Chapter 2

Operations Strategy
IE 443 Production Systems
LEARNING OBJECTIVES
After completing this chapter, you should be able to:
1. List the three primary ways that business organizations compete.
2. Explain five reasons for the poor competitiveness of some
companies.
3. Define the term strategy and explain why strategy is important.
4. Discuss and compare organization strategy and operations strategy,
and explain why it is important to link the two.
Competitiveness

•How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services.
•An important factor in determining whether
a company prospers, barely gets by, or fails.
Competitiveness
Marketing influences competitiveness in several ways;
1. Identifying consumer wants and/or needs - basic input in an
organization’s decision making process, and central to
competitiveness.
2. Price and Quality - key factors in consumer buying decisions.
3. Advertising and promotion - ways organizations can inform
potential customers
Major Influences in Competitiveness
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
Why Some Organization Fail
1. Neglecting operations strategy.
2. Failing to take advantage of strengths and opportunities, and/or failing to
recognize competitive threats.
3. Putting too much emphasis on short-term financial performance at the
expense of research and development.
4. Placing too much emphasis on product and service design and not
enough on process design and improvement.
5. Neglecting investments in capital and human resources.
6. Failing to establish good internal communications and cooperation
among different functional areas.
7. Failing to consider customer wants and needs.
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
Three Basic Business Strategies

•Low cost.
•Responsiveness.
•Differentiation from competitors.
Strategies and Tactics
• Tactics
• Methods and actions used to accomplish strategies.
• They are more specific than strategies
• They provide guidance and direction for carrying out actual operations
Planning and decision making
are hierarchical in organizations
Examples of Different Strategies an
Organization
• Low cost. Outsource operations to third-world countries that have low labor costs.
• Scale-based strategies. Use capital-intensive methods to achieve high output
volume and low unit costs.
• Specialization. Focus on narrow product lines or limited service to achieve higher
quality.
• Newness. Focus on innovation to create new products or services.
• Flexible operations. Focus on quick response and/or customization.
• High quality. Focus on achieving higher quality than competitors.
• Service. Focus on various aspects of service (e.g., helpful, courteous, reliable, etc.).
• Sustainability. Focus on environmental-friendly and energy-efficient operations.
Strategy Formulation
• Effective strategy formulation requires taking into account:
• Core competencies - The special attributes or abilities that give an
organization a competitive edge.
• Environmental scanning - monitoring of events and trends that present either
threats or opportunities for the organization.
• SWOT Analysis
• Successful strategy formulation also requires taking into
account:
• Order qualifiers – Characteristics that customers perceive as minimum
standards of acceptability 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.
Environmental Scanning (External Factor)
1. Economic conditions. These include the general health and direction of the
economy, inflation and deflation, interest rates, tax laws, and tariffs.
2. Political conditions. These include favorable or unfavorable attitudes toward
business, political stability or instability, and wars.
3. Legal environment. This includes antitrust laws, government regulations, trade
restrictions, minimum wage laws, product liability laws and recent court
experience, labor laws, and patents.
4. Technology. This can include the rate at which product innovations are
occurring, current and future process technology (equipment, materials
handling), and design technology.
5. Competition. This includes the number and strength of competitors, the basis
of competition (price, quality, special features), and the ease of market entry.
6. Markets. This includes size, location, brand loyalties, ease of entry, potential
for growth, long-term stability, and demographics.
Environmental Scanning (Internal Factor)
1. Human resources. These include the skills and abilities of managers and
workers; special talents (creativity, designing, problem solving); loyalty to the
organization; expertise; dedication; and experience.
2. Facilities and equipment. Capacities, location, age, and cost to maintain or
replace can have a significant impact on operations.
3. Financial resources. Cash flow, access to additional funding, existing debt
burden, and cost of capital are important considerations.
4. Customers. Loyalty, existing relationships, and understanding of wants and
needs are important.
5. Products and services. These include existing products and services, and the
potential for new products and services.
6. Technology. This includes existing technology, the ability to integrate new
technology, and the probable impact of technology on current and future
operations.
7. Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility,
and service are typical considerations.
Operations Strategy
• The approach, consistent with the organization strategy, that is used
to guide the operations function.
Quality and Time Strategies
• Quality-based strategies
• focus on maintaining or improving the quality of an organization’s products or
services.
• can be part of another strategy such as cost reduction, increased productivity,
or time, all of which benefit from higher quality.

• Time-based strategies
• focus on reducing the time required to accomplish various activities
• 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
Time-Based Strategies
• Areas where organizations have achieved time reductions:
• Planning time
• Product/service design time
• Processing time
• Changeover time
• Delivery time
• Response time for complaints
THE BALANCED SCORECARD
• The Balanced Scorecard (BSC)
• A top-down management system that organizations can use to clarify their
vision and strategy and transform them into action.
• It was introduced in the early 1990s by Robert Kaplan and David Norton
• Managers develop objectives, metrics, and targets for each objective and
initiatives to achieve objectives, and they identify links among the various
perspectives.
• Results are monitored and used to improve strategic performance results
THE BALANCED SCORECARD