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.
Top- Down
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.
Bottom up
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.
Market-led
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.
Operations-led
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.
Bibliography
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
