Business Strategy

1
Strategies, Competencies and Operations

• Business Strategy
• Product Attributes
• Competitive Product Space
• Process Competencies
• Aligning Strategy and Operations
• Focused Strategy
• Process Architecture
• Job Shop and Flow Shop

2
Business Strategy Competing edges of the System
(SW)

• The special attributes or strengths and
  weaknesses.
• Human Resources (cheap labor, skilled labor,
  etc.)
• Technology, Facilities, and Equipment
• Financial Resources
• Customers
• Product and Services
• Suppliers (low material cost, reliable suppliers)
• Management Practices (low overhead)

3
Business Strategy Environmental Scanning (OT)

• The events and trends that present threats or
  opportunities for a company.
• Competitor activities
• Changes in consumer needs and preferences
• Technological changes
• Economic trends (GNP, unemployment, inflation,
  interests, taxes, tariffs)
• Legal, political, and environmental issues

4
Competitive Product Space
A representation of the firms product portfolio
in the four dimensional space Q, C, Var., Res.
Another firm expensive and customized products.
One firm low cost and standardized products
5
Strategic Positioning

• Defines those positions that the firm wants to
  occupy in its competitive product space. The
  current position, direction, and goal position.

6
Operations strategy

• Operations strategy must establish operational
  goals (Q, T, C, F) that are consistent with the
  business strategy and develop processes and
  capabilities that will accomplish them.
• Process competencies must be aligned with desired
  product attributes
• To sustain competitive advantage, a firm must
  ensure that its competitors are not able to
  imitate its chosen position. Develop an sculpture
  not a block.

7
Operational Effectiveness

• Gaining and sustaining a competitive advantage
  requires a good strategic position and
  operational effectiveness to support the position
  in all the four dimensions
• Operational effectiveness developing processes
  and operating policies that support the strategic
  position better than the competitors.
• What distinguishes an effective business process?
• How does effective differ from efficient?
• Cost Efficiency achieving an output with minimal
  level of input and resources
• Effective Process supports execution of
  companys strategy

8
Strategic Fit

• Strategic fit Consistency between
• Process competencies a firm seeks C, Q, F, T.
• Process architecture types of the resources
  (their flexibility) and their physical layout in
  the processing network
• Managerial policies.
• Market-driven strategy starts with key
  competitive priorities and then develops the
  required processes to support them (producers of
  commodity products)
• Process-driven strategy starts with the business
  process competencies and then identifies a market
  position that is best supported by those
  processes (technologically innovative firms)

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Focused Strategy, Focused Operations

• The essence of strategy is what to do and what
  not to do.
• Focused Strategy Committing to a limited,
  congruent set of objectives in terms of demand
  (product, market) and supply (input,
  technologies, and volumes).
• Aravind Eye Hospital, 100 cataract surgeries a
  day, operational excellence, 40 gross margin,
  70 of patients pay almost nothing, and the
  hospital does not depend on donations.
• A focus process is not limited to a few products.
  
• Focused process one whose products all fall
  within a small region of the 4 dimensional
  product space.

10
Plant Within Plants (PWP)

• PWP The business strategy is diverse. But the
  entire business is divided into several
  mini-plants each with focused processes.
• One PWP may focus on low cost, the other on quick
  response.
• Strategic fit through focused operations make it
  very difficult for competitors to imitate.
• Supporting the strategic position with multiple
  mutually reinforcing activities creates a
  sustainable competitive advantage, because it is
  harder for competitors to imitate an array of
  interlocked activities.

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Shouldice Hospital
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Focus and the Efficient Frontier in Health-care
sector
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Strategy Position and Operational Effectiveness
Firms located on the same ray share strategic
priorities. World class firms are on the
efficient frontier.
the minimal curve containing all current
positions in an industry
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Efficient Frontier

• Firms not on the EF, are not on strict trade-off,
  they can make simultaneous improvement on more
  than one dimension.
• Firms on EF need to trade-off
• Trade-off decreasing on one dimension to
  increase on the other dimension.
• World class firms also try to push the EF
  outward.
• As technology and management practices advances,
  the EF moves upward. But the impact is not the
  same in all industries.
• Internet impact on in book industry pushes EF
  along both the dimensions of cost and variety,
  while in grocery increases the quality of service
  to customers, but increases the cost and reduces
  the responsiveness and variety

15
Strategic Positioning vs. Operational
Effectiveness

• Improved operational effectiveness is not the
  same as improved strategic positioning.
• Strategic positioning defines the direction of
  the improvement from current position. The
  purpose is to specify a direction of improvement,
  and thus the position on the EF the company wants
  to occupy.
• Operational effectiveness measures the distance
  of the current position to the operations
  frontier along the direction of improvement. The
  purpose is to bring a company closer to a
  frontier or to push the frontier. (direction is
  not horizontal)

16
Wall-Mart

• Corporate Strategy
• (Gain competitive advantage by) providing
  customers access to quality goods, when and where
  needed, at competitive prices.

