Operations Strategy and Management
Learning Objectives
After completing this lecture, students should be able to:
• Describe the difference between strategic positioning and
operational effectiveness.
• Describe strategy hierarchy in an organization.
• Describe the concept of strategic fit in a firm.
• Describe the meaning of focused operations in a firm and
plant-within-plant.
• Describe how a firm can match products with processes using
the product-process matrix.
• Describe the concepts of competitive product space and
operations frontier.
• Describe important milestones in the evolution of operations
management.
Competitive Product Space (CPS)
• Representation of a firm’s product/service portfolio
• Four dimensional space – how do we compete in terms of
product attributes/process competencies?
– Cost, delivery response time, variety, and quality.
– A product/service is a point in the product space.
– Our portfolio might be a cluster of points in the product space.
• How do we differentiate ourselves to create order winners?
– Unique combination of the 4 dimensions among our competitors
for our target markets.
• Graphically impossible to display unless some dimensions
are not different among competitors.
– Illustrative to explain it in two dimensions.
Strategy in the CPS
(firms A and B)
Product/Service Variety
High
B
A
Low
Low
High
Cost Efficiency (how lean are we?)
Strategic Positioning
• Defines by the current position in the CPS and the
intended direction of strategic movement.
• Shows how a firm’s strategy is different from that of
the competition.
• To compete in the marketplace, a firm needs to
support its strategic position better than other firms.
• This is achieved by developing the right processes
and operating policies – which leads to operational
effectiveness.
– Processes and operating policies are designed to foster
positive external performance measures as compared to the
competition in our CPS.
Operational Effectiveness
• An effective process produces outputs that meet customer
needs/wants while simultaneously achieving
organizational objectives.
• An efficient process produces outputs without
unnecessarily wasting organizational inputs and resources.
• Some efficiency in all areas can be achieved through lean
efforts (removal of unnecessary waste)
• Can be effective, but not efficient, and vice versa
• Proper order is effectiveness first, and then efficiency.
• Operational effectiveness combines both concepts
– Developing right processes and operating policies to support its
strategic position better than industry competitors
Strategy Hierarchy
• Corporate Strategy
– Types of business in which the firm will participate.
– Honda (motorcycles, marine, automobiles, engines, etc.)
– Acquisition/allocation of key resources to each business.
• Business Unit Strategy – external focus
– Scope of the business unit (product/market/service segments).
– Acura (Honda) serves the upscale automobile market.
– Strategic positioning of the business unit by selecting key
product attributes (Acura = quality)
• Operations Strategy (all functions) – internal focus
– Designs, plans, and manages processes that produce the
products with attributes defined in the business strategy
– Determines needed process competencies.
Strategic Fit
• Key conditions for operational effectiveness is strategic fit
among a firm’s strategic position, process architecture, and
managerial policies.
• Consistency between different levels of strategy is critical, but
does not always exist.
– Consistency can be lost it top managers lack knowledge
about the firm’s basic business processes.
– Consistency can be lost if lower level managers are
unfamiliar with corporate strategy, yet are given the sole
authority to make important process decisions.
• Market-driven strategy – competitive priorities lead to process
development (most commonly used)
• Process-driven strategy – unique processes lead to new
markets (developing competitive priorities)
– Commonly used by innovative and/or technology firms
Focused Operations
• A product portfolio that has a close cluster of points in the
CPS is focused (narrow product line, limited market
segments).
• A product portfolio that has points dispersed over a large
area in the CPS lacks focus.
• Focused strategy must be supported by focused processes.
• Focused processes require a focused plant.
• The benefit of focused operations is that it is difficult to
imitate a firm’s overall strategy.
• Unfocused portfolios can achieve the benefits of a
focused plant/processes using the plant-within-plant
(PWP) concept (separately managed miniature plants in a
large plant using focused sub-strategies/processes).
Plant-Within-Plant (PWP)
Together? = slower, higher
cost, quality issues
Product Line A
• Used flow shop
• Higher speed
• Lower cost
• Highly consistent quality
• No need for flexibility
Product Line B
• 2 job shops for machining
and assembly
• More flexibility
• Moderate speed
• Higher cost
• Consistent quality
Product-Process Match
Process
Flexibility
High
JOB SHOP
Jumbled Flow.
Process segments
loosely linked.
(Commercial Printer,
Architecture firm)
BATCH
Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.
(Heavy Equipment,
Auto Repari)
LINE FLOWS
Connected Line
Flow (assembly line)
Continuous, automated,
rigid line flow.
Process segments tightly
linked.
Low
(Auto Assembly,
Car lubrication shop)
CONTINUOUS
FLOW
(Oil Refinery)
Low
High Standardization
Commodity Products
High volume
High
Few Major Products
Many Products
Low Standardization
One of a kind
Low Volume
Product
Variety
Operational Effectiveness
& the Operations Frontier
Responsiveness
High
A
B
operations
frontier
C
Low
Low
Cost Efficiency
High
Healthcare Example and PWP
Responsiveness
World-class
Emergency Room
operations
frontier
One general
facility
World-class
(non-emergency)
Hospital
Cost efficiency
Historical Development of OM
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1765: Factory System (Adam Smith, James Watt)
1810: American System of Mfg (Whitney’s interchangeable parts)
1890s: Bicycle boom (sheet metal stamping, electrical resistance welding)
1900s: Scientific Management >> Time & motion studies (Frederick
Taylor)
1913: Mass Production (Henry Ford’s Moving Assembly Line)
1927: Flexible Mass Production (Alfred Sloan & GM)
1930s: Statistical Quality Control (Walter Shewhart at Bell Labs, Hawthorn
Studies - Elton Mayo at Western Electric)
1970s: Toyota Production System (Taiichi Ohno)
1980s: Lean Ops: JIT, CAD/CAM, CIM, FMS, TQM, business
reengineering
1990s and beyond: Growth of IT, ERP, Internet-based processes