Operations Strategy Student Study Guide

CHAPTER 1 OPERATIONS STRATEGY THE TWO PERSPECTIVES Introduction

This introductory chapter could have been called, What Is Operations Strategy?, and it attempts to answer that question in two ways. First, it discusses operations strategy relative to some of the more common categorizations within management and business, especially operations management. It does this by trying to define what is meant by operations and strategy. econd, it sets out what is the main framewor! for the whole boo! " the idea that operations strategy means reconciling two different, but equally valid, perspectives. These are the mar!et requirements perspective and the operations resource capability perspective. o, as you read through this chapter, try to !eep in mind these two main points, #perations is not the same as operational, it does have an important strategic role to play in any business. $ll operations managers have to reconcile these two fundamental ob%ectives, to satisfy their mar!ets and to build distinctive operations resource capabilities.

Key points
Oper!tions" is not t#e s!$e !s oper!tion!%" This is probably the most important point made in the chapter. &any people associate the operations part of the business with creating services and creating products at a detailed and day'to'day level. #perations managers are the people who implement strategies, get things done, solve problems, cope with all the difficulties and (literally) deliver the goods. This is true of course. #perations managers do all these things and are ultimately responsible for that on'going act of value creation which is the on'going tas! of any type of enterprise. *et there is much more that operations can contribute to any business. #perations also has an important strategic role to play. In the long term an enterprise has a greater chance of surviving and achieving a sustainable level of mar!et success if it can serve its mar!ets better than anyone else. To do this it must have the resources (people and facilities and technology) and the processes (to create services and products, develop new services and products and bring a continual stream of innovation) that competitors find difficult to imitate. $ company that has an operation that both performs better than competitors and does so through using processes and resources that are difficult for those competitors to copy, is giving an almost invaluable strategic advantage to the company.

Operations Strategy Student Study Guide

This is not to downplay the importance of operational operations management. It is of course important to get the details right and do so on a dependable day'to' day basis. In fact, it is the accumulation of day'to'day e,perience which can build up the operations capabilities that go towards providing the strategic operations advantage. This is the parado, of running a successful operation. It has to be good at both the day'to'day details and the broader strategic issues. In fact it has to be able to connect the operational and the strategic aspects of operations together.

W#!t !re t#e $!in di&&erences 'et(een oper!tions str!te)y !nd oper!tions $!n!)e$ent* The chapter identifies four dimensions on which operations strategy and operations management differ. Time scale " operations management is relatively short to medium term. This will include decisions that affect minute'by'minute, to month'by'month activities. ome operations management decisions will have an impact several years in advance, but most are confined to the shorter term. #perations strategy decisions however are generally focused specifically on the longer term. o whereas operations management is concerned with reacting effectively and efficiently to specific demands from its customers, operations strategy is concerned with ma!ing sure that the company has an appropriate capacity and capability to meet its mar!et requirements years into the future. -evel of analysis " many operations management decisions are relatively local in their effect. For e,ample, an individual retail store could be concerned with how it manages it inventory levels within its own facilities. #perations strategy tends to be wider in its application and effect. For e,ample, a more strategic view of thin!ing about inventory is to consider the whole supply networ! from raw materials through to end consumer and question where inventory should be held in the total networ!. -evel of aggregation " operations management can be relatively detailed. .esources are treated separately and are associated with specific services or products. For e,ample, /hat !ind of customer relationship s!ills do our chec!out operators need0 is a detailed operations management decision. #perations strategy can rarely be so detailed. It tends to aggregate different types of resource into one overall unit. For e,ample, /hat are our overall human resource requirements in our larger superstores0 is an important but highly aggregated decision. -evel of abstraction " operations management concerns itself mainly with what is immediately recognizable and tangible. o, the retail company might as! itself, 1ow do we improve the procedures which place orders with suppliers0 These procedures, systems, information flows and the physical inventory associated with them can all be readily observed. #perations strategy, on the other hand, deals with more abstract issues. For e,ample,

Operations Strategy Student Study Guide

hould we develop strategic alliances with a small number of partners0 is a question that touches on the very philosophy of the company.

