- Chapter 1: International Comparisons
- Chapter 2: Developing an Operations Strategy: Principles and Concepts
- Chapter 3: Order-winners and Qualifiers
- Chapter 4: Developing an Operations Strategy: Methodology
- Chapter 5: Process Choice
- Chapter 6: Product Profiling
- Chapter 7: Focus: Principles and Concepts
- Chapter 8: Focus: Methodology
- Chapter 9: Make or Buy and Managing the Supply Chain
- Chapter 10: Infrastructure Choice
- Chapter 11: Accounting, Finance and Performance Measurement in the Context of Operations Strategy
Despite this new challenge, most Western companies still believe operations should focus on short-term issues and leave strategy to the marketing and finance functions. However, this book argues that an operations strategy is essential for companies to compete in domestic and world markets. Without one, it will not be able to survive, let alone grow its market share.
This chapter compares the performance of nations and businesses over the past 30 years. It shows that newer ones are outperforming those with strong industrial traditions by using different operations management approaches. This has further increased the level of competition and the need to use operations as a strategic force both within businesses and between nations.
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The compelling reasons to ensure fit are tied to the invariably large and fixed nature of operations process and infrastructure investments. They are large in terms of the size of the investment (£s) and fixed in that it takes a long time to agree, sanction and implement these decisions in the first instance and even longer to agree to change them. It is similar to the oil tanker captain who, on being asked to change direction, would respond: ‘you should have asked me 20 kilometres ago.’
Having invested inappropriately, companies invariably cannot afford to put things right, both in terms of the size of the reinvestment and the time to implement the changes. The financial implications, systems development, training requirements and time to make the changes would leave the company, at best, seriously disadvantaged. To avoid this, companies need to be aware of how well operations can support the marketplace and be conscious of the investments and time dimensions involved in changing current positions into future proposals.
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The essence of strategy stems from the need for companies to gain a detailed understanding of their current and future markets. Functions are then required to develop strategies based on supporting the requirements of those markets in which the business decides it wishes to retain and/or grow share. Operations strategy (as with other functional strategies), therefore, consists of the investments, developments and actions undertaken to support the order-winners and/or qualifiers in agreed markets and for which operations is solely or jointly responsible. The pattern of decisions that results constitutes the strategy of the function.
In reality, strategies often comprise a mix of decisions, not all of which will be in line with their strategic task(s), either by default (a result of either not being conscious of the inconsistency between the decisions taken and strategic requirements, or failing to meet the need even though adequate resources and time had been provided) or by design (there will invariably be instances where companies decide not to invest adequately for pragmatic reasons). Regarding the latter, such instances do not constitute ‘poor strategy’, because ‘good strategy’ is not a result of making the right decisions but is the outcome of a company knowing what it is doing and adjusting corporate expectations in line with reality.
In summary, the key elements of functional strategy development are:
Throughout, functions need to be proactive in strategic discussions while explaining their perspectives so that the rest of the business understands them. In this way, functional perspectives form part of both the discussion and decision.
- Being party to the decisions and agreements on current and future markets
- Identifying and agreeing relevant order-winners and qualifiers whether in a market-driven or market-driving scenario
- Assessing how well these order-winners and qualifiers are currently supported
- Agreeing a pattern of decisions and actions to maintain or improve existing levels of support
- Being aware of the extent of current and future fit, any timescales involved in point 4 and adjusting corporate expectations in line with reality
- Implementing the components of strategy.
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Functions manage, control and develop the resources for which they are operationally and strategically responsible. The operational tasks concern managing and controlling the day-to-day, short-term aspects of a business. The strategic tasks concern investing in and developing those capabilities to provide the qualifiers and order-winners necessary to compete in agreed current and future markets. Exhibit 4.1 shows the steps involved in analysing markets and developing an operations strategy to support them.
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Operations is not an engineering- or technology-related function. It is a business-related function. Although products need to be made according to their technical specifications, they also have to be supplied in ways that win orders in the marketplace. This business dimension is the concern of operations. When making process investment decisions, therefore, companies need to satisfy both the technical and business perspectives. The former is the concern of engineering, the latter is the concern of operations.
This chapter describes the operations and business implications of process choice and highlights the importance of these issues when making investment decisions. In this way, it helps to broaden the view of operations currently held by senior executives 1 and provides a way of reviewing the operations implications of marketing decisions, hence facilitating the operations input into corporate strategy. This ensures that the necessary marketing/operations interface is made and that the strategies adopted are business rather than functionally led.
