Operations Management

Lesson 2
Operations Strategy

International University of the Caribbean

Lecturer: Ms. Gillian Whyte
 RECAP of last class
• Video 1.1 - OM at Hard Rock Café

• Video 1.2 - Transformation Process at

Regal marine

• Video 1.3 - Productivity at Whirlpool

2009/2010 Lecturer: Ms Gillian Whyte 2

IUC (Mel Nathan College)
 Opening Vignette

DELL COMPUTER – Understand

Operations

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IUC (Mel Nathan College)
 Objectives
• Define the term operations strategy
• Describe how operations strategy
relates to the overall business strategy
of the firm
• Explain how mission and strategy
contributes to an effective operations
management effort

2009/2010 Lecturer: Ms Gillian Whyte 4

IUC (Mel Nathan College)
 Objectives
• Identify the trends that impact the role of
operations strategy within an
organization
• Explain the cultural and ethical issues of
an organization’s operations strategy
• Explain how the 10 strategic OM
decisions can aid an organization in
gaining competitive advantage
2009/2010 Lecturer: Ms Gillian Whyte 5
IUC (Mel Nathan College)
 Objectives
• Describe the role of operations strategy as
a source if competitive strength in a global
marketplace

• Explain why global issues are important o

the formulation and implementation of
operation strategies

2009/2010 Lecturer: Ms Gillian Whyte 6

IUC (Mel Nathan College)
 Operations Strategy - Defined

“The means by which operations

implements the firm’s corporate strategy
and helps to build a customer-driven firm”
(Krajewski, Ritzman, & Malhotra; 2007)

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IUC (Mel Nathan College)
 Operations Strategy - Defined
“Operations strategy refers to how the
operations management function
contributes to a firm’s ability to achieve
its competitive advantage in the market
place” (Chase, et al)

2009/2010 Lecturer: Ms Gillian Whyte 8

IUC (Mel Nathan College)
 Operations Strategy - Defined
“Operations is concerned with the
development of a long-term plan for
determining how to best utilize the major
resources of the firm so that there is a
high degree of compatibility between
these resources and the firm’s long-term
corporate strategy”
(Chase et al, 2002)

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IUC (Mel Nathan College)
 Operations Strategy Across the
Organization
Corporate
Strategy

Finance Operations Marketing

Strategy Strategy Strategy

2009/2010 Lecturer: Ms Gillian Whyte 10

IUC (Mel Nathan College)
 Operations Strategy Across the
Organization

Corporate Strategy

Market Analysis

Competitive Priorities

Operations Strategy

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IUC (Mel Nathan College)
 Market Analysis
• Market analysis aids the organization in
understanding what the customers wants
and how to provide it.

• A market analysis divides the firms

customers into market segments and then
identify the needs of each segment

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IUC (Mel Nathan College)
 Market Analysis
• Market Segmentation
– Identifying groups of customers with enough
in common to warrant the design and
provision of services or products that the
group wants and needs.

2009/2010 Lecturer: Ms Gillian Whyte 13

IUC (Mel Nathan College)
 Market Analysis
• Needs Assessment
– Identifies the needs of each segment and
assess how competitors are addressing those
needs
 Trends that Affect Operations
Strategy
• Globalization
– Provides new opportunities for companies in
the form of new previously untapped markets
for their products/services as well as new
sources for raw materials and components

• Technology
– Connectivity
– Speed

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IUC (Mel Nathan College)
 Reasons to Globalize
Operations Managers therefore must have a global view of
operations strategy. Rapid growth in world trade and emerging
markets like China and Eastern Europe means that many
organizations must extend their operations globally

Tangible  Reduce costs (labor, taxes, tariffs, etc.)

Reasons  Improve supply chain
 Provide better goods and services
 Understand markets
Intangible  Learn to improve operations
Reasons  Attract and retain global talent
2009/2010 Lecturer: Ms Gillian Whyte Figure 2.1 16
IUC (Mel Nathan College)
 Cultural and Ethical Issues

Cultures can be quite different

Attitudes can be quite different towards

 Punctuality  Thievery
 Lunch breaks  Bribery
 Environment  Child labor
 Intellectual
property
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IUC (Mel Nathan College)
 Developing Mission and Strategies

Mission statements tell an

organization where it is going

The Strategy tells the

organization how to get there

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IUC (Mel Nathan College)
 Mission

 Mission - where are

you going?
 Organization’s
purpose for being
 Answers ‘What do we
provide society?’
 Provides boundaries
and focus

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IUC (Mel Nathan College)
 Examples of Mission Statements
MERCK
• The mission of Merck is to provide society
with superior products and services -
innovations and solutions that improve the
quality of life and satisfy customer needs -
to provide employees with meaningful
work and advancement opportunities and
investors with a superior rate of return

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IUC (Mel Nathan College)
 Examples of Mission Statements

Digicel Jamaica Ltd

• Digicel’s goal is to provide our customers
with affordable and innovative mobile
communications that fosters personal and
professional connections between nations
and people

