Chapter 2

Operational Strategy

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 Book Structure
directing designing managing
Business Capacity
Strategy & Designing Planning &
Customer Supplier Management
Orientation Relationships
Supply
Chain & Supply
Operations Product &
Strategy Relationship
Service Design Management

Inventory
Innovation Planning &
Process Design
Management

Lean Operations
& Just in Time
(JIT)

Project
Management

improving

Future Directions
Performance Quality
in Operations
Management Management
Management
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 Learning Outcomes

• Define the term ‘operations strategy’

• Develop an operations strategy using the model
provided
• Explain the concept of trade-offs in operations
management
• Explain how the product life cycle might inform
operations strategy
• Discuss the utility of generic operations strategies
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 Chapter Purpose

The purpose of this chapter is to pick up where

corporate strategy ends, and investigate how the
operational systems and processes are conceived
that will support the company in reaching its strategic
goals.

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 What is the Role of Operations Strategy?

• Like higher-level corporate strategy, operations strategy is about

decision-making. Slack and Lewis (2002) define it as the pattern of
decisions that shape the long-term capabilities of an operation,
and their contribution to an overall strategy
• Unlike higher-level strategic decisions, operational decisions tend
to be short-term and tactical, concerned more with the initiation
and directing of action at the lower levels of the organization
• Like higher-level strategic decisions, the decision-making process
must be guided towards the achievement of a common purpose,
and the ‘signposts’ that inform the decision-making process may
be formalized in statements similar to those used in higher-level
strategy-making.

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 Definition of Operations Strategy

Major decisions about, and management of: core

competencies, capabilities and processes,
technologies, resources and key tactical activities
necessary in the function or chain of functions that
create and deliver product and service combinations
and the value demanded by the customer.
Lowson (2002)

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 Simply speaking…

• A body of soldiers sits, far from home, outgunned and

completely surrounded by the enemy. The General sits
at the entrance to his tent for some considerable time,
staring into the blue sky. Eventually he summons the
Colonel, and orders him to get the troops back to base.
• ‘Can you suggest how I might do that sir?’ asks the
Colonel.
• The General replies: ‘That’s your responsibility - I
decide strategy; you implement it.’
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 The contribution of operations

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 Contribution levels (1)
Stage 1: Internally Neutral
•At the basic level, operations does the minimum to support the business. It is
not aware of the overall business strategy, or of its performance in relation to
comparable operations in other organizations, or to overall industry standards
•There is little attempt to improve performance, and the view of the rest of the
organization is that operations is a source of problems rather than of solutions.
•From a resource-based viewpoint, a company with an operational engine
working at this level has no foundation upon which either to plan or to
implement strategy.
•The perception of senior management when questioned about operations
would be that it is a source of problems. It is, in effect, preventing the company
from achieving its goals.

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 Contribution Levels (2)
Stage 2: Externally Neutral
•To move on from Stage 1, even before consideration is given to the business
strategy, the operational engine must become self-aware, conscious of its own
performance limitations. It will do this by gaining an external perspective, and
so begin to compare itself with other, similar operational units that exist within
the market. This awareness, coupled with management determination to
change, will begin to move the operation to a higher level of performance
•The perception of senior management when questioned about operations
would be of a group making some effort and achieving some level of
improvement
•At this stage operations is, in a limited way, able to implement the strategy of
the company

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 Contribution Levels (3)
Stage 3: Internally Supportive
•Here operations has achieved a level of excellence in terms of the
activities that it carries out. It is efficient, and can be relied upon. The
key thing is alignment, because at this stage operations has become
aware of the business strategy and has aligned itself with it,
mobilizing its now considerable capability in pursuit of the overall
business goals
•Operations will begin to generate its own strategy to guide it in the
execution of the activities that are required of it in pursuit of the
overall company strategy. It may be that some competitive advantage
is achieved through excellent operation
•Senior management will be confident in the ability of operations to
support the direction that the business takes

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 Contribution Levels (4)
Stage 4: Externally Supportive
•This stage resonates most clearly with the resource-based
view. Here operations has moved further. The change in state
from that achieved in Stage 3 is a subtle but significant one
•The level of performance reached at Stage 3 has made it best
in class, achieving a competitive advantage, but now at Stage 4
operations is innovating, proactively driving forwards towards
future markets by creating products and services that are one
step ahead of the competition
•Here senior management is so confident of operations that it
can base future business strategy around it: operations is truly in
the driving seat

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 How is Operations Strategy
Generated?

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 Step 1: The Corporate View
This step links the operations strategy to the corporate strategy. The
output of the corporate strategy-making process will have been
packaged as mission, vision and objectives. These need to be translated
into similar operational statements:

•Operational vision – articulates the desired state of performance that

the operational unit wants to achieve
•Operational objectives – define the level of performance that needs to
be achieved to meet the vision
•Operational plans – are detailed sequences of activity that ,if
undertaken, will lead to the objectives being met
•Operational priorities – set the focus by defining what is important in the
short-term as the plans progress

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 Step 2: The Customer View
The general direction of the company is set at stage 1 and now the
detail must be clarified to define the exact product or service that is to
be created and delivered. The following list contains generally
accepted elements that customers may value in a product or service,
some combination of them will feature in all buying decisions:

•Price – or how much the product costs

•Functionality – or what the product does
•Performance – or how well the product does what it is meant to do
•Variety/customization – or how well the product fits the need
•Quality – or how closely the product meets its intended purpose

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 Step 3: The Performance View
Once all the product and service features are understood the key
consideration is to exceed the performance of competitor operations.
Some way of measuring operational performance is required.
There is a distinction between tangible and intangible elements that
must be considered:
•Tangible elements tend to be easier to quantify and measure – the
mechanisms within operations that create the product or deliver the
service are more directly connected to the performance of the output
•The intangibles are more abstract, and tend to be measured
indirectly – in the same way as the mechanisms that support delivery
of these elements also tend to act more indirectly

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 Tangible Performance Measures (1)
• Cost – the ability to perform well in relation to cost is
directly related to efficiency:
– Operational priority – providing tradable products/services while still
returning a profit
– Performance measure – numerical measures of efficiency
– Operational delivery mechanism – process excellence leading to high
levels of efficiency and low-cost operation
• Functionality/performance – the ability to embody functionality
results in greater product utility:
– Operational priority – providing goods or service that embody the
correct level of functionality and product features
– Performance measure – numerical measure of compliance with
customer requirement
– Operational delivery mechanism – design, development and
technology processes
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 Tangible Performance Measures (2)
• Variety/customization – cost effective provision of a variety of products
increases the market:
– Operational priority – provide a range of goods or services that fit the needs of
a wide range of market segments
– Operational performance measure – numerical measure of the number of
discrete products or product families
– Operational delivery mechanism – design, productionization  and configuration
control processes
• Quality – consistent adherence to customer expectation will result in repeat
business:
– Operational priority – provide a product or service that exactly meets the
customer requirements and is fit for purpose
– Operational performance measure – numerical measure of number of defects
occurring in the conversion process
– Operational delivery mechanism – total quality management system

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 Intangible Performance Measures (1)

• Reliability:
– Promises to do something by a certain time and then
does so
– Shows a sincere interest in solving your problems
– Performs the service right first time
• Responsiveness:
– Always willing to help customers
– Always gives prompt service to customers
– Is never too busy to respond to customer requests

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 Intangible Performance Measures (2)

• Assurance:
– The behaviour of employees instils confidence
– Employees are always courteous
– Employees always have the knowledge required
• Empathy:
– Employees give customers individual attention
– Has operating hours that are convenient to customers
– Understands specific customer needs

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 Performance Prioritising

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 Step 4 - The Process View
Having understood all aspects of the product and defined the
performance of the operation the individual processes must be
planned.
It is important to consider the following:
•How is the conversion actually carried out?
•What are the basic operations principles of the system?
•What competencies will form part of the system?
•What are the limits of the system?
•Where is the system located?
•How is the system organized?
•How is quality ensured?
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 Step 5 - The infrastructure view
The tactical decisions around the shape of the conversion process
that were taken in the previous step now need to be supported by
similar decisions on the support infrastructure.
Decisions should be taken in the following areas:
•Management structure – hierarchical, flat or matrix
•Management system – autocratic or empowered
•Job design – tasks highly divided and deskilled, or craft based
•Enterprise control system – discrete or integrated
•Automation – level and type of technology
•Shape of the supply chain – suppliers used and how they are
managed

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 Trade-offs
In operations systems, possible trade-offs are:
•Low price against available variety:
– systems that have to operate at low cost will normally be set-up to
produce a small number of configurations
•Speed against flexibility:
– changes to the requirement will reduce the speed of service e.g.,
any change to the timing or destination of a package may affect
the speed of the delivery
•Personalized attention against volume of customers:
– a call centre may set time limit targets for its operators specifying
a maximum call length and this action may force the operator to
be dismissive with the customer reducing the quality of the
service experience
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 Product Lifecycle Model

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 How can Operations Strategy be
Simplified?
Porter’s Generic Strategies:
•Differentiation:
– an emphasis on providing products and services that are
different from and more desirable than those offered by the
competition
•Overall cost leadership:
– an emphasis on providing a comparative level of utility at a
lower cost then the competition
•Focus:
– an emphasis on serving niche markets
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 Value Propositions
• Product Leadership
– The focus here is on the ability to make products and deliver services that customers
recognize as superior. Innovation is the key process, which relies on the talents and
creativity of employees. Therefore research and development is the operational focus in
the pursuit of the next breakthrough

• Operational Excellence
– The focus here is on the lowest overall cost to the customer. The key point is that the
overall cost to the customer does not consist only of the price paid. The concept of
operational excellence is based upon the principles of efficiency

• Customer Intimacy
– The focus here is to offer a total solution service to the customer. The value is therefore
primarily in the overall service offered. Customer-intimate organizations form strong
relationships with their customers. They focus on learning  as much as possible about
the business of their customers so ensuring they can serve them in the most effective
way

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 Value Matrix

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 External Value Matrix

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 Summary
• The 5 step operational strategy process is therefore:
– Align with corporate strategy
– Capture the customer needs
– Define best-in-class operational performance
– Create the best processes
– Support with the appropriate infrastructure
• Decisions - Trade-offs and priorities
• Value Propositions:
– Innovators
– Brand managers
– Price minimizers
– Simplifiers
– Technological integrators
– Socializers
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