This chapter will cover following topics: Corporate Strategy Market Analysis Competitive Priorities and Capabilities Development Process Operations StrategyOperations.

This chapter will cover following topics:

•Corporate Strategy

•Market Analysis

•Competitive Priorities and

Capabilities

•Development Process

Operations StrategyOperations Strategy

Chapter: FIVEChapter: FIVE

Operations StrategyDeveloping a customer-driven operations

strategy begins with corporate strategy

which………..

•Coordinates the firm’s overall goals with its

core process.

•Determines the markets the firm will serve

and the responses the firm will take to

changes in the business and socioeconomic

environment.

•Provides the resources to develop the firm’s

core competencies and core processes, and

•Identifies the strategy the firm will employ

in international markets.

Based on the corporate strategy, a market analysis

categorizes the firm’s customers, identifies their

needs, and assesses competitors’ strengths.

This information is used to develop competitive

priorities for processes that deal with external as

well as internal customers. Competitive priorities are

important to the design of new services or

products, the processes that will driven them; and

the functional strategies that provide the means by

which the capabilities of the firm’s processes are

developed.

Operations Strategy…..Contd.

Corporate StrategyEnvironmental ScanningCore CompetenciesCore ProcessesGlobal Strategies

Market Analysis Market Segmentation Needs Assessment

Competitive PrioritiesCostQualityTimeFlexibility

Competitive Capabilities

CurrentNeededPlanned

New Services/Product Design

DesignAnalysisDevelopmentFull Launch

Functional Areas Strategies ●Finance ●Operations ●Marketing ●Others

Figure 6.1: Competitive Priorities Link Between Corporate Strategy and Functional Strategies

Corporate strategy specifies the business or businesses

that the company will pursue, isolates new opportunities and

threats in the environment, and identifies the growth

objectives that it should achieved. Corporate strategy

provides an overall direction that serves as the framework

for carrying out all the organization’s functions.

Developing a corporate strategy involves three

considerations:•Monitoring and adjusting to changes in the business environment (Environmental Scanning)•Identifying and developing the firm’s core competencies (Core Competencies)•Developing the firm’s core processes. (Core Processes)

Corporate Strategy

The external business environment in which a firm competes changes continuously, and an organization needs to adapt to those changes. Adaptation begins with environmental scanning, the process by which managers monitor trends in the socioeconomic environment (including the industry, the marketplace, and society) for potential opportunities or threats. A crucial reason for environmental scanning is to stay ahead of the competition. Competitors may be gaining an edge by broadening service or product lines, improving quality, or lowering costs. New entrants into the market or competitors that offer substitutes for a firm’s service or product may threaten continued profitability. Other important environmental concerns include economic trends, technological changes, political conditions, social changes (such as attitudes toward work), the availability of vital resources, and the collective power of customers or suppliers.

Corporate Strategy………..Environmental Scanning

Core competencies are the unique resources and

strengths that an organization’s management considers

when formulating strategy. They reflect the

collective learning of the organization, especially

in how to coordinate diverse processes and

integrate multiple technologies. These

competencies include the following:

•Workforce.

•Facilities.

•Market and Financial Know-How.

•Systems and Technology.

Corporate Strategy………..Core Competencies

A firm’s core competencies should determine its core

processes. There are four types of core processes: customer

relationship, new service/product development, order

fulfillment, and supplier relationship. Many companies

have all four of these core processes. For example, in the

newspaper industry, all four processes are tightly integrated.

A newspaper typically attracted its own customers-both

readers and advertisers (customer’s relationship). It develops

most of its product- the news stories printed on its pages

(new service/product development). It also manages its own

production, delivery, and supply processes (order fulfillment

and supplier relationship)

Corporate Strategy………..Core Processes

Identifying opportunities and threats today required a global

perspective. A global strategy may include buying foreign

services or parts, combating threats from foreign

competitors, or planning ways to enter markets beyond

traditional national boundaries. Two effective global

strategies are:

•Strategic Alliances

•Location Abroad

Corporate Strategy………..Global Strategies

(i) Strategic Alliances: One way for a firm to open

foreign markets is to create a strategic alliance. A

strategic alliance is an agreement with another firm that

may take one of three forms.

One form of strategic alliance is the collaborative effort,

which often arises when on firm has core competencies

that another needs but is unwilling (or unable) to

duplicate.

