Operations strategy is a key element in corporate strategy

by V S RAMA RAO on SEPTEMBER 20, 2007

Strategy formulation is a process by which a firm determines how it will compete in its industry. It involves goal determination and the development of policies for achieving those goals. The strategy itself must be related to a broad set of external factors, such as industry economic forces and societal values, and to internal factors, such as company strengths and weakness and the personal values of key executives. We can think of competitive strategy as a wheel: the firms goals and the definition of how the firm will compete are in the center, and the spokes of the wheel radiate out through carefully defined key operating policies to the functional areas of the business. Some of these functional areas are as follows: * Marketing * Sales * Target markets * Product line * Finance and control * Engineering, research and development * Labor * Purchasing * Purchasing * Production * Distribution

Five of the 10 areas listed are extremely important in the performance of the broad operation function. The last three functions (purchasing, production, and distribution) must be carefully related in any modern concept of the operations function. Operations activity though known as only production represents an arbitrary concept. Purchasing provides the material inputs, and the possibility of vertically integrating to include the manufacture of supply items shows how imprecise the line is between our system and their system. The physical distribution system actually involves additional processing steps in the product flow. In other words, the components of the total material flow must be related in the development of key policies that are in line the competitive strategy. All the activities in the line of material flow from suppliers through fabrication and assembly and culminating in product distribution must be integrated for a sensible operations strategy formulation. If parts of this flow are left out, there is the risk of an uncoordinated strategy. In addition, the crucial inputs of labor, job design, and technology must be included for an integrated strategy. We conceive of six major components to operations strategy. * Strategic implication of operating decisions * Matching the productive system design to market needs * Capacity and location

* Technological choices * The work force and job design * Suppliers and vertical integration. Not all productive systems exhibit all the problems. For example, high personal contact service systems are not likely to have really important inventory or maintenance problems. On the other hand, the operation problem of a system producing so called cost less products are likely to be in material supply, packaging, timely performance, and the physical distribution of the product. The plan nevertheless covers all the issues, even though every real system may not involve applications for them all. * Classification and importance of operation management. * Operation planning and control. * Design of operational systems * Operation strategy and the firm * Synthesis and conclusion Engineering, research and development, and labor provide additional key inputs to the operations function. From R&D comes the product design. Will the product be designed for low cost production? More important will the product be designed to cost; that is, to a target cost? If it is not, a cost leadership strategy begins with a strike against it. Key process technology comes from R&D and the perception that the R&D function has an important impact on whether or not it is

capable of the process engineering necessary to incorporate the appropriate use of mechanization and automation. This aids in the implementation of a cost leadership strategy. Finally, labor cannot be though of as being truly separate from production since it also provides crucial input. Job design has a tremendous impact on the cost and quality of products and on whether or not flexibility is feasible in the system.
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Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" Business strategy refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter, a firm must formulate a business strategy that incorporates either cost leadership, differentiation, or focus to achieve a sustainable competitive advantage and long-term success. Alternatively, according to W. Chan Kim and Rene Mauborgne, an organization can achieve high growth and profits by creating a Blue Ocean Strategythat breaks the previous value-cost trade off by simultaneously pursuing both differentiation and low cost.