The Strategic Role of Operations

Dr. Ron Lembke, Ph.D.University of Nevada, Reno

What is strategy?“How a firm intends to create and sustain

value for its shareholders”Major components:

Operations effectivenessCustomer managementProduct innovation

Competitiveness:A firm’s relative position in comparison to

other firms in the marketplace

Satisfying the CustomerMission: the organization’s purpose,

what it hopes to achieve; rationale for its existence.To provide society with superior products and services--innovations and solutions that improve the quality of life and satisfy customer needs--to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.

(Merck mission statement)

Mission Statement“Without a clear mission, an

organization is unlikely to achieve its true potential, because there is little direction for formulating strategies.”

Wouldn’t the same be true about people?

My Favorite GuruWhen you think of

something, put it on a list.

Check your lists regularly.

Don’t get sucked into email distractions.

Get rid of the clutter you don’t need.

StrategyStrategy: a plan for achieving the mission

Each functional area (accounting, finance, marketing) determines its “supporting mission”

Tactics: the methods to be used to achieve the strategic goals.Must support mission, corporate values

Michael PorterThree ways to achieve corporate mission:1. Differentiation: Make your product different

and / or better2. Cost Leadership (lower prices): Wal- Mart,

Southwest Airlines3. Quick Response: Pizza Hut, FedEx

Purchasing Triangle

Price

Quality

Speed

“Don’t be sad; two out of three ain’t bad” -- Meatloaf

Competitive DimensionsCost -- make it cheapQuality and Reliability -- make it goodDurability – continues to work well for a long

timeSpeed -- make it fastReliability -- deliver when promisedCope with Change -- change volumeNew product speedCustomer support

Impact of Life Cycle

CassettesRecords

Download

8-Tracks

CDs

DATMiniDisc

Introduction Growth Maturity Decline

DVDAudio

Scale of Life Cycle

Records

DAT

Introduction Growth Maturity Decline

Life Cycle and OperationsIntroduction: develop product, small-scale

productionGrowth: ramp up production, marketingMaturity: standardized, volume production,

optimizationDecline: cost minimization, eliminate

unprofitable products

CompetitivenessOrder qualifiers: screening criterion that

allows your products to be considereddeliver on-time, reliability, general quality

Order Winners: criterion that differentiates your service/product above the competitionprice, quality, reliability

Balanced Scorecard – track performance from following perspectives:Financial: revenue or productivity growthCustomer: Product leadership, customer

intimacy, operational excellenceInternal: innovation, customer management,

operational excellence, corporate citizenshipLearning and Growth: strategic competencies

and technologies, climate for action Kaplan and Martin, 1992, “The Balanced Scorecard:

Measures that Drive Performance” Harvard Business Review

Operations StrategyCore capabilities: the skills that differentiate

the firm from its competitors.What is the thing you do better than

everyone else, that you could never dare trust to anyone else?Soft drinks: the secret sauceAutomobiles: designing engines

ProductivityProductivity = Outputs / InputsPartial: Output/Labor or Output/CapitalMultifactor:

Output / (Labor + Capital + Energy )Total Measure:

Output / Inputs

Growth of Service Economy

01020304050607080

1850 75 1900 25 50 75 2000

ServicesIndustryFarming

ProductivityServices have always been a large portion of

U.S. economyServices’ share continues to growU.S. has higher service % than othersU.S. productivity growth has lagged other

countries in past.What explains this phenomena?

Improving ProductivityDevelop productivity measurements– “you

can’t improve what you can’t measure”Identify and Improve bottleneck operations

firstEstablish goals, document and publicize

improvementsHow do we improve these?

Yep, Continuous Process Improvement