OM Chapter-2

Cont’d
Operations strategy is a long-range plan for the

operations function that specifies the design and
use of resources to support the business strategy.
Just as the players on a football team support the
team’s strategy, the role of everyone in the
company is to do his or her job in a way that
supports the business strategy.
1 01/27/2023
Cont’d
Strategy is seen as complex in nature due to a high degree of uncertainty
in future consequences arriving from decisions, integration is required of
all aspects and functional areas of business and major change may have to
be implemented as a consequence of strategic choices made.
Operations strategy is concerned with both what the operation has to do in

order to meet current and future challenges and also is concerned with the
long-term development of its operations resources and processes so that
they can provide the basis for a sustainable advantage for the
organizational success.
2 01/27/2023
Cont’d
Levels of Strategy
Strategy can be seen to exist at three main levels within the

organization.
At the highest or corporate level the strategy provides very

general long-range guidance for the whole organization,
often expressed as a statement of mission.
The mission statement describes in general terms what key

decision-makers want the company to accomplish and what
3 01/27/2023
kind of company they want it to become.
Cont’d
The second level of strategy is termed a business strategy
and may be for the organization or at the strategic business
unit level in larger diversified companies.
There the concern is with the products and services that
should be offered in the market defined at the corporate
level.
The third level of strategy is termed the operational or
functional strategy were the functions of the business (e.g.
operations, marketing, and finance) implemented.
4 01/27/2023
Cont’d
Since the operations function is responsible in large part for the
delivery of the product/service it has a major responsibility for
business strategy formulation and implementation.
This model implies a ‘top-down’ approach to strategy formulation
in which corporate goals are communicated down to business and
then functional areas.
Although there has always been interaction within this hierarchy in
both directions in this model the role of functional areas such as
operations in setting the framework for how a company can
compete
5
is being recognized. 01/27/2023
Cont’d
Strategic decisions can be classified as those decisions
which make major long term changes to the resource base of
the organization in response to external factors.
Thus strategic decisions occur as a result of an evaluation of

the external and internal environment.
The external evaluation may reveal market opportunities or

threats from competitors.
The evaluation of the internal environment may reveal

6 01/27/2023
limitations in capabilities relative to competitors.
Cont’d
 Role of Operations in Strategy Development
The operations function plays an important role in the formulation

and delivery of the organization’s strategy.
Market conditions have changed from a mass production era with

an emphasis on high volume, low cost production to an
environment demanding performance on measures such as quality
and speed of delivery as well as cost.
In addition the rapid pace of change in markets means the basis of

how the organization will compete may change quickly over time.
7 01/27/2023
Cont’d
Figure-21: Relationship between the business strategy and the functional strategies
8 01/27/2023
Cont’d
The traditional approach to strategy development has been for
senior managers to establish corporate objectives, develop a
strategy for meeting these objectives and then to acquire resources
necessary to implement the chosen strategy.
This approach is intended to ensure that resources are directed

efficiently at the areas identified as ‘strategically’ important from
the strategic analysis.
The approach is based on the firm’s ability to forecast future

market conditions and thus identify gaps between future market
9 01/27/2023
needs and organizational capability.
Cont’d
However in dynamic markets the ability to forecast far enough
into the future in order to build a competitive advantage will be
limited.
Also this approach has led to an emphasis on relatively short-term

objectives and a lack of emphasis on ‘behavioral’ factors such as
performance evaluation systems and selection and development of
the work-force.
The idea is that in dynamic market conditions the strategic plan

should indicate the general direction that the organization should
10 01/27/2023
follow based on the capabilities and values it possesses.
Cont’d
Operations Competitive Priorities
Operations should focus on specific capabilities that give it a

competitive advantage, which may be termed competitive
priorities.
Four operations priorities or measures of these capabilities

can be termed cost, time, quality and flexibility.
11 01/27/2023
Sudden Quiz
Q1. Whatis operations strategy?
Q2. Indicate and discuss the four
Operations Competitive Priorities
Q3. Indicate and elucidate the level at
which operation strategy is formulated in
big organization.
Q4. What is volume flexibility? Discuss it.
Q5. What is product flexibility? Elucidate
it.
12 01/27/2023
Cont’d
Cost
If an organization is competing on price then it is essential that it

