Operations Management Assignment MSc Business and Management 18th April, 2011.

Richie Ishmeet Deaver (10111115)

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Abstract If an organization is considered to be a human being, operations management can be related to be the lungs of the organization. Operations are the link between converting business goals or vision into reality. And hence the association between operation strategy and business strategy has received maximum attention in the field of operations management (Hayes and Wheelwright 1979a, 1979b). Operations strategy specifies the policies and plans for using the organizations resources to support its long-term competitive strategy (Wiley, 2003). And that is what this assignment is going to speak about, How operation strategy and its functions influences the competitive priorities of an organization? In order to address this question, a thorough study of operation strategy, functions and competitive priorities will be done on the basis of examples from different fields ranging from services and product operation management. To support the study and create a better understanding relevant literature review is also conducted.

What are operations? Operations traditionally refer to the production of goods and/or services. The origins of operations management has been tracked back through cultural changes of the 18th, 19th, and 20th centuries. A very primary kind of definition for operations given by Business dictionary is, Operations transform resource or data inputs into desired goods, services, or results, and create and deliver value to the customers. Everett and Ebert have defined operating system as, An operating system (function) of an organization is the part of an organization that produces the organizations physical goods and services. Ray Wild has quoted operating system as, An operating system is a configuration of resources combined for the provision of goods or services. Not far from these definitions is the one we have learnt in our course syllabus, which states that, Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services Moulton, (2011). A typical model of operations management starts from input of resources for example, Lobster and Pot Fish restaurant has food, ingredients, staff, working area as input resources. Among these, staff, chef and waiters and cooking instruments are transforming inputs while others are transformed inputs. Once there is an input of resources, the transforming process begins which includes designing, planning and controlling and can be put in the broad parameter of Operations strategy. As a part of designing in the transformation process, the operation strategies are designed, forecasting is
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conducted, product and process choices are decided, and operations capacity is calculated. The organizing task consists of job designing, operations standards setting, work measurement and project management. Controlling can be seen as a crucial part of the process where the inventories control and material requirement planning comes into role. It also plays a vital role in quality management. All of these factors are linked to the operations strategy, which we will cover in the next section. Once the input resources have gone through the transforming process, the product or service is ready for the customers. We have gone through the operations management process before addressing the actual question in order to form a foundation for our study. It is important to know what happens in the process before trying to understand its effect on other factors. Linking Corporate Strategy, Operations Strategy and Competitive Priorities The long-range plan of an organization, designed to provide and sustain shareholder value, is called the corporate strategy. For a company to succeed, its corporate strategy must be supported by each of the individual business functions, such as operations, finance and marketing (Willey,2003).

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Any corporate activity starts with the companys mission, for example Dell Computer Corporations mission is to be the most successful computer company in the world, Delta Air Lines promotes worldwide airlines choice, IBM manifests, translate advanced technologies into values for our customers as the worlds largest information service company. Then a corporate strategy has to be planned in order to achieve these goals. As Krajewski et al. (2010) have very finely stated corporate or business strategy as, Corporate strategy provides an overall direction that serves as the framework for carrying out all the organizations functions. It specifies the business or businesses the company will pursue, isolates new opportunities and threats in the environment and identifies growth objectives. (Krajewski et al, 2010, p.30) The corporate or business strategy of an organization includes various factors that need to be decided like, the industry to be worked in, the level of diversification and integration, deciding which products or services to be manufactured, designing organizational structure, major decisions pertaining to the acquisitions of businesses, relationships with all the stakeholders namely; shareholders, customers, suppliers; deciding business location, long term targets for profitability, productivity and performance, foresight for technological advancement and innovation in technique and the most important decision of competitive advantage. While designing the corporate and business strategies three important factors play most vital role the mission, the business environment and their distinctive competence (Waters, 1999). The business environment that affects an organization consist of the following factors: Customers their expectations, attitudes, demographics, demands, loyalty, relationships Employees Market conditions Shareholders Skills, expertise, loyalty Size, location, stability Target returns on investments, objectives. profit levels economic conditions Gross domestic product, rate of growth, inflation Technology Legal restraints
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Current availability, developments, innovation. Trade restrictions, liability and employment

laws Competitors Social conditions Ease of entry to the market.,their strengths Customers lifestyles, Changing demands, Significant trends.

