Operations Strategy

Session 1
An Introduction to Operations Strategy

OPST B2015-17 Prof. Sham Ranjan Shetty

Operations management and strategy

requires analysis at three levels
Flow between operations

Analysis at the
level of the supply
network

Strategic
analysis

Flow between processes

Analysis at the
level of the
operation

Flow between resources

Analysis at the
level of the
process

Operational
analysis

Operations strategy is
the total pattern of decisions
that shape the long-term capabilities
of any type of operation ...
and their contribution to overall strategy
through the on-going reconciliation of market
requirements and operations resources
so as to achieve a sustainable fit between the two
whilst managing the risks of misalignment.

How is operations strategy different from

operations management?
Operations management
Short-term
Timescale
e.g. capacity
decisions

Operations strategy
Long-term

How is operations strategy different from

operations management?
Operations management
Micro
Level of analysis
Concerned with the
macro operation
(level of the firm)

Operations strategy
Macro

How is operations strategy different from

operations management?
Operations management
Detailed

Level of
aggregation
(Concerned with
resources at an
aggregated level)

How do I design the

OPST course to
maximize the limited
learning of the
students?

Operations strategy
Aggregated

How do I increase the

overall appeal of the
Operations Area?

How is operations strategy different from

operations management?
Operations management
Concrete

Level of abstraction
(Concerned with
the conceptual)

How do we improve
our purchasing
procedures?

Operations strategy
Philosophical

Should we develop
strategic alliances with
suppliers?

The sectoral scope of operations strategy

Products or services?
Manufacturing or non-manufacturing?
For profit or not-for-profit?

What is operations strategy about?

The four perspectives on operations strategy topdown, bottom-up, market requirements and
operations resources
Top-down
Operations
strategy should
interpret higher
level strategy

Operations
resources

Market requirements
Operations strategy should
satisfy the organisations
markets

Operations strategy should

build operations capabilities

Operations strategy
should learn from
day-to-day
experiences

Bottom-up

Operations strategy must reflect four perspectives

top-down, bottom-up, market requirements, and
operations resources
Corporate strategy

Business strategy
Top-down
Quality
Speed
Market
Dependability
requirements
Flexibility
Cost

Capacity
Supply networks
Operations
Process technology
resources
Development and
organisation

Bottom-up
Emergent sense of
what the strategy
should be
Operational
experience

Top-down and bottom-up

perspectives of strategy for the
Metrology Company
Corporate objectives impact on
business objectives which, in
turn, influence Operations
Strategy

Top down
Corporate strategy

Business strategy

Operations strategy

Emergent sense of what the

strategy should be
Day-to-day experience of providing
products and services to the market
reveals problems and potential
solutions which become formalised into
Operations Strategy

Operational experience
Bottom up

Top-down and bottom-up

perspectives of strategy for the
Metrology Company
Corporate objectives impact on
business objectives which, in turn,
influence Operations
Strategy

Top down
Group building corporate capability in
high technology products and
services
Metrology division competes on fast-tomarket innovations

Operations must have fast and flexible

technology, supply relationships,
process and staff
Modular strategy provides flexibility
and innovation at relatively low
cost

Day-to-day experience of providing

products and services to the market
reveals problems and potential solutions
which become formalised into Operations
Strategy

Experiment with modular design of

key products and components

Customers confused by continual product

innovation and costs are increasing

Bottom up

Operations strategy reconciles the requirements of

the market with the capabilities of operations
resources
Strategic
reconciliation

Operations
resources

OPERATIONS
STRATEGY

Market requirements

Operations strategy is the strategic reconciliation of

market requirements with operations resources
Tangible and
intangible
resources

Operations
capabilities

Customer
needs

Operations
strategy
decision areas

Performance
objectives

Operations
processes

Understanding
resources
and processes

Market
positioning

Competitors
actions

Strategic decisions
Capacity
Supply networks
Process technology
Development and
organisation

Required performance
Quality
Speed
Dependability
Flexibility
Cost

Understanding
markets

The market requirements and operations

resource analysis of a lighting company
Resources
Equipment
Staff
Reputation
Relationships (internal
and external)
Experience