Operations Strategy Student Study Guide

Oper!tions str!te)y is !'out ser+ice too In most developed economies manufacturing accounts for around 24 per cent or less of economic activity. $dmittedly it is a very important 24 per cent, but the fact remains that the vast ma%ority of business activities are concerned with trading services rather than trading products. This means of course that the vast ma%ority of operations are concerned with producing service rather than producing products. The inescapable logic is that, if operations strategy is to be a useful concept, it must be at least as applicable to service operations as it is to manufacturing operations. *et the history of the sub%ect is deeply rooted in manufacturing. It is only relatively recently that boo!s on the sub%ect and university courses started to change their names to operations strategy rather than manufacturing strategy. 5ven so, a large number of these still concentrate on manufacturing concepts and e,amples. In fact, as 6hapter 2 points out, the distinction between what is service and what is manufacturing is increasingly irrelevant. 5very manufacturer should thin! of themselves as providing service to their customers even if much of the service is embodied within a physical product. imilarly, every service operation has something to learn from the years of systematic e,perience of managing operations in manufacturing companies. In the chapter two large companies, 7estl8 (the world9s largest food manufacturing company) and /al'&art (the world9s largest food retailer) are compared under a series of headings. This e,ercise demonstrates that both companies are concerned with a similar set of operations strategy decisions. These decisions (which we shall e,plore more fully later) are, capacity supply networ!s process technology, and development and organization.

$ny type of business needs to consider these four sets of decisions, which together form what we shall later call the content of operations strategy. o, whether you are a hospital or a hotel, you must thin! about how your overall capacity needs to e,pand or contract over the ne,t few years. :oth profession service companies such as accountants and pharmaceutical giants are faced with the same decisions as to what they should do in'house themselves versus what they should outsource to subcontractors elsewhere in the supply networ!. &otor manufacturers and merchant ban!s both must consider how much they need to invest process technologies and what !ind of process technologies they should invest in. :oth laundries and law firms need to decide how best to develop their services and their processes for the future and how to organize themselves to respond to changing mar!et needs. #f course there are differences between different types of business. 7o one is denying that running a hospital is the same as running an automobile plant. :ut, there are some common issues, common decisions, and common principles. It is the commonality in the approach to operations strategy analysis which is stressed throughout this boo!.
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Operations Strategy Student Study Guide

T#e t(o perspecti+es This is probably the !ey point to understand if you are going to understand the whole boo!. It is an issue which various chapters return to frequently. It is the simple but fundamental idea that all businesses have to reconcile two pressures or perspectives within their operations function. The first is the market requirements perspective and the second is the operations resource perspective. #perations strategy itself is defined as the process of reconciling the pressures which come from these two perspectives. &ar!et requirements is a relatively simple concept to understand. It means the demands that are placed on the operations function because of the mar!et position the company has chosen to adopt. o, for e,ample, if a company has chosen to compete by offering low cost services or products into the mar!et, the operations function must be able to produce and deliver those services and products at low cost. 6onversely, if a company has chosen to inhabit a different part of the mar!et, say one that emphasizes high variety and customization, then it will demand a different set of things from its operations function, in this case probably high degrees of fle,ibility. o, an obvious pressure on any operation is to satisfy the requirements of its mar!ets. <ntil relatively recently the mar!et requirements perspective was seen as the ma%or, if not the only, driver of how operations strategy should be viewed. &ore recently it has become generally accepted that, by itself, this perspective is incomplete. There are very few organizations that can simply configure their operations resources to match mar!et requirements quic!ly and effectively. <sually mar!ets are capable of changing far faster than a company can reconfigure its resources. Therefore, at the very least, operations strategy must recognize the inertia and constraints represented by its physical facilities, people, technology, organizational structure and system. :ut the concept of operations resources is wider than this. $ll operations have a history and a set of e,periences from which they have accumulated !nowledge. This accumulated !nowledge may even have formed itself into a set of competencies or capabilities that allow it to do certain things particularly well. :lindly reacting to (possibly short'term) mar!et demands, even if it is possible, would waste these capabilities. $n important responsibility for the operations function is to understand its own capabilities and attempt to build on these and develop them to a point where they provide a distinctive competitive advantage against competitors. This is what we mean by the operations resource perspective.

Hints on !ns(erin) t#e H!)en Sty%e c!se e,ercise

This may be a simple case but it reflects the two pressures always present when considering operations strategy. That is, Should we move with market and change our operations, or should we stick to what we are good at and ind ways o making money with our e!isting e!pertise in other markets?

Operations Strategy Student Study Guide

$s is often the case, there is no clear answer to this case but it is important to marshal the arguments for the options that the company faces. This is best done by clarifying what is li!ely to happen in the mar!etplace in terms o how it a ects the requirements placed on operations" imilarly, it will be necessary to understand e,actly what the current operations resources can do (in terms of constraints) and what they can do particularly well. Try identifying the options that you believe the company could adopt and then assessing the advantages and disadvantages of each.

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