Chapter 2

Operations Strategy
 Course Content
Global view of operations
Developing missions and strategy
Achieving competitive advantages through operations
Strategy Development and Implementation
 Global View of Operations
Globalizations:
Globalization is the process of connecting countries, people and business all
around the world through trade, communications and cultural exchange.
It involves the flow of goods, services, money and ideas across borders and has
been facilitated by advances in technology, transportation and communication.
Globalization has led to increased economic growth but also to challenges such
as inequality and cultural homogenization.
A Global View of Operations
It involves designing, managing, and controlling the entire production and
delivery system across international boundaries to maximize competitive
advantage.
Why Go Global?
1. Reduce Costs ( labour, material, per unit cost, favourable
government policies etc.)
2. Improve Supply Chain Reliability & Access(Diversified Sourcing,
access to unique sourcing etc.)
3. Enter New Markets (Understanding Local Needs, Reduced
transportation Costs & Time, overcoming Trade Barriers etc.)
4. Access to Talent and Innovation (Global Talent such as skilled
engineers, designers, managers, etc.)
Global Operations Focus
1. Cost Reduction and Efficiency:
Lower Labor Costs: Many countries offer significantly lower labor costs for
manufacturing, service delivery, or administrative tasks, leading to substantial
cost savings.
Access to Cheaper Raw Materials: Sourcing raw materials from global markets can
often be more cost-effective due to varying supply and demand, transportation
costs, or local production efficiencies.
Economies of Scale: Operating on a larger, global scale can allow businesses to
achieve greater economies of scale in production, procurement, and distribution,
further reducing per-unit costs
Example: Walmart (USA) – Historically a U.S.-centric retailer, now sources ~70–
80% of its merchandise from low-cost countries (especially China, Bangladesh,
Vietnam) to keep “Everyday Low Prices” against Amazon and dollar stores.
 2. Market Expansion and Revenue Growth:
 Access to New Markets: The home market may be mature, with intense
competition and low growth rates. Global markets offer access to new, often
larger, customer bases.
 Emerging Market Growth: Fast-growing economies (e.g., Vietnam, India,
parts of Africa) offer higher growth potential than mature domestic markets.
 Extending Product Lifecycle: A product that is considered mature or declining
in the home country can be introduced as a new and innovative product in
another market.
Example: Netflix a US-only DVD rental and streaming service began a massive
international expansion into countries like India, Brazil, and Poland. The vast
majority of Netflix's new subscriber growth now comes from international
markets, ensuring its continued expansion.
 3. Access to Resources and Capabilities:
 Specialized Talent and Expertise: Certain regions may have a concentration
of specialized skills, knowledge, or research capabilities that are scarce or more
expensive domestically.
 Advanced Technology and R&D: Accessing global innovation hubs can
provide opportunities for technological advancement and participation in
cutting-edge research and development.
 Strategic Resources: Securing access to unique or essential natural resources
that are not available or are limited domestically.
 Example: Tesla Designed and initially built its cars and Gigafactory in the
United States built a factory in Shanghai, China, and another near Berlin,
