Operations Strategy

Alex Hill and Terry Hill

Learning objectives
Understand LEVELS of strategy within business
Distinguish between day-to-day and strategic ROLES
Identify how different levels of strategy INTERFACE
with each other
Appreciate importance of understanding MARKETS
Understand different strategic APPROACHES
DEVELOP and IMPLEMENT an operations strategy

Lecture outline
INTRODUCTION
What is STRATEGY?
LEVELS of strategy within a business
DEVELOPING a strategy
IMPLEMENTING a strategy
Critical REFLECTIONS
SUMMARY

What is strategy?
DIRECTION
WHAT to do

What is strategy?
DIRECTION
WHAT to do

IMPLEMENTATION
HOW to do it

> KEY IDEA

Operations strategy concerns developing the
CAPABILITIES of an organisation to reflect the
NEEDS of its customers and markets

Levels of strategy
CORPORATE

BUSINESS UNIT

FUNCTIONAL

Levels of strategy
Corporate
DIRECTION OF TOTAL BUSINESS
Where to INVEST or DIVEST
SALES REVENUE priorities

IMPLEMENTATION
Allocation of investment FUNDS

Levels of strategy
Business unit
DIRECTION OF BUSINESS UNIT
MARKETS in which it competes
Where to GROW its business
Nature of COMPETITION
Relevant COMPETITIVE CRITERIA

IMPLEMENTATION
WHICH functional tasks to invest in
HOW to invest in these tasks

Levels of strategy
For most businesses, strategy needs to be developed in a different way at each of the
three levels:

Divest to
part of a b

Levels of strategy

t
Corporate At this level, companies decide where to invest or divest in terms of the
overall business mix they wish to develop both today and in the future. Such decisions
Functional
relate to where to allocate investment funds and the buying and selling of parts or all
of the company.
FUNCTION
t
Business unit For DIRECTION
each business unit,OF
identifying
the current and future markets in
which to compete is an essential strategic task and one in which all relevant functions
have to be involved.
It is inCOMPETITIVE
these debates that functional
differences need to be recogSupport
DIMENSIONS
nized and strategic direction needs to be decided. In this way, appropriate decisions
within a market for which it is solely
on the markets to compete in are taken at the business rather than the functional level.
On the basis of the markets
it has identified,
the business as a whole discusses and
or partly
RESPONSIBLE
agrees which customers it wishes to gain and retain, with which to grow (as well as the
competitive factors involved in retaining and growing these customers), and the
increased market share that would result.
t
Functional After the markets and customers have been agreed and the competitive
factors involved in retaining
and growing market share have been identified, functional
IMPLEMENTATION
strategies aim to:
t

how well
each functionREQUIREMENTS
currently provides those competitive factors for
Meeting
competitive
Assess
which it is solely or jointly responsible
Selecting
APPROACHES
tomarkets
attain improvement goals

t
Agree
their relative
importance in chosen
t

the gap between
the provision of these factors and the level required to
Implement
the PLAN
Assess
retain and/or grow the companys share of the market
t
Establish how to close the gap (the investments and timescales needed)
t
Implement the resulting plan.
The role of functions in supporting the needs of customers and markets differs from
market to market in terms of their scope (the aspects involved) and level of importance.
Thus, working within the context of the business as a whole, functions will agree priorities, the levels of investment involved and the timescales needed to complete the process.

Levels of strategy
Functional

Figure 2.1 provides some examples of functional strategic responsibilities.

Figure 2.1 Examples of functional strategic responsibilities
Function

Examples of criteria for which it is solely responsible

Research and development

Product and service designa

IT

System developments

Marketing

Brand name, customer relationships and pricing

Operations

Delivery reliability, quality conformance, price (in terms of cost

reduction) and delivery speed

Note: a In a service company the design function is typically part of marketings strategic responsibility.

Functional strategy

Within each function, executives must balance their strategic tasks against their or
operational or day-to-day tasks.The area of operational tasks within operations management is covered by the rest of this book but, in simple terms, these involve managing and
controlling those wide-ranging tasks necessary to provide services or make products and
34

Competiti
factors su
price, deliv
delivery re
and specifi
that will in
the purcha
customers

Delivery r
providing
or product
agreed de

Strategic
involve de
functional
in line with
needs of a
markets fo
that functi
or jointly r

Day-to-da
operation
involve ma
controlling
of activitie
within the
executive
responsib
as the cro
between fu
is importa
that opera
and opera
two distinc
Whereas o
is a functi
task is to p
services o
products,
is a term a
the tasks c
by functio
means da

any business the sale and delivery of services and products. On the surface, it would
seem simple to unite their efforts to meet the needs and expectations of customers, but
the reality is often far removed from what should be the desired goal This is well illustrated by Figure 2.5, which lists the different, often opposing, views held by operations
and sales/marketing on a range of issues.

