What is Operations Strategy ?

‘Operations Strategy is the total pattern of decisions

which shape the long-term capabilities of any type of
operations and their contribution to overall strategy,
through the reconciliation of market requirements and
operations resources.

1
 The four features of the VRIO framework
Organisation + value + rarity =
Organisation + value = short/medium-term
at least parity with competitive advantage
competitors

Are your Are your

capabilities capabilities
valuable? rare?

Operations
contributes to
sustainable
competitive
advantage

Is operations
Are your
organised to
capabilities
exploit your
inimitable?
capabilities?
Organisation = potential Organisation + value +
to contribute to rarity + inimitability = long-
competitiveness term competitive advantage
Performance Objectives: Operations strategy reconciles the
requirements of the market with the capabilities of 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

resources Capacity Required performance Understandin
and processes Supply networks Quality g markets
Process technology Speed
Development and Dependability
organisation Flexibility
Cost
Decomposing the ratio profit/total assets to derive
the four strategic decision areas of operations strategy

Profit Output Profit

= ×
Total Total Output
assets assets

Profit Revenue Cost

= −
Output Output Output

Average Average
revenue cost
Output Output Fixed assets Capacity
= × × Fixed assets
Total Capacity Total
assets assets
Utilisation Working Productivity of
capital fixed assets

Operations strategy Capacity Supply Process Development and

decision areas network technology organisation
 The operations strategy matrix
Resource usage

Quality

Speed

competitiveness
Performance

Dependability Operations strategy

objectives

Market
Flexibility

Cost

Supply Process Development

and
Capacity
network technolog organisation
y
Decision areas
The stages of the process of operations strategy

Operations strategy Operations strategy

formulation implementation

Operations strategy Operations strategy

control monitoring
 Session 2: Operations Strategy of DJC

1. How operations strategy at DJC is

formulated?

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 Session 2: Operations Strategy of DJC

Content: translating the market requirement into

operations decisions.
Process: the way by which strategy is
formulated.

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 Session 2: Operations Strategy of DJC

Process: There are two way of formulating the

operations strategy TOP DOWN approach or
BOTTOM UP approach.

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 Operations Strategy DJC

2. What is the Competitiveness of DJC?

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 Operations Strategy DJC

3. If DJC goes to American Market which type

of strategy the company will use.

Blue Ocean ?

Red Ocean ?

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 Basics of strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost. and

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 Session 2: Competitiveness

1. Which Company is more effective American

Connector company or DJC?

Effectiveness: means doing the right things

Efficiency: doing the thing in right way

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 Competitiveness

Suppose there are two competitors X and Y

Both are serving the same Market A
Suppose customer buy the product of company
X in market A.
Why customer A choose product of company X
over Y?

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 Competitiveness
Competitiveness is the ability and the
performance of a firm to sell and supply goods
and service in a given market in relation to the
ability and performance of other firms…..

In other words, how will one firm win over

customers in order to become the product and
service of choices.

This ability is measured in terms of competitive

factors. What are the competitive factors? 15
 Competitiveness
That’s why the companies are continuously trying
to develop competitiveness.
Your competitor can imitate one or two but not
all if you have so many

Which factors influence competitiveness?

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 Competitiveness
1. Marketing: Marketing influence the
competitiveness because customer wants price,
advertisement and promotions.
2. Operations influence the competitiveness
• Product Design: capturing the customer requirement is
very important. Marketing capture the customer
requirements and then operations convert the customer
requirements in the physical product. The product
should be designed in such a way to keep the cost low.
If you have the ability to reduce the cost then customer
can buy your product. Because no one want to spend
more money. 17
 Competitiveness
2. Operations influence the competitiveness
•Location: Where to locate the facility. For example ATM
facility is located on the basis of convenience. Ambulance
are located near more accident prone areas. Warehouses are
located near the retailers.

Select the best location where you have the locational

advantage over your competitors. This is also the very
important factor for achieving the competitiveness.

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 Competitiveness
2. Operations influence the competitiveness

•Quality: Now a day there is no need to depend on

inspection. Use defect free process to produce the products.
Use proactive rather than reactive approach. This will also
provide competitiveness.

•Quick Response: How quickly you are responding to your

customer in term of their requirement or service. It provide
competitiveness.

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 Competitiveness
2. Operations influence the competitiveness

•Flexibility: How quickly you are able to change your

system to meet the variety of demand of your customer.

•Inventory Management: If you want to reduce the cost

then inventory play a very important role.
Here we have a tradeoff between cost and fix response.
As a operation manager develop ability to reduce the cost
through inventory.
Examples are Wal-Mart: Use IT instead of inventory.
DELL Computer. 20
 Competitiveness
2. Operations influence the competitiveness

•Supply Chains: Ability to provide its product in different

market quickly (dominos Pizza). This supply chain network
provide competitiveness over others.

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Competitiveness
Operations Strategy: Sourcing
• Vertical integration
– degree to which a firm produces parts that go
into its products
• Strategic Decisions
– How much of work should be done outside the
firm?
– On what basis should particular items be
made in-house?
– When should items be outsourced?
– How should suppliers be selected?
Competitiveness
Operations Strategy: Sourcing
– What type of relationship should be
maintained with suppliers?
– What is expected from suppliers?
– How many suppliers should be used?
– How can quality and dependability of
suppliers be ensured?
– How can suppliers be encouraged to
collaborate?
 Operations Strategy for achieving organization
strategy

Organization Strategy Operations Strategy

1.Low Price ??
2.Responsiveness (Quick response) ??
3.Differentiation (high quality) ??
4.Differentiation (newness) ??
5.Differentiation (Variety) ??
6.High Volume ??

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 Operations Strategy for achieving organization
strategy

Organization Strategy Operations Strategy

1.Low Price Low cost
2.Responsiveness (Quick response) Short processing times
3.Differentiation (high quality) High performance design, high quality process, consistent quality
4.Differentiation (newness) Innovation (Apple), new product development, R&D

5.Differentiation (Variety) Flexibility in system, general purpose M/c, CNC M/Cs offer more
flexibility

6.High Volume mass production

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 Basics of strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost. and

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 Operations Strategy

Corporate Mission

Assesment of global Distinctive competencies

Business Strategy
business condition or weakness

Product / service plan

Competitive priorities
(Cost, Quality, time, Flexibility)

Operations Strategy

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to a publicly accessible website, in whole or in part.
 Operations strategy Wal-Mart
Organization Strategy Operations Strategy
Provide value to our customer ??
Low Price Everyday ??

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 Operations Strategy at Wal-Mart

Copyright 2006 John 2-29

Wiley & Sons, Inc.