DEFINITION OF STRATEGY
Strategy is a deliberate search for a plan of action that will develop
a business's competitive advantage and compound it.
DEFINITIONS OF OPERATIONS STRATEGY
An operations strategy is a set of goals, policies, and self-imposed
restrictions that together describe how the organization proposes to
direct and develop all the resources invested in operations so as to
best fulfill (and possibly redefine) its mission.
Other definitions of operations strategy:
An operations strategy consists of a pattern of decisions that,
over time, enables a business unit to achieve a desired
operations structure, infrastructure, and set of specific
capabilities in support of competitive priorities.
An operations strategy is a set of policies in both process choice
and infrastructure design which are consistent with the existing
ways that products win orders, while being able to reflect future
developments in line with changing business needs.
The successful implementation of an operations strategy
creates value for the customer.
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COMPONENTS OF AN OPERATIONS STRATEGY
Structural decision categories:
Infrastructural decision
categories:
Capabilities:
Competitive priorities:
Capacity
Facilities
Vertical integration (sourcing)
Information/process technology
Workforce
Organization
Control/quality systems
Unique to each firm
Cost
Quality
High-performance design
Functional quality
Delivery
Fast delivery time
On-time delivery
Flexibility
Customization
Volume flexibility
Innovation (speed to market)
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COMPETITIVE PRIORITIES
Quality
Quality consists of many dimensions that can be aggregated into: high
performance design (level of attributes) and functional quality (the
ability to operate as intended).
Quality Dimensions
Category
Dimension
Definition
High
Performance A product's or service's primary operating
performance
characteristics
design
Features
The "bells and whistles" of products and
services, those characteristics that
supplement their basic functioning
Aesthetics
How a product looks, feels, sounds, tastes, or
smells
For services – physical facilities, equipment,
and appearance of personnel
Perceived
Inferences about quality based on indirect
quality
tangible and intangible aspects of the product
or service (e.g. reputation)
Functional
Reliability
The probability of a product malfunctioning
quality
or failing within a specified time period
For services – ability to perform the
promised service dependably and accurately
Conformance The degree to which product or service
design and operating characteristics meet
established standards
Durability
The amount of use one gets from a product
or service before it deteriorates
Service
The speed, courtesy, and competence of
delivery
personnel
For products – also, the ease of repair
Improvements in functional quality result from a reduction in process
variation.
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COMPETITIVE PRIORITIES
Delivery
Two delivery dimensions:
Fast delivery time - The time the customer must wait between
order placement and receipt
On-time delivery - How reliable the company is in delivering a
customer's order on or before the quoted delivery date
Both lead time and reliability can be improved by reducing
uncertainty in the operations system.
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COMPETITIVE PRIORITIES
Flexibility
Primary flexibility dimensions:
Customization - The ability to produce a wide variety of
products or services and the ease with which the product or
service mix can be changed
Volume flexibility - The ability of the production system to
operate at different volumes and the ease with which the
volume can be changed.
Increased flexibility is a means to deal with demand uncertainty.
Advances in technology have greatly increased operational
flexibility.
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COMPETITIVE PRIORITIES
Innovation
Definition: In operations, innovation as a competitive priority
involves the ability to quickly introduce and improve
process technologies, which increases speed to market
with often better products and services.
Main types of operations innovations:
Incremental - Minor improvements or simple adjustments in
existing technology.
Rapid accumulation of these
innovations can convey a competitive advantage.
Radical - Fundamental changes that represent revolutionary
changes in technology. They represent clear departures from
existing practice (i.e., substantially new processes and
process technologies)
Innovation is often the primary competitive priority in a highvelocity environment with short product life cycles.
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CAPABILITIES
Capabilities are business processes strategically understood and
implemented.
Capabilities are systemic.
Capabilities often involve infrastructural, rather than structural,
decisions. Thus, they are more difficult to imitate.
Capabilities are a means to an end. The "end" is to establish a
distinctive competence in support of competitive priorities.
Examples:
 Wal-Mart's logistics system
 JetBlue’s operations
 eBay’s operations
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McDonald’s Operations Mission
To produce the highest quality fast-food products that can be made
consistently. This must be accomplished with adequate speed, low
cost, and process innovation to accommodate consumer tastes.
McDonald’s Operational Strategies
Dimension
Capacity


