Course Title # Operations Management

Lecture 2
Operations Strategy

Topics Covered:
Meaning of Operations Strategy
Operations Strategy Model
Productivity Measurement
New Operations Themes
Model Questions

MEANING OF OPERATIONS STRATEGY

There is an increasing awareness that operations should contribute to the global competitive
stance of the business and not merely be a place to make the firms products or services. This can
be done by contributing distinctive capability to the business and continually improving the
products and processes of the business.
Operations strategies and decisions should fulfill the needs of the business and should add
competitive advantage to the firm.
Operations Strategy is a strategy for the operations function that is linked to the business strategy
and other functional strategies, leading to a consistent pattern of decision making and
competitive advantage for the firm.
OPERATIONS STRATEGY MODEL
Operations strategy is a functional strategy that should be guided by the business strategy and
should result in a consistent pattern in decisions. The four elements inside the boxmission,
distinctive competence, objectives and policiesare the heart of operations strategy. The other
elements in the figure are inputs or outputs from the process of developing operations strategy.
The outcomes of the process are operations decisions in the four parts of operations (process,
quality, capacity and inventory), which are well connected with the other functions in the
business.
Corporate and Business Strategy:
The corporate strategy defines what business the company is pursuing. Business strategy follows
from the corporate strategy and defines how a particular business will compete. Most large
corporations have several different businesses competing in different market segments. Each
business must find its own basis for competing in its particular markets. The operations strategy
should then be connected to the particular business strategy selected.
Operations Mission:
Every operation should have a mission that is connected to the business strategy and in
agreement with the other functional strategies. For example, if the business strategy is product
leadership, the operations mission should emphasize new product introduction and flexibility to
adapt products to changing market needs. The operations mission is thus derived from the
particular business strategy selected by the business unit.

Corporate and
Business Strategy

Functional strategies
Internal
Analysis

in marketing,

Mission

finance, engineering,
human resources and

External
Analysis

Distinctive Competence

information systems

Objectives
(cost, quality, flexibility and
delivery)

Policies
(process, quality systems,
capacity and inventory)

Consistent
Pattern of
decisions

Results
Figure: Operations Strategy Model
Distinctive Competence:
All operations should have a distinctive competence that differentiates it from competitors. The
distinctive competence is something that operations does better than anyone else. It may be
based on unique resources (human or capital) that are difficult to imitate. Distinctive competence
can also be based on proprietary or patented technology or any innovation in operations that can
not be easily copied.

Operations Objectives:
Operations objectives are the third element of operations strategy. As shown in the figure, four
common objectives of operations are cost, quality, delivery and flexibility. These objectives
should be derived from the mission and they constitute a restatement of the mission in
quantitative and measurable terms. The objectives should be long range oriented in order to
strategic in nature.
Operations Policies:
Operations policies constitute the fourth element of Operations strategy. Policies should indicate
how the operations objectives will be achieved. Operations policies should be developed for each
of the major decision categories( process, quality systems, capacity and inventory). These
policies should, of course, be well integrated with other functional decisions and policies. This is
one of the most difficult things to actually achieve in business and is one of the reasons a truly
integrated operations strategy is needed.
PRODUCTIVITY MEASUREMENT:
Productivity is a common measure of how well a country, industry or business unit is using its
resources or factors of production. Productivity is defined as :
Outputs
Productivity=
Inputs
To increase productivity, we want to make this ratio of outputs to inputs as large as practical.
Productivity is what we call a relative measure.
Productivity comparisons can be made in two ways:
First_
a company can compare itself with similar operations within its industry.
Second_
to measure productivity over time within the same operation. Here productivity is compared in
one time period with that of the next time period.
Productivity may be expressed as Partial measures, Multifactor measures or Total measures:
Output
Partial measure:

Output
or

Labor

Output
or

Capital

Material

Output
Multifactor Measure:

Output
or
Energy
Output

or
Labor + Capital + Energy

Labor + Capital + Materials

Outputs
Total Measure:

Goods and services produced

or

Inputs

All resources used

NEW OPERATIONS THEMES

Several new themes are important in operations today and will repeatedly appear throughout the
book. These new themes make operations an exciting and interesting place for aspiring managers
and those who want the challenge of leadership.
Services and Manufacturing
As we have noted, service and manufacturing are highly interrelated in today's economy.
Services such as banking, insurance, consulting, telecommunications, and transportation are
critical for support of manufacturing, and likewise, manufactured products support all service
industries. The need to treat both manufacturing and service is a critical theme in operations,
because of the pervasive and intertwined nature of both manufacturing and service.
Customer- Directed Operations
Every operation should be externally directed to meet customer requirements. This notion is
consistent with the marketing concept taught in marketing courses and is now being integrated
into operations courses as well. A key concept is that efficiency need not be sacrificed in the
pursuit of meeting customer needs. Rather, the customer can be a powerful driver for reducing
waste and improving efficiency of all processes. This idea will be continually developed in the
chapters on quality, product design, process design, service operations, scheduling, and inventory
control. For example, the Saturn division of General Motors is a highly directed
Continuous Improvement
A third new theme is that continuous improvement is the key to remaining competitive in today's
business world. Operations can no longer be designed to meet fixed standards without emphasis
on future improvements, as customer needs change and better ideas are developed. In some
cases, process reengineering-the radical redesign of processes-is needed when continuous
incremental improvement is not sufficient. Even then, continuous improvement will be needed
after processes are reengineered. No longer can equipment be installed and investment then
curtailed until the original costs are recovered. Equipment should be continually upgraded as
required by changing conditions. Improvement for improvement's sake is not needed, but
innovation to fit the changing environment of operations is essential. Workers should not be
initially trained and then forgotten. Training should be continual to meet new needs.
Time Reduction
The operations function in many companies is dramatically reducing the time it takes to make
products or services (the lead time). For example, Motorola reduced the time to make a pager
from a matter of weeks to two hours. This was done by radical redesign of the production system
and by development of new processes. Not only was the lead time reduced, but cost was reduced
too by eliminating non-value-adding steps from the processes and drastic reduction of
inventories. Many operations are also reducing the time it takes to develop and introduce new

products to the market place, often by half of the normal time. This is being done by use of
cross-functional design teams and streamlining the new-product development processes.
Integration of Operations with Other Functions
Integration of operations decisions with other functions in the organization another new theme.
Teaching of business functions has been too isolated in the past. Some organizations are still
managed as separate departments with little integration between them. The best operations are
now seeking increased integration through use of cross-functional teams, information systems,
management coordination, rotation of employees, and other methods of integration across
functions. Integration is critical as a way of getting everyone pulling in the same direction. Most
of the implementation problems with new systems, or new approaches, can be traced to a lack of
organizational cooperation and integration
Environmental Concerns
Everyone in society must help protect the environment, including those in operations. One
company, for example, is measuring the amount of pollution that ends up in landfills, in the
water, or in the air. This is being done by weighing all raw materials and supplies that come into
the factory and then weighing the finished products that are shipped out the door. The difference
between these two weights ends up in the environment. The company has set strong goals to
reduce pollution measured in this way. Operations have come a long way in reducing pollution of
the environment, but there is still a long way to go. The most progressive companies have found
that reduction of pollution often pays. Developing a better process that pollutes less may also
reduce the cost of the product through less wasted material.
Globalization of Operations
Finally, the globalization of operations is a pervasive theme in business today. One can hardly
pick up a newspaper or a business periodical without reading an article on the accelerating nature
of international business. Strategies for operations should be formulated with global effects in
mind and not only consider narrow national interests. Facility location should be considered in
view of its global implications. Technology can be rapidly transferred across national borders.
All aspects of operations are affected by the international nature of business.

Model Question:
1. What do you mean by operations strategy?
2. Describe the operations strategy model with illustration.
3. What is Productivity? How would you measure productivity?
4. Discuss the new operations themes of operations management.
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