CHAPTER THREE AND SUPPLEMENT

(OPERATIONS STRATEGY/COMPETITIVE BENCHMARKING)

OVERVIEW

As the custodians of the majority of the firm’s assets, the operations functions must be able to
effectively support the firm’s strategy. With pressure to adapt or change the corporate strategy, there will
be corresponding pressure for the operations strategy to be flexible.

For this occur, we must first understand exactly what an operations strategy is and which
elements are its constituent parts. We will look at this first and then shift our attention to how to develop
an operation strategy. We will extend this to global strategies at the end of the chapter. One of the
activities that must take place during strategy development is an investigation of the best practice
elsewhere. This benchmarking will lead to a better understanding of what we as a company need to do;
this may extend to process reengineering

KEYNOTES/OUTLINE

The Corporate Mission and Strategy

The corporate mission outlines the firm’s corporate values, intended markets and product, broad
goals and objectives, core competencies, and strategic capabilities.

The corporate strategy state how the firm will achieve its goals and objectives.

The strategy formulation process consists of three phases.

1. The Assessment Phase: The firm’s internal and external environments are assessed through
questions such as: 1.) Who are our customers? What emphasis do they place on each of the six
competitive dimensions? 2.) What are our strengths and weaknesses? What are our core
competencies and strategic capabilities? 3.) What is the structure of our industry? What are the
rate and direction of technological change in the industry? Who are our competitors? Are there
any new competitors ready to enter our industry? How much better are they? What are their
strategies? and 4.) What is the current economic, political, and social climate in our markets?
Are there any projected changes? What trends have been identified?

Benchmarking – looking at the best practice elsewhere- can be useful in answering these
questions.

Functional strategies are also developed at this stage. A functional strategy details how a
functional are will contribute to the achievement of the firm’s corporate goals and objectives.
Communication among functional areas and between functional areas and corporate management
is essential to ensure that the core competencies developed by particular functional areas are fully
utilized.

Core competencies refer to the expertise found at specific points along the value chain. They
can be translated into a wide range of products and thus can provide the firm with access to a
variety of markets.
 Strategic capabilities are customer-focused business process that support and leverage the
firm’s core competencies. Strategic capabilities tend to be processes that cross functional
boundaries, and they require investments far beyond what could be justified by conventional ROI
criteria.

“Both core competencies and strategic capabilities must make a significant

contribution to the perceived customer benefits of the firm’s end products.”

2. The Implementation Phase: In this phase, the resources and policies needed to enact the
firm’s strategy are identified, acquired, and put into place. Some of the pertinent
questions include: 1.) In what sequence, and at what times, must the strategy be
implemented? Which people will be required to implement the strategy? 2.) How can
we ensure that we are still satisfying our customers during the transition period? 3.)
What moves by our competitors would be most harmful during implementation, and how
can their effect be minimized? 4.) Which critical changes will be the most difficult to
implement? What is the likelihood of not meeting these implementation goals? How can
this likelihood be minimized, and what should be done if a shortfall does occur?

3. The Awareness Phase: This phase reviews the success of the strategy; it also questions
whether the strategy is still appropriate. The latter question recognizes the fact that
companies learn and can therefore expect to make better use of their technologies as they
better understand them.

Long-Range Strategy versus Opportunism: Formal planning over a multiyear horizon can
help a firm gain a competitive edge. Firms can make changes in strategy to take advantage of
local conditions, but must keep their long-range objectives in mind at all times. If they do not, it
will be easy for a firm to destroy its competitive advantage without immediately recognizing the
fact.

BUSINESS PROCESS REENGINEERING should not be carried out until a major strategic
evaluation has been undertaken. Reengineering has the potential for completely changing a
firm’s capabilities while realigning the process to better serve customers. Thus, it would be easy
to reengineer the business out of any competitive advantage.

