OPERATIONS STRATEGY AND PERFORMANCE & ANALYSING OPERATIONS STRATEGY Flashcards
What is operations and why is it important?
All operations transform input resources into products or services
What is the hierarchy of operations?
- 3 levels of analysis of capabilities
- Networks of resources form processes
- Processes linked together form operations (Sales, HRM, finance…)
- Network of operations form a ‘supply network’ with different suppliers and customers.
What are the four V’s and how do they affect operations?
What is strategy and operations strategy?
Strategy
A unique position that offers value to deliver something that your competitors cannot offer. Operational effectiveness is not strategy, but still necessary for any business.
Operations Strategy
A strategic perspective on how operations resources and processes are managed. The difference between operations strategy and operations management:
- Operations strategy is longer term. Operations management is largely concerned with short to medium time-scales while operations strategy is concerned with more long-term issues.
- Operations strategy is concerned with a higher level of analysis. Operations management is largely concerned with managing resources within and between smaller operations (departments, work units etc.) whereas operations strategy is more concerned with decisions affecting a wider set of the organization’s resources and the supply network of which they are a part.
- Operations strategy involves a greater level of aggregation. Operations management is concerned with the details of how products and services are produced. Individual sets of resources are treated separately, as the component parts of the operation. Operations strategy, on the other hand, brings together and consolidates such details into broader issues.
- Operations strategy uses a higher level of abstraction. Operations management is concerned largely with what is immediately recognizable and tangible.
What are the four perspectives on operations strategy?
Four perspectives on operations strategy
- Operation strategy is a ‘top-down’ reflection of what the whole group or business wants to do.
- Operations strategy is a ‘bottom-up’ activity where operations improvements cumulatively build strategy.
- Operations strategy involves translating ‘market requirements’ into operations decisions.
- Operations strategy involves exploiting the capabilities of ‘operations resources’ in chosen markets.
What is the content of operations strategy?
The content of operations strategy reconciles the market requirements and operations resource perspectives.
What are the performance objectives and do they affect operations?
Explain the contents of the resource-based view
The resource-based view of the firm
- Tangible - Physical resources (land, buildings, machinery, equipment and capital)
- Intangible - everything else that has no physical presence (brand reputation, trademarks, intellectual property).
- Heterogeneous - companies achieve competitive advantage by using their different bundles of resources.
- Immobile - resources are not mobile and do not move from company to company, at least in short-run (brand equity, processes, knowledge or intellectual property).
Explain the VRIO framework and how it affects operations strategy
The VRIO framework
- Value: Is the resource valuable? Is it possible to identify specific and definable competitive value from the resources? Do they help to exploit opportunities in the market, or defend against threats from competitors and, if so, exactly how? Remember though, what counts as valuable depends on the markets in which a business is competing. Resources that have value in one market, at one point in time, will not necessarily be valuable in other markets or at other times. If markets change, what counts as ‘valuable’ may change.
- Rare: Is the resource rare? Do you have, or have access to, resources that your competitors do not? Some theorists define the idea of ‘rarity’ as when a business has a resource that is unequivocally unique, but for all practical purposes, a resource is ‘rare’ if it is, at least, in short supply and likely to remain so.
- Imitate: Is the resource costly to imitate? Do you have resources that competitors cannot imitate, purchase or find a suitable alternative to, at a realistic cost or in a realistic time frame? Note that ‘imitability’ may be either because competitors can copy your resources and processes directly, or because they can find an acceptable substitute for them.
- Organization: Is the firm organized to capture the value of the resource? Do a firm have within its business the systems, culture, capacity and motivation to exploit any capabilities embedded in its resources and processes? Even if a firm has valuable, rare and inimitable capabilities, it may not be able to exploit them. A firm must have the formal reporting and control mechanisms, leadership and the informal and cultural environment that allows the strategic resources to develop.
What are the decision areas in operations strategy?
Decision areas
- Capacity strategy. This concerns how capacity and facilities in general should be configured. It includes questions such as ‘What should be the overall level of capacity?’, ‘How many sites should the capacity be distributed across, and what size should they be?’.
- Supply network strategy (including purchasing and logistics). This concerns how operations relate to the interconnected network of other operations, including customers, customers’ customers, suppliers, suppliers’ suppliers and so on. All operations need to consider their position in this network, both to understand how the dynamic forces within the network will affect them, and to decide what role they wish to play in the network. Decisions here include such things as ‘How much of the network do we wish to own?’, ‘How can we gain an understanding of our competitive position by placing it in a network context?’.
- Process technology strategy. This concerns the choice and development of the systems, machines and processes that act directly or indirectly on transformed resources to convert them into finished products and services. Decisions here include such things as ‘How should we characterize alternative process technology?’ and ‘How should we assess the consequences of choosing a particular process technology?’.
