MGT3303 Michel Leseure Performance and Operations Strategy Objective of Lecture: –Describe the strategic role of operations. –Define operations strategy.
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MGT3303Michel Leseure
Performance and Operations Strategy
• Objective of Lecture:– Describe the strategic role of operations.
– Define operations strategy and its scope.
– Illustrate how operations strategy pertains to adding value for the customer.
– Identify the key performance dimensions of an operations system.
– Introduce the concept of tradeoffs between different strategies and the need for a firm to align its operations strategy to meet the needs of the particular markets it is serving.
MGT3303Michel Leseure
Corporate Strategy
• Corporate strategy– Overall strategy adopted by
the firm that defines the specific businesses in which the firm will compete and the way in which resources areacquired and allocated.
• One objective: – Align resources with market
requirements
• Two key sets of decisions:– Positioning decisions– Resource decisions
Komatsu: Famous for its“circle the cat” strategy
MGT3303Michel Leseure
Types of Business Strategies
Type Definition
Low Cost Producing the lowest cost products in the market.
Market Segmentation
Satisfying the needs of a particular market niche.
Product Differentiation
Offering products that differ significantly from the competition.
These are “positioning” decisions.They imply certain “resource decisions”Example:
Low cost Economies of scale Invest in automation
MGT3303Michel Leseure
Focusing on Core Capabilities
• Core Capabilities (Resources)– Specific strengths that allow a company to achieve
its competitive priorities.– The skill or set of skills that the operations
management function develops that allows the firm to differentiate itself from its competitors.
– Example: OCP
• Focusing is achieved by:– Divesting non-critical activities.– Subcontracting ancillary activities and services.
MGT3303Michel Leseure
Operations Strategy
• Operations Strategy– Determining how to best utilize the firm’s resources
to achieve corporate objectives– How the operations function “fits” within the overall
organisation– Making sure resources are available when needed
• Competitive Priorities– The performance objectives of an operations
strategy– Set by the operations strategy– How the operations function provides a firm with a
competitive advantage.
MGT3303Michel Leseure
Performance Dimension
• Cost• Quality• Time
– Speed (throughput, leadtime)– Dependability of delivery
• Flexibility
MGT3303Michel Leseure
Operations Strategy Means Adding Value for the Customer
““Value is in the eye of the beholder”Value is in the eye of the beholder”What affects customer perceptions of What affects customer perceptions of
value?value?
If benefits exceed costs, the customer If benefits exceed costs, the customer perceives value for the product or perceives value for the product or
service.service.
Costs Total
Benefits Total ValueCustomer Perceived
Costs Total - Benefits Total ValueCustomer Perceived
MGT3303Michel Leseure
Order Qualifiers and Order Winners
• Order Qualifiers– The minimum characteristics of a firm or
its products that a firm must have to be considered as a source of purchase.
• Order Winners– The characteristics of a firm that
distinguish it from its competition so that it is selected as the source of purchase.
• Evolution of winners/qualifiers– Example of ISO-9000
MGT3303Michel Leseure
Operations Strategy Means Adding Value for the Customer
• How to add value:– Reduce product costs to customer.– Make the product more readily available.– Provide faster service.– Provide customers with additional relevant
information.– Customize the product to the customer’s
specific needs.
MGT3303Michel Leseure
Developing an Operations Strategy
from Competitive Priorities
• Factory Focus and Trade-offs– A factory could not focus on all four
competitive priorities (cost, quality, delivery, and flexibility).
• Focusing performance on one priority limits/eliminates the ability to focus on another priority.
MGT3303Michel Leseure
The Controversy
• Questioning the Trade-Offs– World-class operations led to the
establishment of a hierarchy among the competitive priorities.
• Increased competitive capabilities led to increased performance on all priorities by all competitors.
• Focus shifted from cost minimization to maximizing the value added.
– Customer value is enhanced by the focus on multiple priorities.
MGT3303Michel Leseure
Resource Decisions
• Decision made focus on long term long-term structural issues– How big do we make the facilities?
• Capacity planning
– Where do we locate them?– When do we build them?– What type of process(es) do we install to
make the products?
MGT3303Michel Leseure
Strategy Maps
• A graphical tool developed at the University of Cambridge to map out the implementation of a strategy
BusinessStrategy
& Objectives
List here external performancerequirements (from market and
stakeholders)
OperationsObjectives
Present agreed internalperformance objectives, i.e.
positioning decisions.
OperationsStrategy
Formulation
OperationsObjectives
Present here the different eventsthat led to resource decisions
being made (realised).
List here completedimplementation activities.
List here plannedimplementation
activities.
List here plannedresource decisions.
Time
NowFuturePast
Different From textbook!
MGT3303Michel Leseure
Example
BusinessStrategy
& Objectives
OperationsObjectives
OperationsStrategy
Formulation
OperationsObjectives
Time
Now
FuturePast
Investors complain about variability ofearnings, which affect negatively profit
margin. They demand a less riskyapplication of innovation skills which
would stabilise earnings.
To move into the segmentof robotics integrationsystems is a way toachieve higher costperformance whilst
maintaining the currentlevel of flexibility of
operations which is thetrademark of the
company.
The idea to develop astandardised goods
production line isdismissed as beinginconsistent with thecore competencies of
the firm.
Selection of roboticssystems
- a high output (speed)system would be
consistent with existingactivity
Exclusive integratoragreement signed withrobot manufacturer X
Decision to purchaseprototype robot for
internal training andcommercial purposes
Purchase robot, install,and decorate a show
room
Define investment inTraining
Training for designengineers andprogrammers
Timing of commercialaction. Policy for initial
pricing decisions.
Commercialcalls & first quotes.
MGT3303Michel Leseure
Summary
• Identify customers’ long term needs – Understand what create value– Use order winning/order qualifying criteria to model
customer preferences
• Identify matching strategic priority– Cost, quality, time, flexibility
• Align resources accordingly• Deal with impossible trade-offs through
investment in technology • Summarise Implementation with a strategy map
MGT3303Michel Leseure
Suggested Homework
• Take a Moroccan business/organisation of your choice. Give an example of a positioning decision and an example of a resource decision
• Question 2-3, p. 54• Question 2-5, p. 54• Differentiate clearly the strategy map of
the textbook and the strategy map of the lecture
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