Operations Strategy
Operations Management
Strategic Management Process
We can find different definitions about Strategy:
Strategic Management Process
Strategic planning can be of two types: Usual and Serendipitous.
Managers must be able to judge the worth of emergent strategies and nurture the potentially good ones and abandon the unsuitable, although planned, ones.
Strategic Management Process
Strategic Management Process
The major components of the strategic management process are:
Strategic Management Process
What is operations / manufacturing strategy?
Without following the Strategic Management Process, no operations / manufacturing strategy can be formulated.
There are two-way feedbacks in any process to arrive at the strategies of the organization and of its functional disciplines such as the operation function.
A functional strategy such as operations strategy is derived from the overall organizational and business strategies. Operations have to be congruent with the strategic stance of the business.
What is operations / manufacturing strategy?
Strategy making is not a one-way street. A firm cannot always design its strategies based upon its own perceived strengths. Yesterday’s core competence may not be today’s competence.
What is operations / manufacturing strategy?
After having decided upon the mission, objectives and (as a part of it) the targeted market segment in which the company will compete, the company has to choose between the fundamental strategic competitive options of:
Meaningful differentiation
Cost leadership
What is operations / manufacturing strategy?
A. Meaningful differentiation
It means being different and superior in some aspect of the business that has value to the customer.
Differentiation is a strategy to win customer and to keep retaining them for a long time.
What is operations / manufacturing strategy?
Flexibility & Agility
Today's market requires that while a company differentiates itself (from the competitors), on one aspect, it should perform adequately on other aspects of service too.
The company can provide flexibility in terms of :
Flexibility is one of the differentiation strategies
What is operations / manufacturing strategy?
Agility
While flexibility means being changeable in various aspects of the management of operations, in today’s business-world, an additional quality is expected: The quickness of response to change.
This quickness of response to changes is multi-dimensional and such operational systems are called as being agile.
What is operations / manufacturing strategy?
Approaches to Meaningful Differentiation through Product Availability | |
Old Approach | New Approach |
Keep / increase buffer stocks of the finished goods and other materials. | Faster introduction of desired new products and services by the use of the new technology. |
Invest in more machinery, hire more people, get more materials and thus increase the production capacity. | Reduction of operations lead times, delivery times through continuous improvement. |
The by-products are: | |
Increased costs due to higher inventories and higher investments. | Enhanced flexibility and agility in the operations system. |
Failure to meet customer’s changing needs. | Reduced costs. Simplicity in the system. |
What is operations / manufacturing strategy?
B. Cost leadership
The other fundamental strategic competitive option: offering the product/service at the lowest price in the industry. This must be achieved by cost reductions.
The difference between the modern approach and the traditional approach to cost reduction is in how the company understands the customer needs.
What is operations / manufacturing strategy?
Operations Strategies
Manufacturing / operations strategies, that one should complement with the fundamental organizational strategies, comprise of the customer-oriented strategies of:
What is operations / manufacturing strategy?
Improved Responsiveness in terms of:
Reduced Prices through
Improved Quality through:
What is operations / manufacturing strategy?
Approaches to Cost Leadership as a Strategy | |
Traditional Approach | Modern Approach |
Control on costs, specially related to direct labor. | Use technology including IR 4.0 to simplify the processes, procedures and to reduce confusion and resultant wastes. |
Reduction of various indirect labor expenses and, therefore, reduction of support activities. | Eliminate only the non-value adding activities. |
This results in | |
Increase in uncertainties. | Lean and agile operation. |
Reduction in motivation of the manpower. | Improved market performance. |
Key Success Factors
Kenichi Ohmae mentions the following as the key success factor for any business:
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis
Whatever one may talk about the operations / manufacturing strategic issues, the relevant strategic plans cannot be implemented unless one takes a good look at the company’s internal strengths and weaknesses.
Strengths and Weaknesses refer to internal resources.
SWOT Analysis
Opportunities and Threats arise in the macroenvironment and competitive environment.
Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis
The SWOT analysis should indicate a “fit” between the proposed strategic response of the operations function and the strengths of the company.
Five Forces Model
Another analysis that could be useful in devising an appropriate operations strategy is that of Five Forces Model as presented by Michael Porter.
He says that the stronger each of these five forces is, the more difficult it will be for the company to raise prices and make more profits.
Five Forces Model
A strong force is equivalent to a threat, a weak force is equivalent to an opportunity.
Managers must stay abreast of external developments and react effectively.
Operations Strategic Actions and its Relationship with other Functional Areas of Management
Operations strategies cannot function in isolation. A synergy is to be sought between operations and other functions.
Operations Function’s Role: A New Concept
The Operations functions has been seen as optimally utilizing resources of men, machines and materials while producing the designated output.
Globalization
Globalization unfolds a wide canvas for the business organization to paint upon.
Distinctive Management Issues for a Globalizing Firm | |
Concept | Description |
| The organization now faces a worldwide competition as opposed to the limited regional / national competition it faced. |
| Substantially enhanced competition throws up the issues of “focus” and “customer orientation” to the fore with a greater force and urgency. |
| Depending upon the market region / country and market segment chosen, the basis for competitive advantage for the organization has to be chosen and vice versa. |
Globalization
Distinctive Management Issues for a Globalizing Firm | |
Concept | Description |
| The latter choices lead to the major operations issues of a global organization:
|
Globalization - Location
Locating Business Internationally as a Strategy
Taking business overseas can by itself be a significant aspect of a firm’s strategy.
A firm can take its unique product or service to a foreign country and make a lot more profit because that country lacks in those unique services / utilities that the product / service provides.
Globalization - Location
Location Strategy | Description |
International Strategy | There is neither the impetus to lower the costs nor is “local customization” an absolute necessity; while pricing can be significantly higher than in the domestic market. |
Multi-domestic Strategy | If the market is considerably different in each country, extensive local customization may be required if the firm has to survive and be successful overseas. |
Global Strategy | This strategy essentially means that the firm produces in a country where the costs of production / operation are low; and uses those products for its customer around the globe. |
Transnational Strategy | The firm take advantage of the unique national competencies and set up units in countries / economies where such cost economies can be availed. The firm also makes sure that the operations are highly responsive to varying customer needs and that the skills and competencies developed in one economy are transferable to other economies. |
Globalization - Location
Globalization - Location
Other reasons for locating Production / Operations overseas
Globalization
Distinctive Management Issues for a Globalizing Firm | |
Concept | Description |
| For a firm that is globalizing, logistics is a very vital issue. |
| Globalization also accentuates the issue of organizational structure, management systems, resources (particularly people), and that of management style and culture which have to meet the local requirements and be congruent to the conditions of the global places where the production facilities are located. |
Globalization
Developing a Global Operations Strategy
Therefore, when a firm has to develop a global operations strategy, it goes through the following stages:
Globalization
Stage | Description |
1. Define / Redefine customer and focus. | Who are our customer? And What services do they need and / or expect? |
2. Study the competition. | It has to understand its competition. Competitors ned to be studied for
|
3. Choose the basis for competitive advantage. | It could be its uniqueness of product / service, or variety, or quality, or low cost, or responsiveness of its service, or a combination of these. |
4. Address the global operations issues. | Technology, location, logistics and organization. |
5. Fit the above operations decisions into the existing mosaic; or vice versa. | |
Globalization
Stage | Description |
6. Arrive at global operations strategy and related decisions | |
7. Monitor and evaluate the results. | Compare with the expected results; compare with competitors and peers. |
8. Go back to the feedback cycle. | |
A consideration of the strategic aspects of Operations is necessary before one proceeds towards the details of the design of the Production and Operations systems.
A vision without a strategy remains an illusion.
Lee G. Bolman, Ph.D.
Bibliography
Chary, S. N. (2019). Production and operations management. (6.a ed.). McGraw-Hill Education.