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OPERATIONS STRATEGY

Eric Germann
BusM 463

Marriott School of Management

DISCUSSION OVERVIEW

What is Operations Strategy?

Application: How does operations strategy apply to my organization?

Understanding Strategy
Understanding Operations
Key differences between Operations Strategy & Operations Management

The Nuts and Bolts of Operations Strategy


How It Works
Real World ExampleSouthwest Airlines

Practice: Analyzing an Operations StrategyIBM

Summary & Review

Additional Resources (Reading list)

THE COMPONENTS OF OPERATIONS


STRATEGY
Important Definitions:

Strategy: The efficient and effective use of a limited set of


resources to achieve an objective.
Defines the position of the organization relative to its environment
Create a competitive advantage over competitors that will help an
organization win in the long run

Operations: The act of taking raw materials or data as inputs


and transforming them into desired goods or services to create
and deliver value to an end customer.

Operational activities, unlike strategic activities are tacticalfocused on the day to


day actions of a business

BUSINESS STRATEGYTHE LONG


VIEW

An organizations strategy is a set of plans, actions, and guiding


principles that help to position it for success in the long run

3 different levels of strategy:


Corporate
Business Unit
Functional

There are 4 primary steps that should be followed when


formulating a strategy:
1.

Define the firms primary directive

2.

Assess the firms core competencies

3.

What is it that the firm does or could do better than anyone else?

Identify what the marketplace is demanding

4.

What is it the firm should be doing?

What wins customers business? What are the minimum requirements for playing in the
space?

Decide how the firm will compete

Compete on: Price, Quality, Speed, Flexibility

BUSINESS STRATEGYTHE LONG


VIEW (CONTD)
Strategy is influenced by the interplay of 3 different variables

Organizations
Objectives
Mission & Vision

External
Environment

Available
Resources

Regulations
# of competitors
Barriers to entry

Financial Capital
Human Capital

Strategy
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OPERATIONSTHE SHORT VIEW

Business operations differ from business strategy in that


operations are how a strategy is implemented
The specific daily or weekly activities that are undertaken by the
firms employees to achieve the organizations end goal

Four
1)
2)
3)
4)

primary areas of operations:


Sourcing
Making
Storing
Transporting

OPERATIONS STRATEGY VS.


OPERATIONS MANAGEMENT
Operations Strategy is fundamentally
different from Operations Management:

Level of Analysis

Level of Aggregation

Level of Abstraction

Time Horizon
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DISCUSSION OVERVIEW

What is Operations Strategy?

Application: How does operations strategy apply to my organization?

Understanding Strategy
Understanding Operations
Key differences between Operations Strategy & Operations Management

Operations StrategyBehind the Curtain


How It Works
Real World ExampleSouthwest Airlines

Practice: Analyzing an Operations StrategyIBM

Summary & Review

Additional Resources (Reading list)

OPERATIONS STRATEGYBEHIND
THE CURTAIN
Operations Strategy: The pattern of strategic
decisions and actions which set the role, objectives,
and activities of the operations function
Operations Strategy Development Processes:
Top

Down
Bottom Up
Market Led
Operations Led

Operations Strategy Content


Structure

Infrastructure

OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Operations Strategy Development Processes
Top Down

Operations
Led

Operations
Strategy

Bottom Up

Market
Led

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)

Operatio
Operatio
ns
ns Led
Led

Top
Top
Down
Down

Operations
Operations
Strategy
Strategy

Market
Market
Led
Led

Bottom
Bottom
Up
Up

Top Down Operations Strategy Approach: a strategy that is


developed in direct reaction/relation to upper managements
wishes

Corporate Strategy
Business level
Strategy

Operations Strategy

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)

Operatio
Operatio
ns
ns Led
Led

Top
Top
Down
Down

Operations
Operations
Strategy
Strategy

Market
Market
Led
Led

Bottom
Bottom
Up
Up

Market Led Operations Strategy Approach: When an organizations


strategy is determined primarily by factors in the external environment
2 Types of Factors in The Market Led Strategy Approach:
Market Qualifiers: Qualities/attributes that a good or
service must possess in order for an end customer to even
consider making a purchase
Market Winners: Factors on which customers actually
make their decision

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Bottom Up Operations Strategy Approach: An
approach that focuses on how things have been
done over time in reaction to external and internal
factors.