keeps its cost base lower than the competitor.
Then it will either make more profit than rivals, if price is equal, or
lower.
Cost is also important for a strategy of providing a product to a market

niche, which competitors cannot provide.
The major categories of cost are staff, facilities (including overheads)

and material with the greatest scope for cost reduction.
13 01/27/2023
Cont’d
Time
The time delay or speed of operation can be measured as the

time between a customer request for a product/service and
then receiving that product/service.
Speed is an important factor to the customer in making a

choice about which organization to use.
14 01/27/2023
Cont’d
Thus the advantage of speed is that it can either be used
to reduce the amount of hypothetical activity and keep
the delivery time constant or it can reduce overall
delivery lead time.
Thus in competitive terms speed can be used to both
reduce costs (making to inaccurate forecasts) and reduce
delivery time.
15 01/27/2023
Cont’d
Quality
Quality covers both the quality of the product/service itself and

the quality of the process that delivers the product/service.
Quality can be measured by the ‘cost of quality’ model where

costs are categorized as either the cost of achieving good quality
(the cost of quality assurance) or the cost of poor quality products
(the costs of not conforming to specifications).
The advantages of good quality on competitiveness include

increased reliability, reduced costs and improved customer
16 01/27/2023
service.
Cont’d
Flexibility
There are a number of areas in which flexibility can be
demonstrated.
For example it can mean the ability to offer a wide variety of
products/services to the customer and to be able to change these
products/services quickly.
Flexibility is needed so the organization can adapt to changing
customer needs in terms of product range and varying demand and
to cope with capacity underperformances due to equipment
17 01/27/2023
breakdown or component shortage.
Cont’d
Types of flexibility include product flexibility which is the
ability to be able to quickly act in response to changing
customer needs with new product/service designs and
volume flexibility which is the ability to be able to decrease
or increase output in response to changes in demand.
Volume flexibility may be needed for seasonal changes in

demand as services may have to react to demand changes
minute by minute.
18 01/27/2023
Cont’d
19 Operations strategy and the design of the operations function 01/27/2023

Cont’d
2.2. Operations Strategy In Manufacturing
Manufacturing strategy was the forerunner of the wider aspects of
operations strategy.
Manufacturing strategy was established as a core topic in operations
management by the major contributions from US academics as well as
from the UK that had pointed out that not only was the manufacturing
function being neglected as a strategic element of the planning process,
but also the linkage between manufacturing and strategic planning was
elusive and ill-defined.

20 01/27/2023
Cont’d
Although there are no absolute agreements about the role of
manufacturing strategy, most writers agree that its potential
role can be both central and pivotal.
For manufacturing strategy to be useful, it needs to have

consistency among decisions that affect business-level
strategy, competitive priorities and manufacturing
infrastructure.
21 01/27/2023
Cont’d
Much of the degree to which manufacturing strategy will be
effective relies on:
 the internal consistency of manufacturing strategy,
 manufacturing capabilities,
 marketing,
 manufacturing congruence, and their effects on manufacturing
performance.
There is some confusion in terms of both where and when

operations strategy might appear within the overall strategic
22 01/27/2023
planning process of the firm.
Cont’d
For example, it has been questioned whether operations strategy has
been replaced by specific approaches such as JIT and TQM
summarize the perceived confusion concerning operations strategy
as applied to manufacturing when they ask.
Manufacturing strategy consists of a sequence of decisions that,

over time, enables a business unit to achieve a desired
manufacturing structure, infrastructure and set of specific
capabilities.
23 01/27/2023
Cont’d
The scope of structural/infrastructure areas that can form part of
manufacturing strategy is the wide-ranging and can include quality
capabilities including:
 quality requirements that a plant might demand from its supplier base
 manufacturing processes
 investment requirements
 skills audits
 capacity requirements
 inventory management throughout the supply chain and new product
24
innovation. 01/27/2023
Cont’d
Manufacturing strategy is concerned with combining
responsibility for resource management (internal factors) as well
as achieving business (external) requirements of the organization.
Manufacturing strategy is viewed as the effective use of

