wOperations’ Role in Corporate Strategy
wStrategy and the Internet
wStrategic Decisions in Operations
wIssues and Trends in Operations
Four Steps for Strategy Formulation
wDefining a primary task
nWhat is the firm in the business of doing?
wAssessing core competencies
nWhat does the firm do better than anyone else?
wDetermining order winners and order qualifiers
nWhat wins the order?
nWhat qualifies an item to be considered for purchase?
wPositioning the firm
nHow will the firm compete?
Competitive Priorities: Cost
nreduced costs by $10 million a year for 10 years
nskilled machine operators save the company millions that would have been spent on automated equipment
none type of airplane facilitates crew changes, record-keeping, maintenance, and inventory costs
ndirect flights mean no baggage transfers
n$30 million annual savings in travel agent commissions by requiring customers to contact the airline directly
Competitive Priorities: Quality
wRitz-Carlton – one customer at a time
nEvery employee is empowered to satisfy a guest’s wish
nTeams at all levels set objectives and devise quality action plans
nEach hotel has a quality leader
nQuality reports tracks
lguest room preventive maintenance cycles
lpercentage of check-ins with no waiting
ltime spent to achieve industry-best clean room appearance
nGuest Preference Reports are recorded in a database
Competitive Priorities: Flexibility
nnumber of products offered grew from 28,000 to 86,000
nnumber of errors are down to 1 per 200 truckloads
wCustom Foot Shoe Store:
ncustomer’s feet are scanned electronically to capture measurements
ncustom shoes are mailed to the customer’s home in weeks
nprices are comparable to off-the-shelf shoes
wNational Bicycle Industrial Company
noffers 11,231,862 variations
ndelivers within two weeks at costs only 10% above standard models
Competitive Priorities: Speed
nadvertises a 15-minute mortgage approval
nships orders the day they are received
nreplenishes its stock twice a week
nproduces electronic testing equipment in five days
nreduces time to manufacture circuit-breaker boxes into three days and dishwashers into 18 hours
nships custom-built computers in two days
nneeds less than 30 minutes to build to order pagers
Operations’ Role in Corporate Strategy
wOperations provides support for a differentiated strategy
wOperations serves as a firm’s distinctive competence in executing similar strategies better than competitors
Operations Strategy at Wal-Mart
Strategy and the Internet
wInternet can be used to create a distinctive business strategy
wunlimited capacity and a huge market
wall work is done by buyers and sellers and there is no marginal cost
wintegrated value chain is its competitive advantage
Strategy and the Internet (cont.)
wInternet can be used to strengthen existing competitive advantages by integrating new and traditional activities
nGE’s Trading Process Network: an automated Web-based purchasing system
lcut average purchasing cost in half
lenabled a much larger group of suppliers to bid on jobs
lcustomers were able to track their orders through shop in real time
lsells $2 billion a month over the Internet
lpurchases 80% of its direct materials online
lreplaced 19,000 sales-order faxes received daily
Strategy and the Internet (cont.)
wLessons from the dot com shakedown
nInternet is the great equalizer
lallows innovations to be copied with little investment
lcompanies may reach larger market
lcustomers have more information and can compare prices and features of their products.
lThese benefits are temporary unless…
nCompanies provide unique value to customer
Strategic Decisions in Operations
Products and Services
nproducts and services are made to customer specifications after an order has been received
nproducts and services are made in anticipation of demand
nproducts and services add options according to customer specifications
Processes and technology
none-at-a-time production of a product to customer order
nsystems process many different jobs at the same time in groups (or batches)
nlarge volumes of a standard product for a mass market
nused for very high volume commodity products
Processes and Technology
nhighly customized and very labor intensive
ncustomized and labor intensive
nless customized and less labor intensive
nleast customized and least labor intensive
Capacity and Facility
wCapacity strategic decisions include:
nWhen, how much, and in what form to alter capacity
wFacility strategic decisions include:
nwhether demand should be met with a few large facilities or with several smaller ones
nwhether facilities should focus on serving certain geographic regions, product lines, or customers
nfacility location can also be a strategic decision
Operations Strategy: Human Resources
wWhat is skill levels and degree of autonomy required to operate production system?
wWhat are training requirements and selection criteria?
wWhat are policies on performance evaluations, compensation, and incentives?
wWill workers be salaried, paid an hourly rate, or paid a piece rate?
wWill profit sharing be allowed, and if so, on what criteria?
Operations Strategy: Human Resources (cont.)
wWill workers perform individual tasks or work in teams?
wWill they have supervisors or work in self-managed work groups?
wHow many levels of management will be required?
wWill extensive worker training be necessary?
wShould workforce be cross-trained?
wWhat efforts will be made in terms of retention?
Operations Strategy: Quality
wWhat is target level of quality for our products and services?
wHow will it be measured?
wHow will employees be involved with quality?
wWhat will be the responsibilities of the quality department?
Operations Strategy: Quality (cont.)
wWhat types of systems will be set up to ensure quality?
wHow will quality awareness be maintained?
wHow will quality efforts be evaluated?
wHow will customer perceptions of quality be determined?
wHow will decisions in other functional areas affect quality?
Operations Strategy: Sourcing
ndegree to which a firm produces parts that go into its products
nHow much of work should be done outside the firm?
nOn what basis should particular items be made in-house?
nWhen should items be outsourced?
nHow should suppliers be selected?
Operations Strategy: Sourcing (cont.)
nWhat type of relationship should be maintained with suppliers?
nWhat is expected from suppliers?
nHow many suppliers should be used?
nHow can quality and dependability of suppliers be ensured?
nHow can suppliers be encouraged to collaborate?
Operations Strategy: Operating Systems
wHow will operating systems execute strategic decisions?
wHow to align information technology and operations strategic goals?
wHow information technology supports both customer and worker demands for rapid access, storage, and retrieval of information?
wHow information technology support decisions making process related to inventory levels, scheduling priorities, and reward systems?
Key Performance Indicators
Robert Kaplan and David
Norton, Strategy Maps:
Assets into Tangible
Harvard Business School
Press, 2004), Figure 3-2,
Issues and Trends in Operations
wGlobal markets, global sourcing, and global operations
wGreater choice, more individualism
wEmphasis on service
wSpeed and flexibility
Issues and Trends in Operations (cont.)
wKnowledge and ability to learn
wEnvironmental and social responsibilities
Source of strength
Changing Corporation (cont.)
Changing Corporation (cont.)