DEVELOPING OPERATIONS STRATEGY

The Operations Audit: The operations audit involves an in-depth review of the operation’s
resources capabilities, strengths, and weaknesses. Here a number of factors may be examined;
among them are:
 The range of goods and services that can be produced with current resources

 Location, age, capacity, and processes house in each facility

 Existing technology, its current uses and its mastery of special technologies
  Ownership of, or access to, natural resources and the ability to develop products and
processes

 Distribution channels or delivery system, relationship with suppliers, their dependability,

and the quality of their products and services.

 Workforce skills and knowledge, labor relations

 Management’s capabilities, attitude toward risk, and propensity to cope with uncertainty

The result of the operations audit will be used to help form both the
operations strategy and the corporate strategy.

Components of the Operations Strategy: Operations strategy is a statement of how the

operations function will contribute effectively to the attainment of corporate goals and
objectives.

The following issues should be addressed:

 Which goods and services will be produced internally and which will be
purchased?
 What processes will be used to provide the firm’s goods and services? How
flexible will these processes be?
 How many facilities will be used? Where will they be located? What strategic
role will each facility play?
 How will each facility be focused; that is what products will be produced in each
facility and what markets will each facility serve? There are many ways in which
the firm can choose to focus its facilities – by customer, by product, by process,
geographically, by market size, and by product life cycle focus.
 What type of operating process will be housed in each facility? How much
capacity will be provided by each process?
 Who will be our suppliers, and what type of relationship will we pursue with
them? How will we monitor their performance? Will we be transferring any
design responsibility to them?
 What type of workforce will be needed? What will be its role? How many skill
levels will there be? How will the wages and benefits be structured? What
guidelines will be followed when people are hired or fired? How much training
will be provided?
 What type of materials handling and other support systems will be used? How
will tasks be divided between the workforce and the equipment?
 What organization structure should be used? What are the roles of managers and
support staff?
  Will we develop our technologies or purchase them? Will we be technology
leaders or followers? What technologies will be developed – product and
process?

Operations Competency: Firms must have an operations competence but need to be limited to
one. Each plant or business unit will have only one operations competence. Trying to focus on
more than one competence may lead to such confusion that all competence is lost. The
operations competence much support the corporate strategy.

Global Operations Strategy: The questions that need to be asked when one is looking at a
firm’s global strategy are as follows:

 Capacity. What capacity will we need globally? What products are required in
which markets? Can the product be transferred freely between countries?

 Facilities. Where should our facilities be located? What should we make where?
Who should have world product mandates? In how many sites should products be
duplicated? What restrictions will we face on changing or eliminating a specific
facility? Where are the necessary skills located? What infrastructure exists?

 Technology. What technology strategies should we follow in different centers?

What technology diffusion policy should we adopt? What product technologies
can the local markets absorb?

 Integration. How will parts and components flow through the whole company?
What transportation and distribution channels will we use and own? How
integrated should the whole value chain be in each country?

 Innovation. Are the patent laws and the support for innovation in general more
favorable in one country than in another? How should new knowledge be stored
and disseminated? What barriers exist to knowledge and technology transfer?

 Workforce. Will we maintain the same global personnel policies, or will each
unit or country be separate? How mobile will we expect our managers and
workforce to be? What special circumstance exist in each country or region that
we should be concerned with or should take advantage of?

 Procedures and Planning. Who will be responsible for planning for a particular
market? How will inventory be managed – globally, regionally, or locally? What
special circumstances exist locally will influence local or global decisions?
  Management and Organization. From where should managers come at each
level of the organization? Should we keep managers locally, or should each site
have managers from anywhere in the world? Should we undertake our own
management development? If so, to what level, and where should management
development be carried out? Should our managers be evaluated globally using
one evaluation process, or should specific process and criteria be developed for
each area? Should each of our operations be wholly owned, or should we be
involved in joint-ventures or alliances?

The ways in which firms can organize to improve international operations and
competitiveness include: 1.) establishing wholly owned facilities in more countries, 2.)
forming joint-ventures with local partners in the host countries who will typically provide
labor and local management, 3.) forming cooperative alliances with companies from two
or more countries, and 4.) joining business networks of inter-firm collaboration on the
basis of complementarity.

PREPARED BY: Mr. Romano D. Flores-Instructor