Operations Strategy

Harry Kogetsidis

School of Business

Lecture’s topics

• What is strategy?
• How do strategy and operations relate?
• How can organisations measure the

performance of their operations?

• What are the main approaches to operations

strategy?

Strategy

Strategy is the direction of an organisation

over the

long term, which aims to match its resources

to its

changing environment in order to meet

stakeholder

expectations.

Organisation’s stakeholders

Anyone with an interest in, or who is

affected by,

what the organisation does.

Not to be confused with

shareholders

!!

Types of Stakeholders

Internal stakeholders

:

• The organisation’s human resources (i.e.

its employees and managers).

Types of Stakeholders

Internal stakeholders

:

• The organisation’s human resources (i.e.

its employees and managers).

Employees are typically concerned with issues
such as

job security

,

rewards

,

recognition

and

job

satisfaction

.

Types of Stakeholders

Internal stakeholders

:

• The organisation’s human resources (i.e.

its employees and managers).

Managers often have to reconcile the competing
interests of

customers

,

employees

and

shareholders

.

Types of Stakeholders

External stakeholders:

• All the parties that have a direct or indirect

connection with the organisation (e.g.
customers, shareholders, suppliers, the
government, local community, wider
society).

Operations and Strategy

How can an organisation measure its

operations’

performance in achieving its strategic goals?

Five

performance objectives

have been

suggested.

Performance Objectives

• Quality
• Speed
• Dependability
• Flexibility
• Cost

Quality

Covers both the quality of the product design

and

the quality of the process that delivers the

product.

Quality costs:

-

cost of achieving good quality (quality

assurance cost)
-

cost resulting from poor quality products

Speed

The time delay between a customer

requesting a

product and then receiving that product.

Two delivery systems:

-

make-to-stock

-

customer-to-order

Speed

The

make-to-stock

system normally reduces

delivery times but also has disadvantages.

Speed

Disadvantages of the

make-to-stock

system:

• it can be used for goods but not for services
• product may become obsolete
• product demand forecast may be inaccurate
• storage costs
• changes in customer requirements

Dependability

Refers to constantly meeting a promised

delivery

time for a product to a customer.

Delivering a product too early can also be a

problem

(e.g. delivery of wet concrete in a

construction site,

delivery of take-away food).

Flexibility

The ability of the organisation to change

what it

normally does (e.g. changing a product to

meet a

specific customer demand, changing the

timing of

a delivery to meet specific priorities).

Cost

The amount of money required to obtain the

inputs

(

transforming

and

transformed resources

) and to

manage the

transformation process

that

produces

the organisation’s goods or services.

Particularly important for organisations

competing

on price (e.g. IKEA, Ryanair).

Cost

Improvement in the performance objective

of cost

can result from both lowering costs directly

but

also by improving the performance of the

other

four performance objectives.

Approaches to Operations

Strategy

The

market–based

approach

vs

The

resource–based

approach

The market–based approach

The organisation first decides what markets it
intends to target and identifies

customer needs

and

competitor actions

within these markets.

The organisation then produces a list of criteria
(

competitive factors

), which define what kind of

performance is required in order to successfully
compete in the markets chosen.

The market–based approach

The resource–based approach

The organisation first makes an assessment

of its

operations capability (in terms of its

resources

and

processes

).

This will then be translated into specific

performance objectives

.

The resource–based approach

The resource–based approach

Tangible resources and formal processes

have a

direct effect on operations capability.

e.g. employees or equipment

those described in

company

documentation

The resource–based approach

On the other hand, intangible resources and
informal processes can play an even more
significant role.

e.g. brand loyalty, supplier relationships,

technological skills or good knowledge of

the

market

e.g. employee relationships
or shared values

The resource–based approach

Some more facts about intangible resources

and

informal processes:

• Their value is not always recognised.
• They are normally developed over time through

experience and learning.

• They are less easy to copy by competitors.

A combined approach

Group work

In small groups, select two of the five performance
objectives that were covered in this lecture and identify
some organisations which, in your view, are doing
particularly well in these areas. Use specific examples
to justify your choice and discuss your own experience
with these organisations.