Chapter 2:

Operation Strategy
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B Y: O T C H A N D Y, B E & M S C .
MANAGEMENT INSTITUTE OF CAMBODIA
After finish this chapter…
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Define an operation strategy

Able to identify the 9 different competitive priorities

used in operation strategies

Able to describe the role of operation strategy as

source of competitive strength
Contents
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Coporate strategy

Market analysis

Modern day operation capabilities

Competitive priorities and capabilities

Operation as strategic importance
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Modern day organizations have to excel in

 Mass customization
 Lean production

 Agile manufacturing

 Customer-centric provision

 Etc.

Depend on ability to actually do these things

and it is reside within operations.
Operation as strategic importance
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Late 1990s, Toyota announceed their strategic

intention to expand capacity and produce even
more automobiles.

By 2004, Toyota had fulfilled their promise and

become 2nd car producer in USA.
Operation as strategic importance
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Dell Computers have in-house capabilities that

others have found difficult to imitate.

The problem with some organizations is that

they don't have senior-level personnel in place
who fully understand the potential that
operation can have.
Contents map
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Coporate strategy

Market analysis

Modern day operation capabilities

Competitive priorities and capabilities

Corporate strategy…
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Corporate strategy specifies the businesses that

the company will pursue, isolates new
opportunities and threats in the environment,
and identifies the growth objective.

Also address, how a firm can differentiate itself

from the competition.
Corporate strategy…
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Choices could include producing standardized

versus customized services or products or
competing on the basis of cost advantage versus
responsive service delivery.

Corporate strategy provides an overall

direction that serves as the framework for
carrying out all the organization's functions.
Corporate strategy…
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Strategic consideration:
Developing corporate strategy involves three
considerations:
1. Monitoring and adjusting to CHANGES
2. Identify and develop core competences

3. Develop core processes

Corporate strategy…
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1. Environmental scanning:
 Environment CHANGES rapidly
 Firm need to adapt to these changes

 Scan by monitor trends in the

socioeconomic environment incl. industry,
marketplace, and society.
 Scan for threats and opportunities
Corporate strategy…
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1. Environmental scanning:
 Threats: new entrants, new products and
services, low cost players, high quality
product line etc.
 Opportunities: economic trends,
technological changes, new policies, living
style, availability of new resources,
collective power of customers and suppliers
Corporate strategy…
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2. Development of core competences:

 Good managerial alone can not overcome
changes
 Success firms take the advantage of what
they do well – unique strengths
 Core competencies are the unique
resources and strengths that an
organization's management considers
when formulating strategy.
Corporate strategy…
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2. Development of core competences:

 Core competencies include:
 Management of value
 Capacity management
 Workforce
 Facilities
 Market and financial know-how
 System and technology
 Integratationa and affiliation
Corporate strategy…
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3. Development of core processes:

 Firm's core competencies should determine
core processes
 The four core processes
 Customer relationship
 New service/product innovation
 Order fulfillment
 Suppliers relationship
Corporate strategy…
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3. Development of core processes:

Products/Servic
e development
Supplier
Relationship

Order fulfillment
Customer
relationship
Corporate strategy…
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3. Development of core processes:

 Many companies have all four of these core
processes esp. news paper industry.

 Important point is every firm MUST

evaluate their core competencies and chose
to focus on thoses processes that provide
greatest competative strengths.
Corporate strategy…
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Global strategies:
 Identifyingopportunities and threats today
require a global prespective.

 Globalstrategy may include buying foreign

services or parts, combating threat from
foreign competitors, or planning way to enter
market beyond national boundaries.
Corporate strategy…
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Global strategies:
 Two effective global strategies are:
1. Strategic alliances in the form of
collaborating effort, joint venture,
technology (know-how) licensing
i 2. Locating abroad
McDonald vs. Jollibee in the Philippines
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Contents map
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Coporate strategy
Market analysis
Modern day operation capabilities
Competitive priorities and capabilities
Market Analysis
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Market segmentation:
 Market segmentation is a process of identifying
groups of customers with enough in common to
warrant the design and provision of services or
products that larger group wants and needs.

 It is allow firm to incorporate the needs of

customer into the design of the service or
product and the processes for its production.
Market Analysis
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Market segmentation:
 Characteristic use to determine market segments:

 Demographic factors: age, income, education level,

occupation, and location

 Psychological factors: pleasure, fear, innovativeness, and

boredom

 Industry factors: specific technology, use certain materials,

or participate in particular industry
Market Analysis
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Market segmentation:
 Another important note: two customers may
use the same product for very different
reasons.

 Identifyingthe key factors in each segment is

the starting point in devising a customer-
driven operation strategy.
Market Analysis
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Need Assessment:
 What are the needs for each market segment?

 How well competitors are addressing those

needs?

