Operation Management Strategy
Chapter 3
Slack et al
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What is strategy?
Strategic decisions – means those decisions which …
Are widespread in their effect on the organization to
which the strategy refers
Define the position of the organization relative to its
environment
Move the organization closer to its long-term goals.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
‘Operations’ is not the same as ‘operational’
‘Operations’ are the resources that create products and
services
‘Operational’ is the opposite of strategic, meaning day-today and detailed
So, one can examine both the operational and the
strategic aspects of operations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The strategy hierarchy
Key strategic
decisions
Influences on
decision making
Corporate
strategy
What business to be in?
What to acquire?
What to divest?
How to allocate cash?
Economic environment
Social environment
Political environment
Company values and ethics
Business
strategy
What is the mission?
What are the strategic
objectives of the firm?
How to compete?
Customer/market dynamics
Competitor activity
Core technology dynamics
Financial constraints
Functional
strategy
How to contribute to the
strategic objectives?
How to manage the
function’s resources?
Skills of function’s staff
Current technology
Recent performance of the
function
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is …
‘… Operations strategy is the total pattern
of decisions and actions which set the role,
objectives and activities of the operation so
that they contribute to and support the
organisation’s business strategy …’
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Purposes of Operations Strategy
• To contribute directly to the strategic
objectives of the next level up in the hierarchy;
• To help other parts of the business make their
own contribution to strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is different from operations management
Example: capacity decisions
Short-term
capacity decisions
Long-term
capacity decisions
Demand
Operations strategy
Demand
Time scale
Operations management
1–12 months
1–-10 years
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is different from operations management
Operations management
Level of
analysis
Micro
level of the process
Operations strategy
Macro
level of the total operation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is different from operations management
Operations management
Level of
aggregation
Detailed
Operations strategy
Aggregated
For example
For example
“Can we give tax services to
the small business market in
Antwerp?”
“What is our overall
business advice capability
compared with other
capabilities?”
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is different from operations management
Operations management
Level of
abstraction
Concrete
Operations strategy
Philosophical
For example
For example
“How do we improve our
purchasing procedures?”
“Should we develop
strategic alliances with
suppliers?”
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The four perspectives on operations strategy
Top-down
perspective
What the business
wants operations
to do
Operations
resources
perspective
What operations
resources can do
Operations
strategy
Market
requirement
perspective
What the market
position requires
operations to do
What day-to-day
experience suggests
operations should do
Bottom-up
perspective
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Top-down and bottom-up perspectives of strategy
Corporate strategy
Business strategy
Operations strategy
Emergent sense of what the
strategy should be
Operational experience
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Resources
Tangible
•Equipment
•Staff
Intangible
•Reputation
•Relationships
(internal and external)
•Experience
Operations Strategy
Decisions
Capabilities
• Application of leading-
•Location
•Virtual reality technology
•Supplier development
•Equipment tracking system
•Organizational structure
•Staff meetings
edge lighting and
sound technology
• Articulation of client
requirements
Processes
• Integration of equipment
supply and client
requirements
• Design process
• Supplier liaison process
The operations resource perspective analysis of the
lighting company
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Customer
Needs
Performance
Objectives
Market
Positioning
Competitors’
Actions
Required
performance
Understanding
markets
The market perspective on operations strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Market requirements and operations resources
perspectives of operations strategy
Strategic
reconciliation
Operations
resources
OPERATIONS
STRATEGY
Market
requirements
Operations strategy reconciles the requirements of the
market with the capabilities of operations resources
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Market
requirements
Operations
resources
What you
HAVE
What you
DO
in terms of
operations
capabilities
to maintain
your
capabilities
and satisfy
markets
What you
WANT
What you
NEED
from your
operations to
help you
‘compete’
to ‘compete’ in
the market
Strategic
reconciliation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy is the strategic reconciliation of
market requirements with operations resources
Operations Resources
Strategic
Reconciliation
Market
Segmentation
Operations
Resources
Operations
Competences
Operations
Strategy
Decisions
Performance
Objectives
Market
Positioning
Competitor
Activity
Operations
Processes
Understanding
Resources and
Processes
Market Requirements
Strategic
Decisions
Capacity
Supply networks
Process technology
Development and
organization
Required
Performance
Understanding
Markets
Quality
Speed
Dependability
Flexibility
Cost
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The Content of Operations
Strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Relative Importance of each
performance objective
• The Influence of the organisation’s customers
• The influence of the organisation’s competitors
• The stage of organisation’s products and
services in their life cycle
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Customer influence on
performance objectives
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Different competitive factors imply different performance
objectives
Competitive factors
If the customers value these ...
