Slide 1.

Chapter 1
Operations strategy – developing
resources and processes for
strategic impact

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.2

All operations transform input resources into

products and services
Transformed resources (materials,
information, customers) have value added as
they move through the operation’s processes
Materials
Information
Customers

Transformed resources

Products and services

Transforming resources

People
Facilities (technology,
buildings, etc.)
Transforming resources (people, facilities)
are organised to form processes

Figure 1.1 All operations transform input resources into products and services
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.3

Operations management and strategy

requires analysis at three levels
Flow between operations Strategic
Analysis at the level analysis
of the supply network

Flow between processes

Analysis at the level
of the operation

Analysis at the level

of the process
Flow between resources Operational
analysis
Figure 1.2 The
hierarchy of operations describes networks at different levels of analysis.
Three are illustrated here: the supply network, the operation and the process
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.4

4V’s
• Volume –a high degree of
– Repeatability and specialisation
• higher processing efficiencies and lower unit costs
• Variety –implies a wide range of
– different activities; skills and technology; inputs
• General purpose’ due to range of activities
• complexity of matching customer requirements
• high variety means higher costs than low variety.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.5

4Vs: Variation
• Variation when low, easier to
– manage due to predictably constant demand
– plan resources
– Plan all activities in advance.
• High variation: unpredictable demand requires extra
resources for a ‘capacity cushion’
• Lower variation processes: lower costs, why?
– no extra safety capacity
– can be planned in advance
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.6

4V’s: Visibility
– Visibility means how much of the value added by the operation
is ‘experienced’ directly by customers.
– Processes acting directly on customers have higher visibility
than those acting on materials and information.
• Low-visibility operations
– time lag between customer request and response may be in days
– Lag allows the activities to be performed when it is convenient
to the operation, thus achieving higher utilisation.
• High-visibility operations:
– near-immediate response expected
– staff in high-visibility operations will need customer-contact
skills.
• Hence, high visibility often results in higher costs than low visibility
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.7

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.8

The Four Vs analysis for a conventional

supermarket and Ocado
Conventional Ocado
supermarket

Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Figure 1.4 The Four Vs analysis for a conventional supermarket and for Ocado

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.9

What is strategy?
• Setting broad objectives that direct an enterprise
towards its overall goal.
• Planning the path that will achieve these goals.
• Stressing long-term rather than short-term
objectives.
• Dealing with the total picture rather than stressing
individual activities.
• Being detached from, and above, the confusion
and distractions of day-to-day activities.
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.10

How is operations strategy different from

operations management?

Operations management Operations strategy

Short-term Long-term

Demand
Demand
Timescale
e.g. capacity decisions

1–12 months 1–10 years

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.11

How is operations strategy different from

operations management? (Continued)

Operations management Operations strategy

Micro Macro
Level of analysis
Concerned with the
macro operation
(level of the firm)

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.12

How is operations strategy different from

operations management? (Continued)

Operations management Operations strategy

Detailed Aggregated
Level of aggregation
‘Can we give tax ‘What is overall business
Concerned with
services to the small advice capability
resources at an
business market in compared with other
aggregated level
Antwerp?’ capabilities?’

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.13

How is operations strategy different from

operations management? (Continued)

Operations management Operations strategy

Concrete Philosophical

Level of abstraction ‘How do we improve ‘Should we develop

Concerned with the our purchasing strategic alliances with
conceptual procedures?’ suppliers?’

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.14

The sectoral scope of Operations Strategy

Products or services?

Manufacturing or non-manufacturing?

For profit or not-for-profit?

What is Operations Strategy about?

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.15

The four perspectives on operations strategy – top-down,

bottom-up, market requirements and operations resources
Top-down
Operations
strategy should
interpret higher
level strategy
Operations resources Market requirements
Operations strategy OPERATIONS Operations strategy
should build operations STRATEGY should satisfy the
capabilities organisation’s markets

Bottom-up
Operations
strategy should
learn from day-to-
day experiences
Four perspectives on operations strategy: top-down, bottom-up, market
Figure 1.5
requirements and operations resources
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.16

The four perspectives on operations strategy – top-down,

bottom-up, market requirements and operations resources
(Continued)
Corporate strategy

Business strategy
Top-down
Capacity Quality
Supply networks Speed
Operations Market
Process technology Dependability
resources requirements
Development and Flexibility
organisation Cost