Levels of strategy
Functional

Figure 2.5 Operations and marketing perspectives on key issues

Issues

Perspectives and goals

Operations

Sales and marketing

Restricting range enhances

Customers typically seek variety.
volumes, helps reduce cost and Restricting range reduces segment
simplifiesofcontrol
coverage
revenues
any business the sale and delivery
services and products.
Onand
thesales
surface,
it would
Services/
Lack
of
change
reduces
Customization
is
often
important,
seem simple to unite their efforts to meet the needs and expectations of customers, but
products
uncertainty
and should
room for be
error.
in mature
the
reality isStandardization
often far removed
from what
the particularly
desired goal
This is markets.
well illusvs.
Limiting
server
discretion
(see
Server
discretion
personalizes
trated by Figure
2.5, which lists the different, often opposing, views held by operations
customization
Chapter
1) maintains cost and service, often at little cost, and
and sales/marketing on a range
of issues.
throughput targets
enhances customer retention
Range

Measured
on meetingoncost
Figure 2.5 Operations and marketing
perspectives
key issuesSales revenue is the key
budgets. Resists orders that
performance measure. Profit
Issues
Perspectives
and
goals
increase costs. Has no control implications are not part of the
Costs and profit
over pricing
decision or evaluation. Higher
costs areand
not marketing
part of its budget
Operations
Sales
considerations
Restricting range enhances
Customers typically seek variety.
Reduce unit
costs
May cause range
a decline
in thesegment
Range
volumes,
helps
reduce
cost
and
Restricting
reduces
Productivity improvements
provision
of
quality
conformance
simplifies control
coverage and sales revenues
any
business the sale and delivery
of services
products.
On may
theissurface,
it would
Considerations
relate
toand
costs
Customers
find
it unattractive,
Services/
Lack
of change
reduces
Customization
often
important,
seem
simple
to unite their efforts
to
meet
the
needs
and
expectations
of
customers,
but
Location
of facilities
and
the
convenience
for
undesirable
and,
for
a
service
products
uncertainty and room for error. particularly in mature markets.
Standardization
vs.
the reality is often far removed
fromserver
what
should be
desired
goal
This
is well illussuppliers
and staff
business,
inaccessible
Limiting
discretion
(seethe Server
discretion
personalizes
customization
trated by Figure
2.5, which lists
the
different,
often
opposing,
views
held
by
Chapter
1) maintains
cost and
often at little
and
High utilization
of capacity
has service,
Service/product
may cost,
beoperations
and sales/marketing on a range
of
issues.
throughput
targets
enhances
customer
retention
an effect on costs and assets. unavailable when needed. Quality
Managing capacity
Pressure toonmanage
compromised
demand
Measured
meetingcapacity
cost
Sales
revenue in
is high
the key
and thereby
keeporders
investment
as performance
periods
budgets.
Resists
measure. Profit
Figure 2.5 Operations and marketing
perspectives
on that
key issues
low
as
possible
increase costs. Has no control implications are not part of the
Issues
Perspectives and goals
Costs
and profit
over
pricing
decision
or are
evaluation.
Oriented
to minimizing errors
Employees
orientedHigher
to
are not
part
of not
its budget
and waste. Simplify tasks and costs
operations
task
and
customer
Operations
Sales
and
marketing
considerations
Job design
use technology where possible need. Restricts the ability to meet
changing
they
Restricting
Customers
typically
variety.
Reduce
unitrange
costsenhances
May
causerequirements
a declineseek
in as
the
Productivity improvements
occur ofrange
Range
volumes, helps reduce cost and provision
Restricting
reduces
segment
quality
conformance
simplifies
control
coverage
sales revenues
Optimize the
userelate
of available
Increasesand
customer
leadConsiderations
to costs Customers
may find it unattractive,
Services/
capacity
by
planning
for
times.
Customers
facing
long
Lack
of
change
reduces
Customization
is
often
important,
Location
and the convenience for
undesirable and, for a service
Queues of facilities
products
average
throughput
lead-times
or
queues
may
go
uncertainty
and
room for error. business,
particularlyinaccessible
in mature markets.
suppliers
and
staff
Standardization vs.
elsewhere
Limiting server discretion (see Server
discretion personalizes
High utilization of capacity has Service/product may be
customization
Chapter 1) maintains cost and service, often at little cost, and
an effect on costs and assets. unavailable when needed. Quality
throughput targets
enhances customer retention
Managing
capacity
Pressure
manage
capacity
compromised
high rivalries
demand that
As
you can
see from Figure 2.5,
theretoare
inherent
tensions,
concernsinand
Measured
meeting
cost but
Sales
revenue isis,the
key can these
and
therebyonrelationship,
keep
investment
as the
periods
characterize the marketingoperations
question
how
budgets.
Resists
orders that differences
performancenot
measure.
as possible
be solved? The way forward is low
to resolve
interfunctional
at the Profit
level of the
increase
costs.
Has
no
control
implications
are
not
part
of the
function,
as is often the caseOriented
now, but
at the level
business.
Given the
to minimizing
errorsof the
Employees
are oriented
to critical
Costs and profit
over
pricing
decision
or
evaluation.
Higher
nature of strategy development,
what Simplify
then needs
to happen
to bring
the
back
and waste.
tasks and
operations
task and
notparts
customer
costs
are
not
part
of
its
budget
together
business
strategy?
first the
andability
mostto critical
Job designin order to forge a unified
use technology
whereunit
possible
need.The
Restricts
meet
considerations
step involves all functions, including marketing and operations,
agreeing asonthey
which
changing requirements
Reduce
costs
May cause
a decline
theprocess
markets to focus their attention.
Theunit
next
section of this chapter
deals
withinthe
occur
Productivity improvements
provision of quality conformance
Optimize the use of available
Increases customer lead-