Performance objectives
Then, the operations will need to
excel at these ...
Low price
Cost
High quality
Quality
Fast delivery
Speed
Reliable delivery
Dependability
Innovative products and services
Flexibility (products and services)
Wide range of products and services
Flexibility (mix)
Ability to change the timing or quantity
of products and services
Flexibility (volume and/or delivery)
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Order Winning and Qualifying
Objectives
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Order-winning, qualifying and less important competitive
factors
Competitive
benefit
Order-winning factors
+ve
Neutral
–ve
Performance
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
• Show a steady and significant increase in their
contribution to competitiveness as the
operation gets better at providing them
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Order-winning, qualifying and less important competitive
factors
Competitive
benefit
Qualifying factors
+ve
Neutral
–ve
Qualifying
level
Performance
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
• Only start to make a contribution to
competitiveness when the operation manages
to raise its performance to a qualifying level.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Order-winning, qualifying and less important competitive
factors
Competitive
benefit
Less important factors
+ve
Neutral
–ve
Performance
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
• Little important impact on the customers no
matter how well the operation performs them
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Different customer needs imply
different objectives
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Stages of PLC
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Sales
volume
The effects of the product/service life cycle on the
organization
Introduction
Volume Slow growth in
sales
Customers Innovators
Competitors Few or none
Variety of
product /
service
design
Possible high
customization or
frequent design
changes
Growth
Maturity
Decline
Rapid growth in
sales volume
Sales slow down
and level off
Market needs
largely met
Early adopters
Bulk of market
Laggards
Increasing
numbers
Stable number
Declining
numbers
Increasingly
standardized
Emerging
dominant types
Possible move to
commodity
standardization
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Sales
volume
The effects of the product/service life cycle on the
organization
Introduction
Likely order Product/service
winners characteristics,
performance or
novelty
Likely Quality
qualifiers Range
Dominant Flexibility
operations Quality
performance
objectives
Growth
Maturity
Decline
Availability of
quality
products/services
Low price
Dependable
supply
Low price
Price
Range
Quality
Range
Dependable
supply
Speed
Dependability
Quality
Cost
Dependability
Cost
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Methods to Develop Operations
Strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The Hill Methodology
• Based on the top driven and market driven
perspectives
• Steps
– Step 1 – understanding the long-term corporate
objectives
– Step 2 – how the marketing strategy has developed
to achieve the corporate objectives
– Step 3 – translates marketing strategy into
‘competitive factors’ – order winning and
qualifying
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Step 4 – Process choice – define a set of
structural characteristics of the operation which
are consistent with each other and appropriate
for the way the company wishes to compete
Step 5 – Infrastructural features of the operation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Step 1
Step 2
Step 3
Corporate
objectives
Marketing
strategy
How do products
or services win
orders?
• Growth
• Profit
• ROI
• Other ‘financial’
measures
• Product/service • Price
markets and
segments
• Range
• Mix
• Volumes
• Standardisation
or
customisation
• Innovation
• Leader or
follower
• Quality
• Delivery speed
• Delivery
dependability
• Product/service
range
• Product/service
design
Step 4
Step 5
Operations strategy
Process choice
• Process
technology
• Trade-offs
embodied in
process
• Role of
inventory
• Capacity, size,
timing, location
• Brand image
Infrastructure
• Functional
support
• Operations
planning and
control systems
• Work structuring
• Payment
systems
• Organisational
structure
• Technical
service
The Hill framework of operations strategy
formulation
© Nigel Slack and Michael Lewis 2003
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The Platts Gregory procedure
• 3 stages. 1) market position, 2) operations
capabilities, 3) reviewing operations strategies,
after doing 1) and 2)
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
OPPORTUNITIES
AND THREATS?