- Development and organisation. This concerns the set of broad and long-term decisions governing how the operation is run on a continuing basis. Decisions here include such things as ‘How do we enhance and improve the processes within the operation over time?’, ‘How should resources be clustered together within the business?’.
What is the operations strategy matrix?
- Describes operations strategy as the intersection of a company’s performance objectives with its decision areas.
- It emphasizes the intersections between what is required from the operations function (the relative priority given to each performance objective), and how the operation tries to achieve this through the set of choices made (and the capabilities that have been developed) in each decision area.
- The matrix helps operations strategies to be comprehensive.
What is the process of operations strategy?
The process of operations strategy reconciles the top-down and bottom-up perspectives. The ‘process’ of operations strategy are the procedures that are, or can be, used to formulate operations strategy. ‘Process’ determines how an operation pursues the reconciliation between its market requirements and operations resources in practice.
What are the levels of operations performance?
Three levels of operations performance
- The broad societal level, using the idea of the ‘triple bottom line’.
- The strategic level of how an operation can contribute to the organisation’s overall strategy.
- The operational level, using the five operations ‘performance objectives’.
What are qualifiers, order-winners and delights?
- Qualifiers are the ‘givens’ of doing business
- Order-winners gain more business the better you are
- Delights are aspects of performance that customers have not yet been made aware of, or that are so novel that no one else is aware of them
- Delights become order-winners and order-winners become qualifiers
- What performance objectives are qualifiers, order-winners and delights?
- … and in the future?
- What is the operation doing today to develop the capabilities which will provide the ‘delights’ of the future?
What are the effects of trade-offs for operations improvement and how does it relate to efficient frontier?
- ‘Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another’.
- ‘You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same’
Efficient frontier
Look at the picture and the points. The convex line on which operations A, B, C and D lie is known as the ‘efficient frontier’. It highlights the optimal efficiency between two peformance measurements, under the line are not optimally efficient.
To what extent do ethical and financial performance trade off?
What are the effects of the product/service life cycle?
What is the focus concept? What are the benefits and risks?
Focus concept
According to Skinner, a factory that was focused on a narrow range of products and aimed at satisfying a particular section of the market, would outperform a plant that was attempting to satisfy a broader set of objectives. The equipment, systems and procedures that are necessary to achieve a more limited range of tasks for a smaller set of customers could also result in lower (especially overhead) costs. It be expressed as dedicating each operation to a limited, concise, manageable set of products, technologies, volumes and markets, then structuring policies and support services so they focus on one explicit task, rather than on a variety of inconsistent, conflicting, implicit tasks.
Benefits:
- Clarity of performance objectives – Clearly targeted markets imply at least some degree of discrimination between market segments. This, in turn, makes easier the task of prioritising those few performance objectives that are important for that market. This allows operations managers to be set relatively unambiguous and non-conflicting objectives to pursue in their day-to-day management of resources.
- Developing appropriate resources – A narrow set of focused resources allows those resources to be developed specifically to meet the relatively narrow set of performance objectives required by the market. Process technologies, skills and infrastructural resources can all be organized to trade off unimportant aspects of performance for those valued by the target market.
- Enhanced learning and improvement – A combination of clear objectives, together with resources organized to meet those objectives, can enhance an operation’s ability to manage its learning and improvement of its processes. Certainly the opposite holds true. Broad and/or confused objectives, together with complex resource structures, make it difficult to build process knowledge, learn how to extend the capabilities of processes or thereby improve their performance.
Risks:
- Significant shifts in the marketplace – Although less common than ‘scare stories’ often suggest, it is clear that a dramatic shift in the overall competitive environment can undermine the effectiveness of a focus strategy. For example, in turn-of-thetwentieth- century New England, one firm dominated the market for domestic and commercial ice throughout North America. They had established an immensely successful and highly focused production and distribution system, but they were powerless when a technical innovation – the domestic refrigerator – effectively removed their market.
- Few economies of scale – Within an operation, focusing often involves separating out resources that were once bundled together. This allows these resources to be developed appropriately for the market they serve but, because they no longer form part of a larger whole, they may not be able to achieve the same economies of scale as before. For example, a corporate purchasing department, buying goods and services for a whole corporation, may achieve economies of scale in the use of its resources and in its purchasing power. Splitting up such a department between businesses may allow them to enhance their capabilities in the type of purchasing necessary for each individual business but this may be gained at the expense of buying power and efficiency.
- Structural vulnerability – Combine the two risks above and any focused set of resources may be structurally vulnerable. Relatively minor changes in market requirements may destroy the benefits of being close to a market while, at the same time, there are few economies of scale to protect their viability.