Levels of strategy
Functional

40

Mature marke
refers to the sta
the life of a ser
or product whe
demand starts
off and where t
range of servic
products prom
by competitors
similar. To enh
sales, compan
often differenti
their service or
product offerin
customizing ite
to specific cus
needs or prefer

Mature market
refers to the sta
the life of a serv
or product whe
demand starts
off and where t
range of service
products prom
by competitors
similar. To enh
sales, compani
often differentia
their service or
product offerin
customizing ite
to specific cust
needs or prefer

Mature market
refers to the sta
the life of a serv
or product whe
demand starts
off and where t
range of service
products prom
by competitors
Customer
similar.
To lead
enh
the length
of tim
sales,
compani
customer
expe
often differentia
is prepared
their
serviceto
orw
a serviceofferin
or pro
product
from the point
customizing
ite
making
an cust
orde
to
specific

needs or prefer

Customer lead
the length of tim
customer expe
is prepared to w
a service or pro
from the point
making an orde

over pricing

decision or evaluation. Higher

costs are not part of its budget
considerations
any business the sale and delivery of services and products. On the surface, it would
Reduce
unit costs
May cause a decline
in the
seem
simple
to unite their efforts
to meet
the needs and expectations
of customers,
but
Productivity
improvements
provision
of
quality
conformance
the reality is often far removed from what should be the desired goal This is well illustrated by Figure 2.5, which lists
the different,
opposing,
views
held
operations
Considerations
relateoften
to costs
Customers
may
findby
it unattractive,
Location
of facilities on a range
andofthe
convenience for
undesirable and, for a service
and
sales/marketing
issues.
suppliers and staff
business, inaccessible

Levels of strategy
Functional

High utilization
of capacity
Figure 2.5 Operations and marketing
perspectives
on keyhas
issuesService/product may be
an effect on costs and assets. unavailable when needed. Quality
Issues
Perspectives
and
goals compromised in high demand
Managing capacity
Pressure to manage
capacity
and thereby keep investment as periods
low as possible
Operations
Sales and marketing
Oriented torange
minimizing
errors
Employees typically
are oriented
Restricting
enhances
Customers
seektovariety.
and waste.
Simplify
tasks
operations range
task and
not customer
volumes,
helps
reduce
costand
and Restricting
reduces
segment
Job design
use technology
need. Restricts
the ability
to meet
simplifies
controlwhere possible coverage
and sales
revenues
changing
requirements
as
they
Services/
Lack of change reduces
Customization is often important,
occur
products
uncertainty and room for error. particularly in mature markets.
Standardization vs.
Optimizeserver
the use
of available
Increases
customer
leadLimiting
discretion
(see Server
discretion
personalizes
customization
capacity 1)
bymaintains
planning for
times. Customers
facing
Chapter
cost and service,
often at little
cost,long
and
Queues
average throughput
lead-timescustomer
or queuesretention
may go
throughput
targets
enhances
elsewhere
Measured on meeting cost
Sales revenue is the key
budgets. Resists orders that
performance measure. Profit
increase
Has no control
implications
areand
not part
of the that
As
youand
can
see from Figure 2.5,
therecosts.
are inherent
tensions,
concerns
rivalries
Costs
profit
over
pricing
decision
or
evaluation.
Higher
characterize the marketingoperations relationship, but the question is, how can these
costs are not
part
its level
budgetof the
be solved? The way forward is to resolve interfunctional differences
not
atofthe
considerations
function, as is often the case now, but at the level of the business. Given the critical
nature of strategy development,
what
to bring
thein parts
Reduce
unit then
costs needs to happen
May cause
a decline
the back
Productivity improvements
together in order to forge a unified business unit strategy?
The of
first
andconformance
most critical
provision
quality
step involves all functions, including
marketing
and operations,
agreeing
on which
Considerations
relate to costs
Customers may
find it unattractive,
markets
to
focus
their
attention.
The
next
section
of
this
chapter
deals
with
the
process
Location of facilities
and the convenience for
undesirable and, for a service