Germany. A key reason was access to the rich supply chains for batteries and
automotive parts in these regions and tapping into local engineering talent.
 4. Competitive Advantage:
 Increased Competitiveness: By leveraging global resources, lower costs, and
new markets, businesses can become more competitive against both domestic
and international rivals.
 Following Customers and Competitors: As customers become global,
businesses often need to establish a presence abroad to continue serving them.
Similarly, entering global markets can be a defensive strategy to compete with
rivals who are already operating internationally.
 Brand Recognition and Prestige: A global presence can enhance a company's
brand image, prestige, and reputation.
 Example: American Automotive Parts Supplier Supplied parts exclusively to
US-based car plants. Global Focus Shift: When Ford, GM opened plants in
Mexico, China, and Europe, their suppliers were forced to follow. A supplier
that didn't build a factory near its client's new overseas plant would lose the
entire contract.
 5. Risk Mitigation:
 Diversification of Supply Chains: Spreading production and
sourcing across multiple countries reduces reliance on a single
region, mitigating risks associated with natural disasters,
political instability, or strikes in one location.
 Currency Fluctuation Management: Operating in multiple
currencies can protect against adverse currency movements in
any single market.
 Example: Coca-Cola aggressively expanded into over 200
countries. If sales slow in North America due to health trends,
growth in regions like Africa or Asia can offset the decline.
 6. Learning and Innovation:
 Exposure to New Ideas and Practices: Operating in different markets
exposes businesses to diverse consumer preferences, business practices, and
competitive environments, fostering learning and innovation.
 Product and Service Adaptation: Global operations necessitate adapting
products and services to local tastes and regulations, which can lead to new
product development and improved offerings.
 Example: A US Pharmaceutical Company Conducts its primary R&D in its
home labs in Boston or San Francisco opens a major R&D center in Basel,
Switzerland named "Bio Valley", which is world-renowned clusters for
pharmaceutical and biotech [Link] company gains access to top
scientific talent, leading university research, and potential partners,
accelerating its drug discovery pipeline and fostering innovation that it can
leverage globally.
 Developing mission and strategies
In Operations Management (OM), the mission and strategies are not created in a
vacuum. They are a direct translation of the corporate mission and business
strategy into actionable plans for the production of goods and services.
The operations function must design a system that delivers on the promises
made by the overall business.
1. Mission: The "What" and "For Whom“
The Operations Mission specifies how the operations function will
contribute to the overall company mission. It defines the specific value that
operations will create for the customer.
It answers the questions:
What is our unique ability in creating products/services?
Which competitive priorities will we excel at to support the business?
The four classic competitive priorities (the "what") are:
Cost: Being the low-cost producer.
Quality: Delivering high-performance products or error-free services.
Speed: Providing fast delivery or short lead times.
Flexibility: Adapting to changes in product mix, volume, or design.

