UNIT 2

OPERATIONS STRATEGY
 The Role of Operations Strategy
• Provide a plan that makes best use of
resources which;
– Specifies the policies and plans for using
organizational resources
– Supports Business Strategy as shown on next slide
 Importance of Operations Strategy
• Companies often do not understand the
differences between operational efficiency
and operational effectiveness
– Operational efficiency is performing tasks well,
even better than competitors
– Operational effectiveness is to ensure all tasks
performed are the right tasks
Operational Strategy is doing things Effectively and
efficiently
 Customer-Driven
Operations Strategy

• Corporate strategy views the organization as a

system of interconnected parts, each working with
the others to achieve desired goals.

• Operations Strategy supports the corporate strategy

and requires continuous cross-functional interaction.
• The operations strategy should be customer driven.
 Developing a Corporate Strategy

Which Business will you start ?

• Developing a corporate strategy involves three
considerations:
1. Monitoring and adapting to the environment
2. Identifying and developing core competencies
3. Developing the firm’s core processes
• Adapting requires environmental scanning to
monitor trends for opportunities and threats.
(SWOT Analysis)
• What is the difference between USP and Core
Competency ?
• Core Competencies are the unique resources and
strengths an organization possesses to excel in its
core business.
 Core Competencies

• Core competencies include…

– A well-trained and flexible Workforce
– Having well-located & flexible Facilities
– Having Market and Financial Know-How.
– Expertise in Systems and Technology.

• The core competencies should determine the firm’s core

processes.
– These can include customer relations, new service/product
development, order fulfillment, and supplier relationships.
– A firm may have all of these or focus on a subset of them,
as determined by its core competencies.
 Competitive Priorities- The Edge

• Four Important Operations Questions: Will

you compete on –
Cost?
Quality?
Time?
Flexibility?

• All of the above? Some? Tradeoffs?

 Competitive Priorities

Cost 1. Low-cost operations

Quality 2. Top quality
3. Consistent quality
Time 4. Delivery speed
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Variety
9. Volume flexibility
 Competitive Capabilities

• The Competitive Capabilities are the cost,

quality, time and flexibility dimensions of
competitive priorities that a process or value
chain actually possesses and is able to deliver.
– Low Cost means delivering a service or product at the
lowest possible cost to the satisfaction of the customer.
– Eg. Big Bazaar, D Mart
 Quality as a Competitive Capability

• Top Quality: Delivering an outstanding service

or product.
– Considerable interaction with the customers may
be required to determine what that means.
– Eg. BMW, Mercedes, RADO
• Consistent Quality: Producing services or
products that meet design specifications on a
consistent basis.
• Eg. Maggi, McDonalds, Street tea Vendor
 Time as a Competitive Capability

• Delivery Speed is quickly filling a customer’s order.

– Lead Time is the time between receipt of an order and filling the
order.
– Eg. Amazon, Restaurants

• On-Time Delivery means meeting the delivery time promises.

– Eg. Courier Services, Airlines

• Development Speed is quickly introducing a new service or product.

– Software, Mobile

• Time-Based Competition is a strategy that focuses on development

speed and delivery speed.
 Flexibility as a Competitive Capability

• Customization means satisfying the unique needs of each

customer by changing the service or product designs.
– Eg. Boutiques, Ad Agency, Visiting Cards

• Variety involves handling a wide assortment of services or

products efficiently.
– Retail Shop, Designers

• Volume Flexibility requires accelerating or decelerating the

rate of production quickly to handle large fluctuations in
demand.
– Local ladies tailor, Manufacturers
 Order Winners and Order Qualifiers

• These are criteria used by customers in service or product

selection.

• Order Winners are criteria for differentiating services or

products of one firm from those of another.
• Price, quality, time, flexibility, after sales support, reputation,
etc.

• Order Qualifiers are demonstrated levels of performance

required to do business in a particular market segment.
 The Need for Trade-offs
• Decisions must emphasis priorities that support business strategy
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order winners

– Which priorities are “Order Qualifiers”?

e.g. Must have excellent quality since everyone
expects it

– Which priorities are “Order Winners”?

e.g. Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
 Four Steps for Strategy Formulation
• Defining a primary task
– What is the firm in the business of doing?

• Assessing core competencies

– What does the firm do better than anyone else?

• Determining order winners and order qualifiers

– What wins the order?
– What qualifies an item to be considered for purchase?

• Positioning the firm

– How will the firm compete?
 Operations Strategy: Capacity and Facility

• Capacity strategic decisions include:

– When, how much, and in what form to alter
capacity

• Facility strategic decisions include:

– Whether demand should be met with a few large
facilities or with several smaller ones
– Whether facilities should focus on serving certain
geographic regions, product lines, or customers
– Facility location can also be a strategic decision
 Operations Strategy: Human Resources

• What are the skill levels and degree of autonomy

required to operate production system?
• What are the training requirements and selection
criteria?
• What are the policies on performance evaluations,
compensation, and incentives?
• Will workers be salaried, paid an hourly rate, or paid
a piece rate?
• Will extensive worker training be necessary?
• Should workforce be cross-trained?
 Operations Strategy: Quality
• What is the target level of quality desired for and
how will it be measured?
• How will it be measured?
• How will employees be involved with quality?
• What will the responsibilities of the quality
department be?
• How will quality awareness be maintained?
• How will quality efforts be evaluated?
• How will customer perceptions of quality be
determined?
 Operations Strategy: Sourcing
• Vertical Integration
– degree to which a firm produces parts that go into its
products
– Backward Integration and Forward Integration

• Strategic Decisions : Make or Buy

– How much work should be done outside the firm?
– On what basis should particular items be made in-house –
4 Parameters
• Cost, Quality, Quantity and Time
– When should items be outsourced?
– How should suppliers be selected?
 Class Activity
• Apply the concept of Competitive
Priorities, Order Qualifiers and Order
Winners for the following:
– Newly opened Gym
– Tours and Travels Company