Range

40

suppliers and staff

Developing a strategy
Managing capacity

Job design

Queues

business, inaccessible

High utilization of capacity has

an effect on costs and assets.
Pressure to manage capacity
and thereby keep investment as
low as possible

Service/product may be
unavailable when needed. Quality
compromised in high demand
periods

Oriented to minimizing errors

and waste. Simplify tasks and
use technology where possible

Employees are oriented to

operations task and not customer
need. Restricts the ability to meet
changing requirements as they
occur

Optimize the use of available

capacity by planning for
average throughput

Increases customer leadtimes. Customers facing long

lead-times or queues may go
elsewhere

As you can see from Figure 2.5, there are inherent tensions, concerns and rivalries that
characterize the marketingoperations relationship, but the question is, how can these
be solved? The way forward is to resolve interfunctional differences not at the level of the
function, as is often the case now, but at the level of the business. Given the critical
nature of strategy development, what then needs to happen to bring the parts back
together in order to forge a unified business unit strategy? The first and most critical
step involves all functions, including marketing and operations, agreeing on which
markets to focus their attention. The next section of this chapter deals with the process
40

Mature market
refers to the sta
the life of a serv
or product whe
demand starts
off and where t
range of service
products prom
by competitors
similar. To enh
sales, compani
often differentia
their service or
Customer lead
product offerin
the length of tim
customizing ite
customer expe
to specific cust
is prepared to w
needs or prefer
a service or pro
from the point
making an orde

Customer lead
the length of tim
customer expe
is prepared to w
a service or pro
from the point
making an orde

Developing a strategy

Developing a strategy

Developing a strategy

> KEY IDEA

Understanding MARKETS is the FIRST step in
strategy development

Developing a strategy

related criteria such as those listed above, and is illustrated in Figure 2.7 below. The
criteria and their relative importance in securing the sale will differ from one service/
Understanding
customer
requirements
product
to another and from
customer to
customer.
Figure 2.7 The purchase: the make-up of customer choice
The
The service/ Examples of related criteria
purchase product
Price
Delivery Quality
Customer
Delivery
specification
speed
conformance relationship reliability

The
business
task

Meet/better the Reduce

design of
costs
competitors

Function
Marketing for
responsible services,
research and
development
for products

Shorten
Meet the
lead-times specification

Operations Operations Operations

Develop
customer
relations

Deliver on
time

Sales and
Marketing

Operations

> KEY IDEA

Customer purchases are rarely made solely on the basis of the specification of a
service or product, but are often also influenced by a mix of other related criteria, such
as quality conformance, delivery speed and price

Order-winners and qualifiers

One way to classify the criteria that are important to customers when purchasing services or products is to divide them into order-winners and qualifiers:
t
Qualifiers These criteria get a service or product onto a customers shortlist and keep
it there. They do not in themselves win orders but provide the opportunity to compete.
Conversely, the failure to provide qualifiers at an appropriate level will lead to a loss of
orders. In this way, qualifiers are order-losing in nature, as a failure to provide a qualifier results in not being on the list so the opportunity to compete is not in place. In
such situations, competitors do not win orders from a rival; instead, the rival loses
orders to its competitors.
t
Order-winners Gaining entry to a market is, however, only the first step. The task then
is to know how to win orders against competitors who have also qualified to be in the
same market. With qualifiers, you need to match customers requirements (as do
competitors), whereas with order-winners you need to provide them at a level better
than that of your competitors.

> KEY IDEA

Customer PURCHASES are not only based on
the service or product specification, but also a
wide RANGE of CRITERIA such as price,
delivery speed and quality conformance

Having determined which criteria are relevant, as well as the relative importance of these
as order-winners or qualifiers, providing them will form the strategic task of different
functions (see Figure 2.7).

Market-driven and market-driving strategies

Before we look at methods for understanding markets in more detail, it is important to

understand the difference between market-driven strategies and market-driving strategies, as well as how they relate to some of the criteria that affect a customers purchasing decisions.