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IUC (Mel Nathan College)
 Examples of Mission Statements

Grace Kennedy
• To satisfy the unmet needs of Caribbean
people wherever we live in the world

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 Factors Affecting Mission

Philosophy
and Values

Profitability
Environment
and Growth
Mission

Customers Public Image

Benefit to
Society
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IUC (Mel Nathan College)
 Strategic Process

Organization’s
Mission

Functional
Area Missions

Finance/
Marketing Operations
Accounting
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IUC (Mel Nathan College)
 Strategy
 Action plan to achieve
mission
 Functional areas have
strategies
 Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

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IUC (Mel Nathan College)
 Strategies for Competitive
Advantage
• Differentiation – better, or at least
different

• Cost leadership – cheaper

• Quick response – more responsive

Operations Strategy at
Regal Marine
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IUC (Mel Nathan College)
 Achieving Competitive Advantage
Through Operations
• Competitive advantage implies the creation of a
unique advantage over competitors (Render &
Heizer, 2006)

• Each of these strategies

– Differentiation
– Cost Leadership
– Response
Provides an opportunity for operations managers tp
achieve competitive advantage
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IUC (Mel Nathan College)
 Competing on Differentiation
• Differentiation is concerned about
providing uniqueness

Uniqueness can go beyond both the

physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
Hard Rock
Global Strategy
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IUC (Mel Nathan College)
 Competing on Cost

• Provide the maximum value as perceived

by customer.
• Low cost does not imply low value or low
quality.
 Digicel Jamaica Ltd
 Wal-Mart – small overheads, shrinkage,
distribution costs

2009/2010 Lecturer: Ms Gillian Whyte 29

IUC (Mel Nathan College)
 Competing on Response
 Flexible Response
Flexibility is matching market changes in design
innovation and volumes

 Reliability of Scheduling
Reliability is meeting schedules

 Quickness
Timeliness is quickness in design, production, and
delivery
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IUC (Mel Nathan College)
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage

Product FLEXIBILITY
Sony’s constant innovation
of new products………………………………....Design
Quality HP’s ability to follow
the printer market………………………………Volume
Process
Southwest Airlines No-frills service……..…..LOW COST
Location DELIVERY Differentiation
Pizza Hut’s five-minute
(Better)
guarantee at lunchtime…………………..…..……..Speed
Layout Federal Express’s “absolutely,
positively on time”………………………..….Dependability
Human Response
resource QUALITY
(Faster)
Motorola’s automotive products
ignition systems…………………………......Conformance Cost
Supply-chain Motorola’s pagers………………………..….Performance leadership
(Cheaper)
Inventory IBM’s after-sale service
on mainframe computers……....AFTER-SALE SERVICE

Scheduling Fidelity Security’s broad

line of mutual funds………….BROAD PRODUCT LINE
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Maintenance
IUC (Mel Nathan College)
 Issues in Operations Strategy

• Research

• Preconditions

• Dynamics

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IUC (Mel Nathan College)
 Research
• Research has identified some
characteristic of high ROI –firms:
– High product quality
– High capacity utilization
– High operating efficiency
– Low investment intensity
– Low direct cost per unit

2009/2010 Lecturer: Ms Gillian Whyte 33

IUC (Mel Nathan College)
 Preconditions
• There are internal and external factors that
influence strategy development and
implementation:
– Strengths and weaknesses of competitors
– Current and prospective environmental, technological,
legal and economic issues
– Product life cycle
– Resources available within the firm
– Integration of the OM strategy with the company’s
strategy and other functional areas

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IUC (Mel Nathan College)
 Dynamics

• Strategy is Dynamic because of:

– changes within the organization
– changes in the environment

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IUC (Mel Nathan College)
 Strategy Development and
Implementation
• SWOT analysis
• Identify critical success factors
• Build and staff the organization
• Integrate OM with other activities

The operations manager’s job is to implement

an OM strategy, provide competitive
advantage, and increase productivity
2009/2010 Lecturer: Ms Gillian Whyte 36
IUC (Mel Nathan College)
 Strategy Development Process

Environmental Analysis
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine Corporate Mission

State the reason for the firm’s existence and identify the value it
wishes to create.

Form a Strategy
Build a competitive advantage, such as low price, design, or volume
flexibility, quality, quick delivery, dependability, after-sale service,
broad product lines.
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IUC (Mel Nathan College)
 In-Class Activity
• Case: Regal Marine
• Case: Motorola’s Global Strategy

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IUC (Mel Nathan College)
 Resources
• Operations Management
– Render and Heizer (2006), 8th ed. Chapter 2

• Operations Management: Processes and Value

Chains
– Krajewski, Ritzman & Malhotra (2007); Chapter 2

• Fundamentals of Operations Management

– Davis, Aquilano & Chase, (2002); Chapter 2

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IUC (Mel Nathan College)