OPERATIONS STRATEGY

OPER1021 Operations Management

Strategic Positioning
2

Competitive product space is the firms product

portfolio as measured along four product attributes
product cost, response time, variety, and quality.
Strategic positioning defines those positions that the
firm wants to occupy in its competitive product space.
Operational effectiveness means developing and
possessing process competencies that support the given
strategic position.

Strategic Positioning in the

Competitive Product Space
Responsiveness
High

Low
High

Low

Price

Order Qualifiers and Order Winners

4

Order-qualifiers are attributes that customers

perceive as minimum standards of acceptability to be
considered as a potential for purchase. Businesses
need only be as good as competitors.
Order-winners are attributes of an organizations
goods or services that cause them to be perceived as
better than the competition. Businesses need to be
better than their competitors.

The Strategy Hierarchy

5

Operations strategy
configures and
develops business
processes that best
enable a firm to
produce and deliver
the products specified
by the business
strategy.

Operations

Corporate

What business are we in?

Business
(divisional)

How do we compete?

Marketing

Finance

Role of each
function?

Matching Process Choice with Strategy:

Product-Process Matrix
Process
Flexibility
High

JOB SHOP

Jumbled Flow.
Process segments
loosely linked.

(Architecture firm,
Conference Planning)
BATCH

Disconnected Line
Flow/Jumbled Flow
but a dominant flow
exists.

(Bakery,
Auto Repair)
LINE FLOWS

Connected Line
Flow (assembly line)

Continuous, automated,
rigid line flow.
Process segments tightly
linked.

Low

(Auto Assembly,
Cafeteria)

CONTINUOUS
FLOW
(Oil

Refinery)

Low
High Standardization
Commodity Products
High volume

High
Few Major Products

Many Products

Low Standardization
Customized Products
Low volume

Product
Variety

Evaluating Strategic Fit and

Contribution

Strategic fit (internal and external)

Between the operations strategy and the overall business strategy

Among operations strategic position, process architecture, and managerial
policies
Between the operations strategy and the other functions strategies
Between the operations strategy and the business environment (resources
available, competitive behavior, governmental restraints, etc.)

Contribution (to competitive advantage)

Making trade-offs explicit, enabling operations to set priorities that enhance

the competitive advantage
Directing attention to opportunities that complement the business strategy
Promoting clarity regarding the operations strategy throughout the firm
Providing the operational capabilities that will be required by the business
now and in the future

Tradeoffs and the Operations Frontier

8

High

E
Low

Technology and the Operations

Frontier

The operations frontier is determined by the capabilities

of the available process technologies. As the
technologies improve, the frontier is pushed out.
The introduction of new technologies (e.g., internet or
telecommunications) have transformed service processes
for increased access while lowering the production and
delivery costs and improving the response time (i.e.,
pushing out the frontier).
The trend toward more self-service has created new
positions in the service industry.

Focused Operations
10

A focused strategy is a limited, congruent set of

objectives in terms of demand (products and
markets) and supply (inputs, necessary process
technologies and volumes).
In turn, a focused strategy is supported by a
focused process whose products fall within a small
region of the competitive product space.
Example of Southwest Airlines, Trader Joes.

McDonalds Business Strategy

11

McDonalds Plan to Win business strategy

McDonalds 2009 Annual Report: It essentially identifies the
five core drivers of our business people, products, place,
price and promotion and align our industry-leading
owner/operators, world-class suppliers and talented,
experienced employees around initiatives that drive results.
McDonalds has a customer-focused strategy that builds on
its competitive advantages:
People service
Products variety and quality
Place location
Price and Promotion - cost

McDonalds Operations Structure

12

McDonalds operations structure

Capacity
Growth as needed through additional stores - but capacity added carefully
Well-utilized - franchisee's well-being depends on heavily utilization

Facilities
Distributed facilities, each facility being very similar to the next, all focused
around a similar menu with some local variations (especially by country)

Supply chain
Partnership arrangement
Long-term relationship with suppliers to promote innovation and quality
improvement

Information/process technology
High degree of process standardization, emphasis on "fool-proof" processes
A leader in the technology of fast-food delivery

McDonalds Operations Infrastructure

13

McDonalds operations infrastructure

Workforce

Organization

Franchisees: well-trained, carefully selected, entrepreneurs

Operators: high-turnover, lower-paid

Guidelines provided by corporation, but franchisees push to locally optimize

Control/quality systems

Centralized buying
Bulk contracts
"Push" system for basic supplies, "pull" system day-to-day in the restaurants