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Operations Led Operations Strategy Approach:
When an organization chooses to rely heavily on its
expertise in operations to drive overall operations
strategy.

This approach relies heavily on the Resource Based


View (RBV) of competition.
An

organizations true success will come from efficient


and effective use of resources instead of how it positions
itself in the marketplace.
Acquire
Develop
Deploy
Build new capabilities

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Operations Strategy ContentThe What of
operations strategy development
Infrastructure
Structure

Planning & Control

Facilities

Quality

Capacity

Work Organization

Process Technology

Human Resources

Supply Network

New Product Development


Performance Measurement

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Operations Strategy ContentStructure.
Facilities
Capacity
Process Technology
Supply Network

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OPERATIONS STRATEGYBEHIND
THE CURTAIN (CONTD)
Operations Strategy ContentInfrastructure.
Planning & Control
Quality
Work Organization
Human Resources
New Product Development
Performance Measurement

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OPERATIONS STRATEGYIN THE


REAL WORLD.

Southwest Airlines is a perfect example of an organization that has


chosen a unique operations strategy that has paid large dividends
over time.

Southwest has chosen to focus on its core competencytransportationand cut


everything else out (In flight entertainment, meals, etc.)

Only airline to stay profitable through past 2 tumultuous decades

Southwest has chosen an operations strategy that allows them to compete on price.

Many airlines have had to defend their markets by attempting to copy


Southwests operations strategy.

Offers advance booked fares as much as 50% below those of bigger airlines

The steadiness of its operations strategy has played a large part in helping Southwest to gain significant
share of the U.S. market.

Southwest relies on an OPERATIONS LED strategy, as the low cost positioning


of its service requires incredible efficiency and operating expertise.

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DISCUSSION OVERVIEW

What is Operations Strategy?

Application: How does operations strategy apply to my organization?

Understanding Strategy
Understanding Operations
Key differences between Operations Strategy & Operations Management

Operations StrategyBehind the Curtain


How It Works
Real World ExampleSouthwest Airlines

Practice: Analyzing an Operations StrategyIBM

Summary & Review

Additional Resources (Reading list)

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PRACTICE: ANALYZING AN
OPERATIONS STRATEGYIBM.

http://www-03.ibm.com/ibm/history/interactive/index.html

Key Understanding Questions:


How

has IBMs strategy changed over time?

In

which aspects of performance has IBMs operations had to excel in order


to compete in its chosen markets

Which

of the four perspectives of operations strategy best describes the


operations strategy process at IBM at the different stages of its history?

What

is fundamentally different about how IBM positions itself today as


opposed to 20-30 years ago?

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ADDITIONAL READING

Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy
and Technology: Pursuing the Competitive Edge, New York: John Wiley.

Slack, N. and Lewis, M. (2002) Operations Strategy, Harlow: Pearson Education.

Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy
and Technology: Pursuing the Competitive Edge, New York: John Wiley.

Mills, J.F., Platts, K.W., Bourne, M.C.S.B and Richards, H. (2002) Competing
through Competences, Cambridge: Cambridge University Press.

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SOURCES
Barney, J. (1991) Firm resources and sustained competitive advantage, Journal of Management 17:99
120.
Waters, Donald (2006) Operations Strategy, Operations Straetgy: Cengage 2:21-44.
Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari, Hemel Hempstead:Prentice Hall.
Mintzberg, H. and Quinn, J.B. (1991) The Strategy Process (2nd Edition), Hemel Hempstead: Prentice
Hall.
Mintzberg, H. and Waters, J.A. (1985) Of strategies, deliberate and emergent, Strategic Management
Journal 6:25772.
Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation, Harvard Business
Review 68(3):7991.
Slack, N., Chambers, S. and Johnston R. (2004) Operations Management (4th Edition), Harlow:
Pearson Education.
Slack, N. and Lewis, M. (2002) Operations Strategy, Harlow: Pearson Education.
Wernerfelt, B. (1984) A resource based view of the firm, Strategic Management Journal
5:171180.

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