Saturday, April 27, 2013
Discuss the strategic role of operations function explain the significance of management linking operation strategy, marketing strategy and co-operate strategy.
Question: Discuss the strategic role of operations function explain the significance of management linking operation strategy, marketing strategy and co-operate strategy.
Strategy is concerned with the actions an organization takes in order to survive and prosper in its environment over the long-term. Strategy can exist at three levels in an organization: corporate, business and functional. An organization’s operations strategy comprises the totality of the actions and decisions taken within the operations function. The decisions and actions taken have a direct impact on an organization’s business and corporate strategy. An organization’s operations can be a source of competitive advantage if they are managed strategically in pursuit of a clear goal for operations. There are five possible operations objectives (cost, quality, speed, dependability and flexibility). It is unlikely that any operation can excel at all of these simultaneously, so competitive priorities must be determined on which to base the operations strategy. The process of operations strategy concerns the way in which an organization develops its operations strategy. This might be top-down (i.e. formed in pursuit of its business and corporate strategy), bottom-up (i.e. formed from the actions and decisions taken with operations), market-led (i.e. formed in response to market requirements) or operations-led (based on the resources and capabilities within its operations). The content of operation strategy consists of the key decision areas concerned with the structure (i.e. the physical attributes of facilities, capacity, process technology and supply network) and infrastructure (i.e. planning and control, quality, organization, human resources, new product development and performance measurement) of operations.
Facilities: the location, size and focus of operational resources. These decisions are concerned with where to locate production facilities, how large each facility should be, what goods or services should be produced at each location, what markets each facility should serve, etc.
Capacity: the capacity of operations and their ability to respond to changes in customer demand. These decisions are concerned with the use of facilities, for example through shift patterns, working hours and staffing levels. Decisions about capacity will affect the organization’s ability to serve particular markets from a given location.
Process technology: the technology of the equipment used in operations processes. For example, the degree of automation used, the configuration of equipment, and so on.
Supply network: the extent to which operations are conducted in-house or are outsourced. Decisions about vertical integration are also concerned with the choice of suppliers, their location, the extent of dependence on particular suppliers, and how relationships with suppliers are managed. Structural decisions often involve major capital investment decisions, which oncemade will set the direction of operations for many years to come. They invariably impact the resources and capabilities of an organization, determining its potential future output. It may be prohibitively expensive to change such decisions once implemented, and hence these must be considered to be truly strategic decisions for the organization. It may be much easier to change the organization’s marketing strategy (e.g. its target markets, or its promotional activities) than it is to change its operationsstrategy with respect to the structural decision areas.
Infrastructure decision areas comprise:
Planning and Control: the systems used for planning and controlling operations.
Quality: quality management policies and practices.
Work Organization: organizational structures, responsibilities and accountabilities in operations.
Human Resources: recruitment and selection, training and development, management style.
New Product Development: the systems and procedures used to develop and design new products and services.
Performance Measurement: financial and non-financial performance management and its linkage to recognition and reward systems.
Slack et al. (2004: p.67) argue that an ‘operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of operations’. Their use of the term ‘pattern’ implies a consistency in strategic decisions and actions over time. This concept is consistent with management guru Henry Mintzberg’s view of strategy as being a ‘pattern in a stream of actions’ (Mintzberg and Waters, 1985). Mintzberg sees strategy as being realized through a combination of de liberate and emergent actions. An organization can have an intended strategy, perhaps as a set of strategic plans. However, only some of this intended strategy may be realized through deliberate strategy. Some of the intentions may be unrealized. Strategies which take no regard of operational feasibility are likely to become unrealized, remaining merely as a set of intentions. Strategy may also emerge from actions taken within the organization, which over time form a consistent pattern. Actions of this kind will, almost inevitably, arise from within the operations of the organization. So, whether planned or otherwise, the organization’s operations are bound to have a major impact on the formation of organizational strategy. It is often believed that strategy is an issue that is somehow separate from day-to- day organizational activities. Taken to extremes this can result in strategy being regarded as some kind of cerebral activity performed by superior beings who need to be removed from day-to-day operational pressures. Mintzberg is amongst those who point to the dangers of managers becoming detached from the basics of the enterprise. Mintzberg and Quinn (1991) call this the ‘don’t bore me with the operating details; I’m here to tackle the big issues’ syndrome.
The top-down perspective is one in which the operations strategy is derived from, and is supportive of the organization’s business strategy; an operations strategy that the organization uses to realize its business strategy. In a multi-business organization, the top-down perspective envisages operations strategy being linked to corporate strategy via the business strategy of each business unit.However, some authors (e.g. Hayes et al.2005) argue that a corporate operations strategy does not mean that every facet ofoperations must be the same in each business unit. Rather, operations decisions areconsidered holistically at the corporate level with a view to meeting corporate strategic objectives. A failure to do this means that operations decisions are taken only atthe level of the business unit, with a view to meeting the immediate needs of thatbusiness unit. The dangers of doing this have been pointed out byPrahalad andHamel (1990), who caution against letting the needs of the business unit dominatestrategic thinking. This can lead to operational competences being confined withinindividual business units, thereby restricting their future development, preventingtheir spread to other business units and limiting opportunities for synergistic developments across the corporation. This can be particularly important in multi-site,multi-national enterprises.