Market-dr
strategies
provide th
that enabl
company
in its chos

Market-dr
strategies
proactivel
ways to ch
the compe
norms an
create a s
where a c
can influe
market po
relation to
its compe

Developing a strategy
Understanding customer requirements
QUALIFIERS
Get and keep a service or product on
a customers SHORTLIST

ORDER-WINNERS
WIN you the order once
you are on the shortlist

> KEY IDEA

Understanding CUSTOMER requirements:

AVOID general descriptions

IDENTIFY and WEIGHT order-winners and
qualifiers

> KEY IDEA

All functions must be involved in the
discussion on HOW to GAIN, RETAIN and
GROW CUSTOMERS and MARKETS

Developing a strategy
Understanding customer requirements

Pit stop

Factory

Restaurant

Figure 1.5 - Overview of operations process - transforming inputs into outputs

ENVIRONMENT,
NATIONAL/WORLD
ENVIRONMENT,
NATIONAL/WORLD
ECONOMY ECONOMY

DATA

INPUTS

People

People

Materials

Materials

Energy

Energy

Capital

Capital

Information

Information

RESOURCES

RESOURCES

AND GOVERNMENT
REGULATIONS
AND GOVERNMENT
REGULATIONS

ENVIRONMENT

OUTPUTS

OUTPUTS
People

OPERATIONS
OPERATIONS

PROCESS

PROCESS

Services

Materials

Products

Energy

GOODS
Information
Capital
AND
Information
SERVICES
SERVICES/

SERVICES/

PRODUCTS

PRODUCTS

ENVIRONMENT
PERFORMANCE
MEASUREMENT
PERFORMANCE
MEASUREMENT

AND CONTROL
AND CONTROL
Slack et al (2004)

14

Essential Operations Management Managing Opera

Essential Operations Management Managing Operations

Developing a strategy
Operations process
Operations process

TRANSFORMED
resources

Materials
Information
Customers

TRANSFORMING
resources

Facilities
Staff

OUTPUTS

Goods
Services

Pit stop

Factory

Restaurant

15

Developing a strategy
Understanding customer requirements
Key market
requirements

Pit stop

Factory

ORDER-WINNERS

QUALIFIERS

Developing a strategy
Understanding customer requirements

Restaurant

> KEY IDEA

Understanding CUSTOMER requirements:

AVOID general descriptions

IDENTIFY and WEIGHT order-winners and
qualifiers

Developing a strategy
The process of strategy development

Developing a strategy
The process of strategy development
Figure 2.9 Translating qualifiers and order-winners into actions
Relevant qualifiers Typical areas for review and improvement
and order-winners
Price

Reduce costs in all areas, particularly regarding materials and overheads,

which can make up to 7090% of total costs

Quality conformance

Provide services or make products to specification. Build quality into the

process and delivery system rather than checking conformance after the
event. Improvements here also impact costs

Delivery reliability

Assess on-time delivery performance by service/product and customer.

Review current approaches to meeting orders this will involve discussions
on the extent to which services and products can be or are made to order,
and the role of activities and investments such as scheduling and inventory
in meeting these requirements

Deliver speed

Review the elements of the operations process with the purpose of reducing
the lead-time of the various steps making up the service delivery system or
manufacturing process

Service/product range

Review the process capability and staff skill base in relation to current and
future service/product range requirements. Identify and supplement
capabilities in line with current and/or future needs

Demand spikes

Assess current capacity provision in terms of the ability to rapidly increase

output in line with known or anticipated changes in demand. Approaches

Delivery reliability

Assess on-time delivery performance by service/product and customer.

Review current approaches to meeting orders this will involve discussions
on the extent to which services and products can be or are made to order,
and the role of activities and investments such as scheduling and inventory
in meeting these requirements

Developing a strategy
Deliver speed

Review the elements of the operations process with the purpose of reducing

The process of strategy

development
the lead-time
of the various steps making up the service delivery system or
manufacturing process
Figure 2.9 Translating qualifiers and order-winners into actions
Service/product range
Review the process capability and staff skill base in relation to current and
Relevant qualifiers Typical
areas for review
and improvement
future service/product
range requirements.
Identify and supplement
and order-winners capabilities in line with current and/or future needs

Price
Demand spikes
Quality conformance
New services/products
time to market
Delivery reliability

