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Performance and Operations Strategy

• Objective of Lecture:– Describe the strategic role of operations.

– Define operations strategy and its scope.

– Illustrate how operations strategy pertains to adding value for the customer.

– Identify the key performance dimensions of an operations system.

– Introduce the concept of tradeoffs between different strategies and the need for a firm to align its operations strategy to meet the needs of the particular markets it is serving.

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Corporate Strategy

• Corporate strategy– Overall strategy adopted by

the firm that defines the specific businesses in which the firm will compete and the way in which resources areacquired and allocated.

• One objective: – Align resources with market

requirements

• Two key sets of decisions:– Positioning decisions– Resource decisions

Komatsu: Famous for its“circle the cat” strategy

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Types of Business Strategies

Type Definition

Low Cost Producing the lowest cost products in the market.

Market Segmentation

Satisfying the needs of a particular market niche.

Product Differentiation

Offering products that differ significantly from the competition.

These are “positioning” decisions.They imply certain “resource decisions”Example:

Low cost Economies of scale Invest in automation

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Focusing on Core Capabilities

• Core Capabilities (Resources)– Specific strengths that allow a company to achieve

its competitive priorities.– The skill or set of skills that the operations

management function develops that allows the firm to differentiate itself from its competitors.

– Example: OCP

• Focusing is achieved by:– Divesting non-critical activities.– Subcontracting ancillary activities and services.

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Operations Strategy

• Operations Strategy– Determining how to best utilize the firm’s resources

to achieve corporate objectives– How the operations function “fits” within the overall

organisation– Making sure resources are available when needed

• Competitive Priorities– The performance objectives of an operations

strategy– Set by the operations strategy– How the operations function provides a firm with a

competitive advantage.

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Performance Dimension

• Cost• Quality• Time

– Speed (throughput, leadtime)– Dependability of delivery

• Flexibility

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Operations Strategy Means Adding Value for the Customer

““Value is in the eye of the beholder”Value is in the eye of the beholder”What affects customer perceptions of What affects customer perceptions of

value?value?

If benefits exceed costs, the customer If benefits exceed costs, the customer perceives value for the product or perceives value for the product or

service.service.

Costs Total

Benefits Total ValueCustomer Perceived

Costs Total - Benefits Total ValueCustomer Perceived

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Order Qualifiers and Order Winners

• Order Qualifiers– The minimum characteristics of a firm or

its products that a firm must have to be considered as a source of purchase.

• Order Winners– The characteristics of a firm that

distinguish it from its competition so that it is selected as the source of purchase.

• Evolution of winners/qualifiers– Example of ISO-9000

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Operations Strategy Means Adding Value for the Customer

• How to add value:– Reduce product costs to customer.– Make the product more readily available.– Provide faster service.– Provide customers with additional relevant

information.– Customize the product to the customer’s

specific needs.

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Developing an Operations Strategy

from Competitive Priorities

• Factory Focus and Trade-offs– A factory could not focus on all four

competitive priorities (cost, quality, delivery, and flexibility).

• Focusing performance on one priority limits/eliminates the ability to focus on another priority.

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The Controversy

• Questioning the Trade-Offs– World-class operations led to the

establishment of a hierarchy among the competitive priorities.

• Increased competitive capabilities led to increased performance on all priorities by all competitors.

• Focus shifted from cost minimization to maximizing the value added.

– Customer value is enhanced by the focus on multiple priorities.

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Trade-offs & Technology

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Resource Decisions

• Decision made focus on long term long-term structural issues– How big do we make the facilities?

• Capacity planning

– Where do we locate them?– When do we build them?– What type of process(es) do we install to

make the products?

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Strategy Maps

• A graphical tool developed at the University of Cambridge to map out the implementation of a strategy

BusinessStrategy

& Objectives

List here external performancerequirements (from market and

stakeholders)

OperationsObjectives

Present agreed internalperformance objectives, i.e.

positioning decisions.

OperationsStrategy

Formulation

OperationsObjectives

Present here the different eventsthat led to resource decisions

being made (realised).

List here completedimplementation activities.

List here plannedimplementation

activities.

List here plannedresource decisions.

Time

NowFuturePast

Different From textbook!

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Example

BusinessStrategy

& Objectives

OperationsObjectives

OperationsStrategy

Formulation

OperationsObjectives

Time

Now

FuturePast

Investors complain about variability ofearnings, which affect negatively profit

margin. They demand a less riskyapplication of innovation skills which

would stabilise earnings.

To move into the segmentof robotics integrationsystems is a way toachieve higher costperformance whilst

maintaining the currentlevel of flexibility of

operations which is thetrademark of the

company.

The idea to develop astandardised goods

production line isdismissed as beinginconsistent with thecore competencies of

the firm.

Selection of roboticssystems

- a high output (speed)system would be

consistent with existingactivity

Exclusive integratoragreement signed withrobot manufacturer X

Decision to purchaseprototype robot for

internal training andcommercial purposes

Purchase robot, install,and decorate a show

room

Define investment inTraining

Training for designengineers andprogrammers

Timing of commercialaction. Policy for initial

pricing decisions.

Commercialcalls & first quotes.

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Summary

• Identify customers’ long term needs – Understand what create value– Use order winning/order qualifying criteria to model

customer preferences

• Identify matching strategic priority– Cost, quality, time, flexibility

• Align resources accordingly• Deal with impossible trade-offs through

investment in technology • Summarise Implementation with a strategy map

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Suggested Homework

• Take a Moroccan business/organisation of your choice. Give an example of a positioning decision and an example of a resource decision

• Question 2-3, p. 54• Question 2-5, p. 54• Differentiate clearly the strategy map of

the textbook and the strategy map of the lecture