Cagayan State University

BME 11 –
Operations
Management in
Tourism and
Hospitality

Belinda B. Melad
Mitzsigrid S. Quintos

2020
Topic 2: Operational Strategies

Learning Objectives
At the end of this topic, you should be able to:
 relate the decision areas of operations management in a product
 differentiate the operations performance objectives
 apply operations strategy to the hospitality industry setting
 justify the reasons for global operations

Hunting for Information

Let’s get started!

What is strategy?
Strategy as defined by Johnson et al., 2005, is the direction and scope of an
organization over the long term: ideally, which matches its resources to its
changing environment and, in particular, its markets, customers, or clients so
as to meet stakeholder expectations.
Strategic decisions happen as the outcome of the evaluation of the internal and
external environment. The internal evaluation may reveal an organization’s
strengths and weaknesses while external evaluation acknowledges the
opportunity and threats from competitors. Many view strategy as a

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complicated matter due to the high level of uncertainty in future operations.
Simultaneously, operations managers put in place strategies to develop and
maintain operational capabilities. In that sense, a strategy is the “how” of the
organization’s goal. Part of answering the “how” of business operations is to
do operational decisions.

In making effective decisions for the organization, operations managers need

to consider 10 decision areas of operations management, collectively known
as operations decisions.
1. Goods and service design
- The design of the goods and service is affected much by the
transformation process. The cost, quality, and manpower decisions
are usually determined by the design decision. Design often
determines the minimum limit of cost and the maximum limit of
quality.
2. Quality
- The customer’s quality expectation must be identified and
organization’s standard operating processes and procedures should
be well established to identify and achieve that quality
3. Process and capacity design
- Process options should be available for both products and services.
Process decisions let the management specify technology, quality,
manpower, and maintenance.
4. Location selection
- Facility location decisions may determine organization’s ultimate
success. Hasty decisions at this stage may hurt the organization
in the long run.
5. Layout design
- Layout will greatly influence material flows, capacity needs,
human resource levels, technology decisions, and inventory
requirements.
6. Human resource and job design
- People are an important and expensive part of the total system
design. The skills, capabilities, and talent required, quality of
work-life, and their cost should be identified.
7. Supply-chain management
- These determine what is to be made and what is to be purchased.
The quality, delivery and innovation should be considered against
the price.
8. Inventory
- To optimize inventory decisions, customer satisfaction, suppliers,
production schedules and human resource planning should be
considered.
9. Scheduling

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 - The efficient and feasible production schedule should be
determined and controlled while meeting the demands on
manpower and facilities.
10. Maintenance
- Decisions made must be based on desired levels of reliability and
stability that should be maintained using established systems

Implementation of decisions is affected by variety of issues including

product’s proportion of goods and services. But strategy selected and
implemented for both goods and services is still guided by the 10 operations
management decisions.

There are five Operations Performance Objectives that allow the organization
to measure its operations performance. The operations performance objectives
are:
1. Quality
- This covers both the quality of the design of product or service and
the quality of the process that delivers the product or service.
There are several ways of looking into the meaning of quality. For
a customer’s perspective, it is reliability, performance and
aesthetic. From an organization’s point of view, it is how closely
the product and service meets the specification required by the
design, referred to as “quality of conformance”. In terms of
measurement, it can be estimated by the cost against the output.
2. Speed
- This is the time delay between a customer’s request for a product
or service and then receiving that product or service. The activities
bring about by a customer’s request for a product or service will
depend on whether a make-to-stock (customer purchase a product
or a service is different from the time of make and delivery) or
customer-to-order (customer demand for a product or a service is
at the same time of purchase, make and delivery) delivery system
is in place.
3. Dependability
- This refers to the consistent meeting of agreed delivery time for a
product or service to a customer. Hence, an increased in delivery
speed may still lead to customer discontentment if it is not
produced in a consistent manner. Dependability can be measured
in terms of the percentage of customers that receive a product or
service within the delivery time promised. It can also lead to better
customer service when customers can trust that product or service
will be delivered on or before the expected time.
4. Flexibility
- This is the organization’s ability to offer variety of products or

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 service to the customer and to be able to change these products or
service quickly according to the customer’s preference. It is
necessary so an organization can adapt to the changing customer
product range needs and varying demand. It is also an
organization’s way to cope with capacity shortfalls due to
equipment breakdown or component storage. This can be measure
in terms of the amount of the change or range and the speed of
change or response. These dimensions are connected in the sense
that the more something changes (range) the longer it will take
(response).
5. Cost
- It is the finance required to obtain the inputs (transforming and
transformed resources) and manage the transformation process
that produces the finished goods and service. This is an important
strategy of providing a product or service to a market niche to
maximize profit and prevent competitors from entering the market.
The level and combination of costs will be dependent on the
volume and variety of finished products or services and the
variation in demand. Increased volume means that cost per unit
will decrease since inputs can be dedicated to the production or
delivery of a particular service.

Reasons for Globalizing Operations

Why does an organization opt to operate globally? Globalization, or the

exchange and spread of products, technology, information, and jobs across
national borders and cultures, seem to be one of the growing developments for
many organizations. The figure below summarizes the reasons why some
organizations opt for globalized operations.