Political conditions

Stability, Amount of governmental control, external relations.

Moving on to Operations Strategy, An Operations Strategy can be defined in terms of the mission it serves for the organization, technology it employs and the human and managerial processes it involves. The strategic management literature has long assumed a hierarchical association between business strategy and operations strategy (Schendel and Hofer 1979 and Quinn et al. 1988). Operations strategy has been intensively researched for more than three decades (Antolin et.al, 1999). Many definitions of operations strategy mention the organizations competitive position in the marketplace through resource building or positioning (Swink and Way, 1995). It is always seen to, as though once the corporate strategy has been designed, the operation strategy needs to be formulated. Even though this is partially right, there are some companies where operations strategy works in hand with the corporate strategy. Operations functions in many organizations can play a different kind of role namely; Operations as an Implementer Operations as a Supporter Operations as a Driver

In the former role, the corporate strategy is formulated and forwarded to the operations team in order to develop their strategy in accordance to the companys requirement. In such a kind of situation, the main aim of an organization is to solve pertaining problems such budgeting or product faults. It is mostly seen as a reactive measure which is taken only after a problem has been identified. It tends to hold back the progress of the organization. At such a level the organizations typical aim is to match what the competitors are doing but not to outgrow them. It

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is also seen as internally neutral as the company is only focused at its internal problems and not taking into account the external contribution. Operation as a supporter can be seen as the most ideal role of operation functions in strategic planning. In such a situation, the corporate strategic decisions are taken keeping in mind the limitations and favorable factors that its operations team has to offer. There is a link between the strategy and the practical operations. It is usually seen as the best in the industry and makes an organization internally strong and externally neutral. Decisions are made to surpass the competitors and move towards market leadership. It can be seen as the best method in the industry. Operations as a Driver redefine the industry expectations. There is a clear balance between the Customer driven approach and resource utilization to the optimum level. It is externally supportive and hence companies which make their strategic decision based on their operational capabilities usually turn out to be the market leaders. Some would categorize objectives of operations management into customer service and resource utilization. Hence, some researchers state that the operating system must provide something to a specification which can satisfy the customer in terms of cost and timing. Thus, primary objective can be satisfied by providing the right thing at a right price at the right time. And some would state that Operations management is concerned essentially with the utilization of resources, i.e., obtaining maximum effect from resources or minimizing their loss, under utilization or waste. Competitive Priorities as described by Krajewski (2010) are the critical operational dimensions a process must possess to satisfy internal or external customers, both now and in the future. Every business has competitors which have to rivaled against in order to come out as successful market leaders. Without competitive priorities no business can grow or progress. Hayes and Wheelwright(1984) suggested that companies compete in the marketplace by the virtue of one or more of the following competitive capabilities:

Quality Lead-time Cost Flexibility

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As was expected many authors and practitioners have added to and adapted this list over the years. This list has been modified over the years to form the following terms: Cost Quality Dependability Speed Flexibility

Foo and Friedman (1992) for example proposed a set of six competitive priorities, adding `Service' and `Manufacturing Technology' to the above while expanding `Time' into:

`time to market' and `lead times'.

While others have added `Innovation' and `Dependability'. It is important for an organization to determine which competitive capability affects their market place and hence emphasize on it most while designing their strategy. Cost as Competitive Priority From the point of view of an organization, the operations should be low-cost and this is where the optimum resource utilization theory comes into accord. From the point of view of customers, the companys strategy would be to provide most competitive cost of its products or services. Hence, it is always a tough job for operations managers to formulate a strategy where low costs of operations work hand in hand with low product costs. As a competitive priority, cost can be played with in many forms. For Example, Maruti Suzuki when launched its 800cc model, in order to make it an affordable price for everyone, redefined its operations system such that there was standardized production and mass production which saved a lot of production cost. This strategy resulted in them taking the market lead even at low cost through high profit margins. In order to develop this competitive priority, the operations function must focus primarily on cutting costs in the system, such as costs of labor, materials, and facilities. Companies that
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compete based on cost design their operations strategy by eliminating any kind of waste. They instead invest on extra training to employees to maximize their productivity and minimize scrap. Such an approach also inculcates high technology wherein less manpower utilization takes place. Generally these companies have a narrow range of products and product features which allows for little customization, and have an operations process that is designed to be as efficient as possible (Wiley, 2003). Lets take an example of dell which uses the following strategy to have competitive advantage in the market through Cost Free shipping Money off discounts Free upgrades (e.g. memory) Free accessories Finance offers Service upgrades

