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.
MGT3303
Michel 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 are
acquired and allocated.
• One objective:
– Align resources with market
requirements
Komatsu: Famous for its
“circle the cat” strategy
• Two key sets of decisions:
– Positioning decisions
– Resource decisions
MGT3303
Michel 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
MGT3303
Michel 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.
MGT3303
Michel 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.
MGT3303
Michel Leseure
Performance Dimension
• Cost
• Quality
• Time
– Speed (throughput, leadtime)
– Dependability of delivery
• Flexibility
MGT3303
Michel Leseure
Operations Strategy Means
Adding Value for the Customer
Perceived Customer Value 
Total Benefits
Total Costs
Perceived Customer Value  Total Benefits - Total Costs
If benefits exceed costs, the customer
perceives value for the product or service.
“Value is in the eye of the beholder”
What affects customer perceptions of value?
MGT3303
Michel 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
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Michel 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.
MGT3303
Michel 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.
MGT3303
Michel 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.
MGT3303
Michel Leseure
Trade-offs & Technology
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Michel Leseure
Resource Decisions
• Decision made focus on long term longterm 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?
MGT3303
Michel Leseure
Strategy Maps
• A graphical tool developed at the
University of Cambridge to map out the
implementation of a strategy
Time
Business
Strategy
& Objectives
List here external performance
requirements (from market and
stakeholders)
Operations
Objectives
Present agreed internal
performance objectives, i.e.
positioning decisions.
Operations
Strategy
Formulation
Present here the different events
that led to resource decisions
being made (realised).
List here planned
resource decisions.
Operations
Objectives
List here completed
implementation activities.
List here planned
implementation
activities.
Past
Future
Now
Different
From textbook!
MGT3303
Michel Leseure
Example
Time
Business
Strategy
& Objectives
Operations
Objectives
Operations
Strategy
Formulation
Operations
Objectives
Investors complain about variability of
earnings, which affect negatively profit
margin. They demand a less risky
application of innovation skills which
would stabilise earnings.
The idea to develop a
standardised goods
production line is
dismissed as being
inconsistent with the
core competencies of
the firm.
To move into the segment
of robotics integration
systems is a way to
achieve higher cost
performance whilst
maintaining the current
level of flexibility of
operations which is the
trademark of the
company.
Selection of robotics
systems
- a high output (speed)
system would be
consistent with existing
activity
Decision to purchase
prototype robot for
internal training and
commercial purposes
Define investment in
Training
Exclusive integrator
agreement signed with
robot manufacturer X
Purchase robot, install,
and decorate a show
room
Past
Timing of commercial
action. Policy for initial
pricing decisions.
Training for design
engineers and
programmers
Commercial
calls & first quotes.
Future
Now
MGT3303
Michel 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
MGT3303
Michel 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
MGT3303
Michel Leseure