What is Operations Strategy?
Operations strategy is defined as a plan that details how an organisation utilises its resources to achieve goals set by the top management. It is a means by which operations implements the organisation’s corporate strategy and helps to build a customer-driven organisation.
Table of Content
- 1 What is Operations Strategy?
- 2 Operations Strategy Definition
- 3 Objectives of Operations Strategy
- 4 Contents of Operations Strategy
- 5 Types of Operations Strategies
Operations Strategy Definition
According to Slack and Lewis, 2011, Operations strategy is the total pattern of decisions, which 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.
Here, the term ‘pattern’ implies a consistency in strategic decisions and actions over time. Henry Mintzberg, a management guru, also views the strategy formation process as a ‘pattern in a stream of actions’. According to him, strategy is realised through a combination of deliberate and emergent actions, shown in Figure 1.3:
As shown in Figure, an organisation may have a certain intended strategy as a set of strategic plans. However, only a few of these intended strategies are realised through a deliberate strategy leaving others to be remained as unrealised. Usually, strategies that take no account of operational feasibility linger as an unrealised set of intentions.
Apart from this, strategies may also emerge from actions, within the organisation and over a period of time may form a consistent pattern. Such strategies usually arise from within the operations of the organisation and therefore, put a major impact on the formation of organisational strategy.
An operations strategy involves developing the long-term plan for using major resources of the organisation to achieve the desired corporate objectives. The plan includes long-term decisions related to capacity, location, processes, technology and timing.
Following issues are addressed in the operations strategy:
- How the resources should be structured?
- What activities should take place?
- How to ensure the quality of goods and services?
- What type of processes to install for manufacturing goods and services?
An operations strategy involves key operations decisions that are aligned with the overall strategic objectives of an organisation. This helps an organisation in gaining an edge over its competitors. The following are the basic elements of an operations strategy:
- Positioning of the production system
- Location of factories and service facilities
- Design and development of products and services
- Selection of production technology
- Development of the production process
- Effective allocation of available resources
Objectives of Operations Strategy
An operations strategy aims at taking into account the needs of its internal customers and suppliers.
The two major objectives of operations strategy is to contribute directly to the achievement of the strategic objectives of the next hierarchical level and help other business functions in making their contribution to the organisational strategy. The major objectives of the operations strategy include:
Improving responsiveness by
- Minimising respond time
- Ensuring timely response
- Ensuring accessibility through better geographical proximity, better locations, better logistics and better communication systems
- Providing a wider product/service choice through flexible operations and enhanced product designs and processing capabilities
- Reducing throughput time, cycle times and set-up times
- Increasing pro-activity
Reducing prices through
- Overall improvement in the production-delivery value chain
- Better designs of products and services
Improving quality by
- Better skills, better knowledge and better orientation of all production and service providers
- Improvement in technology
- Minimising complexity and confusion
- Eliminating problem generators
Contents of Operations Strategy
Content of the operations strategy determines specific strategies that govern the day-to-day decision making in operations. In other words, the content of operations strategy is basically a collection of policies, plans and behaviours that the operations function aims to pursue.
The content of the operation strategy involves key strategic decision areas that should be addressed while developing an operations strategy. The two basic strategic decision areas are concerned with the ‘structure’ and ‘infrastructure’ of operations.
The structure-related decisions deal with physical attributes of facilities, capacity, process technology and supply network. On the other hand, decisions related with infrastructure comprise planning and control, quality, organisation, human resource, new product development and performance measurement.
Major Structural Decision Areas
Let us discuss major structural decision areas:
Facility decisions related to the location, size and allocation of operational resources. These decisions are concerned with where to locate the production facility, what goods and services should be produced at each location, what markets each facility should serve, what should be the layout of the facility to ensure smooth production of goods and services, etc.
It is concerned with the ability of operations to respond to changes in the customer demand. Capacity decisions relate with how to use facilities efficiently by managing shift patterns, working hours and staffing levels. Capacity decisions are often affected by the organisation ability to serve a particular market from a specific location.
Process technology decisions are concerned with determining the technology used in the operations process. It includes decisions, such as degree of automation used, configuration of equipment, etc.
These decisions relate to determining which operations should be conducted in-house and which should be outsourced. It also involves vertical integration decisions, concerned with the choice of suppliers, their location, level of dependency on particular suppliers and supplier relationship management.
Structure decisions deal with major capital investments that aim to set operational direction for upcoming years. These decisions largely impact resources and capabilities of an organisation and affect its potential output.
Structural decisions are not very easy to change as they involve huge cost in their implementation. Thus, for an organisation, it is easier to change its marketing strategy rather than changing its operations strategy due to its structural decision areas.
Due to this reason, these decisions are considered to be strategic decisions for any organisation.
Major Infrastructure Decision Areas
Let us now discuss the major infrastructure decision areas:
Planning and control
These infrastructural decisions relate with systems used for planning and controlling of operations.
These decisions relate with quality management policies and practices.
The decisions, taken in regard with work organisation, relate with deciding organisational structure, authority and responsibilities in operations.
This infrastructural decision area involves decisions related with recruitment and selection, training and development, management style, etc. The effectiveness of the operations strategy of an organisation depends on the skills and efficiency of its human resource.
Therefore, an organisation should focus on imparting skills and knowledge to its employees from time-to-time to increase their work efficiency. An organisation that does not have the right man for the right job at the right time, fails miserably when it comes to the implementation of operations strategy.
New product development
Infrastructural decisions related with new product development involve deciding the system and procedures, used to design and develop new products and services.
It includes decisions related with financial and non-financial performance management and its association with reward systems.
Infrastructural decisions are also important for any organisation as they help in the effective implementation of structural decisions. Infrastructural decisions tend to be more flexible in nature and therefore, it is easier to change them in comparison to structural decisions.
Types of Operations Strategies
There can be many types of operations strategies, depending upon the type of the organisation, products produced by the organisation, organisational structure, location of the organisation, etc. Some of the important operations strategies are as follows:
- Customer-driven strategies
- Product-driven strategy
- Corporate-driven operations strategy
- Failure prevention and recovery strategy
These strategies are driven by the response of customers, such as customers’ feedback, customers’ demands for new and innovative methods, customisation of the product, etc. Examples include Fast Moving Consumer Goods (FMCG) products, which are required to be produced and be available in large quantities and in large number of places.
It is driven based on product characteristics, such as the type of the product, characteristics of the product, etc. For example, soft drinks are in high demand during hot weather and in low demand during the cold weather. In such a case, the organisations producing soft drinks have to make sure that during the hot weather, they are able to manufacture drinks quickly and cover the extensive market.
Corporate-driven operations strategy
This strategy is drafted by executive management. All other strategies are formulated and implemented in accordance with this strategy.
Failure prevention and recovery strategy
This strategy pertains to recovering damages (either partial or complete) arising because of unforeseen circumstances. For example, the recovery strategy in the case of disaster related to fire, earthquake and computer failure.