Quality as Competitive Priority Quality when considered to form a competitive edge can be seen as either Top Quality or Consistent Quality. The quality of a product or service can be perceived by a customer on the following parameters Garvin (1987),

Performance - the primary operating characteristics. Features - optional extras (the "bells" and "whistles"). Reliability - likelihood of breakdown. Conformance - conformance to specification. Technical durability - length of time before the product becomes obsolete. Serviceability - ease of service Aesthetics - look, smell, feel, taste. Perceived quality - reputation. Value for money.

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Any company using Quality as their advantage point needs to have a high-performance design. Which means that the operations function will be designed to focus on aspects of quality such as superior features, close tolerances, high durability, and excellent customer service. When we talk of consistency in quality, which measures how often the goods or services meet the exact design specifications. Example of product consistency is McDonalds, where we know we can get the same product every time at any location. When a company decides to compete on basis of Quality it benefits to its operation through consistent production techniques. Externally it enhances the product or service in the market, or at least avoids customer complaints. Internally it brings other benefits to the operation, it prevents errors slowing down throughput speed, it prevents errors causing internal unreliability and low dependability, it prevents errors causing wasted time and effort, therefore saving cost. Dependability as a Competitive Priority: Dependability means stability, on-time delivery and variability reduction. Any company trying to work on this parameter to the top would want to reduce process variations because quality targets must be met every time. Todays customer base wants dependable service or product. Dell works on this phenomenon. For large business and institutional customers, Dell maintain a field sales force throughout the world. Dedicated account teams, which include field-based system engineers and consultants, form long-term relationships to provide our largest customers with a single source of assistance and develop specific tailored solutions for these customers. Dell also maintain specific sales and marketing programs targeted at federal, state, and local governmental agencies as well as specific healthcare and educational markets (Chaffey, 2008). Speed as Competitive Priority Only when production meets acceptable standards regarding dependability is it time to develop the speed of manufacturing. The parameters which define speed are:Page 9 of 16

Manufacturing lead time. Due date performance. Rate of product introduction. Delivery lead time. Frequency of delivery

With the advancement of todays world communication, it has become a point of natural competition for organization to have On-time delivery. It is the ability to deliver according to a promised schedule. Here, the business unit may not have the least costly nor the highest quality product, but is able to compete on the basis of reliably delivering products when promised, even if the promise date is far in the future (Ward et.al, 1998).. For some customers delivery reliability is not enough; delivery speed is also necessary to win the order. For example, Pizza Hut stating that if the pizza does not reach you in 30 minutes it is free of cost. Many restaurants and fast food joints work on delivery parameter. A customer does not expect to wait in a McDonalds que for more than 10 mins for his order. Similarly, a customer would be willing to wait for the delivery of a BMW for 2 to 3 months as it is customized for his needs but he would not be willing to wait for a Volkswagan Polo for more than 1 week. Speed is an unfortunate term, and is often replaced with flexibility. The meaning is the speed of response to changes, which can be change of volume, new products, multiple products in one plant etc. Flexibility as a Competitive priority Gerwin (1993) developed seven dimensions of flexibility

Material quality - ability to cope with incoming materials of varying quality. Output quality - ability to satisfy demand for products of varying quality. New product - ability to cope with the introduction of new products. Modification - ability to modify existing products. Deliverability - ability to change delivery schedules. Volume - ability to accept varying demand volumes.

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Product mix - ability to cope with changes in the product mix. Resource mix - ability to cope with changes in the resource mix.

