OP6205: GLOBAL

OPERATIONS STRATEGY
By Mohammad Faisal Noor
Assistant Professor, LM Thapar School of Management,
Thapar Institute of Engineering and Technology

For MBA students (Batch 2023-25)

BOOKS
▪ Operations Strategy by Nigel Slack and Michael Lewis
▪ Global Operations Strategy: Fundamentals and Practice by Yeming Gong

COURSE OUTCOME
▪ Upon the successful completion of the course, the students will be able to:
▪ CO1: Familiarize with the problems and issues confronting strategic operations
managers globally.
▪ CO2: Provides language, concepts, insights, and tools to deal with issues and gain
competitive entrepreneurial advantage through strategic operations.
▪ CO3: Students should be able to analyse various operational decision situations
used in strategy formulation and apply appropriate decision-making techniques to
reduce the company's costs to maximise profits.

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 UNDERSTANDING
OPERATIONS STRATEGY
UNDERSTANDING OPERATIONS STRATEGY
• The term ‘operations strategy’ is contradictory for many managers
• Operations: detailed and day-to-day tasks/activities

• Strategy: a framework for how an organisation plans to achieve its goals.

• However, operations can have a real strategic impact

• The way firms manage their operations, resources, and processes is central to long-term

strategic success

• Why do many companies stumble?

• Because their strategic decisions fail due to poor operational implementation.

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• Principles of operations strategy can be deployed in all parts of the business, all its
functions, and all its extended supply network.

• Operations strategy is used to establish a connection between:

Strategy

Process
Resources
(Operations)

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What is Operations?
• Operations is the part of the organisation that creates and/or delivers its products and
services
• Operations add value by transforming inputs into outputs that satisfy some customer need -
‘input-transformation-output’ model
• Inputs are the resources
• Transformed resources: a combination of physical materials, information and customers
• Transforming resources: people (employees), facilities (building, technology, tools, etc.)
• Transformation is the process.
• Outputs are the products or services.
• Examples: Television factory, Accountants, etc.

Transformation Output
Input (Resources)
(Process) (Products/Services)
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Resources and Processes
• Resources (or inputs) are of two types:
• Transformed resources: physical materials, information or customer.
• Transforming resources: does the actual transformation. They are Physical
facilities, like machines, equipment, etc. and People, with Knowledge, skills,
experience, etc.
• Transformed resources move through the activities allocated to transforming
resources until they are transformed into a mix of products/services.

• Processes: The arrangement of transforming resources and how transformed

resources move through them.
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Responsibility of Operations Manager:

• Manage the two interacting sets of issues:

• Resources: What type of resources (materials, information, people (as customers or staff),
technology, buildings and so on) are appropriate to fulfil the organisation’s objectives
best?

• Processes: How resources are best organised to create the required mix of products and
services.

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Summary

Source: Operations
Strategy (Nigel Slack,
Michael Lewis)

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Operations, Networks and ‘Levels Of Analysis’
• Network - a group of two or more sets of resources linked together

• Networks can describe operations activity of many different types at many different levels of analysis: Process Level,
Operation Level and Supply Network Level.

Source: Operations
Strategy (Nigel Slack,
Michael Lewis) 10
Four Vs: Volume, Variety, Variation and Visibility
• Volume:
• High volume → high degree of repeatability → high degree of specialisation needed

• High volume → lower unit cost than low volume

• High degree of repeatability → systematisation of process

• High degree of specialisation → makes the process feasible and economical

• For example, large fast food chains (McD and KFC) have greater efficiency than small and local cafés.

• Variety:
• High variety → wide range of different activities → wide range of skills and technology

• High variety → wide range of resources and services → higher unit cost than low variety

• For example, taxi services, which give various options in pick-and-drop locations, cost more than bus
services, which have limited options in pick-and-drop locations.

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Four Vs: Volume, Variety, Variation and Visibility (Contd.)
• Variation: demand is variable and/or unpredictable
• High variation in demand → Resources have to be adjusted over time
• High variation in demand → Higher unit cost than low variability products
• High variation in demand → extra resources (called the cushioning capacity) must be added to the
process to absorb the unexpected demand.
• For example, high-fashion garments have to cope with seasonality and uncertainty to capture the market,
unlike conventional business suits.

• Visibility: process visibility means the degree by which the process is ‘exposed’ to the customers
→ value added by the process is ‘experienced’ directly by customers.
• High visibility → More transparent → Customers expect near immediate response
• High visibility → Staff need customer contact skill → Higher unit cost than low visibility processes
• Low visibility → Time lag between customer request & response → allows activities to be performed at
convenience → better utilisation
• For Example, package distribution operations provide internet-based ‘track and trace’ facilities to give
customers visibility of their package at any time.