Facilities

Process
Technology


Vertical
Integration


Workforce


Organization 
Control
Systems



Strategy
Growth as needed through additional stores but capacity added carefully
Well-utilized - franchisee's well-being depends
on it being used heavily
Distributed facilities, each facility being very
similar to the next, all focused around the same
menu - although the uniformity is beginning to
change
High degree of process understanding,
emphasis on "fool-proof" processes
A leader in the technology of fast-food
delivery
Partnership arrangement
Long-term relationship with suppliers to
promote innovation and quality improvement
Franchisees: well-trained, carefully selected,
entrepreneurs
Operators: high-turnover, cheap
Guidelines provided by corporation, but
franchisees push to locally optimize
Centralized buying
Bulk contracts
"Push" system for basic supplies, "pull" system
day-to-day in the restaurants
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Boston College CGSOM’s Operations Mission
CGSOM’s Operational Strategies
Dimension
Capacity
Strategy
Facilities
Process
Technology
Vertical
Integration
Workforce
Organization
Control
Systems
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CRITERIA FOR EVALUATING
AN OPERATIONS STRATEGY
Consistency (internal and external)
Between the operations strategy and the overall business
strategy
Among the decision categories that make up the operations
strategy
Between the operations strategy and the other functions’
strategies
Between the operations strategy and the business environment
(resources available, competitive behavior, governmental
restraints, etc.)
Contribution (to competitive advantage)
Making trade-offs explicit, enabling operations to set priorities
that enhance the competitive advantage
Directing attention to opportunities that complement the
business strategy
Promoting clarity regarding the operations strategy throughout
the firm
Providing the operational capabilities that will be required by
the business now and in the future
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EVOLUTION OF OPERATIONS STRATEGY
Stages
Stage
Operation's strategic role
1
Internally neutral - Minimize operation's negative
potential
2
Externally neutral - Achieve parity with competitors
3
Internally supportive - Provide credible support to the
business
4
Externally supportive - Pursue an operations-based
competitive advantage
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STAGES OF OPERATIONS STRATEGY
Stages 3 and 4
Stage 3 Internally supportive
An operations strategy is formulated and pursued
Keep operations in step with business strategy
Operations investments are screened for consistency
with business strategy
Longer-term trends are addressed systematically
Consistency within operations
Translate business strategy into operations terms
Stage 4 Externally supportive
Anticipate new operations practices and technology
Operations is an equal partner in business strategy
Operations is involved up front in market decisions
Operations contributes to other functions
Structure and infrastructure are concerns to top
management
Teamwork and involved workforce
Operations is innovative
Competitive strategy rests on operations capability
Functions of the firm are well integrated
Proprietary equipment developed
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ATTACKING AND DEFENDING
THROUGH OPERATIONS
Attacking:
Positioning – Appealing to a different customer need
Capabilities – being better at the same game
Process-based capabilities
Systems (coordination)-based capabilities
Organization-based capabilities
Capability-pairing
Defending:
Exploiting its own strengths
Attacking its attacker’s operations-based weaknesses
Recognizing the seriousness of the attack quickly and emulating
the attacker’s strategy
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INFORMATION-INTENSIVE INDUSTRIES,
E-COMMERCE
Characteristics and Implications for Operations
Characteristics:
1. The cost structure for most information-intensive products is
dominated by the “up-front” costs associated with developing a
new product and creating its associated production/delivery
facilities.
2. Rapid changes in technology and markets.
3. Network effects (i.e. the increasing attractiveness to users of
certain networks as they increase in size).
Network effects are a function of the number of users of a
particular technology and the system of complementary
products associated with the network.
4. Quality and time have an interaction effect.
5. Information
technology
communication with users.
enables
direct,
real-time
6. Compatibility is as important as differentiation.
Implications:
 Increased importance of project (vs. process) management. (1)
 Cumulative output and speed to market are key for low-cost
strategies. (1, 2, 3)
 Installing a less-than-perfect but improvable system is more
important than introducing a more elegant system later. (4)
 High flexibility (customization) is at least an order qualifier. (5)
 Operations must be able to introduce new products and services
rapidly. (1, 2, 3)
 Operations organized for collaboration and communication. (6)
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