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 Fig. 1.3 Reasons for globalizing operations (Heizer, 2004)
1. Reduced cost
- International organizations take advantage of the tangible
opportunity to reduce costs especially in terms of labor, taxes and
tariffs. They tend to operate in countries with less stringent
government regulations but with wide variety of operational
practices to reduce cost. Take Apple, Inc., as an example, an
American multinational company that designs, develops, and sells
electronics headquartered in California, USA but does most of its
production overseas rather than at home. According to the
company, the shortage of skilled workers in the United States
means that it could take up to nine months for the company to find
experienced employees who could create their products but would
only take fifteen days overseas. Reduced wage costs can now be
used for improving products and facilities.
2. Improve supply chain
- There is an improved supply chain if companies are located in an
area where unique resources are available. These resources may be
expertise, labor, or raw materials.
3. Provide better goods and services
- Understanding cultural differences may help organization know the
way businesses are handled in different countries. Improved
understanding as a result of local presence allows companies to
customize products and services to meet the unique cultural needs
in the foreign markets.
4. Attract new markets
- International company necessarily needs to learn about the
opportunity for new products and market since they it is a necessity
for them to interact with suppliers, customers, and other
competitive businesses. Knowing about the different existing
markets will not only help maximize sales but also allows
organization to diversify customer base and smoothen their
business cycle. Resorting to the foreign market also gives the
company the opportunity to expand the life cycle of an existing
product. With some products fully saturating the market and is in
the stage of maturity in the home country it may still be in the
introductory stage in a foreign market.
5. Learn to improve operations

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 - In the continuous operation, companies learn from each other.
Collaboration with others, especially from other countries, may aid
in the free flow of ideas. Best practices and experts from foreign
organization may help in the improvement of production and other
aspects in the operation.
6. Attract and retain global talents
- Global organizations may attract and retain better manpower by
offering better employment opportunities. International companies
need people in all functional areas and expertise of worldwide
talents. Global organizations may recruit and retain skilled
employees since they provide greater growth opportunities and
help in unemployment during economic downturn.
As a means of gaining competitive advantage in our shrinking world,
companies must maximize all the possible opportunities that international
operations offer, from tangibles to intangibles.

Operational Strategy in the Service-oriented Industry

Service is a primary or complementary activity that produces intangible

products. By not having a physical product service-oriented companies are
faced with unique challenges. With the influence of globalization, services are
increasingly managed and/or traded internationally so service firms need to
make plans for ways in accomplishing such. A service organization may use
basic operational strategies to link long- and short-term company decision and
effective management team. The following are the core operational strategies:
1. Corporate Strategy
Corporate strategies involve looking at the company as a system of
interconnected parts. Just as the muscles of the heart depend on brain
functions in a human body, each department in a company depends on the
others to stay healthy and achieve desired outcomes. The additional core
strategies that a company uses should support the corporate strategy and use
cross-functional interactions.
Toyota Motor Corporation, an iconic name in the automotive world did not
focus sales on one particular customer segment; instead, it embraced cost
leadership and paired it with high quality. To deliver both core objectives, this
Japanese multinational automotive manufacturer focused on operations
excellence by introducing manufacturing and lean concepts that were widely
embraced later by other
manufacturers in the
automotive space and beyond.
This has enabled the company
to offer high-quality products
(though in clearly defined

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configurations) at very competitive prices quickly capturing a significant share
of the automotive market. With this, they are able to capture a much larger
market compensating for lower margins.

2. Customer-driven Strategies
Operational strategies should include customer-driven approaches to meet the
needs and desires of a target market. To do so, a company must develop
strategies that evaluate and adapt to changing environments, continuously
enhance core competencies
and develop new strengths
on an ongoing basis. When
evaluating environments, a
company should monitor
market trends to take
advantage of new
opportunities and avoid
possible threats. Take for
example Starbucks, a
coffeehouse company, one of
the famous coffeehouse
chains in the world. Howard
Schultz, the company’s
former president and CEO,
describes the “Starbucks
Experience” as “our purpose
and reason for being.” But in
2007, he felt that the experience was somehow fading when the company grew
larger. He noticed that he didn’t smell the coffee in stores anymore, and
customers were complaining about “cookie-cutter” layouts. He made a
strategic move to close all 7,100 stores in February 2008 for a three-hour
training session. The company took a step back and slowed expansion,
improved its coffee making, and reintroduced the sights, smells, and design
elements that had once defined the brand. Howland Blackiston, principal at
one of the premiere retail consulting & design firms in the U.S that led
Starbucks’ design projects, said “Starbucks is a stellar example of, ‘What can
we do next to dazzle the customer?” Furthermore, he said “Starbucks
understands that a great brand experience is all about understanding customer
needs, attitudes, and behaviors, and then continually finding innovative ways
to meet and surpass those needs. This is not a brand that rests on its laurels.”