2. Strategy: The "How" of Executing the Mission

The Operations Strategy is the concrete plan that configures the operations
system to achieve the mission.
It involves making consistent, long-term decisions about all aspects of the
production system.
 Key decision areas (the "how") include:
Process Design: What type of process (e.g., job shop, assembly line,
continuous flow) will we use?
Capacity & Facilities: How much capacity do we need? Where do we locate
facilities?
Supply Chain & Sourcing: How do we manage our suppliers and
transportation?
Technology & Innovation: What technology will we use in our processes?
Inventory Management: How will we manage raw materials, work-in-
progress, and finished goods?
Quality Management: How will we build quality into our processes and
measure it?
Human Resources: What skills do our employees need? How do we organize
work?
Examples:Toyota:
Corporate Mission (Philosophy): "To produce high-quality vehicles and services that
delight customers."
Operations Mission: “Deliver the highest-quality vehicles at the lowest possible cost
with the shortest lead time and maximum respect for people and the environment”
Competitive Priorities: Quality, Dependability, Speed, Flexibility
Operations Strategies (The "How"):
Process Design: The world-famous Toyota Production System (TPS),
incorporating Just-In-Time (JIT) and Jidoka (automation with a human touch).
Quality Management: Building quality into the process. Every worker can stop the
production line if a defect is found.
Human Resources: Empowering employees to participate in Kaizen (continuous
improvement). Highly trained, cross-functional teams.
Supplier Relationships: Strong, collaborative partnerships with suppliers, treating
them as an extension of the factory.
2. Amazon (Speed & Reliability)
Corporate Mission: "To be Earth's most customer-centric company..."
Operations Mission: "To build a highly reliable and agile global fulfillment network
that delivers customer orders with unprecedented speed and accuracy.“
Competitive Priorities: Speed, Quality (Reliability), Flexibility.
Operations Strategies (The "How"):
Facility Design & Location: A vast network of strategically located Fulfillment
Centers and "last-mile" delivery stations placed near major urban centers.
Technology & Automation: Heavy use of robotics, AI, and data analytics to
optimize picking, packing, and delivery routes. The Kiva robots are a prime example.
Process Design: Highly standardized processes within warehouses. Sophisticated
Warehouse Management Systems (WMS) to track every item in real-time.
Inventory Management: A mix of traditional warehousing and a marketplace model
where third-party sellers hold their own inventory, increasing selection without
increasing Amazon's holding costs.
Achieving Competitive Advantages through Operations
In operations strategy, competitive advantage is created when a firm’s
operations deliver superior value to customers in ways that competitors find
difficult or costly to match. Michael Porter’s framework remains the foundation:
operations can support cost leadership, differentiation, or focus strategies
 A company's operations must be configured to excel at one of these while
meeting the minimum requirements in the others.
Strategy Core Question Primary Goal
"How can we deliver
Create perceived value that
Differentiation unique, superior products justifies a premium price.
or services?"
"How can we be the most
Cost Leadership efficient, low-cost Minimize total cost per unit.
producer?"
"How can we be the most Maximize speed and
Response agile and reliable in time- flexibility.
based competition?"
1. Differentiation
This strategy involves creating a product or service that is perceived as unique
and superior by customers, who are then willing to pay a premium price.
Operations supports this by building capabilities that enable this uniqueness.
Operational Tactics:
High-Quality Materials and Components: Sourcing superior inputs, even at a
higher cost.
Superior Process Capabilities: Investing in advanced manufacturing technologies
(e.g. engineering) that allow for higher quality, better performance, or unique
features.
Customization and Flexibility: Developing processes that can handle a wide variety
of products or bespoke(made specially for particular person) orders.
Exceptional Quality Control: Implementing very strict inspection and testing
protocols (e.g., Six Sigma) to ensure conformance and reliability.
Innovation-Centric R&D: Tightly integrating operations with research and
development to rapidly translate new ideas into producible goods.
Example: Apple
Product Design & Aesthetics: Operations masters the complex manufacturing of
stylish, simple devices with high-quality materials (aluminum, glass).
Superior Performance: Sourcing and integrating high-performance components
(e.g., custom-designed chips).
Seamless Ecosystem: Manufacturing products that work together flawlessly,
creating a differentiated user experience that is hard to replicate.
Brand Perception of Quality: Consistent manufacturing quality supports the
premium brand image.
Trade-off: Its products are significantly more expensive than those of
competitors, and it offers less model variety in each category.
 2. Cost
Achieving a low-cost advantage means being the producer of a product or
service at the lowest total cost in the industry. Operations is the primary driver of
this advantage.
Key Operational:
Economies of Scale: Building large, efficient facilities to spread fixed costs over a
high volume of units.
Process Efficiency: Implementing lean manufacturing, automation, and process
innovation to eliminate waste (e.g., Toyota Production System).
Cost-Focused Supply Chain: Global sourcing of low-cost materials and