Bottom-up
Emergent sense of
what the strategy
should be

Operational
experience
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.17

Operations Strategy Perspectives

• Operation strategy is a ‘top-down’ reflection of
what the whole group or business wants to do.
• Operations strategy is a ‘bottom-up’ activity
where operations improvements cumulatively
build strategy.
• Operations strategy involves translating ‘market
requirements’ into operations decisions.
• Operations strategy involves exploiting the
capabilities of ‘operations resources’in chosen
markets.
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.18

The top-down perspective

• How should operations strategy reflect higher-
level strategy?
• strategy – corporate, business and functional –
form a hierarchy
• business strategy forming the context of functional
strategies
• corporate strategy forming the context of business
strategies.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.19

The bottom-up perspective

• How can operations strategy learn from day-to-
day experience?
• Businesses, when reviewing their strategies
– consult the individual functions within the business.

– Incorporate the ideas that come from each function’s

day-to-day experience.
• Strategic ideas emerge over time from actual
ongoing experience of providing products and
services Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.20

Bottom up perspective
• Instead of a high-level decisions a general
consensus emerges from the operational level of
the organisation.
• Emergent strategies: Strategy shaped by
experience over time.
• based on real-life experience not theoretical positioning.
• ability to learn from experience and philosophy of
continual and incremental improvement built into the
strategymaking process.
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.21

The market requirements

perspective
• How do the requirements of the market
influence operations strategy?
• Operations exist to serve markets.
• ‘How can operations help the organisation to
compete in its market place?’
• operations strategy must reflect the organisation’s
market position.
• Need to develop an understanding of what is
required from the operation in order to support the
market position. Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.22

The market requirements

perspective
• Market segmentation and operations strategy.
– Same needs that define markets shape objectives for
operations’ to satisfy those needs.
• Whether to compete in a crowded segment
– Depends on the operations capability of servicing that
market better, even in the face of the competition from
other firms
– both customer and competitor analysis is a prerequisite
to developing an effective operations strategy.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.23

The operations resource perspective

• How can the intrinsic capabilities of an
operation’s resources influence operations
strategy?
• The resources and processes
• long-term management of resources and processes
is often important in operations strategy
• link the broad understanding of resources and
processes with the specific operations strategy
decisions
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.24

Top-down and bottom-up perspectives of strategy

for the metrology company
Corporate strategy

Top-down
Corporate objectives impact on
business objectives which, in turn,
influence operations strategy
Business strategy

Operations strategy

Emergent sense of what the

Bottom-up strategy should be
Day-to-day experience of providing products
and services to the market reveals problems
and potential solutions which become
formalised into operations strategy
Operational experience
Figure 1.6 Top-down and bottom-up perspectives of strategy for a metrology company
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.25

Top-down and bottom-up perspectives of strategy

for the metrology company (Continued)
Group building corporate capability in high
technology products and services

Top-down
Corporate objectives impact on business
objectives which, in turn, influence
operations strategy Metrology division competes on ‘fast-to-market’
innovations

Operations must have fast and flexible

technology, supply relationships,
process and staff

Modular strategy provides flexibility and

innovation at relatively low cost

Experiment with ‘modular’ design of key

products and components
Bottom-up
Day-to-day experience of providing products and
services to the market reveals problems and
potential solutions which become formalised into
operations strategy
Customers confused by continual product innovation
and costs are increasing

Top-down and bottom-up perspectives of strategy for a metrology company

Figure 1.6
(Continued) Slack and Lewis, Operations Strategy PowerPoints on the Web, 4 edition © Pearson Education Limited 2015
th
Slide 1.26

Operations strategy reconciles the requirements

of the market with the capabilities of
operations resources

Strategic
reconciliation

Operations Operations
Market requirements
resources strategy

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.27

Operations strategy reconciles the requirements of the

market with the capabilities of operations resources
Tangible and Customer
intangible needs
resources

Operations Operations Market

strategy Performance
capabilities objectives positioning
decision areas

Operations Competitors’
processes actions

Understanding Strategic decisions Required performance Understanding

resources Capacity Quality markets
and processes Supply networks Speed
Process technology Dependability
Development and Flexibility
organisation Cost
Figure 1.9 Operations strategy is the strategic reconciliation of market requirements with
operations resources
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.28

The ‘market requirements’ and ‘operations resource’

analysis of a lighting company
Resources Customers
Equipment Professional theatres
Staff (static, low margins)
Reputation Exhibitions (slow growth,
Relationships (internal low margins)
and external) Conferences, etc. (fast
Experience Operations strategy Performance objectives growth, higher margins
decisions
Location Aesthetically innovative
Capabilities Virtual reality technology designs Market position
Application of leading Supplier development Presentation advice Traditionally differentiated
edge lighting and sound Equipment tracking system High customisation of on high service level in
technology lighting solutions theatre and exhibition
Organisational structure markets, innovation and
Articulation of client Staff meetings Fast and dependable supply
service in conference
requirements
market