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Implications of the Four Vs

• Four Vs result from strategic decisions the organisation has taken; simultaneously, they affect
how operations are managed.

• Types of products/services AND the Type of market decides the Four Vs.

• High volume, low variety, low variation and low visibility → Keeps the processing costs low

• The Four Vs act as a link between strategy and operations management.

Operations
Strategy Four Vs
Management
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 EXAMPLE

Source: Operations
Strategy (Nigel Slack,
Michael Lewis)
HOMEWORK
• Dominos Pizza
• Reliance Smart Bazar
• Student Admission in LMTSM 14
What is Strategy?

• Strategy includes some of the following activities:

• Setting broad objectives that direct an enterprise towards its overall goal

• Planning the path (in general rather than specific terms) that will achieve these goals

• Stressing on long-term rather than short-term objectives

• Dealing with the total picture rather than stressing individual activities

• Being detached from the day-to-day activities

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What is Operations Strategy and Operations Management?

• Do not confuse “Operations” with “Operational”

• Operations: processes on and by resources.
• Operational: detailed, localised, short term and day-to-day activities. This is usually
seen as an opposite to ‘strategy’.
• What is the difference between “Operations Strategy” and “Operational
Management”?
• Operations Management is the management of resources and processes that produce
and deliver products and services.
• Operations Strategy should be seen as a long-term and strategic issue with a significant
strategic impact.
• Operations Strategy is a strategic perspective on managing operations resources and
processes.

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How is Operations Strategy (OS) different from Operations Management
(OM)?

1. OM works on short- to medium-time scales. OS deals with longer-term issues.

2. OM is concerned with managing within and between smaller operations. OS is
concerned with decisions affecting a wider set of organization’s resources and
thus requires a higher level of analysis.
3. OM treats the individual sets of resources separately. OS brings together and
consolidates such details into broader issues and thus involves a greater level
of aggregation.
4. OM aims for immediate, recognisable and tangible goals. OS deals with more
abstract and less directly observable issues and thus uses a higher level of
abstraction. 17
EXAMPLES
Difference Operations management example Operations strategy example

Longer time-scale ‘What demand fluctuations do we have ‘What should we plan to add further
to deal with over the next few months?’ capacity so that we can meet rising
forecast demand?’
Higher level of ‘Where should we position each ‘How many stores should we have,
analysis product category within our where should we locate them and how
department store?’ should we supply them?’
Higher level of ‘How do we provide tax advice to the ‘What is our overall business advice
aggregation small business sector in Antwerp capability compared with our other
(Belgium)?’ European activities?’
Higher level of ‘How do we improve our purchasing ‘Should we develop strategic alliances
abstraction procedures?’ with selected medical products
suppliers?’

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𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠 𝑆𝑡𝑟𝑎𝑡𝑒𝑔𝑦 ≠ 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠 𝑀𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡 + 𝑆𝑡𝑟𝑎𝑡𝑒𝑔𝑦 𝑀𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡

Operation strategy is an operations-based subject dealing with strategic issues.

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 PERSPECTIVES ON
OPERATIONS STRATEGY
Four Perspectives on Operations Strategy

• Operation strategy is a ‘top-down’ reflection of what the whole group or business

wants to do
• Operations strategy is a ‘bottom-up’ activity where operations improvements
cumulatively build the strategy
• Operations strategy involves translating ‘market requirements’ into operations
decisions
• Operations strategy involves exploiting the capabilities of ‘operations resources’ in
chosen markets.

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Source: Operations
Strategy (Nigel Slack,
Michael Lewis) 22
THE TOP-DOWN PERSPECTIVE: How Should the Operations
Strategy Reflect Higher-level Strategy?
• Operations strategy must reflect the decisions taken at the top of the organisation, which set
the overall strategic direction of the organisation.
• For example, decisions such as
• What types of business does the group want to be in? (S)
• In what parts of the world does it want to operate? (S)
• What businesses should you acquire and what should you divest into? (S)
• How to allocate its cash between its various businesses (S)
• How it intends to compete in its markets (B).

• Three levels of decisions:

• Strategic level: corporate decisions
• Business level
• Functional level: guides its actions within the business
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 LEVELS OF STRATEGY

Which types of business?

Corporate Corporate strategy Where to operate?
How to allocate cash?

Business Business strategy Mission and objectives

How to compete in its markets?

