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OPERATIONS STRATEGY (Operations Strategy concerns the patterns of…
OPERATIONS STRATEGY
Operations Strategy concerns the patterns of strategic decisions and actions which set the role, objectives and activities of the operation
Businesses should be able to master the skills to
implement, support and drive
operations strategy, operations should try to progressively implement, support and drive strategy
Supporting business strategy
: goes beyond simply implementing strategy, it means developing te capabilities which allow the organization to improve and refine its strategic goals
Driving business strategy
: the most difficult role of operations is to drive strategy by giving it a unique and long-term advantage
Implementing business strategy
: the most basic of operations, without effective implementation even the most original and brilliant strategy will be rendered totally ineffective
Hayes and Wheelwright developed a 4-stage model which can be used to evaluate the role and contribution of the operations function -
Stage 1
: Internal neutrality
Stage 2
: External neutrality
Stage 3
: Internally supportive
Stage 4
: Externally supportive
There are 4 perspectives of Operations Strategy:
1
. Operations strategy is a top-down reflection of what the whole group/business wants to do (what the business wants operations to do)
2
. Operations strategy is a bottom-up activity where operations improvements cumulatively build strategy (what day-to-day experience suggests operations should do) (Mintzberg's concept of Emergent Strategy)
3
. Operations strategy involves translating market requirements into operations decisions (what the market position requires operations to do)
4
. Operations strategy involves exploiting the capabilities of operations resources in chosen markets (what operations resources can do)
A useful way of determining the relative importance of competitive factors is to distinguish between 'order winning' and 'order qualifying' factors
Order-winning factors
are those which directly and significantly contribute to wining business, they are regarded by customers as key reasons for purchasing the product/service (e.g. delivery speed)
Order qualifying factors
may not be the major competitive determinants of success, but they are those aspects of competitiveness where the operation's performance has to be above a particular level just to be considered by the customer, performance below this 'qualifying' level of performance will possibly disqualify the company from being considered by many customers (e.g. food safety ratings)
The
Resource Based View (RBV)
holds that those firms with 'above average' strategic performance are likely to have gained sustainable competitive advantage because of the core competences (or capabilities) of their resources, meaning that the way an organization acquires its operations resources will have a significant on its strategic success in the long-term
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The RBV explanation of why some companies manage to gain sustainable competitive advantage is that they have accumulated better or more appropriate resources, resources have a particularly influential impact on strategic success if they exhibit some or all of the following - they are scarce, they are not very mobile, they are difficult to imitate or substitute for
Porter's Three Generic Strategies
- describes 3 different corporate strategies that firms can use to generate a sustainable competitive advantage: 1. Cost leadership strategy 2. Differentiation strategy 3. Focus strategy (
Firms that try to pursue multiple strategies are likely to become 'stuck in the middle' of the market with suboptimal financial performance', it is important not to use a mixture of different strategies in the same business unit)
Cost leadership strategy
: firms using this provide products and a lower cost that the competing products in the market (RyanAir, Aldi etc.), they often use economies of scale to lower the cost of manufacturing high volume products (RyanAir's fleet is comprised of the same model of aircraft), following a cost leadership strategy often enables firms to capture a large market share and dominate the industry, but can be risky in the case that consumer preferences change and they demand higher quality product or innovative new products
Differentiation strategy
: occurs when firms provide products or services that are differentiated from their competitor's offerings, often firms using differentiation strategy will develop innovative new product features or better service that customers are willing to pay a premium price for (Apple products), a higher price is required to cover the additional costs of manufacturing and supplying the differentiated products, this strategy does not work when the customers are highly price sensitive or when it is hard to differentiate the product
Focus strategy
: firms using a focus strategy will target their products and services at a particular market segment within the industry, instead of providing products that meet the requirements of every customer, these firms specialise in small market niches or a single market segment, over time, the firm becomes a market leader in the single market segment (e.g. Honda developed a reputation of developing reliable and high quality motorbikes)
Blue Ocean Strategy
: developed by Kim and Mauborgne from INSEAD who argue that the choice between a cost leadership and differentiation strategy is sub-optimal, they argue that competing head-to-head with your main competitors in an existing market often results in a
'bloody red ocean of rivals fighting over a shrinking profit pool'
, in a red ocean market successive price wars result in diminishing profit margins and returns, their research on 150 strategic moves over 100 years shows that firms can be more successful by developing and entering new markets and rather than battling competitors in red oceans, firms should create
'blue oceans of uncontested market space ripe for growth'
(e.g. Nintendo Wii)
Disruptive Innovation Strategy
: occurs when a small firm with limited resources is able to beat large establishes competitors by targeting the low end of a market, a disruptive innovation helps to lower production costs so that existing products become cheaper and more affordable for a wider range of customers
Business Model definition: 'A business model describes the rationale of how an organization creates, delivers and captures value'
Business Model Generation is comprised of 9 building blocks: Customer Segments, Value Proposition, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partnerships, Cost Structure
Product life cycle has 4 stages - 1. Introduction stage 2. Growth stage 3. Maturity stage 4. Decline stage
Operational Performance is determined by speed, flexibility, quality, dependability and cost - this is all measured by the value equation where
Value = Performance / Cost (where Performance = f [speed, quality, flexibility)
Strategies to fight low cost rivals include differentiating your offerings (Coca Cola adding different flavours and low sugar options), adding a low-cost business unit (Intel producing lower end chips for laptops and phones), switch to selling solutions (after purchase care with plane engines), become an exclusively low-cost provider (Wal-Mart)
Blue Ocean Strategies enable firms to use a cost leadership strategy (to deter new entrants to the market) and a differentiation strategy (a range of new products) as they face few competitors within the new industry, Kim and Mauborgne argue that blue ocean strategies aim to create:
Value Innovation = Differentiated Product + Low Cost
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