Strategy

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Operations StrategyOperations Strategy

Strategy Strategy The science and art of conducting a The science and art of conducting a military campaign on a broad scale;military campaign on a broad scale;

A plan or technique to achieve some A plan or technique to achieve some end.end.

Greek: : strategos =strategos = general

(stratos = army) + (agein = to lead)

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Corporate StrategyCorporate Strategy To be successful, a company must attain and sustain a To be successful, a company must attain and sustain a

competitive advantage over other companies in the same competitive advantage over other companies in the same industry.industry.

How?How?““The essence of strategy is what to do and what The essence of strategy is what to do and what not not to do” (M. Porter, 1996).to do” (M. Porter, 1996).

MissionMission Long term GoalsLong term Goals

Complementary Functional StrategyComplementary Functional Strategy Supporting Management PracticesSupporting Management Practices

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Corporate StrategyCorporate Strategy

Long term futureLong term future

defines the business the firm will pursuedefines the business the firm will pursue opportunities and threatsopportunities and threats strengths and weaknessstrengths and weakness growth and business strategiesgrowth and business strategies

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defines the business the firm will pursue

opportunities and threatsopportunities and threats strengths and weaknessstrengths and weakness growth and business growth and business

strategiesstrategies

Mission?Mission? What business are we in?What business are we in? Who are our customers?Who are our customers? What are our beliefs?What are our beliefs? How do we measure How do we measure

success?success?

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Environmental ScanningEnvironmental Scanning Monitor trends inMonitor trends in

industry (technological industry (technological change and competitors)change and competitors)

market place (market place (changing customer preferences)customer preferences)

society (political conditions)society (political conditions) vital resources (availability)vital resources (availability)

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Core competenciesCore competencies workforceworkforce facilities, locationfacilities, location market, financial and market, financial and

operational know-howoperational know-how systems and systems and

technologytechnology

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Global alliances?Global alliances? Joint ventureJoint venture licensing of technologylicensing of technology franchisefranchise off-shore productionoff-shore production logistics partnershiplogistics partnership

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Strategic PositioningStrategic Positioning

Defines those positions that a firm wants to Defines those positions that a firm wants to occupy in the competitive product space.occupy in the competitive product space.

Competitive DimensionsCompetitive Dimensions CostCost QualityQuality Time Time Flexibility/VarietyFlexibility/Variety

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Operational EffectivenessOperational Effectiveness

process infrastructure and management for expedient process infrastructure and management for expedient production and delivery of goods and servicesproduction and delivery of goods and services

Strategic FitStrategic Fit business strategybusiness strategy operational strategyoperational strategy management policiesmanagement policies

Strategic fit Strategic fit means consistency between the competitive means consistency between the competitive advantage that a firm seeks and the process capabilities advantage that a firm seeks and the process capabilities and managerial policies that it uses to achieve that and managerial policies that it uses to achieve that advantage.advantage.

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Corporate Strategy, Competitive Priorities and Corporate Strategy, Competitive Priorities and Functional Inter-relationshipsFunctional Inter-relationships

Market analysis•segmentation•needs assessment

Socioeconomic and business environment

Corporate strategy•missions•goals•distinctive

Future directions•global strategy•new products/services

Competitive priorities•cost•quality•time•flexibility

Capabilities•current•needed•plans

Functional area strategies

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The Strategic HierarchyThe Strategic Hierarchy Corporate/Business StrategyCorporate/Business Strategy

SWOTSWOT

Functional StrategiesFunctional Strategies marketing marketing

identify customers, products and competitorsidentify customers, products and competitors

financefinance acquisition and allocation of resourcesacquisition and allocation of resources

operationsoperations configure and develop business processes for production and configure and develop business processes for production and

delivery of productsdelivery of products process capabilities must be aligned with desired product process capabilities must be aligned with desired product

attributesattributes

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Matching Products and ProcessMatching Products and Process

Hayes and Wheelwright (1979)Hayes and Wheelwright (1979)

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Developing an Operations Strategy Developing an Operations Strategy (Terry Hill)(Terry Hill)

1. 1. Define corporate objectives.Define corporate objectives.

2. Determine marketing strategies (strategic 2. Determine marketing strategies (strategic positioning).positioning).

3. Assess how different products qualify in their 3. Assess how different products qualify in their respective markets and respective markets and win orderswin orders against competitors.

4. Establish appropriate operational processes for product manufacture and delivery.

5. Provide the operational infrastructure to support production/delivery.

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Corporate ObjectivesCorporate Objectives Reflect nature of economy, markets, opportunity and Reflect nature of economy, markets, opportunity and

company preferencecompany preference Well-thought out, consistent, provide strategic Well-thought out, consistent, provide strategic

directiondirection Sets boundaries and parameters against which Sets boundaries and parameters against which

inputs and targets can be measuredinputs and targets can be measured profit vs sales and investmentprofit vs sales and investment absolute growthabsolute growth market share growthmarket share growth employee policiesemployee policies environmental/social issuesenvironmental/social issues

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Marketing Strategy Establish market plans and control unitsEstablish market plans and control units

bundle products with closely related market targets and similar marketing bundle products with closely related market targets and similar marketing characteristicscharacteristics

shared marketing programmesshared marketing programmes Situational analysis of marketsSituational analysis of markets

current and future volumescurrent and future volumes define end-user characteristicsdefine end-user characteristics assess patterns of buying behaviourassess patterns of buying behaviour examine industry practices and trendsexamine industry practices and trends identify key competitors and review the business relative strategic positionidentify key competitors and review the business relative strategic position

Identify target markets and objectivesIdentify target markets and objectives in co-ordination with other functional strategies (operational support, in co-ordination with other functional strategies (operational support,

investment needs)investment needs) product market segments: range, mix, volumeproduct market segments: range, mix, volume competitive prioritiescompetitive priorities innovation? Market-leader?innovation? Market-leader?

