Advanced Production Management
CH8 – Operations strategy
Framework for operations strategy
Competitive strategy:
• Competitive strategy:
= “the search for a favorable competitive position in an industry, the fundamental arena in which
competition occurs. Competitive strategy aims to establish a profitable and sustainable position
against the forces that determine industry competition.” (Porter)
è Focus is on WHAT?
• Competitive strategy uses two means to create sustainable value:
1) Choosing an attractive industry:
Porter’s five forces framework analyzes industry attractiveness by studying:
- bargaining power of suppliers
- bargaining power of buyers
- threat of new entrants
- threat of substitute products or services
- rivalry among existing firms
2) Choosing an attractive competitive position within an industry (positioning):
è Customer value proposition: set of benefits that the firm offers to customers
Customer make purchasing decisions based on the value they derive from the product or
service relative to its price:
- Reservation price: the greatest amount a customer is willing to pay
- Consumer surplus (positive): value minus price
- When a customer is offered choices, he/she will often buy the service or product that
offers highest consumer surplus
• To execute its competitive strategy, an organization further defines:
- A financial strategy:
§ how capital will be raised and invested
- A marketing strategy:
§ how the market will be segmented
§ how the product/service will be positioned, priced and promoted
- An operations strategy
Operations strategy:
• Operations strategy:
= strategy with the brightness turned up on choosing real assets (resources) and processes and
building future capabilities:
- It is less about industries and choosing a position, more about firms and delivering,
enhancing and protecting the value proposition
- It must specify all real assets and processes in the value chain and plan for the future being
mindful of the company’s strategy, other parts of the organization, and the competition
è Focus is on HOW?
• Operations is the creation and delivery of products and services to customers.
,• Operations management:
- More about controlling, managing and improving operational (daily) repetitive economic
activities.
- Often concerned with an individual process and given set of resources and products.
• Operations strategy:
- About choosing the asset bundle and processes and building future capabilities, less about
one process, more about collectivity.
- Must specify all resources and processes in the value chain and plan for the future.
, • Operations: three views:
Operations: three views
• Operations strategy is a plan for developing resources and configuring processes such tat the resulting competencies maximize NPV.
• Answers two questions:
- What should operations be good at? Which competencies should it nurture?
- Which operational system of resources and processes best provides these competencies?
Resource view Process view Competency view
• The resource view considers an organization • The process view considers an organization • The operational system (the ensemble of
as a bundle of real assets (non-financial to be an activity network or a collection of resources and processes) together with the
assets): processes. concept of values characterize the
- Tangible • Four key questions to determine process competencies of the organization
- Intangible strategy: • Values are standard by which employee set
• Four key questions to determine resource - Supply (or strategic sourcing): when to priorities
strategy: outsource and how to manage • Competencies determine the set of outputs,
- Sizing: how much capacity should we suppliers? products and services that the operation will
invest in? - Technology (how to process inputs to be particular good at providing
- Timing: when to increase or decrease outputs): which technologies do our • Where competencies reside changes over
resources? processes need? Coordination and time: they start in resources, gradually
- Type: what kinds of resources are best? information, products, process, migrate to processes and eventually reside in
- Location: where should resources be transportation values (culture)
located? - Demand: how do we match demand to • Four key questions to determine
available supply? competencies:
- Innovation: how and when do we - Cost c
improve and innovate products and - Quality Q
processes? - Time T
- Flexibility F
CH8 – Operations strategy
Framework for operations strategy
Competitive strategy:
• Competitive strategy:
= “the search for a favorable competitive position in an industry, the fundamental arena in which
competition occurs. Competitive strategy aims to establish a profitable and sustainable position
against the forces that determine industry competition.” (Porter)
è Focus is on WHAT?
• Competitive strategy uses two means to create sustainable value:
1) Choosing an attractive industry:
Porter’s five forces framework analyzes industry attractiveness by studying:
- bargaining power of suppliers
- bargaining power of buyers
- threat of new entrants
- threat of substitute products or services
- rivalry among existing firms
2) Choosing an attractive competitive position within an industry (positioning):
è Customer value proposition: set of benefits that the firm offers to customers
Customer make purchasing decisions based on the value they derive from the product or
service relative to its price:
- Reservation price: the greatest amount a customer is willing to pay
- Consumer surplus (positive): value minus price
- When a customer is offered choices, he/she will often buy the service or product that
offers highest consumer surplus
• To execute its competitive strategy, an organization further defines:
- A financial strategy:
§ how capital will be raised and invested
- A marketing strategy:
§ how the market will be segmented
§ how the product/service will be positioned, priced and promoted
- An operations strategy
Operations strategy:
• Operations strategy:
= strategy with the brightness turned up on choosing real assets (resources) and processes and
building future capabilities:
- It is less about industries and choosing a position, more about firms and delivering,
enhancing and protecting the value proposition
- It must specify all real assets and processes in the value chain and plan for the future being
mindful of the company’s strategy, other parts of the organization, and the competition
è Focus is on HOW?
• Operations is the creation and delivery of products and services to customers.
,• Operations management:
- More about controlling, managing and improving operational (daily) repetitive economic
activities.
- Often concerned with an individual process and given set of resources and products.
• Operations strategy:
- About choosing the asset bundle and processes and building future capabilities, less about
one process, more about collectivity.
- Must specify all resources and processes in the value chain and plan for the future.
, • Operations: three views:
Operations: three views
• Operations strategy is a plan for developing resources and configuring processes such tat the resulting competencies maximize NPV.
• Answers two questions:
- What should operations be good at? Which competencies should it nurture?
- Which operational system of resources and processes best provides these competencies?
Resource view Process view Competency view
• The resource view considers an organization • The process view considers an organization • The operational system (the ensemble of
as a bundle of real assets (non-financial to be an activity network or a collection of resources and processes) together with the
assets): processes. concept of values characterize the
- Tangible • Four key questions to determine process competencies of the organization
- Intangible strategy: • Values are standard by which employee set
• Four key questions to determine resource - Supply (or strategic sourcing): when to priorities
strategy: outsource and how to manage • Competencies determine the set of outputs,
- Sizing: how much capacity should we suppliers? products and services that the operation will
invest in? - Technology (how to process inputs to be particular good at providing
- Timing: when to increase or decrease outputs): which technologies do our • Where competencies reside changes over
resources? processes need? Coordination and time: they start in resources, gradually
- Type: what kinds of resources are best? information, products, process, migrate to processes and eventually reside in
- Location: where should resources be transportation values (culture)
located? - Demand: how do we match demand to • Four key questions to determine
available supply? competencies:
- Innovation: how and when do we - Cost c
improve and innovate products and - Quality Q
processes? - Time T
- Flexibility F