Functional Functional strategy How can it support strategic

objectives of the business?

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EXAMPLE
• A manufacturer of metrology instruments → decided to compete by being the first in the market
with every available new product innovation.

• What should the operations function do?

• Capable of coping with the changes that constant innovation will bring
• Develop processes that are flexible enough to manufacture novel parts and products
• Organize and train its staff
• Develop relationships with its suppliers

• Everything about the operation must do nothing in the short term to inhibit the company’s
competitive strategy.

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THE BOTTOM-UP PERSPECTIVE: How Can Operations
Strategy Learn From Day-to-day Experience?
• In reality, the relationship between the levels in the strategy hierarchy is
more complex than the top-down perspective implies.
• Businesses may consult the individual functions within the business to
incorporate the ideas that come from each function’s experience.
• Strategic ideas emerge over time from actual experiences.
• The idea of strategy being shaped by experience over time is called
“emergent strategies”.
• Strategy is based on real-life experiences rather than theoretical
positioning.
• Formed in a relatively unstructured and fragmented manner
• Future is at least partially unknown and unpredictable
• The ‘high-level’ strategic decision-making, if it occurs at all, may confirm the
consensus and provide the resources to make it happen effectively.
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The principle behind the Bottom-up
Perspective:
• Experience-based Learning: Shape the operation’s objectives and
actions, at least partly, by the knowledge it gains from its day-to-
day activities.
• Kaizen Philosophy: Key virtues required for doing this are an
ability to learn from experience and a philosophy of continual and
incremental improvement (Kaizen) built into the strategy-making
process.

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EXAMPLE

• The manufacturer of metrology instruments discovers that continual product

innovation both increases its costs and confuses its customers
• Designers, therefore, work out a way of ‘modularising’ their product designs so that
one part of the product can be updated without interfering with the design of the
main product

• No top-level decision-making happened in this case; rather, it has emerged from

practice and experience

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SUMMARY
Source: Operations
Strategy (Nigel Slack,
Michael Lewis)

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THE MARKET REQUIREMENTS PERSPECTIVE: How Do
the Requirements Of The Market Influence Operations
Strategy?
• Operations exist to serve markets.
• OS must answer:
• How can operations help the organisation compete in its marketplace?
• How easily can the operations function support the market position?
• Operations strategy must reflect the organisation’s market position
• Develop an understanding of what is required from the operation to support the market position.
• One problem with this is that the concepts and philosophy of marketing functions are not always
useful in guiding operations activities. Thus, marketing professionals must ‘translate’ the market
needs for operations strategy analysis.
• Market positioning is influenced by customers and competitors, which, in turn, affect the operations
strategy.
• Market segmentation is done by assessing the needs of different groups of potential users in terms of the
needs that will be satisfied by the performance objective of the product or service.
• The market requirements perspective is also known as the ‘outside-in’ perspective

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EXAMPLE
• The original business of a medium-sized theatre lighting company was devoted
to designing the lighting arrangements and hiring the necessary equipment for
theatrical and entertainment events, exhibitions and conferences.
• It also focused on the ‘top end’ of the lighting market, targeting less price-
conscious customers.
• This was becoming a problem in the theatre lighting and exhibition markets
because competition was forcing margins lower as competitors undercut prices.
• They realised that the greatest potential for profitable growth lay in the
conference market, where competition was not yet as fierce and the market was
fast growing.

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EXAMPLE (CONTD.)
• In this case the ‘translation’ logic goes something like the following:
1. There are several segments in the lighting design and supply market, but the fastest-
growing segment is the conference market.
2. Competition is getting tougher in the theatre market because the large
international lighting groups can provide lower-cost lighting solutions. Also,
exhibition venues are increasingly developing in-house operations and
encouraging exhibitors to use the in-house service. Margins are being
squeezed in both markets.
3. The company has therefore chosen to target the broad conference market,
with higher margins and growth.
4. Operations needs to prioritise high-quality technical and aesthetic
consultancy advice, customisation, fast response and dependability.

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THE OPERATIONS RESOURCE PERSPECTIVE: How Can
The Intrinsic Capabilities Of An Operation’s Resources
Influence Operations Strategy?
• Understanding ‘What we have?’ – the totality of the resources owned by, or available to,
the operation.
• The Operations Resource Perspective drives linking the broad understanding of
resources and processes with the specific operations strategy decisions.
• In short, ‘what actions will we take’ with ‘what we have’.
• It bridges the gap between the sometimes fuzzy understanding of ‘what is there’ and the
necessarily more specific ‘what should we do?’ stages.

