5 - Operations Management Strategy

Key Variables of Functional strategies

Detail Alignment Progress Existing resources Integration

The three main types of transformed resource are

Materials - these can be transformed either physically (manufacturing), by location (transportation), by ownership (retail) or by storage (warehousing). Information - these can be transformed by property (accountants), by possession (market research), by storage (libraries) or by location (telecommunications). Customers - they can be transformed by either physical (hairdresser), by storage (hotels), by location (airlines), by physiological state (hospitals), or by psychological state (entertainment)

Levels of strategy

Organisational level strategy Business level strategy Functional level strategy

What is strategy

Strategy is concerned with the actions an organization takes in order to survive and prosper in its environment in the long term. Often expressed as a long-term plan for the next several years. Organizational strategy is delivered via operations strategy. E.g. Lower production costs Build capacity for the future Decrease defects Improve supplier relationships

The way an operations strategy is developed

Top-down: formed in pursuit of its business and corporate strategy Bottom-up: formed from the actions and decisions taken within operations Market-led: formed in response to market requirements Operations-led: based on the resources and capabilities within its operations

Organisational level strategy

"Organizational strategy is a dynamic long-term plan that maps the route towards the realization of a company's goals and vision." (Pearson, 2019) Although your goals may remain the same, the strategy you adopt can change. The vision can also change, but the plan needs to be adopted. Long term plan To define a " long term" plan is subject to you and the organisation. A long term plan can mean five years or 10 years in some cases. Most companies choose a 3-5 year long term plan as this caters for uncertainties unlike 25 year long term plans. Most strategic planning initiatives begin by asking the questions: "Where are we now"? "where do we want to be?" It covers everything from the identity of the company to its reason for existing.

Key Variables of Functional Strategies - Examples

1) Efficiency Reduce hiring and training expense by minimizing employee turnover. 2) Quality Provide extensive training to decrease employee error. 3) Delivery Streamline acquisition and education of talent. Marketing 4) Efficiency Maximize cost-effective targeting of advertising campaigns. 5) Quality Provide an accurate assessment of customer product preference. 6) Delivery Detect and react to evolving market trends. Purchasing 7) Efficiency Negotiate purchase price to provide increased value. 8) Quality Select vendors who are willing to become partners. 9) Delivery Manage deliveries to avoid extensive inventory. Operations 10) Efficiency Minimize scrap. 11) Quality Increase high-quality production. 12) Delivery Adapt to the latest production demands with minimal delay.

Business Level Strategies

Business level strategies are intended to create differences between the firm's position relative to those of it's rivals. To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals. Focused on satisfying customer needs or preferences. Business level strategies details the actions taken to provide value to customers and gain competitive advantage by exploiting competencies in specific, individual product or service markets. Business level strategies are concerned with a firm's position in an industry relative to competitors and to the five forces of competition. Five forces of competition Customers are the foundation of an organization's business level strategy. Who will be served ? What needs have to be met? How will these needs be satisfied? These are the questions that will be determined by senior management. Knowing one's customers is very important in obtaining and sustaining competitive advantage. Who are the customers? Demographics, geographic, lifestyle choices, personality traits, consumption patterns, industry characteristics and organisational size. How to satisfy customer needs? Organizations must learn how to bundle resources and capabilities to create value.

existing resources

Every functional level strategy that you put in place should utilize the existing resources — both equipment and personnel — that each department has to offer. Example: you don't want to base your marketing department strategy on resources they don't have. Doing so could seriously undermine the broader goals above it (at the business and organisational levels).

Functional Strategy

Functional level strategies are the actions and goals assigned to various departments that support the business level strategy and organisational /corporate level strategy. These strategies specify the outcomes you want to see achieved from the daily operations of specific departments (or functions) of a business. Functional level strategies should reflect the fact that organisational and business objectives typically require the involvement of multiple functional areas (e.g., HR, production, R&D, etc.). So, continuing with the organisational level strategy of increasing market share, the functional level strategy would then be: HR: increase hiring of highly-trained employees Marketing: improve brand identification Production: reduce rejections

Alignment

Functional level strategies should always align with the business level strategies and organisational level strategies above them. For example, if your organisational strategy is to improve market share and your business strategy is to improve brand identification, you wouldn't want one of your functional strategies to be for the marketing department to update their computer systems. Those goals are out of alignment.

Benefits of Functional Strategy

Functional level strategy is specific; it is usually more difficult to set than your organizational and business strategy. But taking the time to hammer out the actionable strategies of each department can help you align your goals from the top of your organization all the way down to the individual employees. This will help the managers throughout your organization get a better understanding of how their departments (and the employees that make them up) impact your business and organisational level strategy. en all the pieces of your business are united in achieving a singular goal, success is inevitable.

Integration

In addition to vertical alignment, functional level strategies should also be integrated horizontally within and among departments. For example: coordinate purchasing, inventory, and shipping within your operations department, and those activities with any new processes in the production department. That way, actionable items in one department don't put a speed bump in the actionable items of another department.