3. Developing Core Competencies

Core competencies are the
strengths and resources
within a company that

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provides some competitive advantage in the marketplace. While core
competencies can vary by industry and business, they can include having well-
trained staff, optimal business locations and marketing and financial expertise.
By identifying core competencies, a company can develop processes such as
customer satisfaction, product development and building professional
relationships with stakeholders. Let’s look at McDonald’s, American fast-food
chain which is one of the world’s largest, known for its hamburgers.
McDonald’s skill sets are in their system/process of preparing and delivering
food in a very fast and consistent manner. Much of their success has been due
to its ability in this area. In the fast-food sector, consumers not only expect the
food to be “fast” but also to be delivered with consistent quality and with good
value. McDonald’s expertise in the speed of the process, along with their
efficiency of costs, along with their customer service skills – all add up to a
competitive advantage in the marketplace.

4. Development of Competitive Priorities

The development of competitive priorities comes from the creation of a
corporate strategy, market analysis, defining core processes and conducting a
needs analysis. To create competitive priorities, an organization evaluates
operational costs, the quality of a product or service, the time it takes to
develop and deliver a good or service and the flexibility of a good or service
with regard to variety, volume and customization. Competitive priorities
should include being able to provide a quality product or service at a fair cost
that consistently meets the needs of a customer.

Singapore Airlines, the flag carrier of Singapore, prides itself as the airline
synonymous with service excellence, particularly dominating the business-

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travel sector. It attracts flyers through its luxurious amenities and services on
board such as the carefully crafted in-flight menus and even its symbolic
Singapore Girl (SIA stewardesses) which has become a brand in itself. The
company have boldly and successfully adopted and implemented dual strategy
to support its customer service business with its low-cost operating model.
Full-cost airlines often claim superior and differentiated customer service. SIA
stays true to its business compass of delivering service excellence by investing
heavily in its training program. They provide intensive training which is twice
as long as the industry average and includes etiquette classes and cultural
appreciation. While it appears that SIA is just pouring in money to achieve
service excellence, this mode of operation helps the airline save cost in the
long-run by retaining customer loyalty and reducing customer turnover, thus
reducing customer acquisition cost.

5. Product and Service Development

Strategies behind the development of products and services should consider
design, innovation and added values. When developing new customer
products, a company can decide to be a leader in introducing a new product or
service, wait for the introduction of innovations on the market to improve
upon them or wait to see if a company’s innovation is successful before
moving forward. When developing a service, companies should consider
packaging it with immediately observable and psychological benefits and
support services.

In 1957, Marriott made a historic shift into the hotel business. Under the
management of Bill Marriot, Twin Bridges Motor Hotel, opened in Arlington,
Virginia. The motel comprised 365 rooms, each with two double beds and a
black and white television set. Over the next 25 years, Marriott became a
diverse global enterprise that has transformed the hospitality industry. One
company, many brands is the innovative model that Marriott began building in

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the late 1980s. From pioneering the extended-stay business to launching
distinctive brands geared toward the business traveler to increasing its
presence overseas, Marriott International broke new ground in its quest to
become one of the best hospitality companies in the world. Today, the
company has more than 3,000 hotels worldwide.

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Summary of the Unit
1. Operations Management is defined as “what the company does before
product and services reach its target market”.
2. The role of operations management is to control the transformation of
an organization’s inputs into finished goods and services.
3. Goods and services are different in terms of tangibility, ownership,
resale, demonstrability, storability, simultaneity, location,
transportability, production, contact, internationalization, and quality.
4. Goods and services have distinct characteristics in terms of tasks,
volume, environment, and position in the supply chain.
5. There are 4 P’s of operations management namely Policy,
Performance, Practices, and Processes.
6. There are four contemporary theories in operations management that
operation managers based their decisions on: contingency theory,
systems theory, chaos theory, and probability and operation theory.
7. Operation strategy is the “how” of the operations.
8. There are 10 operation decisions that managers need to consider in
decision making: goods and service design, quality, process and
capacity design, location selection, layout design, human resource and
job design, supply-chain management, inventory, scheduling, and
maintenance.
9. There are five operations performance objectives that allow the
organization to measure the performance of its operation: quality,
speed, dependability, flexibility, and cost.
10. Reducing costs, improving supply chain, providing better goods and
services, attracting new markets, learning to improve operations, and
attracting and retaining global talents are the tangible and intangible
reasons why organizations choose to be globalized.
11. Despite the challenges faced by service industry sectors, there are core
operational strategies they can be used in the organization: corporate
strategy, customer-driver strategy, developing core competencies
strategy, development of competitive priorities strategy, and product
and service development strategy

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 Closure
Let’s try to internalize!
Imagine yourself looking in the mirror and seeing your reflection in your
dream job. Looking so slick and sharp in your crisp uniform and neatly tucked
hair, your inner you is asking the following. Answer yourself back in not more
than 150 words.

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References

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Brown, Steve. (2001). Operations Management: Policy, Practice and

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Celebrating Twin Bridges' Anniversary. (n.d.). Retrieved August 05, 2020,

from https://www.blogs.marriott.com/marriott-on-the-
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https://global.toyota/en/company/trajectory-of-toyota/history/

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Good Corporate Strategy - Everything You Need to Know. (2019, November

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https://traveltips.usatoday.com/history-marriott-hotel-21444.html

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