Processes Competitors
Integration of equipment Big groups dominating
supply and client professional theatres
requirements In-house operations
Design process growing in exhibitions
market
Supplier liaison process
Conference market still
fragmented

The ‘market requirements’ and ‘operations resources’ analysis of a theatre lighting

Figure 1.7
company Slack and Lewis, Operations Strategy PowerPoints on the Web, 4 edition © Pearson Education Limited 2015
th
Slide 1.29

Operations resources, processes,

routines and capabilities
• Listing its resources not enough
• Need to understand processes of the operation that
describe the way things happen in the operation.
• Limiting to tangible resources in an operation not
enough
• Any audit of a company’s resources and processes
needs to include the organisation’s intangible
resources.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.30

Operations resources, processes,

routines and capabilities
• supplier relationships, contracts
• knowledge of, and experience in, dealing with technology
sources and labour markets;
• process knowledge: production of products/ services;
• new product and service development skills/procedures;
• contacts and relationships in the market to understand
market trends and more specific customer needs.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.31

Operations resources, processes,

routines and capabilities
• Intangible assets: involve not so much what an
operation has, but what it does.
• Documented procedures to formalise their regular
activities:
– ‘generating orders’, ‘fulfilling orders’, ‘developing
new products and services’

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.32

Operations resources, processes,

routines and capabilities
• Less formally documented; informal practices
depends
– relationships between individual staff, their shared
values and understandings of overall objectives
– tacit knowledge accumulated: ‘who knows what’ and
‘who can get things done’..
– informal arrangements of a company’s resources
important in explaining the effectiveness of its
operations along with the formal processes.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.33

Operations resources, processes,

routines and capabilities
– Operation’s abilities. It is the combination
• formal and informal processes
• explicit and tacit knowledge
• intrinsic attributes of the company’s resources
• how these resources are deployed?
– The collective term for both formal and informal
processes is the ‘routines’ of the firm.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.34

The resource-based view of the firm

• RBV: ‘above-average’ performance through core
capabilities (or competences) inherent in a firm’s
resources than its competitive positioning in its industry.
– Intangible resources and routines are central to ‘resource-based
view’ (or RBV)
• The ‘SWOT’ : (strengths/weaknesses/opportunities/threats)
• ‘environmental’ school, focused on a firm’s opportunities
and threats
• ‘resource-based’, focused on a firm’s strengths.
• Positioning firm within its market [versus] sustainable
competitive advantage through resources internal to the
company’s operations. Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.35

Protecting competitive advantage

RBV
• In traditional strategy: creating barriers to entry
• RBV: build ‘difficult-to imitate’ resources.
– They are scarce: specialised production facilities, experienced
engineers, proprietary software, etc.
– They are imperfectly mobile:Resources developed in-house, or
based on the experience of staff
– They are imperfectly imitable and imperfectly
substitutable:tacit knowledge and routines embedded within the
firm, more difficult to understand and to copy.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.36

• The four perspectives on operations strategy:

– not ‘alternative’ views
– Operations managers can (and should) hold all four
views simultaneously.
– Bringing all four views together can even expose the
dilemmas inherent within an operations strategy.
• “operations strategy can be seen as the attempt to
reconcile all four perspectives”

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.37

Operations strategy is…

‘… the total pattern of decisions …

… that shape the long-term capabilities …

… of any type of operation ...
… and their contribution to overall strategy…
… through the on-going reconciliation of market
requirements and operations resources …
… so as to achieve a sustainable fit between the two …
… whilst managing the risks of misalignment’.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.38

Operations Market
resources requirements

What you What you What you What you

HAVE DO WANT NEED

to maintain from your

in terms of your operations to
operations capabilities and to ‘compete’ in
help you the market
capabilities satisfy markets ‘compete’

Strategic
reconciliation

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.39

The market perspective analysis of a garment company

CUSTOMERS
Segmentation on:
Age – youth
Purpose – general

PERFORMANCE OBJECTIVES MARKET POSITION

Dependability Differentiation on:
Speed of delivery Innovative products
Time to market
Product mix flexibility Product range
Speed to market Coordinated launches

COMPETITORS
Traditionally weak in:
Promotion
Design innovation
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.40

