OPERATIONS STRATEGY

AND
PRODUCTIVITY

Sunanda Katewa
Assistant Professor
IIM Bodh Gaya
CAUTION!!!

The content in this is copyrighted material

collected from various sources and
presented solely for classroom learning.
This cannot be made publicly available in
any form.
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INTRODUCTION

• Today’s session we will focus on three separate, but related ideas that are vitally

important to business organizations

• Competitiveness

• Strategy

• Productivity
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COMPETITIVENESS

How effectively an organization meets the wants and needs of customers relative to others
that offer similar goods or services.
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COMPETITIVE ADVANTAGES

1. Low Cost Advantage

2. Differentiation from Competitors Advantage
3. Network Advantage
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LOW COST ADVANTAGE

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DIFFERENTIATION FROM COMPETITORS ADVANTAGE

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NETWORK ADVANTAGE
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WHY SOME ORGANIZATIONS FAIL

• Neglecting operations strategy.

• Failing to take advantage of strengths and opportunities and/or failing to recognize
competitive threats,
• Too much emphasis on short-term financial performance at the expense of R&D.
• Too much emphasis in product and service design and not enough on process design
and improvement.
• Neglecting investments in capital and human resources.
• Failing to establish good internal communications and cooperation.
• Failing to consider customer wants and needs.
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WHAT IS STRATEGY?

 Concerned with meeting existing market needs as well as exploiting

opportunities for potential market segments.
 Making the best use of resources & leveraging these resources either alone or
with partners.
 While a vision unifies an Organization, a mission states what the firm is about
and strategy says how the organization will achieve the mission.
 Provides consistency in Decisions.
 Keeps an organization moving in the right direction.
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MISSION AND STRATEGIES

Hierarchical Planning

Mission The reason for the existence of an organization.

Goals States the purpose of an organization.

Organizational strategies Provide the details and scope of the mission.

Functional strategies Plans for achieving organizational goals.

Tactics The methods and actions taken to accomplish

strategies.
STRATEGIC PLANNING

Mission
and Vision

Corporate
Strategy

Marketing Operations Financial

Strategy Strategy Strategy
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MISSION AND STRATEGIES

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EXAMPLES OF DIFFERENT STRATEGIES AN ORGANIZATION MIGHT

CHOOSE
• Low-Cost Strategy: Outsource operations to countries with low labor costs in order to reduce
overall costs.
• Scale-Based Strategy: Use capital-intensive methods to achieve high output volume and low
unit costs.
• Specialization Strategy: Focus on narrow product lines or limited services to achieve higher
quality.
• Newness / Innovation Strategy: Focus on innovation to create new products or services.
• Flexible Operations Strategy: Emphasize quick response and/or customization.
• High-Quality Strategy: Focus on achieving higher quality than competitors.
• Service Strategy: Focus on various aspects of service such as helpfulness, courtesy, and
reliability.
• Sustainability Strategy: Focus on environmentally friendly and energy-efficient operations.
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STRATEGY FORMULATION

• Effective strategy formulation requires considering:

• Core competencies
• Environmental scanning: It is the monitoring of events and trends that present
either threats or opportunities for the organization.
• SWOT
• Successful strategy formulation also requires taking into account:
• Order qualifiers: Characteristics that customers perceive as minimum standards of
acceptability for a product or service to be considered as a potential for purchase
• Order winners: Characteristics of an organization’s goods or services that cause it
to be perceived as better than the competition.
• Technology Change: This can happen in products, in services, and in processes.
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STRATEGY FORMULATION: ENVIRONMENTAL SCANNING

Environmental scanning is necessary to identify Internal factors (Strengths and
Weaknesses) and External factors (Opportunities and Threats)
Key External Factors Key Internal Factors
 Economic conditions  Human resources
 Political conditions  Facilities and equipment
 Legal environment  Financial resources

 Technology  Customers
 Products and services
 Competition
 Technology
 Markets
 Suppliers
 Other
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WHAT IS OPERATIONS STRATEGY?

• Operations strategy is a long-range game plan

for a company’s production of products and
services, providing a roadmap for the
production function to help achieve the
business strategy.
• Strategies that use the operational resources
effectively to help it achieve a competitive
advantage.
• Ability to compete on prices or cost, quality,
flexibility, time, and innovation
• Supply chain capabilities
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WHAT IS OPERATIONS STRATEGY?

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STRATEGIC OM DECISION AREAS

Decision Area What the Decisions Affect

Product and service design Costs, quality, liability, and environmental issues
Capacity Cost, structure, flexibility
Process selection and layout Costs, flexibility, skill level needed, capacity
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems
 SAMPLE OPERATIONS STRATEGIES
Organizational Strategy Operations Strategy Examples of Companies or Services
U.S. first-class postage
Low Price Low cost
Wal-Mart
Short processing times McDonald’s restaurants
Responsiveness
On-time delivery FedEx
High performance design and/or Sony TV
Differentiation: High high-quality processing
Quality
Consistent quality Coca-Cola
Differentiation: Newness Innovation Apple
Flexibility Burger King (Have it your way”)
Differentiation: Variety
Volume McDonald’s (“Buses Welcome”)
Disneyland
Differentiation: Service Superior customer service
IBM 22

Differentiation: Location Convenience Supermarkets; mall stores

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QUALITY BASED STRATEGIES

• Focus on maintaining or improving the quality of products or services.
• Quality becomes a strategic priority, not just an operational issue.