Another form of strategic alliance is the joint venture, in

which two firms agree to produce a service or product

jointly. This approach often is used by firms to gain access

to foreign markets.

Corporate Strategy………..Global Strategies

Finally, technology licensing is a form of strategic

alliance in which one company licenses its service or

production methods to another. Licenses may be used

to gain access to foreign markets.

(ii) Location Abroad: Another way to enter global

markets is to locate operations in a foreign country.

However, managers must recognize that what works

well in their home country might not work well

elsewhere. The economic and political environment or

customers’ needs may be very different.

Corporate Strategy………..Global Strategies

One key to success in formulating a customer-driven

operations strategy for both service and manufacturing

firms, understands what the customer wants and how to

provide it better than the competition does. Market

analysis first divides the firm’s customers into market

segments and then identifies the needs of each

segment. That means market analysis is done through:

(i) Market Segmentation, and

(ii) Needs Assessment

Market Analysis

Market Analysis….Market Segmentation

i. Demographic Factors: Age, income, educational level,

occupation, and location can differentiate markets.

ii. Psychological Factors: Factors such as pleasure, fear,

innovativeness, and boredom can serve to segment markets.

iii. Industry Factors: Customers may utilize specific

technologies (e.g. electronics, robotics, or microwave

telecommunication); use certain materials (.g. rubber, oil, or

wood); or participate in a particular industry (e.g. banking,

health care, or automotive). These factors are used for

market segmentation when the firm’s customers use its

goods or services to produce other goods or services.

Market Analysis….Market Segmentation

Needs assessment identifies the needs of each segment and

assesses how well competitors are addressing those needs.

Once it has made this assessment, the firm can differentiate

itself from its competitors. The needs assessment should

include both the tangible and the intangible service or

product attributes and features that a customer desires.

Market need may be grouped as follows:

i. Service or product needs. Attributes of the service or

product, such as price, quality, and degree of customization

desired.

Market Analysis….Needs Assessment

ii. Delivery system needs. Attributes of the processes and

the supporting systems and resources need to deliver the

service or product, such as availability, convenience,

courtesy, safety, accuracy, reliability, delivery speed, and

delivery dependability.

iii. Volume needs. Attributes of the demand for the service

or product, such as high or low volume, degree of variability

in volume, and degree of predictability in volume.

iv. Other needs. Other attributes, such as reputation and

number of years in business, after-sale technical support,

ability to invest in international financial markets, competent

legal services, and service or product design capability.

Market Analysis….Needs Assessment

Competitive Priorities and Capabilities

A customer-driven operations strategy reflects a clear

understanding of the firm’s long term goals as

embodied in its corporate strategy. A customer-driven

operations strategy also addresses the needs of the

internal customer of the firm’s processes because the

overall performance of the firm is dependent upon the

performance of its core and supporting processes.

Competitive priorities are the critical dimensions a process

must possess to satisfy its internal or external customers,

both now and in the future.

Competitive Priorities and Capabilities

There are nine broad competitive dimensions, which fall into four groups.

Cost1. Low-cost Operations

Quality2. Top Quality3. Consistent Quality

Time4. Delivery Speed5. On-time Delivery6. Development Speed

Flexibility7. Customization8. Variety9. Volume Flexibility

Competitive Priorities and Capabilities

1. Cost: Lowering prices increased demands for services

or products, but it also reduces profit margins if the service

or product cannot be produced at lower cost. Low-cost

operations is delivering a service or producing a product at

the lowest possible cost to the satisfaction of the process’s

external or internal customers. To reduce costs, processes

must be designed and operated to make them very efficient,

often addressing workforce, methods, scrap or rework,

overhead, and other factors to lower the cost per unit of the

service or product.

Competitive Priorities and CapabilitiesQuality: quality is a dimension of a service or product

that is defined by the external and internal customers. Two

important competitive priorities deal with quality, top quality

and consistent quality.

2. Top quality is delivering an outstanding service or

product. This priority may require a high level of customer

contact, and high levels of helpfulness, and availability of

servers from a service process. Alternatively, it may require

superior product features, close tolerances, and greater

durability from a manufacturing process. Processes

delivering top quality need to be designed to more

demanding requirements than other processes.

Competitive Priorities and Capabilities

3. Consistent Quality: The second quality priority, consistent

quality, is producing services or products that meet design

specifications on a consistent basis. External customers want

services or products that consistently meet the specification

they contracted for, have come to expect, or saw advertised.