• From the operations resource perspective, we use operations capabilities.

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EXAMPLE
• Continuing with the example of the mid-sized lighting company facing problems
in the theatre lighting and exhibition markets because commercial competition
was forcing margins lower as competitors undercut prices.
• Its market requirements analysis indicated a shift towards targeting commercial
companies that needed specialised lighting designs.
• Analyzing the firm’s resources, processes and capabilities revealed that the
company’s history and experience of understanding how to translate someone
else’s vision into theatrical reality was a valuable asset. Their lighting and sound
technicians were flexible to any client demand. These skills, combined with an
intimate network of contracts with equipment and software suppliers, enabled the
company to outperform competitors and eventually dominate the new market.
• In order to maintain its competitive advantage, it opened new sites in several
locations where existing and potential customers were located, all of which had a
resident lighting and sound design expert.
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SUMMARY

Source: Operations
Strategy (Nigel Slack,
Michael Lewis)

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PERFORMANCE OBJECTIVES
▪ Performance Objectives for the operation: the aspects of
operations performance that satisfy market requirements and,
therefore, that the operation is expected to pursue.
▪ They are referred to variously as ‘performance criteria’,
operations ‘strategic dimensions’, ‘performance dimensions’,
‘competitive priorities’ and ‘strategic priorities’.
▪ Five performance objectives that have meaning for any type of
operation (though their relative priorities may differ):
▪ Quality
▪ Speed
▪ Cost
▪ Dependability
▪ Flexibility
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OPERATIONS CAPABILITIES
• To understand how an operation works, we need to examine the interaction
between its resources:
• How different resources, such as processing centres, are positioned relative to each other
• How staff are organised into units, etc.

• Processes are the arrangements of resources that create mechanisms that power,
steer and control its performance.
▪ All operations have documented procedures to formalise their regular activities
(formal processes):
▪ ‘generating orders’, ‘fulfilling orders’, ‘developing new products and services’ and so on.

▪ Some informal processes are less formally documented and driven by individual
staff's capabilities of ‘who knows what’ and ‘who can get things done’.
▪ The collective term for formal and informal processes is the ‘routine’ of the firm.

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OPERATIONS CAPABILITIES (CONTD.)
• Intangible resources – These resources may not be directly observable but are
significant in enabling any company to function. Such as:
• Supplier relationships
• Relationship with labour market and technology sources
• Process knowledge
• product and service development skills
• Market contacts and relationships.

• ‘. . . our primary assets, which are our software and software development skills, do not
show up in the balance sheet at all’ – Bill Gates

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RESOURCE-BASED VIEW
• The resource-based view is based on the notion that most companies
consider themselves particularly good at some specific activities and try to
avoid competition in other activities.
• Role of the resources that are (largely) internal to the company’s operations.
• ‘SWOT’: exploit the Opportunities using your Strengths, neutralise the
external Threats, and avoid being trapped by your Weaknesses.
• ‘Environmental’ thought - focuses on a firm’s opportunities and threats
(competitive positioning)
• ‘Resource-based’ thought: focuses on a firm’s strengths (core capabilities)
• RBV explains that companies gain sustainable competitive
advantage (SCA) because of their core capabilities rather than
their competitive positioning.
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RESOURCE-BASED VIEW
(PROPERTIES)
• The environmental view sees companies seeking to protect their
competitive advantage through market control.
• RBV sees firms being able to protect their competitive advantage by
building up ‘difficult-to-imitate’ resources.
• Some ‘strategic’ resources that give a competitive advantage to firms, per
RBV:
• Those that are scarce: unequal access, unique to a firm
• Those that are imperfectly mobile: difficult to move out of the firm,
immobile
• Those that are imperfectly imitable and imperfectly substitutable: difficult
to copy or being replaced with alternative resources