International operations strategy

Internationalization of operations as a response to globalization. An international business strategy requires an international operations strategy. An international operations strategy must meet the challenges of, and realize the benefits available from, internationalization. Challenges: Organizations have different business objectives in different countries. Customer expectations differ from country to country. Resource availability varies from country to country.

Operations Management and Strategy

Operations strategy provides a plan for the operations function so that it can make the best use of its resources. Operations strategy specifies the policies and plans for using the organization's resources to support its long-term competitive strategy. It is essential for organisations to have an operational strategy: To help implement organisational, business and functional strategies. Ensure competitive advantage The role of operations management is to manage the transformation of an organisation's inputs into finished goods and services using processes. Processes are actually present in all of these areas: Human resources, Finance, Marketing etc) of the organisation. The two main types of transforming resources: Facilities - building, equipment and process technology Staff - all of the people involved in the operations process. In service, the customer may be involved as a transforming resource.

Focused Low Cost

Organizations not only compete on price, but also select a small segment of the market to provide goods and services to. A firm that follows this strategy does not necessarily charge the lowest prices in the industry. Instead, it charges low prices relative to other firms that compete within the target market.

Focused Differentiation

Organizations that competes on differentiation and select small segment of the market to provide goods and services. Some firms using a focused differentiation strategy concentrate their efforts on a particular sales channel, such as selling over the Internet only whilst others target particular demographic groups. Risks of Using Focused Strategies: Maybe out focused by competitors (even smaller segment) Segment may become of interest to broad market firm(s)

Detail

The functional level strategy will have the most detail of the three strategy types. There will be specific goals and actionable items for each department

Types of Business level strategies

There are five strategies used to help organisations establish a competitive advantage over industry rivals. Cost leadership Differentiation Focused Low Cost Focused Differentiation Integrated Low Cost/ Differentiation strategy

Integrated Low Cost Differentiation

This new strategy may become more popular as global competition increases. Firms that use this strategy may see improvement in their ability to: Adaptability to environmental changes. Learn new skills and technologies More effectively leverage core competencies across business units and products lines which should enable the firm to produce produces with differentiated features at lower costs. The customer realizes value based both on product features and a low price. Southwest airlines is one example of a company that does uses this strategy. However, organizations that choose this strategy must be careful not to: becoming stuck in the middle i.e., not being able to manage successfully the five competitive forces and not achieve strategic competitiveness. Must be capable of consistently reducing costs while adding differentiated features.

Differentiation

Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest price. This is done through high quality, features, high customer service, rapid product innovation, advanced technological features, image management, etc. Some companies that follow this strategy: Rolex, Intel, Ralph Lauren These companies create value by: Lowering Buyers' Costs - Higher quality means less breakdowns, quicker response to problems. Raising Buyers' Performance - Buyer may improve performance, have higher level of enjoyment. Sustainability - Creating barriers by perceptions of uniqueness and reputation, creating high switching costs through differentiation and uniqueness. The risks involved with using differentiation strategy: Uniqueness - the item is too unique, finding a buyer maybe difficult Imitation - due to cost, imitations maybe produced for cheaper Loss of Value - in some cases for instance with European vehicles, the value of will depreciate over time. Porter's Five Forces Model - Effective differentiators can remain profitable even when the five forces appear unattractive. Rivalry - Brand loyalty means that customers will be less sensitive to price increases, as long as the firm can satisfy the needs of its customers (audiofiles). Suppliers - Because differentiators charge a premium price they can more afford to absorb higher costs and customers are willing to pay extra too. Entrants - Loyalty provides a difficult barrier to overcome. Substitutes (trans. 4-26) - Once again brand loyalty helps combat substitute products.

Progress

When trying to measure your progress, it can be easy to include too much information and become inundated with data. It's vital to keep in mind what your business level strategies and organizational level strategies are and only measure the aspects that help you determine if you're progressing toward those goals.

Cost Leadership

where organisations compete for a wider customer based on price. Price is based on internal efficiency in order to have a margin that can sustain above average returns and cost to the customer so that they will purchase your product or service. Building state of the art efficient facilities (making it costly for competitors to imitate. Maintaining tight control over production and overhead cost Minimise cost of sales, research and development and service Examples: IKEA and Mc Donalds Rivalry - Competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits Customers - Powerful customers that force firms to produce goods/service at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then lose much of their buying power. Suppliers - Cost leaders are able to absorb greater price increases before it must raise price to customers. Entrants - Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs. Substitutes - Low cost leaders are more likely to lower costs to entice customers to stay with their product, invest to develop substitutes, purchase patents. Risks involved with utilising the Cost Leadership strategy: Technology - Expensive and sometimes unavailable Imitation - Subject to "copy and paste" from other companies Tunnel Vision - missed opportunities due to focusing on one thing.