• Operations Structure
• Cross docking
• EDI
• Fast transportation system
• Focused locations
• Communication between retail stores

• Operations Strategy
• Short flow times
• Low inventory levels

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Wal-Mart (Resulting Benefits)

• Inventory at retail stores turned over twice a
  week (Industry averages once every two weeks)
• Improved targeting of products to markets
• Sales per square foot increased from 102 in 1985
  to 140 in 1991 (Industry average increased from
  102 to 110)

18
Process Architectures

• Process Architecture refers to
• Physical layout of resources
• Flexibility of resources
• Most process architectures fall somewhere on the
  continuum between job shop and flow shop

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Process Architectures Job Shop
Output
A
B
Input
C
D
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Job Shop

• Functional layout or Process layout similar
  resources in the same department. Ex. all press
  machines are located in stamping department. Ex.
  Bakeries, law firms, emergency rooms, repair
  shops.
• low volume, high variety customized products
• flexible resources
• skilled human resources
• jumbled work flows
• high material handling
• large of inventories
• long flow time
• highly structured information system
• high cost per unit of product but low investment

21
Process Architectures Flow Shop
A
B
D
Input
Output
C
B
A
22
Flow Shop

• Product layout or line layout Resources are
  arranged according to the sequence of the
  operations. Usually requires duplication ( and
  investment) of a resource pool dedication of
  resources.
• Discrete flow shop assembly line
• Continuous flow shop beverage, chemical plant,
  process plant.
• high standardization, high speed
• low material handling
• short flow time
• low unit-processing costs
• high investment cost needs mass production.
• special purpose equipment, and low skilled labor
  prevent flexibility

23
Matching Process Choice with Strategy
Product-Process Matrix
24
Matching Process Choice with Strategy
Product-Process Matrix
A similar graph can be prepared to show the
relationship between process flexibility and
cost, or process flexibility and response time,
but not for quality.
25
Characteristics of Processes Job Shop vs. Batch
vs. Flow Shop
Most processes fall somewhere on the continuum
between Job Shop and Flow Shop

• Classification of processes by customer interface
  
• Make to Stock (Push System)
• Make to Order (Pull System)

26
Process Design, Planning, Control, and Improvement

• A process manager has four important tasks
• What should the process architecture be?
• What policies should govern process operations?
• How should process performance be planned and
  controlled over time?
• How should process performance be improved?

Corolla flow shop, decentralized assembly plants
close to market, short flow time, low
cost Ferrari job shop, only a single plant in
Italy, longer flow time, high cost .
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Process Design, Planning, Control, and Improvement

• Process design selection of the process
  architecture that best develops the competencies
  that will meet customer expectations.
• Managerial policies Inventory, staffing,
  organizing, etc. policies. How many units in
  stock, when replenishment orders should be
  places, how many customer service representatives
  should be available by day of week and time of
  day
• Process Planning and control Identifying
  internal measures that track process
  competencies. Continual monitoring to ensure that
  in the short run the actual process performance
  conforms to the planned performance. Control
  performance followed by corrective action.
• Process improvement identifying internal
  measures that need to be improved in long run and
  work on changes in process design or planning
  that are required to achieve this improvement.

28
Historical Development of OM

• 1765 Factory System (Adam Smith, James Watt)
• 1810 American System of Mfg (Whitneys
  interchangeable parts)
• 1890s Bicycle boom (sheet metal stamping,
  electrical resistance welding). Scientific
  Management ? Time motion studies (Frederick
  Taylor 1900s)
• 1913 Mass Production (Henry Fords Moving
  Assembly Line)
• 1927 Flexible Mass Production (Alfred Sloan
  GM). Statistical Quality Control (Walter
  Shewhart at Bell Labs, 1930s)
• Hawthorn Studies (Elton Mayo at Western
  Electric, 1930s)
• 1970 Toyota Production System (Taiichi Ohno)
• 1980s-now Ops in the spotlight. Manufacturing
  Strategy Paradigm (HBS). Lean Ops JIT, CAD/CAM,
  CIM, FMS, TQM, business reengineering

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changing sources of competitive advantage

• Low price Having cheap labor 1900s
• Economies of Scale (
• Inject capital to increase labor productivity
• You can have any color you want as long as it is
  black
• Focused Factories (mid 1960s)
• Avoid diseconomy of scale
• Flexible Factories and Product variety (1970s)
• Cope with changes in consumer references. A car
  for every taste and purse
• Flexible resources. Quick changeovers
• Quality (1980s)
• Quality is free.
• Continuous improvement strategy. Zero defect.
  Perfect reliability
• Time (late 1980s-1990s)
• We love your product but where is it?
• Dont sell what you produce. produce what sells.