8/16/2023

INTRODUCTION TO OPERATIONS
MANAGEMENT–MBA 2023

Session 2 – Operational Strategies

Learning Objectives

• List several ways that business organizations compete

• Name several reasons that business organizations fail
• Define the terms mission and strategy and explain why
they are important
• Discuss and compare organization strategy and
operations strategy, and explain why it is important to
link the two
• Describe and give examples of time-based strategies
• Define the term productivity and explain why it is
important to organizations and to countries
• Describe several factors that affect productivity

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Better quality, higher productivity, lower costs, and

the ability to respond quickly to customer needs are
more important than ever, and…

the bar is getting higher

Focus of the Lecture….

• This lecture will thus focus on three

separate, but related ideas that are vitally
important to business organizations
• Competitiveness
• Strategy
• Productivity

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Competitiveness

Competitiveness:
• How effectively an organization meets the
wants and needs of customers relative to
others that offer similar goods or services
• Organizations compete through some
combination of their marketing and operations
functions
• What do customers want?
• How can these customer needs best be
satisfied?

Mission, Goals, and Strategy

● Mission
○ The reason for an organization’s existence
○ It answers the question “What business are we in?”
● Goals
○ Provide detail and the scope of the mission
■ Goals can be viewed as organizational destinations
● Strategy
○ A plan for achieving organizational goals
■ Serves as a roadmap for reaching the organizational
destinations
○ The organizational strategy guides the organization by providing
direction for, and alignment of, the goals and strategies of the
functional units
○ The organizational strategy is a major success/failure factor

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Strategy, Tactics, and Operations

● Strategy
○ A plan for achieving organizational goals
■ Serves as a roadmap for reaching the organizational
destinations
○ Organizations have
■ Organizational strategies
● Overall strategies that relate to the entire organization
● Support the achievement of organizational goals and mission
■ Functional level strategies
● Strategies that relate to each of the functional areas and that
support achievement of the organizational strategy
● Tactics
○ The methods and actions taken to accomplish strategies
○ The “how to” part of the process
● Operations
○ The actual “doing” part of the process
● Core Competencies
○ The special attributes or abilities that give an
○ organization a competitive edge
○ To be effective core competencies and strategies need to be
aligned

Strategy Formulation - I

 Effective strategy formulation requires taking into

account:
 Core competencies
 Environmental scanning
 SWOT

 Successful strategy formulation also requires taking

into account:
 Order qualifiers
 Order winners

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Strategy Formulation - II

● Order qualifiers
○ Characteristics that customers perceive as

minimum standards of acceptability for a

product or service to be considered as a
potential for purchase
● Order winners
○ Characteristics of an organization’s goods or

services that cause it to be perceived as better

than the competition

Quality vis-à-vis Time based Strategy

● Quality-based strategy
○ Strategy that focuses on quality in all phases of an organization
■ Pursuit of such a strategy is rooted in a number of factors:
● Trying to overcome a poor-quality reputation
● Desire to maintain a quality image
● A desire to catch up with the competition
● A part of a cost reduction strategy

● Time-based strategies
○ Strategies that focus on the reduction of time needed to
accomplish tasks
■ It is believed that by reducing time, costs are lower, quality is
higher, productivity is higher, time-to-market is faster, and
customer service is improved

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Agile Operations

○ A strategic approach for competitive advantage that

emphasizes the use of flexibility to adapt and
prosper in an environment of change
■ Involves the blending of several core

competencies:
● Cost

● Quality

● Reliability

● Flexibility

■ Example?

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Environmental Scanning
External Factors
1. Economic conditions
2. Political conditions
3. Legal environment
4. Technology
 Environmental Scanning 5. Competition
is necessary to identify 6. Markets

 Internal Factors Internal factors

 Strengths and Weaknesses 1. Human Resources
2. Facilities and equipment
 External Factors
3. Financial resources
 Opportunities and Threats 4. Customers
5. Products and services
6. Technology
7. Suppliers
8. Other

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Operations Strategy

 Operations strategy
 The approach, consistent with
organization strategy, that is used to guide
the operations function
 Examples?

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Businesses Compete Using Operations

1. Product and service design

2. Cost
3. Location
4. Quality
5. Quick response
6. Flexibility
7. Inventory management
8. Supply chain management
9. Service
10. Managers and workers
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Types of Operations Strategy

Decision Area What the Decisions Affect

Product and service Costs, quality, liability, and environmental issues
design
Capacity Cost, structure, flexibility
Process selection and Costs, flexibility, skill level needed, capacity
layout
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems

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Productivity

● Productivity
○ A measure of the effective use of resources,

usually expressed as the ratio of output to

input
● Productivity measures are useful for
○ Tracking an operating unit’s performance over

time
○ Judging the performance of an entire industry

or country

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Does Productivity Matter?

● High productivity is linked to higher standards of living

○ As an economy replaces manufacturing jobs with

lower productivity service jobs, it is more difficult to

maintain high standards of living
● Higher productivity relative to the competition leads to
competitive advantage in the marketplace
○ Pricing and profit effects

● For an industry, high relative productivity makes it less

likely it will be supplanted by foreign industry

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Measures of Productivity - I

Output
Productivity =
Input

Output Ouput Output

Partial Measures ; ;
Single Input Labor Capital

Output Ouput Output

Multifactor Measures ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

Goods or services produced

Total Measure
All inputs used to produce them

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Assessing Productivity - Example

Units produced: 5,000

Standard price: $30/unit
Labor input: 500 hours
Cost of labor: $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost

What is the
multifactor
productivity?

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Assessing Productivity – Solution to the Example

Output
Multifactor Productivity =
Labor + Material + Overhead
5,000 units  $30/unit
=
(500 hours  $25/hour) + $5,000 + (2(500 hours  $25/hour))

$150,000
=
$42,500
= 3.5294

What is the implication of an unitless measure of productivity?

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Assessing Growth in Productivity

Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity

Example: Labor productivity on the ABC assembly line was 25 units per hour in
2014. In 2015, labor productivity was 23 units per hour. What was the
productivity growth from 2014 to 2015?

23 - 25
Productivity Growth = 100%  8%
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Factors Affecting Productivity

Methods

Capital Quality

Technology Management

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Productivity in the Service Sector

● Service sector productivity is difficult to measure and manage

because
○ It involves intellectual activities
○ It has a high degree of variability
● A useful measure related to productivity is process yield
○ Where products are involved
■ ratio of output of good product to the quantity of raw material
input.
○ Where services are involved, process yield measurement is often
dependent on the particular process:
■ ratio of cars rented to cars available for a given day
■ ratio of student acceptances to the total number of students
approved for admission.

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Improving Productivity

1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish reasonable goals
5. Make it clear that management supports and
encourages productivity improvement
6. Measure and publicize improvements
Don’t confuse productivity with efficiency

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