Developing a Business and Operations Strategy: A Comprehensive Guide
1. Developing a Business Strategy
A business strategy is developed after its managers have considered many factors and have made some strategic decisions. It defines the long-range plan for the company.
Key Factors
(to the development of the company’s long-range plan, or business strategy)
MISSION: A statement defining what business an organization is in, who its customers are, and how its core beliefs shape its business. Every organization has one.
ENVIRONMENTAL SCANNING: Monitoring the external environment for changes and trends to determine business opportunities and threats. It allows a company to identify opportunities and threats by seeing gaps in customers’ needs and designing a plan to take advantage of them.
CORE COMPETENCIES: Unique strengths that can help us win in the market. It is important to take advantage of core competencies. Increased global competition has driven many companies to clearly identify their core competencies and outsource those activities considered non-core.
| WORKFORCE | |||
|---|---|---|---|
| – Highly trained | |||
| – Responsive in meeting customer needs | |||
| – Flexible in performing a variety of tasks | |||
| – Strong technical capability | |||
| – Creative in product design | |||
| FACILITIES | |||
| – Flexible in producing a variety of products | |||
| – Technologically advanced | |||
| – An efficient distribution system | |||
| MARKET UNDERSTANDING | |||
| – Skilled in understanding customer wants and predicting market trends | |||
| FINANCIAL KNOW-HOW | |||
| – Skilled in attracting and raising capital | |||
| TECHNOLOGY | |||
| – Use of latest production technology | |||
| – Use of information technology | |||
| – Quality control techniques | |||
*NOTE: As environmental scanning reveals changes in the external environment, the company may need to change its business strategy to remain competitive while taking advantage of its core competencies and staying within its mission.
2. Operations Strategy
ROLE: Provide a plan for the operations function so that it can make the best use of its resources and:
- Specifies the policies and plans for using the organization’s resources
- Support its long-term competitive strategy.
Importance of Operations Strategy
Historical Evolution
- Traditionally, there were no serious international competitors and the US emphasized mass production of standard product designs.
- 1970s: Japanese companies began offering products of superior quality at lower cost, leading US companies to lose market share.
- U.S. Companies copied Japanese approaches.
- Merely copying these approaches often proved unsuccessful; it took time to really understand the Japanese approaches.
- Japanese companies were more competitive because of their operations strategy; that is, all their resources were specifically designed to directly support the company’s overall strategic plan.
Differences Between Operational Efficiency and Strategy:
- Operational efficiency: Performing tasks well, or better than competitors.
- Operational strategy: Plan for competing in the marketplace. It ensures that all tasks performed are the right tasks.
*NOTE: Operational efficiency and strategy must be aligned; otherwise, you may be very efficiently performing the wrong task.
2.1 Developing an Operations Strategy
An operations strategy is developed after the business strategy and focuses on specific capabilities (that the operations function can develop) which give it a competitive edge: Core competencies.
Operations managers must work closely with marketing in order to understand the competitive situation in the company’s market before they can determine which competitive priorities are important.
Competitive Priorities
Capabilities that the operations function can develop to give a company a competitive advantage in its market. By excelling in one of these capabilities, a company can become a winner in its market.
COST: Offer a product at a lower price than the competition.
- High volume products
- Limit product range with little customization
- Investments in automation to reduce unit costs
- Lower skill labor
- Products focused layouts
- Low cost does not equal low quality
- Unnecessary costs are eliminated
- Facilities are streamlined
- Can result in a higher profit margin
- Role of operations strategy: Design a plan for the use of resources to support this type of competition.
QUALITY: Focused on the quality of goods and services. Quality is often subjective and is defined differently depending on who is defining it. We say that companies that focus on quality are companies that focus on the dimensions of quality that are considered important by their customers.
- Two dimensions
- High-performance design: Operations function will be designed to focus on aspects of quality such as superior features, close tolerances, high durability, and excellent customer service.
- Product and service consistency: Meets design specifications, close tolerances, and error-free delivery.
- Quality must address
- Product design quality: Product/service meets requirements.
- Process quality: Error-free products.
- Two dimensions
TIME: Focused on speed and on-time delivery.
- Today’s customers don’t want to wait, and companies that can meet their need for fast service are becoming leaders in their industries.
FLEXIBILITY: Ability to readily adapt to the company’s environment changes.
- Dimensions
- Product flexibility: Offer a wide variety of goods and services, easily customized to meet the specific requirements of the customer. Easily drop or add products to meet customer demand.
- Volume flexibility: Ability to rapidly increase or decrease production to match market demands.
- Dimensions
The Need for Trade-offs
Decisions often require trade-offs. They must emphasize priorities that support business strategy and focus on order qualifiers and order winners.
ORDER QUALIFIERS: Competitive standards that make a firm’s product viewed as fit for purchase by customers.
ORDER WINNERS: Standards that separate the products or services of one firm from another.
Translating Competitive Priorities into Production Requirements
Once the competitive priorities have been identified, a plan is developed to support those priorities. The operations strategy will specify the design and use of the organization’s resources; that is, it will set forth specific operations requirements. Two categories: structure and infrastructure.
| STRUCTURE | INFRASTRUCTURE |
|---|---|
Operations decisions related to the design of the production process. Such as:
| Operations decisions related to planning and control systems of operations. Such as:
|
3. Technology
Technology must support competitive priorities. It is a crucial strategic decision and can require changes to strategic plans and operations strategy.
Types of Technology
PRODUCT TECHNOLOGY: Any new technology developed by a firm. It is important as companies must regularly update their processes to produce the latest types of products.
PROCESS TECHNOLOGY: The technology used to improve the process of creating goods and services. These are technologies that use computers to assist engineers in the way they design and manufacture products.
INFORMATION TECHNOLOGY: Enables communication, processing, and storage of information. Information technology has grown rapidly over recent years and has had a profound impact on business.
Technology as a Tool for Competitive Advantage
By acquiring technology, a company can improve quality, reduce costs, and improve product delivery. This can provide an advantage over the competition and help gain market share.
However, investing in technology can be costly and entails risks, such as overestimating the benefits of the technology or incurring the risk of obsolescence due to rapid new inventions.
| POSITIVE POTENTIAL – BENEFITS | NEGATIVE POTENTIAL – RISKS |
|---|---|
| Improve processes | Costly |
| Maintain up-to-date standards | Can overstate benefits |
| Obtain competitive advantage | Obsolescence |
4. Productivity
- A measure of how efficiently inputs are converted into outputs.
- PRODUCTIVITY = OUTPUT / INPUT
Total Productivity
- Productivity computed as a ratio of output to all organizational inputs.
- TOTAL PRODUCTIVITY = OUTPUTS PRODUCED / INPUTS USED
Partial Productivity
- Productivity computed as a ratio of output to only one input.
- PARTIAL PRODUCTIVITY = OUTPUT / INPUT
Multifactor Productivity
- Productivity computed as a ratio of output to several, but not all, inputs.
- MULTIFACTOR PRODUCTIVITY = OUTPUT / (Multiple INPUTS)
Interpreting Productivity Measures
Productivity measures provide information on how the firm is doing relative to what is critical to the firm. It is a scorecard on effective resource use.
To interpret the meaning of a productivity measure, it must be compared:
- With a similar productivity measure
- Over time
- Against similar operations
Productivity and the Service Sector
Measuring service sector productivity is a unique challenge.
- Traditional measures focus on tangible outcomes.
- Service industries primarily produce intangible outcomes.
- Measuring intangibles is challenging.