 Need assessment should include: tangible and

intangible service or product attributes and
features that a customer desires.
Market Analysis
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Need Assessment:
 Market needs may be group as follow:
 Service or Product Needs: price, quality,
degree of customization

 Delivery System Needs: availability,

convennience, courtesy, safety, accuracy,
reliability, delivery speed, and delivery
dependability
Market Analysis
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Need Assessment:
 Market needs may be group as follow:
 Volume Needs: high or low vol, degree of
variability in vol, and degree of predictability
in vol.

 Other Needs: reputation and num of year in

business, after sale technical support, ability to
invest in international financial market,
competent legal services, and service or
product design capability.
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Contents map
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Coporate strategy
Market analysis
Modern day operation capabilities
Competitive priorities and capabilities
Modern day operation capabilities
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Transition of operation from craft –

mass – agile
Modern day operation capabilities
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Craft era:
 Low volume

 High variety

 Firm capable of flexibility

 High level of skill and quality

Modern day operation capabilities
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Mass production:
 High volume
 Standard product

 Produce at low cost without or less varieties

 Work is largely de-skill

 Repetitive and narrow in scope with little flexibility

from workers
 Automation is dedicated to small product range

 Production/operation is views as low grade

function in firm
Modern day operation capabilities
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Mass customization:
A firm's service or product strategy
addresses certain competitive priorities that
will win orders from customers.

 One such competitive priority is variety.

Modern day operation capabilities
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Mass customization:
 Considering the paint retailer! They are
praticing a strategy known as mass
customization.

 Mass customization is a strategy

whereby a firm's flexible processes
generate a variety of service or product at
reasonable low costs.
Modern day operation capabilities
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Mass customization:
 Postponement:
 A key to being mass customizer is postponing
the task of differentiating a service or
product for a specific customer until the last
possible moment.
 It is an organzational concept whereby some
of final activities in the provision of a service
or product are delayed until the orders are
received.
Modern day operation capabilities
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Mass customization:
 Postponement apply to service:
 The Ritz-Carlton Hotel, will record customers
preferences and will add into its service to tailor
made the preferences of the same customers when
they check in again.
Modern day operation capabilities
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Mass customization:
 Postponement apply to manufacturing:
 HP postpones assemble of its printers
with the country-specific power supply
and packaging of appropriate manual
until the last step in the process, which is
perform by distributor in the region
where printer is being delivered.
Modern day operation capabilities
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Mass customization:
 Postponement apply to manufacturing:
 Being a successful mass customizer such
as HP may require the redesign of
products or processes.
Modern day operation capabilities
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Mass customization:
 Postponement apply to manufacturing:
 Benneton, a major producer of sweater,
rather than dyeing the yarn before
manufacturing the sweater; it reverse this
process to after and wait until there are
orders (usually large retail buyers).
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Modern day operation capabilities
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Mass customization:
 Internet implication:
 Internet has been a valuable technology for
mass customization strategies.

 Dell sells computer through web page that

allow consumers to configure their
computers from large variety of options.

 Ford and GM also do the same

Mass Customization

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Mass Customization

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Watch interview with Andrew Lippman,
Founder of MIT Media Lab .
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Modern day operation capabilities
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Mass customization:
 Internet implication:
 Each of these ventures provide customers an
enormous amount of choice in the service
and product they buy.
 But also put a lot of pressure on processes
that must produce them.
 So, flexibility and short response times are
prized qualities for mass-customization
processes.
Contents map
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Coporate strategy
Market analysis
Modern day operation capabilities
Competitive priorities and capabilities
Competitive priorities and capabilities
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Competitive capabilities
Cost 1. Low-cost operations
Quality 2. Top quality
3. Consistent quality
Time 4. Delivery speed
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Variety
9. Volume flexibility
Competitive priorities and capabilities
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Cost:
 Lowering prices can increase demand for services or
products BUT it is also reduces profit.

 Low-cost operation is delivering a service or

producing a product at lowest possible cost to the
satisfaction of process’s external and internal
customers.
Competitive priorities and capabilities
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Quality:
 Quality is a dimension of a service or product that is
defined by external and internal customers.

 Two important competitive priorities:

 Top quality
 Consistent quality
Competitive priorities and capabilities
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Time:
 Delivery speed: lead time is use to measure this
delivery speed.

 On-time delivery: meeting delivery time as promise

 Development speed: how quick the new service or

product is introduce to the market.
Competitive priorities and capabilities
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Flexibility:
 Customization: is satisfying the unique needs of each
customer by changing service or product design.

 Variety: is handling wide assortment of services or

products efficiently. It is different from customization
because service or product is not necessary unique.

 Volume flexibility: is accelerating or decelerating the

rate of production of services or products quickly to
handle large fluctuations in demand.
 The End
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Q & A

THANKS