Chapter 2
Operations Strategy and
Performance Management
Strategy and
Strategic Planning
Corporate Strategy
A set of objectives, plans, and policies for the
organization to successfully compete in its
markets.
 Long range (3 to 5 years)
 It specifies what organization’s competitive
advantage will be
 Focuses on few key areas
Corporate Strategy
Outline of Corporate Strategy
 Specifies business(es) of the company (new
products/services)
 Identifies opportunities & threats of the
environment (environmental responses)
 Determines growth objectives (goals)
 Differentiates from others (core competencies)
 Global strategies (Strategic alliance, Locating
abroad)
A well formulated strategy helps to
marshal
and
allocate
an
organization’s resources into a
unique and viable posture based on
its relative internal competencies and
shortcomings, anticipated changes in
the environment, and contingent
moves by intelligent opponents
•Organizational resources:
•assets
•capabilities
•functional strengths
•technology
•product development
•process & market expertise
•Posture:
•competitive priorities
Considerations…
•Responding to flexibility
•competition, manpower, volume,
technology, etc.
•Adjusting to business environment
•through environmental assessment
•Identifying Core Competencies
•unique resources and strengths
Strategy Formulation
Mission and Vision
Statements
• Mission statements express
organization’s purpose or reason for
existence.
Includes: Products, technologies, market,
customers, competencies
• Vision statements used to express
organization’s values and aspirations Solectron: “Be the best and continuously
improve”.
Core Competencies
• Collective knowledge and skills an
organization has that distinguish it from the
competition.
• Typically center on an organization’s ability
to integrate a variety of specific
technologies and skills in the development
of new products and services.
• Building blocks of core capabilities.
Core Competencies
continued
• Are basis on which new outputs are
developed.
• Better to think of organization in terms of
its portfolio of core competencies than as a
portfolio of products.
• Identifying and developing core
competencies is one of top management’s
most important roles.
Core Capabilities
• Organization practices and business
processes
• Transferring out core processes could
result in Hollowed Out and Creeping
Breakeven Phenomenon effects
Core Competencies Used to
Gain Access to Variety of
Markets
• Cannon
– core competencies in optics, imaging, and
electronic controls
– Products include copiers, laser printers,
cameras, and image scanners.
• Boeing
– integrating large scale systems
– commercial jetliners, space stations,
missiles
Key Characteristics of Core
Competencies/Capabilities
• Should be used to gain access to a
variety of markets
• Should be strongly related to key
benefits provides by products or
services
• Should be difficult to imitate
Repercussions of Extensive
Outsourcing Activities
• Hollowed Out Phenomenon
• Creeping Break-even Phenomenon
Hollowed Out
• The extent that most of a firm’s complex
parts and production are outsourced
• Often when complex parts outsourced,
engineering talent follows
• Supplier may become competitor
Creeping Breakeven
Phenomenon
• Viscous cycle where products appear to
become more expensive to produce inhouse as others are outsourced.
– Result from ways overhead is allocated
• Logical conclusion is organization ends
up producing no outputs.
Market Analysis
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
•segmentation
•needs assessment
Market Analysis
 To understand what customers want and
provide it better than the competitors do.
 How?
– Market segmentation
– Needs assessment for each segment
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive priorities
Operations
Marketing
•cost
•quality
Finance
•time
•flexibility
Others
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
These priorities can be grouped into 4
categories:
Cost
Quality
Time
Flexibility
1.
2.
3.
4.
5.
6.
7.
8.
