strategy One must understand: Strengths & weaknesses of competitors and new entrants into the market Current and prospective environmental, legal, and economic issues The notion of product life cycle Resources available with the firm and within the OM function Integration of OM strategy with company strategy and with other functions J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

52 Strategy Development and Implementation Identify critical success factors Build and staff the organization J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

53 SWOT Analysis Process Environmental Analysis Determine Corporate Mission Form a Strategy J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

54 SWOT Analysis to Strategy Formulation Mission Internal S trengths External O pportunities Internal W eaknesses Strategy Competitive Advantage External T hreats J. Heizer and B. Render, Operations Management, 6th edition, Prentice Hall,

55 Operations strategy decision areas and their impact New product/service development Vertical integration strategy Facilities strategy Technology strategy Workforce and organization strategy Capacity adjustment strategy Supplier development strategy Inventory strategy Planning and control systems Improvement process strategy Failure prevention and recovery Q S D F C 55

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