• Quality at the Source

• Quality is built into the process, not inspected at the end.
• Every worker is responsible for doing it right the first time.

• Why This Matters

• Reduces rework, defects, and cost
• Improves customer satisfaction and brand reputation
• Leads to long-term competitiveness

• Examples
• Hospitals emphasizing patient safety protocols
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TIME BASED STRATEGIES

• Focus on reducing the time needed to complete activities.

• Speed and responsiveness become competitive advantages.
• Where Time Is Reduced
• Order processing
• Production lead time
• Delivery time
• New product development
• Why This Matters
• Faster response to customer needs
• Lower inventory levels
• Higher customer satisfaction
• Examples: Amazon’s same-day delivery and Fast-fashion companies like Zara
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TIME BASED STRATEGIES

Areas where organizations have achieved time reductions:

• Planning time
• Product/service design time
• Processing time
• Changeover time
• Delivery time
• Response time for complaints
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DEVELOPING OPERATIONS STRATEGY

New Car Launch Example (e-Vitara)
• Transition toward electric mobility

• Large-scale manufacturing,
• Cost-efficient operations, etc.

• Compete in the mid-range EV SUV segment

• Offer reliable EV technology at an affordable price

• Electric SUV with practical driving range

• Competitive pricing
• Strong after-sales service and warranty

• Cost: Affordable EV pricing

• Quality: Safety, battery reliability
• Time: Timely launch and delivery
• Flexibility: Variants and customization

• Modular vehicle platforms

• Local sourcing to control cost
• Gradual capacity ramp-up
• Quality assurance embedded in processes
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TRANSFORMING STRATEGY INTO ACTION:

The Balanced Scorecard Approach
• The Balanced Scorecard is a strategic
performance management system that translates
an organization’s vision and strategy into a
balanced set of performance measures not just
financial, but also non-financial.
• Develop objectives
• Develop metrics and targets for each objective
• Develop initiatives to achieve objectives
• Identify links among the various perspectives
• Finance
• Customer
• Internal business processes
• Learning and growth
• Monitor results
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BALANCED SCORECARD FOR E-VITARA (EV LAUNCH)

Learning & Growth Perspective
Question: To achieve our vision, how will we sustain our ability to change and improve?

Objectives Measures Targets Initiatives

EV training hours EV skill certification
Build EV skills ≥ 40 hrs/year
per employee programs
Enhance innovation New EV features per ≥2 Continuous R&D
capability year improvements/year investment
Improve employee ≥ industry Skill-based career
Engagement score
engagement benchmark paths
Digital
Strengthen digital 100% EV process
IT system readiness manufacturing
capability coverage
systems
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BALANCED SCORECARD FOR E-VITARA (EV LAUNCH)

Internal Business Process Perspective
Question: To satisfy customers and shareholders, what must we excel at?
Objectives Measures Targets Initiatives
Improve
−15% vs ICE Lean EV assembly
manufacturing Assembly cycle time
models lines
efficiency
Ensure battery safety Near-zero critical Advanced battery
Defect rate
& quality defects testing
Faster issue Complaint Digital service
< 48 hours
resolution resolution time systems
Supply chain Strategic supplier
Supplier OTIF ≥ 95%
reliability integration
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BALANCED SCORECARD FOR E-VITARA (EV LAUNCH)

Customer Perspective

Question: To achieve our vision, how should we appear to customers?

Objectives Measures Targets Initiatives

Ensure customer Customer Extended battery
≥ 90%
trust in EV satisfaction index warranty
Reliable and timely On-time delivery Improved
≥ 95%
delivery rate production planning
Reduce range Real-world driving Meet/exceed Charging ecosystem
anxiety range feedback promised range partnerships
Strengthen brand Brand perception Marketing & service
Top 3 in segment
perception score experience
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BALANCED SCORECARD FOR E-VITARA (EV LAUNCH)

Financial Perspective

Question: To succeed financially, how should we appear to shareholders?

Objectives Measures Targets Initiatives

Achieve profitability Positive margin Local sourcing of
EV profit margin
in EV segment within 3 years components
Below key Platform sharing,
Control vehicle cost Cost per vehicle
competitors scale economies
Improve asset >85% within 18 Phased capacity
Capacity utilization
utilization months ramp-up
Reduce warranty Warranty cost per Quality-at-source,
< industry average
costs vehicle battery testing
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PRODUCTIVITY

 Productivity
 A measure of the effective use of resources, usually expressed as the ratio of output to
input.
 Productivity measures are useful for
 Tracking an operating unit’s performance over time.
 Judging the performance of an entire industry or country.