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When investing in processes and infrastructure, companies need to appreciate the business trade-offs embodied in these decisions (see Exhibit 5.16). Product profiling enables a company to test the current or anticipated level of fit between the requirements of its market(s) and the characteristics of its existing or proposed processes and infrastructure investments – the components of operations strategy (see Exhibit 2.10). The purpose of this assessment is twofold. First, it provides a way to evaluate and, where necessary, improve the fit between the way in which a company qualifies and wins orders in its markets and operations’ ability to support these criteria (that is, operations’ strategic response). Second, it helps a company move away from classic strategy building characterized by functional perspectives separately agreed, without adequate attempts to test the fit or reconcile different opinions of what is best for the business as a whole (as illustrated in Exhibits 2.4 and 2.5).
In many instances though, companies will be unable or unwilling to take the necessary steps to provide the degree of fit desired because of the level of investment, executive energy and timescales involved. However, sound strategy is not a case of having every facet correctly in place. It concerns improving the level of consciousness a company brings to bear on its corporate decisions. Living with existing mismatches or allowing the level of fit to deteriorate can be strategically sound if a company is aware of its position and makes these choices knowingly. Reality can constrain strategic decisions. In such circumstances, product profiling will help to increase corporate awareness and allow a conscious choice between alternatives. In the past, many companies have not aspired to this level of strategic alertness.
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The complexity in operations results from the size of the management and strategic task it faces. The management task comes from the number and interrelated nature of the tasks and issues involved. 1 The strategic task reflects the level of the fit between the strategic objectives and the operations process and infrastructure capability. Focus is one approach to organizing operations so the size of its management and strategic task is reduced.
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The markets that businesses compete in have different needs to each other. Operations must therefore cope with the differing requirements placed on them. Increasingly, operations is using focused facilities or plant-within-a-plant configurations to meet these varying demands. However, before discussing the steps to achieve focus, we should consider the origins of existing facilities, how they are arranged and the reasons for these decisions.
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Both the make-or-buy decision and the task of managing the supply chain have major ramifications for a business. They impact growth and level of success and are crucial to survival. The corporate stance and response on both these key issues need to be the result of business-based discussions set in appropriate strategic context and involving sufficient recognition of the integrated nature of the resources and capabilities that forge a company’s ability to compete.
What a company decides to make or buy will impact its potential to be successful in its current markets, while restricting or facilitating its ability to change direction in the future. Having made the decision, a company needs to appreciate that the various elements involved will invariably impact many of the order-winners and qualifiers in its own markets. Traditional corporate approaches, however, typically fail to recognize the integrated nature of the whole and the need to proactively manage all elements in line with its own market needs. Developing cooperation and improving coordination are not just good things to do but are essential if a company is to compete successfully now and in the future. In the past, the activities comprising the supply of materials through to the distribution of products to customers, although financially significant, were considered strategically peripheral. Now companies are recognizing that the ownership of activities and capabilities is not what matters but rather the ability to manage these in support of their markets.
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Exhibit 10.1 Framework for reflecting operations strategy issues in corporate decisions
- Although the steps to be followed are given as finite points in a stated procedure, in reality the process will involve statement and restatement, for several of these aspects will impinge on each other.
- Column 3 concerns identifying both the relevant order-winners and qualifiers.
- Press enter to add another item
Markets are dynamic and constantly changing. Businesses must identify these changes and develop capabilities to support them (see Exhibit 10.2).1 While the overall infrastructure investment is similar to that made in processes, it can be broken down into smaller elements, such as functional support, operations planning and control systems, quality assurance and control, systems engineering, clerical procedures, payment and reward systems, work structuring and organizational structure. Taken individually, each element is often easier and cheaper to modify than the processes used to deliver products and services. For this reason, businesses tend to meet market changes by modifying and realigning infrastructure. Only if market needs cannot be met through infrastructure developments will subsequent process investments be made.
Exhibit 10.2 Strategic awareness ensures businesses identify market changes and develop the capability to support them
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With operations invariably tasked with meeting many of the financial targets and performance measures within organizations (and understandably so as it accounts for so much of the costs and investments), it is essential that the premise on which these targets and measures are built and the data used to calculate them are sound. Where this is not so, the extent of the potential inaccuracy (both data processes and insights) remains unexposed and is then built into corporate expectations. Being unaware, companies set aside these inherent deficiencies, base targets and measures on available data and consequently fail to evaluate performance on reality.
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