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THE VRIO FRAMEWORK
• It is the framework to evaluate the potential strategic resources. Developed
by Jay B Barney in 1991.
• Strategically important resources must be Valuable, Rare, imperfectly
Imitable, and the firm is Organised to capture the value of the resource.
• Is the resource valuable?
• Is it possible to identify specific and definable competitive value from the
resources?
• Do they help to exploit opportunities in the market or defend against threats from
competitors and if so, exactly how?
• Resources that have value in one market at one point will not necessarily be
valuable in other markets or at other times.
• Is the resource rare?
• Do you have, or have access to, resources that your competitors do not?
• A resource is ‘rare’ if it is, at least, in short supply and likely to remain so.
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THE VRIO FRAMEWORK (CONTD.)
• Is the resource costly to imitate?
• Do you have resources that competitors cannot imitate, purchase or find a suitable alternative
to at a realistic cost or time frame?
• ‘Imitability’ may be either because competitors can copy your resources and processes
directly or find an acceptable substitute for them.
• Is the firm organised to capture the value of the resource?
• Does a firm have within its business the systems, culture, capacity and motivation to exploit
any capabilities embedded in its resources and processes?
• A firm must have formal reporting and control mechanisms, leadership and an informal and
cultural environment that allows the strategic resources to develop.
• All 4 factors in the VRIO framework are time-dependent: Value changes with time, neither
Rarity nor Imitability is absolute with time, and even organisational capabilities erode with
time if operations leadership is lacking.
• Although each of these elements is to be treated in the conventional order (V-R-I-O), it is
best to think of the ‘O’ of ‘organisation’ to be a necessary prerequisite
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THE VRIO FRAMEWORK (CONTD.)

Source: Operations
Strategy (Nigel Slack,
Michael Lewis)

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WHAT IS OPERATIONS STRATEGY?
• The four perspectives on operations strategy are not ‘alternative’ views
of what operations strategy is. Operations managers can (and should)
hold all four views simultaneously.
• Operations strategy can be seen as the attempt to reconcile all four
perspectives.
• Tension between the market requirements perspective and the
operations resource perspective:
• satisfy the requirements of the market VS attempting to develop
valuable capabilities that competitors will find difficult to imitate
• Tension between the top-down and bottom-up perspective:
• ‘what should be’ VS ‘what is’
• Top Management telling the rest of the enterprise ‘what to do’ VS the
experience of those people who actually ‘do’ stuff
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 • Content: the collection of decisions made within the operations strategy domain.
• Process: the way in which operations strategies are (or can be) formulated.

Source: Operations
Strategy (Nigel Slack,
Michael Lewis) 45
OBJECTIVES OF OPERATIONS STRATEGY
• The objective of the operations strategy is to attempt to align the capabilities of the firm’s operations
resources with the market requirement over time without undue risk to the organisation’s strategy or
operations.

• Operations managers must attempt this through ‘reconciliation’ between the four perspectives, an
ongoing and iterative process.

• Operations strategy is the total pattern of decisions that shape the long-term

capabilities of any type of operation and their contribution to overall

strategy through the reconciliation of market requirements with
operations resources.

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OPERATIONS STRATEGY
Source: Operations
Strategy (Nigel Slack,
Michael Lewis)

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DECISION AREAS
• Set of decisions needed to manage the resources of the operation:
• Capacity
• Supply networks
• Process technology
• Development and organisation

• Capacity strategy: How capacity and facilities in general should be configured

o What should be the overall level of capacity?
o How many sites should the capacity be distributed across, and what size should they be?
o Should each site be engaged in a broad mixture of activities, or should they specialize in one
or two?
o Exactly where should each site be located?
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DECISION AREAS (CONTD.)
• Supply network strategy (including purchasing and logistics): How operations relate
to the interconnected network of other operations, including customers, customers’
customers, suppliers, suppliers’ suppliers and so on
• How do we predict and cope with dynamic disturbances and fluctuations within the
network?
• How many suppliers should we have?
• What should be our relationship with our suppliers, purely market-based or long-term
partnerships?
• Process technology strategy: concerns the choice and development of the systems,
machines and processes that act directly or indirectly on transformed resources to
convert them into finished products and services
• How should we characterise alternative process technology?
• How should we assess the consequences of choosing a particular process technology?
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DECISION AREAS (CONTD.)
• Development and organisation: Concerns the set of broad and long-term decisions
governing how the operation is run continuingly
• How do we enhance and improve the processes within the operation over time?
• How should resources be clustered together within the business?
• How should reporting relationships be organised between these resources?
• How should new product and service development be organised?

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WHY THE FOUR STRATEGIC DECISION AREAS OF OPERATIONS
STRATEGY
Return on Assets

Source: Operations
Strategy (Nigel
Slack, Michael
Lewis)
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OPERATIONS STRATEGY MIX
• ‘Operations strategy matrix’ describes operations strategy as the intersection of a
company’s performance objectives and decision areas.
• It emphasises the intersections between what is required from the operations
function (the relative priority given to each performance objective) and how the
operation tries to achieve this through the choices made (and the capabilities
developed) in each decision area.

Source: Operations
Strategy (Nigel Slack, 52
Michael Lewis)
OPERATIONS STRATEGY PROCESS

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