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Order Winners & QualifiersOrder Winners & Qualifiers Order QualifiersOrder Qualifiers are those (minimum) criteria that a are those (minimum) criteria that a

company must meet to be considered as a possible company must meet to be considered as a possible supplier (e.g. ISO 9000).supplier (e.g. ISO 9000).

Order winnersOrder winners are those criteria that are those criteria that winswins the the orders.orders. Invariably due to Invariably due to re-directingre-directing competitive priorities competitive priorities

Define relative importance (allocate weights) among Define relative importance (allocate weights) among order winning criteriaorder winning criteria

Monitor changing weights and criteria over timeMonitor changing weights and criteria over time

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Procedure for Establishing Order-winners Procedure for Establishing Order-winners and Qualifiersand Qualifiers

Separate business into different segmentsSeparate business into different segments Focus on a sample product and/or customer from each Focus on a sample product and/or customer from each

segment and focus on two future time periodssegment and focus on two future time periods Provide actual and forecast sales volumeProvide actual and forecast sales volume Identify qualifiers and order winners (with weights) for each Identify qualifiers and order winners (with weights) for each

sample product/customersample product/customer identify qualifiers that are potential order-winnersidentify qualifiers that are potential order-winners identify qualifiers that are order-losing sensitiveidentify qualifiers that are order-losing sensitive

iterativeiterative integrativeintegrative

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Process ChoiceProcess Choice

Design and choice of operational process Design and choice of operational process for manufacture and delivery of productsfor manufacture and delivery of products

Choice should reflect the volume and order-Choice should reflect the volume and order-winning criteria involvedwinning criteria involved

reflect current and future trade-offs reflect current and future trade-offs

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InfrastructureInfrastructure

Procedures,systems, controls, organizational Procedures,systems, controls, organizational issuesissues

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Outputs of Manufacturing StrategyOutputs of Manufacturing Strategy Review of implications for manufacturing processes Review of implications for manufacturing processes

and infrastructure support for current and future and infrastructure support for current and future productsproducts

Assess degree of match between capabilities and Assess degree of match between capabilities and order-winning and order-qualifying needsorder-winning and order-qualifying needs

Continual monitor changes in match and mismatchContinual monitor changes in match and mismatch Necessary operational re-design, infrastructure Necessary operational re-design, infrastructure

investments, change schedule integrated into investments, change schedule integrated into corporate strategy in co-ordination with other functional corporate strategy in co-ordination with other functional strategies strategies

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Strategy DriversStrategy Drivers Market-drivenMarket-driven

starts with key competitive priorities and then develops starts with key competitive priorities and then develops processes to support themprocesses to support them

Process-drivenProcess-driven starts with given set of process capabilities and then starts with given set of process capabilities and then

identifies market positions that can be supportedidentifies market positions that can be supported

Focussed strategyFocussed strategy targeting limited but congruent set of objectives in terms targeting limited but congruent set of objectives in terms

of demand and supplyof demand and supply broad corporate strategy; focussed business strategiesbroad corporate strategy; focussed business strategies

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Historical Evolution of Strategy and Process ManagementHistorical Evolution of Strategy and Process Management

B.C. to 1765 B.C. to 1765 commerce limited by transportation (slow) speed and costscommerce limited by transportation (slow) speed and costs artisan system, guildsartisan system, guilds

1765: industrial revolution1765: industrial revolution factory systemfactory system Adam Smith: division of labour, functional specialisationAdam Smith: division of labour, functional specialisation James Watt: steam engine, machines replace labourJames Watt: steam engine, machines replace labour

1810 - 1913: mass production1810 - 1913: mass production Eli Whitney: interchangeable parts, no more custom fittingEli Whitney: interchangeable parts, no more custom fitting Ford: assembly line (Model T: 12.5 -> 1.5 hrs)Ford: assembly line (Model T: 12.5 -> 1.5 hrs)

1930: product variety1930: product variety General Motors: ‘A car for every purpose and every price’General Motors: ‘A car for every purpose and every price’

1970: quality1970: quality Toyota: kanban, TQMToyota: kanban, TQM

2000 : supply chain management2000 : supply chain management delivery speed, availability, customizationdelivery speed, availability, customization

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Operations Management as a Competitive Operations Management as a Competitive

WeaponWeapon Dell vs. IBMDell vs. IBM HP: HP:

modular designmodular design re-designed production/distribution processre-designed production/distribution process

Michael Hammer:Michael Hammer: ““re-engineering the supply chain is the key to re-engineering the supply chain is the key to

manufacturing success in the new millennium”manufacturing success in the new millennium” ““inventory is a inventory is a substitute substitute for informationfor information

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SummarySummary Tool kit:Tool kit:

Linear optimisationLinear optimisation (Solver)(Solver) Integer linear optimisation Integer linear optimisation (Solver)(Solver) Multi-objective Multi-objective

goal programminggoal programming (Solver)(Solver) AHPAHP (Excel, ExpertChoice)(Excel, ExpertChoice)

Decision Analysis (TreePlan) Queuing (Excel worksheet) Simulation (Excel, CrystalBall)

Implementation Strategic Fit