Capabilities
Application of leading
edge lighting and sound
technology
Articulation of client
requirements

Processes
Integration of equipment
supply and client
requirements
Design process
Supplier liaison process

Operations strategy
decisions
Location
Virtual reality technology
Supplier development
Equipment racking system
Organisational structure
Staff meetings

Performance
objectives
Aesthetically innovative
designs
Presentation advice
High customisation of
lighting solutions
Fast and dependable
supply

Customers
Professional theatres
(static, low margins)
Exhibitions (slow growth,
low margins)
Conferences etc. (fast
growth, higher margins
Market position
Traditionally differentiated
on high service level in
theatre and exhibition
markets, innovation and
service in conference
market
Competitors
Big groups dominating
professional theatres
In-house operations
growing in exhibitions
market
Conference market still
fragmented

The market perspective analysis of a

garment company
CUSTOMERS
Segmentation on:
Age youth
Purpose general

PERFORMANCE OBJECTIVES
Dependability
Speed of delivery
Product mix flexibility
Speed to market

MARKET POSITION
Differentiation on:
Innovative products
Time to market
Product range
Coordinated launches

COMPETITORS
Traditionally weak in:
promotion
design innovation

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

Operations strategy is ..

the decisions which shape the long-term

capabilities of the companys operations and
their contribution to overall strategy through
the on-going reconciliation of market
requirements and operations resources

Decomposing the ratio [Profit/Total Assets] to derive the

four strategic decision areas of operations strategy
Profit
Total assets =

Output
Total assets

Profit
Output

Profit
Output

Output
=
Total assets

Revenue
Output

Cost
Output

Average
revenue

Average
cost

Output
Fixed assets
Capacity

Capacity
Total assets
Fixed assets
Utilisation

Operations strategy Capacity

decision areas

Working capital Productivity of

fixed assets
Supply
network

Process
Development
technology and organisation

Operations strategy decision areas are partly

structural and partly infrastructural
Capacity

Supply network

Process
technology

Development and
organisation

Structural issues

Infrastructural issues

Structural Issues Physical arrangement and configuration of Resources

Infrastructural Issues Activities that take place within the operations
structure

The operations strategy matrix

Market competitiveness

Performance objectives

Resource usage

Quality
Speed
Dependability

Operations strategy

Flexibility
Cost
Capacity

Supply
network

Process
technology

Decision areas

Development
and
organisation

7-Eleven Japan
Largest retailer in Japan
Sells 15.X as much per store as nearest rival
History of cautious expansion and technical and service innovation
Field Counsellors spread operations knowledge (also distance training)
Expansion by territory to reduce distribution costs
Early use of TIS (Total Information System)
TIS controls stock replenishment by twice a day delivery (sales analysed twice
a day)
New systems not Internet-based
New service includes:
Bank terminals
Downloading games
Downloading music to MD
Internet ordering and collection

RESOURCE DEPLOYMENT
Distribution centre
grouping by
temperature

Speed and
dependability combined
to indicate AVAILABILITY

Distribution centres
and inventory
management systems
give fast stock
replenishment

TIS allows trends to

be forecast and
supply adjustments
made

FLEXIBILITY of
response to sales and
customer trends

COST in terms of
minimising
operating cost
capital cost
working capital

Area dominance
reduces distribution
and advertising costs

Location of stores
Size of stores

7-11 JAPAN

Pivotal
Critical
Secondary
CAPACITY

TIS gives
comprehensive and
sophisticated analysis
of sales & supply
patterns daily

Common distribution
centers give small
frequent deliveries
from fewer sources

Number and type of

distribution centres
Order and stock
replenishment

SUPPLY
NETWORKS

Market Competitiveness

Information sharing
and parenting system
spreads service
ideas

QUALITY of products
and services

Field counsellors with

sales data help
stores to minimise
waste and increase
sales

The Total
Information System
(TIS)

Franchisee
relationships

New
product/service
development
Approach to
operations
improvement

PROCESS
TECHNOLOGY

DEVELOPMENT AND
ORGANISATION