Output
Productivi ty =
Input
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PRODUCTIVITY MEASURES
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PRODUCTIVITY CALCULATION EXAMPLE

Determine the productivity for these cases:
• Four workers installed 720 square yards of carpeting in eight hours.
• A machine produced 70 pieces in two hours. However, two pieces were unusable.
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COMPUTING MULTIFACTOR PRODUCTIVITY

• Multifactor productivity measures inputs and outputs using a common unit of
measurement, such as cost.

Determine the multifactor productivity for the combined input of labor and machine time
using the following data:
• Output: 7,040 units
• Inputs:
• Labor: $1,000
• Materials: $520
• Overhead: $2,000
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COMPUTING MULTIFACTOR PRODUCTIVITY

 Units produced: 5,000
 Standard price: $30/unit What is the multifactor
 Labor input: 500 hours productivity?
 Cost of labor: $25/hour
 Cost of materials: $5,000
 Cost of overhead: 2x labor cost
Output
Multifactor Productivity =
Labor +Material +Overhead
5,000 units  $30/unit
=
(500 hours  $25/hour) + $5,000 + (2(500 hours  $25/hour))

$150,000 What is the implication of an unitless measure of productivity?

= = 3.5294
$42,500 For every $1 spent on inputs, the firm generates $3.53 worth
of output.
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COMPUTING MULTIFACTOR PRODUCTIVITY

 A health club has two employees who work on lead generation. Each employee works 40 hours
per week and is paid $20 per hour. Each employee identifies an average of 400 possible leads
per week from a list of 8,000 names. Approximately 10 percent of the leads become members
and pay a one-time fee of $[Link] costs are $130 per week, and overhead costs are $1,000
per week. Calculate the multifactor productivity for this operation in terms of fees generated per
dollar of input.

Possible leads = 2 × 400 = 800

Converted members = 800 × 0.10 = 80
Fees generated = 80 × 100 = $8,000
Labor cost: 2 × 40 × 20 = $1,600
Material cost = $130
Overhead cost = $1,000
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PRODUCTIVITY GROWTH

Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity

Example: Labor productivity on the ABC assembly line was 25 units per hour in 2014. In
 labor productivity was 23 units per hour. What was the productivity growth from
2015,
2014 to 2015?

23 - 25
Productivity Growth = 100% = −8%
25


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SERVICE SECTOR PRODUCTIVITY

 Service sector productivity is difficult to measure and manage because

 It involves intellectual activities
 It has a high degree of variability
 A useful measure related to productivity is process yield
 Where products are involved
 Ratio of output of good product to the quantity of raw material input
 Where services are involved, process yield measurement is often dependent on
the particular process:
 Ratio of cars rented to cars available for a given day
 Ratio of student acceptances to the total number of students approved for
admission
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FACTORS AFFECTING PRODUCTIVITY

Technology

Methods
• Automation
• Computers
• E-mail
• Software
Capital Quality • Drones
• Copiers and scanners
• The Internet, search engines
• Radio frequency ID (RFID) tags
Technology Management • GPS devices
• Smartphones
• Apps
• 3-D printing
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OTHER FACTORS THAT AFFECT PRODUCTIVITY INCLUDE

• Standardizing processes and procedures

• Quality differences
• Use of the Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
• Layoffs
• Labor Turnover
• Design of the workspace
• Incentive plans
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IMPROVING PRODUCTIVITY

• Develop productivity measures for all operations

• Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
• Make it clear that management supports and encourages productivity improvement
• Measure and publicize improvements
• Don’t confuse productivity with efficiency

• Efficiency: Doing things right

• Productivity: Doing the right things, using all resources wisely
• A process can be efficient but not productive.
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QUIZ

Q1. An order qualifier is:

A. A factor that wins the customer’s order
B. A minimum requirement to compete Answer: B
C. A cost-reduction strategy
D. A marketing tactic

Q2. Which of the following best represents a time-based strategy?

A. Increasing product variety
Answer: B
B. Reducing total lead time
C. Improving brand image
D. Increasing workforce size
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QUIZ

Q3. Multifactor productivity requires:

A. Only labor data
B. Only physical output Answer: C
C. A common unit of measurement
D. No cost data

Q4. A situation where labor efficiency improves but overall productivity falls indicates:
A. Effective operations
Answer: C
B. Improved competitiveness
C. Sub-optimization
D. Perfect resource utilization
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QUIZ

Q5. In the Balanced Scorecard, employee training and skills are measured under:
A. Financial perspective
B. Customer perspective Answer: D
C. Internal process perspective
D. Learning and growth perspective

Q6. The primary role of operations strategy is to:

A. Reduce labor costs
Answer: B
B. Support the business strategy
C. Replace corporate strategy
D. Focus only on manufacturing
THANK YOU !!