For example, bank customers expect that the bank’s accounting

process will not make errors when recording transactions.

4. Delivery Speed: The first, delivery speed, is quickly filling a

customer’s order. Delivery speed is often measured by the

elapsed time between the receipt of a customer order and filling

it, often referred to as lead time. You increase delivery speed by

reducing lead time.

Competitive Priorities and Capabilities

5.On-Time Delivery: The second time priority, on-time

delivery, is meting delivery-time promises. Manufacturing

may measure on-time delivery as the percent of customer

orders shipped when promised, with 95 percent often

considered as the goal.

6. Development Speed: The third time priority,

development speed, is quickly introducing a new service or

product. Development speed is measured by the elapsed

time from idea generation through the final design and

introduction of the service or product. Achieving a high level

of development speed requires a high level of cross-

functional coordination.

Competitive Priorities and Capabilities

7. Customization: Customization is satisfying the unique

needs of each customer by changing service or product

designs. Customization typically implies that the service or

product has low volume. There are some exceptions to that

generalization. For example, a customization plastic bottle

design for a shampoo manufacturing may be produced in

large volumes until the design of the bottle is changed.

Competitive Priorities and Capabilities

8. Variety: The second flexibility priority is variety, which is

handling a wide assortment of services or products

efficiently. Processes with a variety priority must have the

capability to focus on the needs of their internal or external

customers and to efficiently shift their focus across a variety

of predefined services or products.

9. Volume Flexibility: The third flexibility priority is

volume flexibility which is accelerating or decelerating the

rate of production of services or products quickly to handle

large fluctuations in demand. Volume flexibility is an

important priority that often supports other competitive

priorities, such as delivery speed or development speed.

Development Process

Design

Analysis

Development

Full Launch

Development StrategyIdeas generation and screeningService package or product architecture formulationProduction feasibility

Detailed review of market

potential and production

costs•Detailed specifications•Process design•Marketing program design•Personnel training•Testing and pilot runs

•Market promotionsSales personnel briefedDistribution processes activatedOld services or products withdrawnProduction of new offering and ramp-up

Need to rethink the new offering

or production processes

Post-launch review

Figure : New Service or Product Development Process

Service or product not profitable

Development ProcessDesign

The first stage, design, is critical because it links the creation of

new services or products to the corporate strategy of the firm.

Within the framework of corporate strategy, the development

strategy specifies the thrust the firm wants to take with its

offerings. Given the development strategy, ideas for new offerings

are generated and screened for feasibility and market worthiness.

For services, these ideas specify how the customer interfaces with

the service provider, the service benefits and outcomes for the

customer, the value of the service, and how the service will be

delivered. The specific service package is then formulated for the

best idea, the competitive priorities are assigned to the processes,

and the manner in which the service package will be delivered is

proposed and checked for feasibility.

Development Process

For manufacturing products, the new ideas include a

specification of the product’s architecture. There are two

basic types: Modular and Integrated.

Using a modular architecture, the product is an assembly

of components, several varieties of products can be made

quickly using the same standardized components.

With the integrated product architecture, the product’s

functions are performed by only a few components that are

specifically designed for it. Integrated product structures

often lead to higher product performance and are not easily

imitated; however, the design lead-time is high and the

ability to produce a variety of products is limited.

Development Process

Analysis

The second stage, analysis, involves a critical review of

the new offering and how it will be produced to make

sure that it fits the corporate strategy, is compatible

with regular standards, presents and acceptable market

risk, and satisfies the needs of the intended customers.

The resources requirements for the new offerings must

be examined from the perspective of the core

capabilities of the firm and the need to acquire

additional resources or secure strategic partnerships

with other firms.

Development Process

Development

The third stage, development, brings more specificity to the

new offering. Here the new and the required competitive

priorities are used as inputs to the design (or redesign) of the

processes that will be involved in delivering the new offering.

The processes are diagrammed; each activity is designed to

meet its required competitive priorities and to add value to

the service or product. Once the new offering is specified and

the processes have been designed, the market program can

be designed. Finally, personnel are trained and some pilot

runs can be conducted to iron out the kinks in the production

of the new offering.

Development Process

Full Launch

The final stage, full launch, involves the coordination of many

of the firm’s processes. Promotions for new offering must be

initiated, sales personnel briefed, distribution processes

activated, and old services or products that the new offering

is to replace must be withdrawn.