Meeting specific
customer
needs
Deliver
speed

Reduce
costs incapacity
all areas,
particularly
regarding
overheads,
Assess current
provision
in terms
of thematerials
ability to and
rapidly
increase
which
make
to 7090%
of total costs
outputcan
in line
withupknown
or anticipated
changes in demand. Approaches
include services
short-term
and inventory-holding
Provide
or capacity
make products
to specification.alternatives
Build quality into the
process
andelements
delivery system
ratherwithin
than checking
conformance after the
Identify the
of lead-time
the new service/product
event.
Improvements
also impact
costsis responsible. Assess the tasks
development
processhere
for which
operations
involvedon-time
and thedelivery
opportunities
to reduce
the work content,and
bring
forward the
Assess
performance
by service/product
customer.
start
times
in
relation
to
the
overall
procedures,
and
identify
the
possibility
Review current approaches to meeting orders this will involve discussions
of completing
or all
of the task
in parallelcan
(rather
sequence)
on
the extent topart
which
services
and products
be orthan
are in
made
to order,
with
other
elements
of
the
process
and the role of activities and investments such as scheduling and inventory
in
meeting
theseapproaches
requirements
Assess
current
to identify how standard services and products
can
be
modified
in
line
with
specific customer
and of
thereducing
impact
Review the elements of the operations
process requirements
with the purpose
on costs,
lead-times,
qualitysteps
conformance
andthe
theservice
overalldelivery
schedule
the
lead-time
of the various
making up
system or
manufacturing process

Service/product
Reviewand
the process
capability
and
staff
skill base in relation
to current and
customers torange
gain, retain
grow, as
well as
the
order-winners
and qualifiers
that
future
service/product
range
requirements.
Identify
and
supplement
need to be supported and provided to achieve these outcomes. This is a businesscapabilities
in line to
withensure
currentthat:
and/or future needs
based activity involving
all functions
Demand
Assess currentoncapacity
provision
in terms ofand
the discussed
ability to rapidly increase
t
All spikes
insights and perspectives
markets
are identified
output
in
line
with
known
or
anticipated
changes
in demand.
t
The outcomes are agreed at the level of the business and
not theApproaches
level of the
include short-term capacity and inventory-holding alternatives
function
t
services/products
The mix of roles in Identify
implementing
strategy
and the
resources
needed and timescales
New
the elements
of lead-time
within
the new service/product
timeinvolved
to marketare agreed
development process for which operations is responsible. Assess the tasks
t
All functions are pointing
in the
strategic
direction
involved and
the same
opportunities
to reduce
the work content, bring forward the
t
Frequent discussion
customers
is necessary,
andpossibility
must be
startabout
times inmarkets
relation toand
the overall
procedures,
and identify the
underpinned by data
and not fuelled
byofopinion.
this, outcomes
are based
of completing
part or all
the task inWithout
parallel (rather
than in sequence)
on unsubstantiated
arguments
and,ofinthesuch
scenarios, functions typically compete
with
other elements
process
for
their
own
perspective
to
be
the
one
adopted
byhow
thestandard
business
overall.
Meeting specific
Assess current approaches to identify
services
andDeflecting
products
rather
than
embracing
insights
that
provide
a
fuller
picture
is
often
both
the
intent
customer needs
can be modified in line with specific customer requirements and the impact
and the outcome. on costs, lead-times, quality conformance and the overall schedule

Developing a strategy

The process of strategy development

t
Phase 2 translate these reviews into strategic tasks. For example, if price is an orderwinner, the task is to reduce costs; similarly if on-time delivery is a qualifier, improving
customers
toof
gain,
retaincustomer
and grow,
asdates
well as
thetask.
order-winners
and qualifierslist
that
the reliability
meeting
due
is the
A more comprehensive
of
need
to
be
supported
and
provided
to
achieve
these
outcomes.
This
is
a
businesssuch factors will be given in a later section.
based activity involving all functions to ensure that:
t
All insights and perspectives on markets are identified
and discussed
Essential Operations
Management Operations Strategy
t
The outcomes are agreed at the level of the business and not the level of the
function
t
The mix of roles in implementing strategy and the resources needed and timescales
involved are agreed
t
All functions are pointing in the same strategic direction
t
Frequent discussion about markets and customers is necessary, and must be
underpinned by data and not fuelled by opinion. Without this, outcomes are based
on unsubstantiated arguments and, in such scenarios, functions typically compete
for their own perspective to be the one adopted by the business overall. Deflecting
rather than embracing insights that provide a fuller picture is often both the intent
and the outcome.

t
Phase 2 translate these reviews into strategic tasks. For example, if price is an orderwinner, the task is to reduce costs; similarly if on-time delivery is a qualifier, improving

49

Developing a strategy
The process of strategy development
Figure 2.12 Phases and characteristics of strategy development and implementation
Figure 2.12 Phases and characteristics of strategy development and implementation
Phase