Low-cost operations
High-performance design
Consistent quality
Fast delivery
On-time delivery
Development speed
Customization
Volume flexibility
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive priorities
Operations
• cost
• quality
• time
• flexibility
Marketing
Finance
Others
Functional Area Strategies
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive
priorities
Operations
• cost
• quality
• time
• flexibility
Marketing
Finance
Others
•The means to
implement Corporate
Strategy
•Links ST and LT
Operations
decisions
•Cross-functional
coordination
Functional area strategies
•finance
•marketing
•operations
•others
Capabilities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive
priorities
Operations
• cost
• quality
• time
• flexibility
Functional area
strategies
•
•
•
•
finance
marketing
operations
others
Capabilities
Marketing
Finance
Others
• current
• needed
• plans
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Operations strategy
Services
Manufacturing
• Standardized services • Make-to-stock
• Assemble-to-order
• Assemble-to-order
• Customized services • Make-to-order
Operations Strategy
Standardized Service
Assemble-to-order
Customized services
Competitive priorities
Consistent quality
On time delivery
Low cost
Customization
Fast Delivery
High performance Design
Customization
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Operations strategy
Services
Manufacturing
• Standardized services • Make-to-stock
• Assemble-to-order
• Assemble-to-order
• Customized services
• Make-to-order
Operations Strategy
Make to Stock
Assemble-to-order
Make-to-Order
Competitive priorities
Standardized Product
Accurate Forecast
Consistent quality
On time delivery
Low cost
Customization
Fast Delivery
High performance Design
Customization
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Operations strategy
Services
• Standardized services
• Assemble-to-order
• Customized services
Manufacturing
• Make-to-stock
• Assemble-to-order
• Make-to-order
• Process decisions
• Quality decisions
• Capacity, location, and layout decisions
• Operating decisions
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Operations strategy
Services
• Standardized services
• Assemble-to-order
• Customized services
Manufacturing
• Make-to-stock
• Assemble-to-order
• Make-to-order
• Process decisions
• Quality decisions
• Capacity, location, and layout
decisions
• Operating decisions
Capabilities
Three Perspectives on
Operations Strategy
Operations Strategy as:
•Rational
•Product-Process Matrix
•Organizational
•Strategy development & strategy deployment
(“honshin kanri”)
•Political
Operations-Based Strategy
 Strategy too often a high-level chess game
 Operations is foundation for strategy
– Attack larger, entrenched competitors
– Buttress (support) existing competitive advantage
– Inherently difficult to imitate
 Examples
–
–
–
–
Australian Paper Manufacturers
Crown Equipment
Southwest Airlines, Wal-Mart
American Connector Company (counterattack)
Hayes and Upton, “Operations-Based Strategy,” California Mgmt. Review, Summer 1998.
Attacking through Operations
 Appeal to different customer needs
– Differentiate from current players
• Price, quality, flexibility, speed, innovation
– Build consistent operations infrastructure
• Integrated values, skills, technologies, relationships, …
• Difficult for competition to duplicate
 Build experience and capabilities
– Get down the learning curve
– Means of building capabilities
• Process, systems, and/or organization-based
Hayes and Upton, “Operations-Based Strategy,” California Mgmt. Review, Summer 1998.
Defending through Operations
 How to defend against ops-based attacks?
1. Exploit own internal strengths
Reemphasize existing capabilities
2. Attack attacker’s ops-based weaknesses
Focus on what attacker cannot do
3. Emulate attacker’s strategy, but faster
Acknowledge threat and respond rapidly
Hayes and Upton, “Operations-Based Strategy,” California Mgmt. Review, Summer 1998.
Ops Strategy Sustains
Advantage
 Operations-based strategies are robust
 Difficult to replicate, slow to diffuse
– Require substantial organizational change and
realignment
– Impact management philosophy and corporate culture
 Dynamic and unpredictable
– Continuous improvement, ongoing invention
– Learn and adapt quickly
Hayes and Upton, “Operations-Based Strategy,” California Mgmt. Review, Summer 1998.
Operations-Based Lessons
 Ops capabilities cannot be bought of shelf
– Ops capabilities take a long time to develop
 Develop rapid organizational learning
– Ops capabilities often recognized after the fact
 Quickly recognize latent threats
– Don’t ignore small or foreign competitors
 Don’t strive for “best practice,” search for
“new practice”
– Push the envelope of the efficient frontier!
 Focus! Do fewer things, but do them better…
Hayes and Upton, “Operations-Based Strategy,” California Mgmt. Review, Summer 1998.
Measuring Operations
Performance
Common Metrics
•Balanced Scorecard
•Cost and Productivity
•Quality
•Time
•Availability and Flexibility