The bottom-up perspective is one which sees operations strategy emerging through a series of actions and decisions taken over time within operations. These actions and decisions might at first sight appear somewhat haphazard, as operations managers respond to customer demands, seek to solve specific problems, copy good practices in other organizations, etc. The bottom-up perspective is one in which the organization learns from its experiences, developing and enhancing its operational capabilities as operations managers try new things out in an almost experimental fashion using their workplaces as a kind of ‘learning laboratory’ (Leonard-Barton, 1992).Many of the manufacturing practices that are now considered leading edge (such as JIT, TQM, Statistical Process Control) were developed in just such a fashion by Japanese manufacturers responding to the constraints placed upon them in the aftermath of the Second World War. One of the problems associated with this perspective is that the organization may not recognize what its operations strategy is. Mills et al. (1998) have developed a technique that aims to overcome this by enabling managers to construct a visual representation of operations strategy as realized. It does this by tapping into the organization’s collective memory (whether written or verbal) to map all the most significant events in operations over the previous number of years. This should enable managers to recognize the patterns that now make up the existing operations strategy.
The market-led perspective is one in which the operations strategy is developed inresponse to the market environment in which the organization operates. There are anumber of approaches in the operations strategy literature that suggest how this mightbe done. The best known of these is that of Terry Hill (1985) he suggests that an organization’s operations strategy should be linked to its marketing strategy by considering how its products and services win orders in the market place. He believes it ispossible to identify two types of competitive criteria in any market. Market qualifying criteria are those factors that must be satisfied before customers will considermaking a purchase in the first place. Order winning criteria, on the other hand, arethe factors on which customers ultimately make their purchasing decision. For example, for many airline passengers, the order winning criteria is price, with criteria suchas destination city, time of flights and convenience of travel to and from airportsbeing market qualifying criteria. For others, notably business travelers, the orderwinning criteria may be factors such as in-flight service or total travel time. Consequently, an operations strategy should be developed which will satisfy market qualifying criteria, but excel at order winning criteria for the market segment that the operation wishes to serve.
Platts and Gregory (1990) use an approach that audits the products or groups ofproducts that the organization offers to its markets. The aim is to identify any gapsbetween market requirements for particular products and services and the performance of the organization’s operations in delivering those products and services. Firstthe market requirements for the product or service are analyzed in terms of variouscompetitive factors (such as cost, quality, and reliability). The performance of the organization’s operations against those factors that are then assessed. An operations strategyshould be developed which will enable operations to match the level of performancerequired by customers in each of the competitive criteria.
The operations-led perspective is one in which its excellence in operations is used todrive the organization’s strategy. This is in line with the resource-based view (RBV) of strategy that currently dominates the strategic management literature. The premise of the RBV is thatsuperior performance comes from the way that an organization acquires, developsand deploys its resources and builds its capabilities rather than the way it positionsitself in the market place (Barney, 1991; Wernerfelt, 1984). Thus,the process ofstrategy development should be based on a sound understanding of current operational capabilities and an analysis of how these could be developed in the future.
This can then provide the basis for decisions about which markets are likely to be thebest in which to deploy current and future capabilities, which competitors are likelyto be most vulnerable and how attacks from competitors might best be countered(Hayeset al.,2005). Mills et al.(2002) have developed methods through which organizations can apply these ideas in practice. This involves undertaking an analysisof the resources that have underpinned the activities of a business unit over an extended period of time (at least the previous three to five years). Six resource categories, which are not mutually exclusive, are used: tangible resources, knowledgeresources skills and experience, systems and procedural resources, cultural resourcesand values, network resources and resources important for change. The resourcesare evaluated against three criteria: value, sustainability and versatility. Resourcesthat individually or collectively score highly in these criteria are considered to beimportant resources. They are sources of existing or potential competitive advantageto the organization.
In conclusion operations strategy can be linked to corporate strategy and marketing strategy as to facilities the overall achievement of the company strategic goals. Operations strategy has a vertical relationship in the corporatehierarchy with business and corporate strategies, and horizontally with the other functional strategies, most notably with marketing strategy.
Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005) Operations, Strategy andTechnology: Pursuing the Competitive Edge,New York: John Wiley.
Slack, N. and Lewis, M. (2002) Operations Strategy,Harlow: Pearson Education
Mills, J.F., Platts, K.W., Bourne, M.C.S.B and Richards, H. (2002) Competing throughCompetences,Cambridge: Cambridge University Press.
Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari,Hemel Hempstead:Prentice Hall.
Wernerfelt, B. (1984) ‘A resource based view of the firm’, Strategic Management Journal5:171–180.
Mintzberg, H. and Waters, J.A. (1985) ‘Of strategies, deliberate and emergent’,StrategicManagement Journal 6:257–72
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