Operations Strategy

Ronald S. Lau, Ph.D.

HKUST ISOM

Course outline
Module 1: Strategic
Planning and Decisions

Operations Strategy

Module 2: Managing
Business Process
Flows

Strategic Issues of
Supply Chain Design

Module 3:
Synchronizing Supply
and Demand

Strategic Issues of
Process Design

Module 4: Process
Improvement and
Quality Management

Resource Allocation
Decisions

Intended learning outcomes

Operations strategy
Identify the common competitive priorities and ways to enhance
major competitive dimensions
Discuss the increasing contribution of operations in business
strategy
Give examples of strategic decision areas of operations
management
Describe with examples the order winners and order qualifiers
Identify how operations strategy can set an improvement path
by overcoming the key trade-offs

Basic concepts of business strategy

Strategy

A road map for what must be

done collectively to achieve a
specific organizational goal

Business strategy is about gaining

competitive advantage through:

Strategic positioning
Operational effectiveness
Branding and customer relationship

Strategic planning hierarchy 1

Assessment of
global business
conditions

Distinctive
competencies

Business strategy

Product/Service plans
Competitive priorities

Operations strategy

Other functional
strategies

Is there any future for Shan Zhai smart

phones?

Shan Zhai ()

A bandit stronghold outside government control

Main source of fake or pirated products

For discussion

Why Shan Zhai is a Chinese phenomenon?

Their price, quality, and innovation?
How can any startups compete in a
crowded market already dominated
by Apple and Samsung?

Lets help a smart phone startup to create a

business plan

The growth story of Xiaomi

The company

Founded in 2010 by Lei Jun, now one of Chinas richest men

Released the first smartphones in August 2011
#1 in Chinas smartphone sales market
http://www.mi.com/en/

Business model

Very slim profit margin, but not just

another knock-off
Cross sell accessories and software
Sell primarily from its own online store
Active use of social media to promote
brand awareness and advocates
Begin targeting other countries, such as
Brazil, Mexico, and Russia
8

In a competitive world
If you sense calm, just because you
are in the eye of the storm.
Tom Peters

Even if you are on the right track,

you will get run over if you just sit
there.
William Roger

Strategic planning hierarchy 2

Assessment of
global business
conditions

Distinctive
competencies

Business strategy

Product/Service plans
Competitive priorities

Operations strategy

Other functional
strategies

10

Common competitive dimensions

11

Order qualifier vs. Order winner

Order qualifier

Order winner

A screening factor
Basic product/service characteristics must be present

A differentiating factor
Most desirable product/service characteristics that can stand out
the competition

How to create sustainable competitive advantage?

Making new order winners

Multiple competitive dimensions

12

Strategic planning hierarchy 3

Assessment of
global business
conditions

Distinctive
competencies

Business strategy

Product/Service plans
Competitive priorities

Operations strategy

Other functional
strategies

13

Hayes and Wheelwrights four-stage model

of contributions from operations

Increasing strategic impact

Redefining
industry
expectations

Stage 4
Give an
operations
advantage
Stage 3
Link strategy
with operations

Clearly the best

in the industry
Stage 2
Adopt best
practice

As good as the
competitors
Holding the
organization back

Stage 1
Correct the
worst
problems
Internally
neutral

Externally
neutral

Internally
supportive

Externally
supportive

Increasing operations capabilities

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Some strategic decisions that may be

addressed in an operations strategy

15

Key issues in operations strategy

Goal

Being physically efficient

Being market responsive

Focus

Efficiency:
Fast Inventory turns
High capacity utilization

Responsiveness:
Reduce lost sales
More variety

Cost
concern

Manufacturing, inventory

Inventory obsolescence, lost

OM
strategy

Large batch sizes to

holding, transportation, and

handling costs

sales, and poor service

Pay a premium for flexibility:

achieve scale
Faster transportation, lower
Set minimum order quantity
capacity utilization, and
to reduce handling/order
smaller batches
processing costs
Postpone differentiation
Full truck load shipments
Reduce low value added
variety
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The efficient
frontier

Variety

Variety

Operations frontier and trade-offs between

variety and cost efficiency
The new efficient
frontier
A

B1

D
Cost efficiency

D
Cost efficiency

For discussion: How to create competitive advantage through

operational effectiveness and strategic (re)positioning?
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Current position and strategic direction of

movement in the competitive product space

Variety

Improvement through increasing

focus on variety
Improvement through increasing
focus on cost efficiency

Cost efficiency

18

Internet channel vs. traditional retail stores

Cost savings of the

Internet channel

Variety

Wal-Mart.com

If the stores need to carry

increased assortment
Wal-Mart stores

Cost efficiency

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Example: McDonalds

How should operations be structured to develop

capabilities that support business strategy?
Business Strategy
Gain competitive advantage by creating high customer
value with fast food that has consistent quality

Operations Strategy

Process Structure

Responsive service
Low cost
High conformance quality

Assembly line approach

Standardization
Flexible workers

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