THE EXISTING OPERATION
WHAT THE
MARKET WANTS?
• Features
• Quality
• Delivery
• Flexibility
• Price
HOW THE
OPERATION
PERFORMS
• Facilities
• Capacity
• Span of process
• Processes
• Human resources
• Quality
• Control policies
• Suppliers
• New Products
WHAT DO WE NEED
TO DO TO IMPROVE
THE REVISED
OPERATIONS
STRATEGY?
• Features
• Quality
• Delivery
• Flexibility
• Price
The Platts-Gregory procedure
© Nigel Slack and Michael Lewis 2003
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Market requirements
Product
family
Delivery
lead-time
Achieved performance
Ex-stock
Short
Not significant
Long
Into stock point
Variable
Critical: Project delay
Good
Fit for purpose
Few features
Many features/
High absolute level
Acceptable at price
Acceptable
Total reliability essential
High
Reliability
Features
Quality
Flexibility
design
Standard range only
Standard only
Volume
All designs customer specified
All products customised
Stable market
Little variation required
Volume variations low
Highly cyclic variable market
Volume variations high
Price competition
dominant
Low
Non-price competition
dominant
High
Price cost
Uses of profiling in the Platts-Gregory procedure
© Nigel Slack and Michael Lewis 2003
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The challenge of operations strategy formulation
An operations strategy should be:
Appropriate ...
Comprehensive ...
Coherent ...
Consistent over time ...
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
An implementation agenda is needed
When to start?
Where to start?
How fast to proceed?
How to coordinate the implementation
programme?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The five P’s of operations strategy implementation
Purpose – a shared understanding of the motivation,
boundaries and context for developing the operations
strategy
Point of entry – the point in the organization where the
process of implementation starts
Process – how the operations strategy formulation process
is made explicit
Project management – the management of the
implementation
Participation – who is involved in the implementation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Trade-offs
“Do you want it good, or do you want it Tuesday?”
“No such thing as a free lunch.”
“You can’t have an aircraft which flies at the speed of sound,
carries 400 passengers and lands on an aircraft carrier.
Operations are just the same.” (Skinner)
“Trade-offs in operations are the way we are willing to
sacrifice one performance objective to achieve
excellence in another.”
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Strategic decisions
Decisions that are widespread in their effect, define the
position of the organization relative to its environment,
and move the organization closer to its long-term goals.
Top-down
The influence of the corporate or business strategy on
operations decisions.
Bottom-up
The influence of operational experience on operations
decisions.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Market requirements
The performance objectives that reflect the market position
of an operation’s products or services; also a perspective
on operations strategy.
Operations resource capabilities
The inherent ability of operations processes and resources;
also a perspective on operations strategy.
Business strategy
The strategic positioning of a business in relation to its
customers, markets and competitors; a subset of
corporate strategy.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Functional strategy
The overall direction and role of a function within the
business; a subset of business strategy.
Emergent strategy
A strategy that is gradually shaped over time and based on
experience rather than theoretical positioning.
Competitive factors
The factors such as delivery time, product or service
specification, price, etc. that define customers’
requirements.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Order-winning factors
The arrangement of resources that are devoted to the
production and delivery of products and services.
Qualifying factors
Aspects of competitiveness where the operation’s
performance has to be above a particular level to be
considered by the customer.
Less important factors
Competitive factors that are neither order-winning nor
qualifying; performance in them does not significantly
affect the competitive position of an operation.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Product/service life cycle
A generalized model of the behaviour of both customers and
competitors during the life of a product or service; generally held
to have four stages: introduction, growth, maturity and decline.
Resource-based view (RBV)
The perspective on strategy that stresses the importance of
capabilities (sometimes known as core competences) in
determining sustainable competitive advantage.
Intangible resources
The resources within an operation that are not immediately evident
or tangible, such as relationships with suppliers and customers,
process knowledge, new product and service development.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007