In today's fierce competitive scenario, companies are increasingly concentrating on flexibility as a way to achieve new forms of competitive advantage. This flexibility will enable them to respond to customer orders quickly, provide a broad product range, and introduce new products quickly. Flexibility has been recognized as an important competitive priority in manufacturing strategy literature. Dell solves the issue of flexibility by their direct sales channel and when a customer logs in on Dells global services they offer tailored solutions that help customers lower the cost of their services environment and maximize system performance, efficiency, and return on investment. These include: Infrastructure Consulting Services; Deployment Services to install and integrate new systems; Asset Recovery and Recycling Services. Training Services ; Enterprise Support Services and Managed Lifecycle Services (Chaffey, 2008) Alongside this, Dell also offers for its large organizational customers, Premier which is a secure, customizable procurement and support site or extranet designed to save organizations time and money through all phases of I/T product ownership. The main benefits of Dell Premier are described as (Chaffey, 2008):

Easy Ordering - A custom online store ensures access to your products at your price. Easy Tracking - View real-time order status, online invoices and purchase history details. Easy Control - Custom access groups define what users can see and do within Premier.

Being flexible can also be seen by an organization as having a large variety and it opens the door to customization for greater customer satisfaction. Taking eBay as an Example eBays Statement for progress as cited by SEC in Chaffey (2008), Our growth strategy is focused on reinvesting in our customers by improving the buyer experience and seller economics by enhancing our products and services, improving trust and safety and customer support, extending our product offerings into new formats,

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categories and geographies, and implementing innovative pricing and buyer retention strategies. Over the course of 2009, we continued to make significant changes that were designed to improve the user experience on all of our sites, including changes to pricing and shipping policies. In 2009, we also made significant steps to create a faster and more streamlined search experience with a greater focus on relevance when sorting search results. Pricing changes reduced the upfront cost of listing fixed price items on eBay so that fees are now based more on the successful sale of items, for both smaller and larger sellers. We encourage sellers to offer free or inexpensive shipping to our buyers by promoting their listings through our Best Match search algorithm.. Chaffey (2008) eBays mission Statement is pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity. eBay has always had a operations as driver model. They have been innovative, provided foundation for achieving their corporate mission and made long term capabilities. The reason for selecting ebay as an example is that they went through a change in their corporate strategy recently. Initial strategy For sellers:

Changes in 2007, the sellers proposition is described slightly differently:

Access to broad markets Efficient marketing and distribution costs Ability to maximize prices Opportunity to increase sales

Access to broad markets Cost effective marketing and distribution Access to large buyer base Good conversion rates

Even though this is a slight change, the consequent changes were in the competitive priorities; Cost Initially, ebay emphasized on providing lowest online marketing costs. They secured their market leadership at this position. However seeing growth opportunity, ebay increased their costs marginally only by a fraction on the basis of their efficient delivery and high variety that was available for customer requirement.
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Quality eBay has shown consistent quality over the decade, this is prominent by the fact that every year the amount of people using eBay as a medium of transaction goes on increasing. A point to be noticed is that even though, the corporate strategy changed in 2007, eBay in order to increase its profit did not reduce quality of service in fact it added value added tools. eBay stresses the importance of developing its Value-Added Tools and Services which are pre-trade and post-trade tools and services to enhance the user experience and to make trading faster, easier and safer. (Chaffey, 2008) Dependability As the point of view of a seller, surveys show that 80% of people selling through eBay have been satisfied with their results. The large customer base eBay has created over the years has given them a high competitive edge in the market so that every customer is sure of selling its product through eBay. Speed Speed is again a winning point for eBay as it gives its customer their own choice of time for delivery. Flexibility eBay uses information technology and streamlined customer relationship and order fulfillment processes to reliably deliver a vast variety of items to its customer. eBay itself believes that the factors that are important to enable it to compete in its market include:

ability to attract buyers and sellers; volume of transactions and price and selection of goods; customer service; and brand recognition.

eBay believes it has optimized these factors however it recognizes factors where its competitors still have opportunities for improving performance and thus make the market more competitive.

community cohesion, interaction and size; system reliability; reliability of delivery and payment; website convenience and accessibility; level of service fees; and quality of search tools.

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http://www.sps.org.uk The Strategic Planning Society is a UK-based organization that fosters and promotes research and best practice in strategic thought and action.

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