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Operations Strategy

Ronald S. Lau, Ph.D.

HKUST – ISOM

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Course outline

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Module 1: Strategic

Planning and Decisions

Module 2: Managing

Business Process

Flows

Module 3:

Synchronizing Supply

and Demand

Module 4: Process

Improvement and

Quality Management

Operations Strategy

Strategic Issues of

Supply Chain Design

Strategic Issues of

Process Design

Resource Allocation

Decisions

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Intended learning outcomes

Operations strategy Identify the common competitive priorities and ways to enhance

major competitive dimensions

Discuss the increasing contribution of operations in businessstrategy

Give examples of strategic decision areas of operationsmanagement

Describe with examples the order winners and order qualifiers

Identify how operations strategy can set an improvement pathby overcoming the key trade-offs

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Basic concepts of business strategy

Strategy  A road map for what must be

done collectively to achieve aspecific organizational goal

Business strategy is about gainingcompetitive advantage through: Strategic positioning

Operational effectiveness

Branding and customer relationship

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http://www.google.com.hk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.clipartpanda.com/categories/road-map-clipart&ei=nZnMVKyvG8398QXDhILwCQ&psig=AFQjCNHNjCMHaC8kvXkOqvqWsFgtHrXC1A&ust=1422781185656685

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Business strategy

Operations strategy

Distinctive

competencies

 Assessment ofglobal business

conditions

Other functional

strategies

Strategic planning hierarchy – 1

Product/Service plans

Competitive priorities

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Is there any future for Shan Zhai smartphones?

Shan Zhai ( 

)  “A bandit stronghold outside government control”  

Main source of fake or pirated products

For discussion…  Why Shan Zhai is a Chinese phenomenon?

Their price, quality, and innovation?

How can any startups compete in acrowded market already dominatedby Apple and Samsung?

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Let’s help a smart phone startup to create abusiness plan

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The growth story of Xiaomi

The company Founded in 2010 by Lei Jun, now one of China’s richest men 

Released the first smartphones in August 2011

#1 in China’s smartphone sales market 

Business model  Very slim profit margin, but not just

another knock-off

Cross sell accessories and software

Sell primarily from its own online store

 Active use of social media to promotebrand awareness and advocates

Begin targeting other countries, such asBrazil, Mexico, and Russia

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http://www.mi.com/en/

http://www.mi.com/en/

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If you sense calm, just because youare in the eye of the storm. 

 — Tom Peters 

Even if you are on the right track,you will get run over if you just sitthere.   — William Roger 

In a competitive world… 

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Business strategy

Operations strategy

Distinctive

competencies

 Assessment ofglobal business

conditions

Other functional

strategies

Strategic planning hierarchy – 2

Product/Service plans

Competitive priorities

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Common competitive dimensions

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Order qualifier vs. Order winner

Order qualifier  A screening factor

Basic product/service characteristics must be present

Order winner  A differentiating factor

Most desirable product/service characteristics that can stand outthe competition

How to create sustainable competitive advantage? Making new order winners

Multiple competitive dimensions

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Business strategy

Operations strategy

Distinctive

competencies

 Assessment ofglobal business

conditions

Other functional

strategies

Strategic planning hierarchy – 3

Product/Service plans

Competitive priorities

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Hayes and Wheelwright’s four-stage modelof contributions from operations

Internallyneutral

Stage 1Correct theworst

problems

Holding theorganization back

Externallyneutral

 As good as thecompetitors

Stage 2 Adopt bestpractice

Internallysupportive

Clearly the bestin the industry

Stage 3Link strategywith operations

Externallysupportive

Redefiningindustry

expectations

Stage 4Give anoperationsadvantage

   I  n  c  r  e  a  s   i  n  g  s   t  r  a   t  e  g   i  c

   i  m  p  a  c   t

Increasing operations capabilities

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Some strategic decisions that may beaddressed in an operations strategy

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Key issues in operations strategy

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Goal Being physically efficient Being market responsiveFocus Efficiency:

Fast Inventory turns

High capacity utilization

Responsiveness:

Reduce lost sales

More variety

Cost

concern

Manufacturing, inventory

holding, transportation, and

handling costs

Inventory obsolescence, lost

sales, and poor service

OM

strategy

Large batch sizes to

achieve scale

Set minimum order quantityto reduce handling/order

processing costs

Full truck load shipments

Pay a premium for flexibility:

Faster transportation, lower

capacity utilization, andsmaller batches

Postpone differentiation

Reduce low value added

variety

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Operations frontier and trade-offs betweenvariety and cost efficiency

 X

Cost efficiency

   V  a  r   i  e   t  y

 A

C

D

B

The “efficientfrontier”    A

 X C

D

Cost efficiency

   V  a  r   i  e   t  y

B

The new “efficientfrontier”  

B1

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For discussion: How to create competitive advantage throughoperational effectiveness and strategic (re)positioning?

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Current position and strategic direction ofmovement in the competitive product space

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Cost efficiency

   V  a  r   i  e   t  y

Improvement through increasingfocus on variety

Improvement through increasingfocus on cost efficiency

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Internet channel vs. traditional retail stores

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Cost efficiency

   V  a  r   i  e   t  y

Cost savings of theInternet channel

Wal-Mart stores

If the stores need to carryincreased assortment

Wal-Mart.com

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Example: McDonald’s 

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Business Strategy

Gain competitive advantage by creating high customer

value with fast food that has consistent quality

Operations Strategy Responsive service

 Low cost

 High conformance quality

Process Structure  Assembly line approach

Standardization

Flexible workers

How should operations be structured to developcapabilities that support business strategy?