Operations Strategy – Student Study Guide

CHAPTER 2
THE CONTENT AND PROCESS OF OPERATIONS STRATEGY

Introduction

This chapter introduces two key ideas. Each is associated with what is called the
content and the process of operations strategy. Content means the actual decisions that
are taken over time and shape the operations strategy of a company. A simple model
called the operations strategy matrix is used to think about content issues. Operations
strategy process is the procedures that a company can adopt to formulate the strategy.
In other words, the way it goes about making content decisions. A three-level process
is proposed in the chapter, known as the “fit, sustainability, risk” model.

Key points

 The previous chapter established the idea of the two pressures on operations
strategy, or the perspectives on the area. However, it did not attempt to go into any
depth on how these two perspectives can be operationalized. But in order to think
about how the two perspectives can be reconciled, it is necessary to devise some
simple checklist or categorization method for each of them.

Performance objectives

 The main device used to understand market requirements are performance

objectives. These are the various aspects of performance in which market
requirements can be expressed. Remember that performance objectives are not the
same as the various tools and classifications that marketing professional use to
understand markets. They are a set of broad performance measures that have some
meaning to the operations function. Many of the concepts and frameworks used
within the marketing function, although very effective at enabling marketing
professionals to understand markets, have little meaning when brought within the
operations function. Therefore, performance objectives are a “translation” into
operations speak of a marketing professionals view of the market.

 The five performance objectives used throughout the book are:

 Quality
 Speed
 Dependability
 Flexibility
 Cost

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Operations Strategy – Student Study Guide

 Not everyone who writes on operations strategy uses this particular set. One of the
best-known author teams, Hayes and Wheelwright of Harvard University, for
example do not use speed, seeing it as part of flexibility. Other authorities include
“innovation” as a performance objective, while this chapter sees it as part of
flexibility. It really doesn’t matter. In fact all the performance objectives, quality,
speed, dependability, flexibility and cost, are really clusters of issues and
measures. For example, “dependability” could mean a proportion of services or
products delivered late, average lateness, proportion delivered early, etc.

 Think of each performance objective as a bundle of issues that will need

separating out. They are a checklist defined in sufficiently broad terms to be
applicable to any kind of business or operation.

 Of course some of these performance objectives will be more important for some
operations than others. The chapter introduces one well-known method of
distinguishing between performance objectives – classifying them as order
winners or qualifiers.

 Order winners are performance objectives that clearly gain more business for the
company as its performance in these areas improves. Qualifiers are the “givens” of
doing business. No matter how well an organization performs at it qualifiers it is
not going to gain great competitive benefit. However, if it fails to meet the
expectations of the market in a qualifying performance objective it will suffer
disadvantage in the marketplace.

Operations strategy decision areas

 From the operations resource perspective there is a similar translation process to

achieve. Again this involves moving from a broad understanding through to a
more specific categorization. In this case, it is from a broad understanding of what
resources, processes and (above all) capabilities an operation may possess within
its resources through to an identification of the key decisions that operations
managers will need to take in order to exploit, build on and develop these
capabilities.

 In the chapter, ratio analysis is used to justify the four broad categories of
operation strategy decision. Although this categorization and the ratio analysis is
perfectly “clean” in separating out various decision, it does show that four clusters
of decisions have a significant effect on the overall financial performance of any
organization.

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 Operations Strategy – Student Study Guide

 Four decision categories are used. They are:

 capacity
 supply networks
 process technology
 development and organization.

 Remember, a bit like the performance objectives, these decision areas are not
totally separate and mutually exclusive. For example, no company can make
choices of which process technology it will invest in without considering how it
will impact on its suppliers and customers elsewhere in the supply network.

 Again also, remember that this categorization is not used by everyone. Professors
Hayes and Wheelwright at Harvard University use a different categorization as
shown in the following table. Also shown are the equivalent categories used in
this book.

Hayes & Issues Slack & Lewis’ Categories

Wheelwright’s
Categories
Capacity Amount, timing, type
Capacity
Facilities Size, location, specialisation
Technology Equipment, automation, linkages Process technology
Vertical Integration Direction, extent, balance Supply networks
Workforce Skill level, wage policies, employment
security

Quality Defect prevention, monitoring,

intervention Development and Organisation

Production planning / Sourcing policies, centralisation,

materials control decisions rules

Structure, control/reward systems, role

Organisation of staff groups
Adapted from : Hayes R.H. and Wheelwright S.C., ‘Restoring our Competitive Edge:
Competing through Manufacturing’, Wiley, 1984.

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Operations Strategy – Student Study Guide

Manufacturing Strategy Decision Categories

The operations strategy matrix

 Perhaps the central point in this chapter is the development of this simple device
called the operations strategy matrix. It is simply the result of bringing
performance objectives together with operations strategy decision areas.

 The operations strategy matrix seeks to describe the reconciliation process by

understanding how what we want from our operations strategy is affected by what
we do in making operations strategy decisions.

 Remember that the operations strategy matrix does not provide answers in the
sense that it formulates a particularly appropriate operations strategy. It is
essentially a descriptive device that can be used to sketch out and understand
current (often implicit) operations strategy and spark a debate on how strategy
might be changed.

Fit, sustainability and risk

 Again, this chapter takes a slightly different view of the process of operations
strategy than that taken by many other authors. Usually the process of formulating
operations strategies is seen as one of aligning operations resources with market
requirements. This process of alignment is usually called fit.

 In this chapter two further issues are identified, these are sustainability and risk.

 Essentially this idea is that, while it is important to achieve fit as a first stage in
operations strategy formulation, this fit must be sustained over time. This means
both coping with the natural dynamics of markets and changes within operations
resource capabilities, and also attempting to move to a “higher level” of fit. This is
the process of sustainability.

 Yet as operations attempt to cope with the dynamics of business life and achieve
fit a higher level, they will inevitably move away from perfect fit at times. This
will expose them to some degree of risk. Sometimes they will have insufficient
resource capability to satisfy market expectations. At other times they may have
more capability than the market seems to need (a waste) or fail to be able to
exploit their capabilities into the marketplace (another kind of waste).

 Fit, sustainability and risk all have their own chapters at the end of the book.

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Operations Strategy – Student Study Guide

Hints on answering the Dresding Medical case exercise

 This is really an exercise in using the operations strategy matrix to think about
how a company’s strategy may have to change.

 Try drawing an operations strategy matrix that describes the company’s current
operations strategy in making its current range of products. In doing this, use a
simple prioritization system to indicate what you think are the more important
performance objectives. For example, use three stars for very important, two stars
for important, one star for kind of important and no stars for not important.

 Draw a new operations strategy matrix for the new range of products. Think
carefully about how the prioritization of the performance objectives will have to
change and how therefore the decisions and capabilities in each of the decision
areas will have to change.