2.3 Strategy

The term “strategy” originates from the Greek word “strategos,” which translates to “general.” This etymology reflects the concept’s roots in military tactics, where a strategist guided the overall course of warfare. In the business domain, this notion of leading military campaigns has been adapted to the leadership of business activities. Business strategy entails establishing long-term goals and outlining a course of action for a firm, differentiating it from the day-to-day operational activities.

Operations Strategy and Operations

As previously mentioned, winning a greater market share requires a plan (strategy). Once this plan is set, it should be executed by internal activities (operations) and resources that deliver the plan for the external market. The effectiveness of a plan lies in a realistic grasp of what the customers want, which often tends to be dynamically changing, ambiguous or heterogeneous. On the other hand, internal activities and resources could be complex enough not to change dynamically. Despite this disagreement, the two sides should complement each other. The following video explains this in more detail:

Organizations and Internal View of Operations Strategy

While the operations strategy is formulated in response to external market demands, the decision-making process and execution occur entirely within the organization. Two prominent approaches to operations strategy exist: top-down and bottom-up. These approaches differ in the organizational levels involved in strategic decision-making. This section will first delve into these two perspectives and then examine the role of organizational hierarchy in formulating strategic choices.

The Strategic Hierarchy: A Framework for Decision-Making

Organizations operate at various levels, each requiring its own strategic focus. Understanding this strategic hierarchy is crucial for effective decision-making.

At the highest level sits the corporate strategy. This broader scope vision defines the company’s core values, mission, and desired competitive advantage. It essentially answers the question: “In which industries should we compete, and how will this create synergy and value for the entire corporation?”

Next comes the business-level strategy. Here, the focus narrows to individual business units (SBUs) within a diversified corporation. This strategy determines how each SBU will achieve a sustainable competitive advantage. Michael Porter’s framework proposes three main approaches: cost leadership (offering the lowest price), differentiation (standing out through unique features), or focus (targeting a specific market niche).

Delving deeper, we encounter functional strategies. These are department-specific plans that support the overall business-level strategy. The marketing department might craft a strategy for brand awareness, while finance might prioritize cost-reduction measures. These functional strategies may have departmental focus, alignment with the business strategy, and focus on short-to-midterm goals.

Traditional functional structures are sometimes deemed inefficient. In such cases, companies may adopt a structure based on processes or SBUs. An SBU is a semi-autonomous unit responsible for its own budgeting, product development, hiring, and pricing decisions. It operates as an internal profit center within the corporation.

Finally, we reach the operational strategy. This highly focused level deals with day-to-day operational activities, such as scheduling production runs or setting quality control parameters. Operational strategies are naturally informed by the business-level strategies, which themselves align with the broader corporate vision.

Critical Decisions in Operations Strategy: Executing the Game Plan

Operations strategy translates the high-level business strategy into actionable steps. The decisions made at this level determine the success or failure of the overall plan. Here are 10 critical areas that demand careful consideration in operations management (Kettering Global, 2016):

1. Product and Service Design: The fundamental design of your offering significantly impacts production costs and achievable quality. Every aspect, from materials to functionality, plays a role.
2. Quality Management: Ensuring your product or service consistently meets specifications is paramount. This may involve implementing methodologies like Statistical Process Control (SPC), Total Quality Management (TQM), or Six Sigma.
3. Process and Capacity Design: The type of product, its volume, and variety all influence the optimal production process. For instance, high-volume, standardized products might benefit from assembly lines, while low-volume, customized products might require a more flexible job-shop approach.
4. Location Strategy: Decisions regarding the number and placement of facilities are crucial. Factors like proximity to raw materials, transportation networks, and customer base all need to be considered. Location directly impacts the speed of production and customer deliveries.
5. Layout Design: This involves strategically positioning workstations, materials handling systems, and information flow within the production facility. Optimizing layout minimizes waste and maximizes efficiency.
6. Human Resources and Job Design: Training, motivation, and skill development of your workforce are critical for operational excellence. Job design should balance employee satisfaction with task efficiency.
7. Supply Chain Management: Decisions regarding supplier locations and the level of collaboration directly impact cost and delivery speed. Building strong relationships with reliable suppliers is key.
8. Inventory Management: Developing strategies for efficient inventory control throughout the supply chain is essential. This involves balancing the need to have enough materials on hand with the cost of holding excess inventory.
9. Scheduling: Effective scheduling of production processes, resources, and employees ensures timely deliveries and customer satisfaction. This requires balancing workload with available resources and capacity.
10. Maintenance: Regularly maintaining equipment and machinery minimizes downtime, maintains quality, and ensures smooth and stable production processes.

By carefully considering these 10 critical decisions, organizations can translate their business strategy into a successful operational reality.

Common Operations Strategies: Competing on Quality and Speed

Within the realm of operations strategy, two dominant approaches emerge quality-based strategies and time-based strategies. Let’s explore how these strategies can empower organizations to achieve a competitive edge.

Quality-Based Strategies: Building a Reputation for Excellence

Quality-based strategies are a powerful tool for companies seeking to elevate their market standing. These strategies prioritize continuous improvement in product design and a relentless pursuit of error reduction. By implementing such initiatives, firms establish a reputation for superior quality, fostering customer loyalty and potentially commanding premium pricing.

Several frameworks and methodologies underpin quality-based strategies. Some of the most prominent include:

• ISO 9001: This internationally recognized standard provides a framework for establishing a quality management system, ensuring consistent product quality and adherence to customer specifications.
• Six Sigma: This data-driven methodology focuses on identifying and eliminating defects in manufacturing and business processes, leading to significant improvements in quality and efficiency.
• Total Quality Management (TQM): A holistic approach to quality management, TQM emphasizes continuous improvement across all organizational levels, fostering a culture of quality that permeates every aspect of the business.

By embracing these quality-focused approaches, companies can enhance customer satisfaction and reduce production costs through minimized rework and improved process efficiency.

Time-Based Strategies: The Race Against the Clock

In today’s fast-paced markets, speed can be a significant competitive differentiator. Time-based strategies focus on reducing lead time, the time elapsed between a customer’s order and product delivery. Companies that can deliver faster often enjoy several advantages:

• Increased Customer Satisfaction: Faster deliveries enhance customer experience and satisfaction, potentially leading to repeat business and positive word-of-mouth marketing.
• Reduced Inventory Costs: By streamlining processes and minimizing lead times, companies can hold less inventory, reducing associated storage and financing costs.
• Enhanced Responsiveness to Market Shifts: Shorter lead times allow organizations to rapidly adapt to changing market demands, potentially introducing new products or modifying existing ones with greater agility.

Lean Production is a prominent methodology frequently employed in time-based strategies. Lean principles focus on eliminating waste in all its forms, from unnecessary production steps to excessive inventory levels. By streamlining processes and optimizing resource allocation, lean production helps companies achieve faster lead times and greater operational efficiency.

The choice between a quality-based or time-based strategy is not always clear-cut. Many organizations incorporate elements of both approaches to achieve a balance between delivering high-quality products and services while maintaining responsiveness to customer needs.

“2 Operations Strategy and Competitiveness” from Introduction to Operations Management Copyright © by Hamid Faramarzi and Mary Drane is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.—Modifications: used section Strategy, some paragraphs rewritten and expanded on with additional examples, introduction, and videos.