The operations resource perspective

analysis of the lighting company
Resources
• Tangible: Equipment
Staff
• Intangible:Reputation
Relationships (internal
and external) Operations strategy decisions
Experience
• Location
Capabilities • Virtual reality technology
• Application of leading-edge lighting • Supplier development
and sound technology • Equipment tracking systems
• Articulation of client requirements • Organisational structure
• Staff meetings
Processes
• Integration of equipment supply
and client requirements
• Design process
• Supplier liaison process
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.41

Operations strategy…

‘… the decisions which shape the long-term

capabilities of the company’s operations and their
contribution to overall strategy through the on-
going reconciliation of market requirements and
operations resources …’

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.42

Four perspective of Operations

Strategy
• The four perspectives on operations strategy:
– not ‘alternative’ views
– Operations managers can (and should) hold all four
views simultaneously.
– Bringing all four views together can even expose the
dilemmas inherent within an operations strategy.
• “operations strategy can be seen as the attempt to
reconcile all four perspectives”

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.43

Content of operations strategy

Interaction between the operation’s performance

objectives and the decisions that it takes concerning
resource deployment.
• understanding the relative importance of the
operation’s performance objectives;
• understanding the influence on them of the
decision areas that determine resource deployment.

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.44

Operations strategy reconciles the requirements of the

market with the capabilities of operations resources
Tangible and Customer
intangible needs
resources

Operations Operations Market

strategy Performance
capabilities objectives positioning
decision areas

Operations Competitors’
processes actions

Understanding Strategic decisions Required performance Understanding

resources Capacity Quality markets
and processes Supply networks Speed
Process technology Dependability
Development and Flexibility
organisation Cost
Figure 1.9 Operations strategy is the strategic reconciliation of market requirements with
operations resources
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.45

Decomposing the ratio profit/total assets to derive

the fours strategic decision areas of operations strategy
Profit Output Profit
Total assets = Total assets × Output

Profit Revenue Cost

= −
Output Output Output

Average Average
revenue cost

Output Output Fixed assets Capacity

= × ×
Total assets Capacity Total assets Fixed assets
Utilisation Working capital Productivity of
fixed assets

Operations strategy Capacity Supply Process Development

decision areas network technology and organisation
Decomposing the ratio profit/total assets to derive the four strategic decision areas
Figure 1.10
of operations strategy
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.46

The operations strategy matrix

Resource usage

Market competitiveness
Quality
Performance objectives

Speed

Dependability Operations strategy

Flexibility

Cost

Supply Process Development

and
Capacity
network technology organisation

Decision areas
Figure 1.11 The operations strategy matrix
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.47

Operations strategy matrix for Pret a manger

Resource development

Quality • Small sites promote • Partnerships with • Standard • Customer service

(Product conformance teamwork suppliers to increase processes training
and specification and • On-site kitchens for quality together with (photos for • Teamwork

Market competitiveness
service quality) fresh food strict quality standards workstation) incentives and pay

*** ***
Speed • Many small sites at • On-site production • Standardised • Training for fast
(Customer throughput convenient locations means short internal process across service
time) • Number of service supply chain all stores
points

*** ***
Dependability • Standardised store • Quality raw materials • Standardises in- • Pret ‘values and
(Consistency of product design supplied/delivered on store technology behaviours’
and service) *** time
***
Flexibility • Partnership with • Customer feedback
(New product availability suppliers to meet varied used to inspire
and range of products) menu innovation
• Supplier partnerships
encourage innovation
***
Cost • Centrally located in • Low staff turnover
(Cost of producing densely populated
products and services) areas increases
‘footfall’ volume
***
Capacity Supply networks Process/ Development and
Technology organisation

*** Critical
Figure 1.12 The operations strategy matrix for Pret A Manger
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.48

The stages of the process of operations strategy

Operations Operations Operations Operations

strategy strategy strategy strategy
formulation implementation monitoring control

Figure 1.13 The stages of the process of operations strategy

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.49

The relationship between the concepts of ‘the

business model’ and the ‘operating model’

Business strategy
The ‘business
model’
Functional strategies
…sets the
…defines how
overall
the business
Marketing Operations Finance Technology purpose and
model will be
strategy strategy strategy strategy objectives
achieved…
for…

Operational Operational Operational Operational

Marketing Operations Finance Technology The ‘operating
model’

The relationship between the concepts of the ‘business model’ and the
Figure 1.14
‘operating model’
Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015
Slide 1.50

Slack and Lewis, Operations Strategy PowerPoints on the Web, 4th edition © Pearson Education Limited 2015