Operations StrategyOperations StrategyKusdhianto Setiawan, SE, Siv.Øk

Department of ManagementFaculty of Economics & Business

Gadjah Mada University

Strategy FormulationStrategy Formulation Defining a primary task: the purpose of the firm – what the firm is in the business of doing

PT. KAI ... is a transportation service company, not rail service company

Paramount Picture … is communication company, not a film maker company

Disney … is established to make people to be happy, not a cartoon maker/playland developer.

Assesing Core Competencies. Core competency: what a firm does better than anyone else … distinctive competence … competitive advantage

Exceptional service, higher quality, faster delivery, lower cost

Determining order winner and order qualifier

Order qualifier: characteristic of a product or service that qualify it to be considered for purchase by customer

Order winner: characteristic of a product or service that wins order in the market

Order winner and order qualifier evolve over time

Positioning the firm, choosing one or two important things to concentrate on and doing them extremely well

Positioning StrategyPositioning StrategyCompeting on cost (Low-Cost Leadership Strategy)

Standardized products for large markets

Stabilizing the production process, tightening productivity standards, and investing in automatization

Differentiation Strategy

To make product that has unique features so that customer can differentiate the product with others competitors do.

Focus Strategy

To desain product for certain market segment that is not served by any producers (niche market)

Competing on quality

Defensive or Reactive mode: minimizing defect rates or conforming to design specifications.

Proactive mode: viewing quality as opportunity to please customersProactive mode: viewing quality as opportunity to please customers

Competing on flexibilityCompeting on flexibility

The ability to produce a wide variety of products, to introduce new products and modify The ability to produce a wide variety of products, to introduce new products and modify existing ones quickly, and to respond to customers needexisting ones quickly, and to respond to customers need

Competing on SpeedCompeting on Speed

McDonalds, FedEx, Citicorp, etc.McDonalds, FedEx, Citicorp, etc.

Operations Strategy at Operations Strategy at Wal-MartWal-Mart

Other General Strategic Other General Strategic ConsiderationsConsiderations

DiversificationDiversification

AcquisitionAcquisition

Cooperative StrategiesCooperative Strategies

Process-Centered Process-Centered StrategyStrategy

Core competencies are Core competencies are more likely to be more likely to be processesprocesses

Processes cut accross Processes cut accross functional lines and functional lines and departmentdepartment

Acc

ou

nti

ng

Pu

rch

asin

g

Man

ufa

ctu

rin

g

Sal

es

Product Dev.Order Fulfillment

Supply Chain Mngt

Customer Service

Function Process

Developing & Exploiting Core Competencies:Developing & Exploiting Core Competencies:• Enhancing the value a competency provides to customersEnhancing the value a competency provides to customers• Transforming an internal competence into a salable itemTransforming an internal competence into a salable item• Applying competencies in a creative way to new products and Applying competencies in a creative way to new products and

servicesservices• Creating new competencies and finding new marketsCreating new competencies and finding new markets

Policy DeploymentPolicy DeploymentTranslate corporate strategy into Translate corporate strategy into measurable objectivesmeasurable objectives

CorporateStrategy

Mission &Vision

MarketingStrategy

OperationsStrategy

FinancialStrategy

Voice of the Business

Voice ofThe Customer

Strategic Planning

Derivation of an Action Plan Derivation of an Action Plan Using Policy DeploymentUsing Policy Deployment

Reduce BusinessCycle time by 50%

Reduce productionCycle by

10%

Reduce Purchasing cycle by

30%

Reduce queue time

by 50%

Reduce setup time by 50%

Cut lot sizes in half

Increase electronic transaction by 30%

Redesign supplier quality reporting process

Set up supplier education groups

Reduce supplier base by 50%

What Who When MeasureResourc

e

ImproveWork flow

BillyWray

9-1-01

AverageQueue

Time per job

5000

………

………

………

………

………

………

Copyright 2006 John Wiley & Sons, Inc. 2-

Strategic Decisions in Strategic Decisions in OperationsOperations

ProduProductscts

ServicesServices ProcessProcess

andand

TechnologyTechnology

CapacityCapacity

HumanHuman

ResourcesResources QualityQuality

FacilitiesFacilities SourcingSourcing OperatingOperating

SystemsSystems

Operation StrategyOperation StrategyProducts and Services

Make-to-order: products are designed, produced, and delivered to customer specification in response to customer order

Medical, legal, financial services

Make-to-stock: products are desgined, produced for ”standard” customers in anticipation of demand

Ready to wear apparel, books, tv, airline flights, spec homes, standard vacation package

Assemble-to-order: products are produced in standard Assemble-to-order: products are produced in standard modules to which options are added according to customer modules to which options are added according to customer specificationspecification

Computer system, corporate training, industrial equipmentComputer system, corporate training, industrial equipment

Operation Strategy: Processes Operation Strategy: Processes and Technologyand Technology

• The Product-Process MatrixThe Product-Process Matrix

Projects

BatchProduction

MassProduction

ContinuousProduction

Standardization

Vo

lum

eL

ow

Hig

h

Low High

Operation Strategy: Processes Operation Strategy: Processes and Technologyand Technology

The Service-Process MatrixThe Service-Process Matrix

ProffesionalServices

ServiceShop

Mass Service

ServiceFactory

Customization

Lab

or

inte

nci

tyH

igh

Lo

w

High Low

Operation StrategyOperation StrategyCapacity and FacilitiesCapacity and Facilities

How much capacity? Type of warehouse? Inventory handling? How many How much capacity? Type of warehouse? Inventory handling? How many workers to handle materials or products?workers to handle materials or products?