Action

Level of difficulty

Defining
the problem

Market
understanding

Difficult

Identifying
the solution

Actions
to take

Easy

Implementing
the solution

Making
it happen

Difficult

Source: Adapted from Hill, A. and Hill, T. (2009) Manufacturing Operations Strategy, 3rd edn, Palgrave Macmillan

and extensive analysis of one key customer segment recruiting students at the beginning of their study course and retaining them at the end.
Based on a recognition that many customers stay loyal to a bank unless there is a serious
mishap, recruiting customers is an important aspect of retaining and growing a banks
market share. There are a number of key times at which potential and/or existing customers make or can make a decision about which bank to use, two of these being:
1 At the time
of going to college or university
> KEY
IDEA
2 At the point of leaving college or university and starting a job.
Understanding MARKETS is DIFFICULT
Figure 2.13 Student banking qualifiers and order-winners in two key phases

RecruitmentIdentifying
SOLUTIONS is EASY
Criteria
non-customers
Ease and speed of opening an account

QQ

Making it HAPPEN
is DIFFICULT
Negative
QQ
Influencers

Location of

Overdraft facilities

Staff

Retention

QQ

Positive

60

ATMs

Branches

10

20

Level permitted

QQ

QQ

Cost

25

Flexibility in terms of permitted level

20

40

Empathy to students

Providing dedicated banking managers

10

15

Notes: Order-winners have a weighting, the total of which is 100.

Q, a qualifier; QQ, an order-losing-sensitive qualifiers; , aspect not relevant.

Based on a recognition that many customers stay loyal to a bank unless there is a serious
mishap, recruiting customers is an important aspect of retaining and growing a banks
market share. There are a number of key times at which potential and/or existing customers make or can make a decision about which bank to use, two of these being:

Developing a strategy

1 At the time of going to college or university

2The
At the
point of leaving
college or university
and starting a job.
process
of strategy
development
At these points, there is or can be a more conscious decision about where to bank, so
recruiting and/or retaining these customers (and their future worth to the bank in terms
Figure
2.13from
Student
banking
and order-winners
twoimportant
key phasesdimension of retainof
revenue
banking
andqualifiers
other products)
becomesinan
ing and growing the companys share in the personal banking
segment.
RecruitmentRetention
Criteria
non-customers
The
of opening
this major
banks discussions is shown
Ease outcome
and speed of
an account
QQ in Figure 2.13, and some
comments can be made here:
Negative
QQ
QQ
t

When opening an account, potential customers (who bank elsewhere or are new to
Influencers
Positive from a number of providers any
60 failure to make this process
banking) may choose
easy and quick can
ATMslead to a bank not qualifying whenQthis decision is taken.

Location
of
t
Influencers include
features such as familys/friends advice
or preferences,
Branches
10
20 with cash
and non-cash incentives on the one hand, and horror stories on the other. Negative
permitted in nature, while positiveQQones at the point QQ
influencers can Level
be order-losing
of beginning
a course
have been
Cost identified as the most significant order-winner.
Q
25
Overdraft
facilities
t
Location of ATMs at convenient sites was perceived to be a qualifier when a student
Flexibility in terms of permitted level
20
40
but was not considered a factor with the greater mobility that comes with working.
to students
Q as having
Being able to getEmpathy
to a branch
when necessary was, on Qthe other hand, seen
Staff
an order-winning,
albeit dedicated
small, role
in both
instances. 10
Providing
banking
managers
15
t
Overdraft facilities were seen as a significant factor at both points, more so in the work
Notes:
Order-winners
have alife.
weighting, the total of which is 100.
phase
of a persons
Q, a qualifier; QQ, an order-losing-sensitive qualifiers; , aspect not relevant.
t
Dedicated help from staff was considered important at each stage as a person moved
towards greater independence.

Essential Operations Management Operations Strategy

The criteria listed in Figure 2.13 are the sole or joint responsibility of several functions of
the company and would need to be reflected in each functions development and investment priorities. Figure 2.14 highlights those criteria which operations have to support.