manufacturing strengths as a competitive weapon for the
achievement of business and corporate goals.
Although applied to manufacturing, the above analysis is equally

relevant to services. Hence we can refer to an ‘operations
strategy’ applicable to any business organization.
25 01/27/2023
Service Operation Strategies
Top managers should ask themselves six questions about strategic
management. The questions are fairly common, but the answers for
service businesses are often unique. Each question will be raised here
and discussed in depth later.
1. Do we fully understand the specific type of service business we are
in? Although service-oriented businesses are different from product-
oriented businesses, the nature of the difference depends a great deal on
the specific type of service business. I will present a classification
scheme to help distinguish between service businesses along some
important strategic dimensions.
2. How can we defend our business from competitors? Every business
must consider how it can build and protect a strong competitive position.
To do this, the economics of the business must be carefully analyzed.
Service businesses often require different competitive strategies from
those of product-oriented companies. If an enduring institution is to be
created, some attention must be given to the management of economies
26 of scale, proprietary technology, and reputation of the company.
Cont…
3. How can we obtain more cost-efficient
operations? Manufacturing companies can improve
operating leverage by, for example, purchasing faster
and more reliable machinery. But most service
businesses are not able to follow this approach. Other
methods must be explored.
4. What is the rationale for our pricing strategy? The
pricing of services is a nebulous area. Cost-based
pricing is often difficult to determine, and there are
few formulas for effective value-based pricing. It is
important to look at pricing strategy and think about
the economic and psychological effects of a change in
that strategy.
27
Cont…
5. What process are we using to develop and test new
services? Every company depends on an ability to renew its
franchise in the marketplace. The service-oriented company
must pay particular attention to this area because of the
difficulty of developing protectable competitive positions. The
process of new-service development and testing must recognize
the abstract, perishable nature of services.
6. What acquisitions, if any, would make sense for our
company? Once the nature of the current business is
understood, the acquisition question can be faced. The
acquisition game in the service sector can be dangerous. More
than one company has acquired a service business using only
criteria that would be used in the acquisition of a product-
oriented company. As several of these companies have learned,
28
this type of analysis, although necessary, is insufficient.

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Cont’d

Operations strategy is a long-range plan for the

Operations strategy is concerned with both what the operation has to do in

Strategy can be seen to exist at three main levels within the

At the highest or corporate level the strategy provides very

The mission statement describes in general terms what key

Thus strategic decisions occur as a result of an evaluation of

The external evaluation may reveal market opportunities or

The evaluation of the internal environment may reveal

The operations function plays an important role in the formulation

Market conditions have changed from a mass production era with

In addition the rapid pace of change in markets means the basis of

This approach is intended to ensure that resources are directed

The approach is based on the firm’s ability to forecast future

Also this approach has led to an emphasis on relatively short-term

The idea is that in dynamic market conditions the strategic plan

Operations should focus on specific capabilities that give it a

Four operations priorities or measures of these capabilities

If an organization is competing on price then it is essential that it

Cost is also important for a strategy of providing a product to a market

The major categories of cost are staff, facilities (including overheads)

The time delay or speed of operation can be measured as the

Speed is an important factor to the customer in making a

Quality covers both the quality of the product/service itself and

Quality can be measured by the ‘cost of quality’ model where

The advantages of good quality on competitiveness include

Volume flexibility may be needed for seasonal changes in

19 Operations strategy and the design of the operations function 01/27/2023

Manufacturing strategy was the forerunner of the wider aspects of

Manufacturing strategy was established as a core topic in operations

management by the major contributions from US academics as well as

function being neglected as a strategic element of the planning process,

elusive and ill-defined.

For manufacturing strategy to be useful, it needs to have

 manufacturing congruence, and their effects on manufacturing

There is some confusion in terms of both where and when

Manufacturing strategy consists of a sequence of decisions that,

 inventory management throughout the supply chain and new product

Manufacturing strategy is viewed as the effective use of

Although applied to manufacturing, the above analysis is equally

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