Human ResourcesHuman Resources

determining skill level, degree, outlining training requirements, selection determining skill level, degree, outlining training requirements, selection criteria, setting up policies on evaluation, compensation, and incentivescriteria, setting up policies on evaluation, compensation, and incentives

QualityQuality

Measures? Target level? Employees involvement? Types of training?Measures? Target level? Employees involvement? Types of training?

SourcingSourcing

Vertical integration, outsourcing, alliancesVertical integration, outsourcing, alliances

Operating SystemOperating System

Information technology for planning and controll systemsInformation technology for planning and controll systems

Key Key Performance Performance IndicatorsIndicators

Source: Source:

Robert Kaplan and Robert Kaplan and DavidDavid

Norton, Norton, Strategy Maps:Strategy Maps:

Converting IntangibleConverting Intangible

Assets into TangibleAssets into Tangible

Outcomes Outcomes (Boston:(Boston:

Harvard Business Harvard Business SchoolSchool

Press, 2004), Figure 3-Press, 2004), Figure 3-2,2,

p. 67p. 67

Strategy

Analysis

SWOT Analysis SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

Critical Success FactorsCritical Success Factors

Decisions Sample Options

ProductProduct Customized, or standardizedCustomized, or standardizedQualityQuality Define customer expectations and how to achieve themDefine customer expectations and how to achieve themProcessProcess Facility size, technology, capacityFacility size, technology, capacityLocationLocation Near supplier or near customerNear supplier or near customerLayoutLayout Work cells or assembly lineWork cells or assembly lineHuman resourceHuman resource Specialized or enriched jobsSpecialized or enriched jobsSupply chainSupply chain Single or multiple suppliersSingle or multiple suppliersInventoryInventory When to reorder, how much to keep on handWhen to reorder, how much to keep on handScheduleSchedule Stable or fluctuating production rateStable or fluctuating production rateMaintenance Maintenance Repair as required or preventive maintenanceRepair as required or preventive maintenance

Marketing

ServiceServiceDistributionDistributionPromotionPromotionChannels of distributionChannels of distributionProduct positioningProduct positioning (image, functions)(image, functions)

Finance/Accounting

LeverageLeverageCost of capitalCost of capitalWorking capitalWorking capitalReceivablesReceivablesPayablesPayablesFinancial controlFinancial controlLines of creditLines of credit

Production/Operations

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Automated ticketing machines

No seat assignments

No baggage transfers

No meals (peanuts)

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

No meals (peanuts)

Lower gate costs at secondary airports

High number of flights reduces employee idle time

between flights

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

High number of flights reduces employee idle time

between flights

Saturate a city with flights, lowering administrative

costs (advertising, HR, etc.) per passenger for that city

Pilot training required on only one type of aircraft

Reduced maintenance inventory required because of only one type of aircraft

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Pilot training required on only one type of aircraft

Reduced maintenance inventory required because of only one type of aircraft

Excellent supplier relations with Boeing has aided

financing

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Reduced maintenance inventory required because of only one type of aircraft

Flexible employees and standard planes aid

scheduling

Maintenance personnel trained only one type of

aircraft

20-minute gate turnarounds

Flexible union contracts

Activity MappingActivity Mapping

Courteous, but Limited Passenger

Service

Standardized Fleet of Boeing 737

Aircraft

Competitive Advantage:Low Cost

Lean, Productive Employees

Short Haul, Point-to-Point Routes, Often to

Secondary Airports

High Aircraft

Utilization

Frequent, Reliable

Schedules

Automated ticketing machines

Empowered employees

High employee compensation

Hire for attitude, then train

High level of stock ownership

High number of flights reduces employee idle time

between flights

Next Project…Next Project…Read BusinessWeek January 9,2006: “INSIDE INTEL”

Analyse INTEL’s next operations and marketing strategy

Compare INTEL’s strategy under Andy Grove and Paul Otellini era

What do you think about Otellini’s strategies on INTEL in todays business environment? Will the strategies work for INTEL? Please state your current analysis on the business environment and state your assumptions if any!

Make a good and professional presentation!

Assignment...Assignment... Access http://www.acergy-group.com

Find and describe Acergy core competencies and please attach sufficient information to support your argument

Can you explore Acergy strategies, including what are its corporate strategy and operations strategy?

Please find other potential companies that you consider as ‘rivals’ to Acergy, why do you think so?

Arrange your answer and ideas into professional presentation material and be ready to present them!