Developing a strategy

The process of strategy development

Figure 2.14 Operations actions arising from Figure 2.13
Criteria

Some key aspects of operations performance and

development that may result

Ease and speed of opening Simplifying the account-opening process, advising any checks ahead of
an account
time to avoid delays and revisits, and monitoring the success rate of
discussions and applications
Overdraft facilities

Although principally a decision taken by several functions, clear

explanations and an understanding attitude on the part of operations
would form part of managing this key dimension

Staff

Allocating staff, ensuring that the background details and history of

customers are known, together with an understanding approach, would
be key operations tasks

55

Developing a strategy
The process of strategy development
Alternative APPROACHES

TOP-DOWN vs BOTTOM-UP
MARKET-DRIVEN vs MARKET-DRIVING

Developing a strategy
Top-down approach
CORPORATE

BUSINESS UNIT

FUNCTIONAL

Developing a strategy
Bottom-up approach
Consolidated into formal STRATEGY

EMERGING sense of what strategy should be

Day-to-day EXPERIENCES and LEARNING

Developing a strategy
Market-led orientation

MARKET

OPERATIONS

MARKET DRIVES OPERATIONS

Developing a strategy
Market-driving orientation

MARKET

OPERATIONS

OPERATIONS DRIVES MARKET

Developing a strategy
Alternative approaches

Developing a strategy
Alternative approaches
Aspect

Prison Camp

Restaurant

Strategic
OBJECTIVES

STRATEGY for
meeting these
objectives
PROCESS of
developing and
implementing
strategy

Critical reflections
Operations helps gain FIRST sale whilst also
securing the SECOND sale
MARKET or marketing-led?
Moving to a BUSINESS-LEVEL strategic debate

the first critical step.

Operations helps gain the first sale while also securing the second

An important strategic task for operations concerns its role in retaining customers. As
Figure 2.15 shows, although sales and marketing will have the principal role in gaining
the first sale, fulfilling the order or contract and thereby securing repeat business principally falls within the remit of operations.

Critical reflections

Figure 2.15 Operations role in gaining the first sale and securing the second
Task

Gaining the first sale Fulfilling the order

or contract

Securing the second

sale

Through
customer
contacts and
Sales and
relationships,
marketing
advertising,
promotions
and selling

Operations
Operations as a
fulfils a mix of
consequence of
requirements
fulfilling an order
such as
and meeting
meeting the
customers needs,
service/
customers
product
typically return
specification,
and repeat their
Creating a
delivering
on
purchase. If
good business
time
and
operations fails to
reputation
supporting
meet customer
Function(s)
based on past Operations
Operations orders and needs,
the
relevant
responsible
performance
degree of
it is likely that
in meeting
price
customers will go
customer
sensitivity
elsewhere and
Operations orders and
may tell others!
customer
needs leads
to existing
customers
recommending
a business to
others
Lets explain with an example. Wishing to eat out one evening on some special occasion
and not knowing where to go, you ask a friend for suggestions. The restaurant suggested
is duly booked, but the reality of the evening doesnt match your expectations your
table isnt quite ready, the service is slow, and the food is nothing special. So next time
you wish to celebrate, where will you go? While your first visit to the restaurant arose
from it being recommended (the reputation it had established), any subsequent visits
will be based on your own experience of the delivery of the service. In this way, how well
a service is delivered results in:
t
Creating the reputation ( the equivalent of a brand name) that leads to customers
recommendations to others ( the first sale)
t
Customers returning to repeat-buy (the second sale).
Essential Operations Management Operations Strategy

> KEY IDEA

Operations help GAIN first sale
Whilst SECURING second sale

59

Summary
What is STRATEGY?
- Direction and Implementation

LEVELS of strategy
- Corporate - Business - Functional

Strategy DEVELOPMENT
- Understand market
- Develop capability to support or drive market

Market REQUIREMENTS
- Order-winners and Qualifiers

APPROACH to developing strategy

- Top down vs Bottom up
- Market-led vs Resource-based

Revision questions
1 Strategy embodies the aspect(s) of:
a) Direction (what to do)
b) Implementation (how to do it)
c) Both a) and b)

Revision questions
2 The strategic role of executives concerns:
a) Managing and controlling the range of activities
that fall within their area of responsibility
b) How to support the competitive criteria in agreed
markets and determining development and
investment priorities
c) Both a) and b)

Revision questions
3 A market-driven strategy is based on:
a) Exploiting the potential of existing resources and
capabilities within the business
b) Identifying where advantage can be gained by
outperforming current market norms on one or
more competitive driver
c) Understanding current and future markets and
their competitive drivers

Revision questions
4 Discussion and agreement about current and future
markets:
a) Is the sole responsibility of the marketing function
in a business
b) Is the responsibility of all functions within a
business
c) Is a corporate, not a functional responsibility

Revision questions
5 Market order-winners and qualifiers are:
a) Time specific
b) Market specific
c) Both a) and b)

Revision questions
6 A typical area of improvement if delivery speed is a
market order-winner is:
a) Reducing costs in all areas particularly materials
and overheads
b) Reviewing the elements of the operations process
c) Reviewing current scheduling methods

CASE FOR TUTORIAL

APPLE