components, leveraging bargaining power with suppliers.
Product Design for Manufacturability: Designing products that are easy and
cheap to assemble (e.g., using common parts, minimal components).
Low-Cost Logistics: Optimizing distribution networks and transportation modes to
minimize shipping costs.
High Labor Productivity: Using specialized labor, training, and technology to
maximize output per employee.
Example: IKEA(Swedish furniture company)
Flat-Pack Design: Drastically reduces transportation and storage costs.
Global Sourcing: Sources materials from low-cost manufacturers worldwide.
Self-Service Model: Customers act as unpaid laborers for assembly and logistics,
reducing labor costs.
Large, Out-of-Town Stores: Lower real estate costs than city-center locations.
Trade-off: To achieve the lowest cost, IKEA trades off on customization and
service. You cannot get a custom-sized, pre-assembled IKEA kitchen delivered the
next day.
3. Response
This strategy focuses on competing based on time, specifically speed, flexibility,
and reliability.
The response advantage relates to a firm's ability to react quickly to customer
demand. It can be broken down into two key areas:
Rapid Response: This includes lead time (the time from order placement to
delivery), throughput time (the time it takes a unit to move through the
production process), and time-to-market (the time to develop a new product).
Flexibility Response: The ability to react to changes in volume, product mix, or
customer needs.
Key Operational Tactics:
Agile Supply Chains: Building responsive and collaborative supplier networks that
can react quickly to changes.
Flexible Manufacturing Systems (FMS): Using technology and cell layouts that allow for
quick changeovers between products.
Information Systems: Investing in real-time data sharing (e.g., with suppliers and
customers) to enable faster decision-making.
Decentralized Operations: Locating smaller, regional facilities closer to key markets to
reduce delivery times.
Cross-Trained Workforce: Employees who can perform multiple tasks, allowing the
operation to adapt to shifting demands.
Example: Zara
Rapid Time-to-Market: Zara's entire operation—from design to manufacturing to
distribution—is built for speed. It can go from design idea to store shelf in just 2-3
weeks, allowing it to react instantly to the latest fashion trends.
Flexible Production: Uses a network of local European factories for trendy items to
enable this speed, trading off for higher cost.
 Strategy Development and Implementation
Operations strategy is a continuous, dynamic process designed to ensure that
the operational capabilities of the firm are aligned with the requirements of its
business and corporate strategies.
This systematic approach ensures that operational capabilities not only support
but actively drive competitive advantage in the marketplace.
I. Strategy Development (The Formulation Phase)
Strategy development is the process of setting the long-term plan for the
operations function. It involves three key steps: Alignment, Analysis, and
Definition.
1. Achieving Strategic Alignment (The Top-Down Flow)
The operations strategy must be derived from and fully support the
overall Corporate Strategy and Business Strategy.
Corporate Strategy: Defines the overall mission, vision, and scope of the
business (e.g., "We will be the leading global provider of high-end athletic
wear.").
Business Strategy: Defines how the firm will compete in a specific market (e.g.,
"We will compete through product innovation and superior quality.").
Operations Strategy: Defines the operational capabilities required to deliver on
the business strategy (e.g., “If the corporate strategy is to serve mass customers
with standard products at low prices, the operations functions installs a line flow
to produce a standard product in large volumes at a low cost.")
2. Environmental Analysis (SWOT)
The operations function must analyze its internal capabilities and the external
environment to identify strategic imperatives.
Internal Analysis (Strengths & Weaknesses): Assessing current operational
capabilities, such as capacity, process technology, workforce skills, and existing
supply chain structure. Where are we strong (e.g., low labor cost)? Where are we
weak (e.g., slow innovation)?
External Analysis (Opportunities & Threats): Examining the market, competition,
technological trends, and customer needs. What are our competitors doing?
What do customers value now (e.g., sustainability)?
3. Defining Operations Objectives
This step translates the market requirements into specific, measurable goals for
the operations function.
Identify Competitive Priorities: Determine the key dimensions of competition
(Cost, Quality, Speed, Flexibility).
Determine Order Winners & Qualifiers: Based on market analysis, identify which
priorities will qualify the firm for the market and which will win the customer's
business.
Establish Operations Objectives: Set measurable targets for the selected
competitive priorities.
Example: If Speed is the Order Winner, the objective might be: "Reduce average
lead time from 10 days to 3 days within 18 months."
II. Strategy Implementation (The Execution Phase)
Implementation is the critical step of translating the
strategic objectives into tangible changes in the firm's
assets, processes, and people.
Implementation decisions are often categorized into two
major areas: Structural and Infrastructural.
1. Structural Operations Decisions (Long-Term Assets)
These are large-scale, long-term decisions that are costly
and difficult to reverse, forming the physical 'structure' of
the operations system.
Decision Area Strategic Impact Example Decisions

