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An Introduction to

Operations Strategy
What is Strategy?

The pattern of major objectives, goals and


purposes and the fundamentals, plans,
policies and philosophies for achieving those
goals, that are declared in such a way as to
define what business the firm is engaged in, or
wishes to be engaged in, and the kind of
organization it is or would like to be.
British Sugar Hierarchy of Strategies
Operations management and strategy
requires analysis at three levels
Flow between operations Strategic
Analysis at the analysis
level of the supply
network
Flow between processes
Analysis at the
level of the
operation

Analysis at the
level of the
Flow between resources process Operational
analysis
Operations strategy is

the total pattern of decisions


that shape the long-term capabilities
of any type of operation ...
and their contribution to overall strategy
through the on-going reconciliation of market
requirements and operations resources
so as to achieve a sustainable fit between the two
whilst managing the risks of misalignment.
How is operations strategy different from
operations management?

Operations management Operations strategy

Short-term Long-term

Timescale
e.g. capacity
decisions
How is operations strategy different from
operations management?

Operations management Operations strategy

Micro Macro
Level of analysis
Concerned with the
macro operation
(level of the firm)
How is operations strategy different from
operations management?

Operations management Operations strategy

Detailed Aggregated
Level of
Can we give tax What is overall
aggregation
services to the small business advice
(Concerned with
business market in capability compared
resources at an
Antwerp? with other capabilities?
aggregated level)
How is operations strategy different from
operations management?

Operations management Operations strategy

Concrete Philosophical
Level of abstraction How do we improve Should we develop
(Concerned with our purchasing strategic alliances with
the conceptual) procedures? suppliers?
The sectoral scope of operations strategy

Products or services?

Manufacturing or non-manufacturing?

For profit or not-for-profit?

What is operations strategy about?


The four perspectives on operations strategy top-down,
bottom-up, market requirements and operations resources
Top-down
Operations
strategy should
interpret higher
level strategy

Operations Market requirements


resources
Operations strategy should
Operations strategy should satisfy the organisations
build operations capabilities markets

Operations strategy
should learn from
day-to-day
experiences

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

Business strategy
Top-down
Capacity Quality
Supply networks Speed
Operations Market
Process technology Dependability
resources requirements
Development and Flexibility
organisation Cost

Bottom-up
Emergent sense of
what the strategy
should be
Operational
experience
Top-down and bottom-up perspectives Top down
of strategy for the Metrology Company
Corporate strategy
Corporate objectives impact on
business objectives which, in
turn, influence Operations Business strategy
Strategy

Operations strategy

Emergent sense of what the


strategy should be
Day-to-day experience of providing
products and services to the market
reveals problems and potential
solutions which become formalised into
Operations Strategy
Operational experience
Bottom up
Top-down and bottom-up perspectives Top down
of strategy for the Metrology Company Group building corporate capability in
high technology products and
services
Corporate objectives impact on Metrology division competes on fast-to-
business objectives which, in turn, market innovations
influence Operations
Strategy

Operations must have fast and flexible


technology, supply relationships,
process and staff

Modular strategy provides flexibility


and innovation at relatively low
cost

Experiment with modular design of


Day-to-day experience of providing key products and components
products and services to the market
reveals problems and potential solutions
which become formalised into Operations
Strategy Customers confused by continual product
innovation and costs are increasing
Bottom up
Operations strategy reconciles the requirements of the
market with the capabilities of operations resources

Strategic
reconciliation

Operations OPERATIONS Market requirements


resources STRATEGY
Operations strategy is the strategic reconciliation of
market requirements with operations resources

Tangible and Customer


intangible needs
resources

Operations Operations Market


strategy Performance
capabilities objectives positioning
decision areas

Operations Competitors
processes actions

Understanding Strategic decisions Required performance Understanding


resources Capacity Quality markets
and processes Supply networks Speed
Process technology Dependability
Development and Flexibility
organisation Cost
The market requirements and operations
resource analysis of the lighting company
Resources Customers
Equipment Professional theatres
Staff (static, low margins)
Reputation Exhibitions (slow growth,
Relationships (internal low margins)
and external) Conferences etc. (fast
Operations strategy Performance
Experience decisions objectives growth, higher margins

