Chapter 1 Business Strategy Context for Operations Strategy McGraw-Hill/Irwin Operations Strategy Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. 1-1 What is strategy? Strategic thinking has its roots in military strategy “The branch of military science dealing with military command and the planning and conduct of a war.” And has evolved to focus on business “An elaborate and systematic plan of action.” 1-2 Competitive Strategy: The Positioning View 1-3 Competitive Strategy: The Positioning View Options for firm positioning: Cost leadership Differentiation Focus And, within each of the three: Variety-based Needs-based Access-based 1-4 Competitive Strategy: The Positioning View SWOT Analysis Strengths Weaknesses Opportunities Threats 1-5 Concerns with the Positioning View Too narrowly focused on industry and product economics rather than customer economics Allows too few options for positioning. Looking at conflicts among positions might lead to new options. Relies too much on analytical tools Does not acknowledge the need for learning and adaptation over time 1-6 Competitive Strategy: The ResourceBased View Competitive advantage is derived from the firm’s development of unique bundles of resources and capabilities that are: Inimitable: are difficult or costly to imitate or replicate Valuable: allow the firm to improve its market position relative to competitors Rare: in relatively short supply 1-7 Competitive Strategy: The ResourceBased View Resource: an observable, but not necessarily tangible, asset that can be valued and traded e.g., brand, patent, parcel of land, license Asset or input to production than an organization owns, controls or has access to on a semi-permanent basis Capability: not observable, and hence necessarily intangible, cannot be valued and changes hands only as part of an entire unit Processes, activities or functions performed within a system Utilize the organization's resources 1-8 Competitive Strategy: The ResourceBased View Types of capabilities Process-based e.g., McDonald’s Systems- or coordination-based e.g., Ritz-Carlton e.g., Southwest Airlines Organization-based e.g., Nucor Steel Network-based e.g., Zara e.g., Dell 1-9 Competitive Strategy: Integrating the Positioning and Resource-Based Views 1-10 How Strategy Is Made 1-11 Levels of Strategy-Making 1-12 Business Strategy: Views the Firm Might Take 1-13 Business Strategy: Focus on the Customer Types of customer needs Must haves Linear satisfiers Delighters Neutral 1-14 Business Strategy: Dimensions along which Customers Assess Performance Cost Quality Availability Features/Innovativeness Environmental performance 1-15 Business Strategy: Dimensions along which Customers Assess Performance 1-16 Business Strategy: Making Tradeoffs in Positioning 1-17 Strategy-Making in Context 1-18 Strategy-Making: Cross-Functional Participation 1-19 Operations Strategy: Goals Cost Quality Availability Features/Innovativeness Environmental Performance 1-20 Operations Strategy: Connecting Operations Goals to Customer Concerns 1-21 Operations Strategy: Decision Categories Structural decisions Infrastructural decisions Vertical integration Process technology Capacity Facilities Sourcing Information technology Supply chain coordination Business processes and policies Capabilities development Lean operation Quality Flexibility 1-22 Strategy-Making: Step 1 Understand what position the firm wants to or can take in the marketplace by learning about: Competitors Suppliers Complementary product or service offerings and firms offering them Spaces outside the industry into which the firm might expand Customer needs in terms of: Cost Quality Availability Features/innovativeness Environmental performance 1-23 Strategy-Making: Step 2 Understand what capabilities the firm has to offer, can or should develop both within and across the key functional areas of the firm: Operations Marketing Research and development Human resources Finance and accounting As well as outside the firm with supply chain partners 1-24 Strategy-Making: Step 3 Integrate or synthesize the activities and capabilities of the functions to achieve: Coherent strategic fit in support of a desired strategic direction Development of a set of capabilities to pursue a new strategic direction 1-25 Integrated Strategy-Making Framework 1-26