Determines the maximum Sizing facilities, determining

Capacity output and ability to achieve workforce levels, capacity
economies of scale. cushion.

Centralized vs. decentralized

Affects costs, delivery speed,
production, location choice (e.g.,
Facilities/Location and access to resources (labor,
near customers for speed, or low-
suppliers).
cost regions for cost).

Investment in automation,
Defines how the product is
Flexible Manufacturing Systems
Process Technology made and determines cost,
(FMS), or dedicated assembly
quality, and flexibility.
lines.
2. Infrastructural Operations Decisions (Systems & People)
These decisions relate to the systems, policies, workforce management, and
control procedures—the "soft" infrastructure that governs how the operations
system is managed.
Decision Area Strategic Impact Example Decisions
Determines the skill level, Hiring and training policies,
Workforce
Management motivation, and flexibility of the compensation structures (e.g., skill-
labor force. based pay for flexibility), job design.
Defines the standards and methods Implementation of TQM, Six Sigma,
Quality
Systems for achieving and maintaining statistical process control, supplier
quality. certification.
Planning and The systems used to manage the Scheduling rules, inventory policies
Control flow of materials and information. (e.g., Just-in-Time).

Performance The metrics used to track progress Linking compensation and promotions
Measurement and reward performance. to operational objectives.
III. Strategy Measurement and Review (The Feedback Loop)
The final step involves measuring performance against the established objectives and
initiating corrective action.
Develop Metrics: Create a set of metrics that directly link operational results to the
strategic goals (e.g., "Inventory Turnover" for cost, "Defect Rate" for quality, "On-Time
Delivery %" for speed).
Monitor Performance: Continuously track these metrics. The Balanced Scorecard is a
common tool used here to ensure performance is measured not just financially, but also
from the perspectives of the customer, internal processes, and learning/growth.
Feedback and Adjustment: If the operational performance is falling short of the strategic
objectives, the firm must:
Adjust Implementation: Modify structural or infrastructural decisions (e.g., retrain the
workforce, invest in a new system).
Adjust Strategy: If market conditions have fundamentally changed, the strategy itself
may need to be revised (e.g., shifting from a Cost Leader strategy to a Response
strategy).
 Critical Success Factors and Core Competence
Operations strategy is about aligning the operational capabilities of a business
(how it makes and delivers its products/services) with its overall business strategy
(where it wants to go).
Critical Success Factors and Core Competencies are the two essential bridges
that connect the "what" of the strategy to the "how" of its implementation.
1. Critical Success Factors (CSFs)
Critical Success Factors are the limited number of key areas where satisfactory
results are absolutely necessary for the organization to achieve its strategic goals
(e.g. create value for customers by producing quality goods or services) and
competitive objectives.
Critical success factors are the various elements that are necessary for an
organization to fulfill a specific goal.
The specific critical factors of a business typically vary depending on the
industry.
Here are some examples of critical success factors in the food service industry:
Increased customer satisfactions
Enhanced quality of service
Increased customer feedback
Increased quality of menu items
Improved marketing strategies
Here are some examples of critical success factors in the manufacturing
industry:
Quality product manufacturing
Low-cost manufacturing plant locations
Low-cost designs
Adequate skilled labor
Characteristics of critical success factors
Strategic: They are derived directly from the company's mission and strategic
objectives.
Limited in Number: Typically, there are 3-8 CSFs for any given strategy.
Measurable: They must be translated into specific, measurable performance
indicators (which become KPIs).
Hierarchical: CSFs can exist at the corporate, business unit, and functional (e.g.,
operations) levels.
Examples CSFs in Operations:
For a low-cost strategy (e.g., Walmart, Ryanair):
 Minimize production and supply chain costs.
 Achieve maximum capacity utilization.
 Maintain consistent quality to avoid rework and returns.
 For a differentiation strategy (e.g., Apple, Tesla):
 Achieve superior product quality and innovation.
 Ensure rapid time-to-market for new products.
 Maintain a flexible and responsive supply chain.
For a quality-led strategy (e.g. Star restaurant, Rolex):
 Source the highest quality raw materials.
 Employ and retain master craftspeople/chefs.
 Implement rigorous quality control processes.
2. Core Competencies
Core Competencies are the unique skills, resources, and capabilities that a firm
possesses and leverages to gain a competitive advantage. These are the
company's internal strengths that are difficult for competitors to copy.
 Some of the most impactful core competencies:
Innovation: Driving market leadership
Customer service excellence: Building loyalty and trust
Operational efficiency: Save time and cost
Brand equality: Creating emotional connections
Data-driven decision making: Using smart ideas from data to grow or expand
How CSFs and Core Competencies Work Together
This is where strategy development meets implementation.
1. Strategy Development: From Vision to CSFs
The process starts with the business strategy. The strategy identifies the CSFs—
what we must be good at to win.
Example: A company's strategy is to be the fastest delivery provider in its niche.
Operations CSF: "Achieve a perfect order fulfillment cycle time of under 24
hours."
2. Strategy Implementation: From CSFs to Core Competencies
Once the CSFs are known, the company must ask: "Do we have the core
competencies to achieve these CSFs?" If not, they must be built or acquired.
Continuing the example: To achieve the CSF of "under 24-hour delivery," the
company needs to develop or leverage core competencies in:
Real-time data analytics for demand forecasting and route optimization.
Warehouse automation for rapid picking and packing.
Strategic partnerships with last-mile delivery carriers.