Location Aesthetically innovative


Capabilities Virtual reality technology designs Market position
Application of leading Supplier development Presentation advice Traditionally differentiated
edge lighting and sound Equipment racking system High customisation of on high service level in
technology lighting solutions theatre and exhibition
Organisational structure markets, innovation and
Articulation of client Fast and dependable
Staff meetings supply service in conference
requirements market

Processes Competitors
Integration of equipment Big groups dominating
supply and client professional theatres
requirements In-house operations
Design process growing in exhibitions
market
Supplier liaison process
Conference market still
fragmented
The market perspective analysis of the
garment company
CUSTOMERS
Segmentation on:
Age youth
Purpose general

PERFORMANCE OBJECTIVES MARKET POSITION


Dependability Differentiation on:
Speed of delivery Innovative products
Time to market
Product mix flexibility Product range
Speed to market Coordinated launches

COMPETITORS
Traditionally weak in:
promotion
design innovation
The operations resource perspective
analysis of the lighting company
Resources
Tangible:
Equipment
Staff
Intangible:
Reputation
Relationships (internal
and external)
Experience

Operations strategy decisions


Capabilities Location
Application of leading-
edge lighting and sound Virtual reality technology
technology Supplier development
Articulation of client Equipment tracking systems
requirements Organisational structure
Staff meetings
Processes
Integration of equipment
supply and client
requirements
Design process
Supplier liaison process
Operations Market
resources requirements

What you What you What you What you


HAVE DO WANT NEED
to maintain from your
in terms of your operations to
operations capabilities to compete in
help you the market
capabilities and satisfy compete
markets

Strategic
reconciliation
Operations strategy is ..

the decisions which shape the long-term


capabilities of the companys operations and
their contribution to overall strategy through
the on-going reconciliation of market
requirements and operations resources
Decomposing the ratio profit/total assets to derive the
four strategic decision areas of operations strategy
Profit Output Profit
Total assets = Total assets Output

Profit Revenue Cost


Output =
Output Output

Average Average
revenue cost

Output Output Fixed assets Capacity


=
Total assets Capacity Total assets Fixed assets
Utilisation Working capital Productivity of
fixed assets

Operations strategy Capacity Supply Process Development


decision areas network technology and organisation
Operations strategy decision areas are partly
structural and partly infrastructural

Process Development and


Capacity Supply network
technology organisation

Structural issues

Infrastructural issues
The operations strategy matrix
Resource usage

Market competitiveness
Quality
Performance objectives

Speed

Dependability Operations strategy

Flexibility

Cost

Supply Process Development


Capacity and
network technology organisation

Decision areas
7-Eleven Japan
Largest retailer in 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
RESOURCE DEPLOYMENT
Distribution centre Information sharing
QUALITY of products grouping by and parenting system
and services temperature spreads service
ideas

Distribution centres
Speed and and inventory

Market Competitiveness
dependability combined management systems
to indicate AVAILABILITY give fast stock
replenishment

TIS allows trends to TIS gives


be forecast and comprehensive and
FLEXIBILITY of supply adjustments sophisticated analysis
response to sales and made of sales & supply
customer trends patterns daily

COST in terms of Area dominance Common distribution Field counsellors with


minimising reduces distribution centers give small sales data help
operating cost and advertising costs frequent deliveries stores to minimise
from fewer sources waste and increase
capital cost
sales
working capital

Location of stores Number and type of The Total Franchisee


Size of stores distribution centres Information System relationships
Order and stock (TIS) New
replenishment product/service
7-11 JAPAN development
Approach to
operations
Pivotal improvement
Critical
Secondary
SUPPLY PROCESS DEVELOPMENT AND
CAPACITY NETWORKS TECHNOLOGY ORGANISATION