This document provides a framework for integrating operations strategy with business strategy. It discusses three key views: the positioning view which focuses on industry dynamics and competitive positioning, the resource-based view which sees competitive advantage coming from unique resources and capabilities, and integrating the two views. The framework involves strategy at the corporate, business unit, and functional levels to meet customer goals around cost, quality, and other factors.
This document provides a framework for integrating operations strategy with business strategy. It discusses three key views: the positioning view which focuses on industry dynamics and competitive positioning, the resource-based view which sees competitive advantage coming from unique resources and capabilities, and integrating the two views. The framework involves strategy at the corporate, business unit, and functional levels to meet customer goals around cost, quality, and other factors.
This document provides a framework for integrating operations strategy with business strategy. It discusses three key views: the positioning view which focuses on industry dynamics and competitive positioning, the resource-based view which sees competitive advantage coming from unique resources and capabilities, and integrating the two views. The framework involves strategy at the corporate, business unit, and functional levels to meet customer goals around cost, quality, and other factors.
This document provides a framework for integrating operations strategy with business strategy. It discusses three key views: the positioning view which focuses on industry dynamics and competitive positioning, the resource-based view which sees competitive advantage coming from unique resources and capabilities, and integrating the two views. The framework involves strategy at the corporate, business unit, and functional levels to meet customer goals around cost, quality, and other factors.
How operations can be used for competitive advantage in
today’s world Problem One: Conflicts • More capacity • Better forecasts • Variety • Economical operations • Cost • Other strategic criteria • Meeting targets • Maintaining quality
2 Problem Two: Role in Strategy
Marketing
Sales Finance
Strategic R&D Planning
Corporate Plans
Manufacturing
3 We first address some business strategy issues • Which businesses should we be in? • How do we compete and compare with our competitors in each one? • What dimensions of customer performance do we focus on • To answer these questions, we first look at alternative views of how individual businesses compete
4 Competitive Strategy: The Positioning View Sources of Barriers to Entry • Economies of scale • Product differentiation and brand loyalty • Capital requirements • Switching costs • Access to distribution channels • Cost disadvantages independent of scale • Proprietary product technology • Favorable access to raw materials • Favorable locations • Government subsidies • Learning or experience curve • Government policy
New Entrants
threat Suppliers Have Power When: Buyers Have Power When: • Fewer suppliers than those supplied • Buyers are concentrated or purchase large • No substitute products volumes relative to industry sales • Industry is not an important customer • Purchases represent a significant • Suppliers’ input is important to industry fraction of their costs Suppliers
Buyers • Supplier products are differentiated or • Products purchased are standard or switching costs are high undifferentiated • Suppliers may forward integrate bargaining bargaining • Buyers face few switching costs power Industry Competitors power • Buyers earn low profits • Buyers can backward integrate • Products purchased are unimportant to quality of buyers’ products • Buyer has full information
Sources of Intense Rivalry Substitutes May Become a Threat When:
threat
• Numerous or equally balanced competitors • Good price performance
• Slow industry growth • Low switching costs • High fixed or storage costs • Industry is willing to substitute • Capacity augmented in large increments • Diverse competitors Substitutes 5 • High strategic stakes • High exit barriers Source: Adapted from Porter Competitive Strategy: The Positioning View • Positioning is based on the external market, industry dynamics, and the structure of the value chain
volume growth
Time 6 Competitive Strategy: The Positioning View • Options for firm positioning: – Cost leadership – Differentiation • And, by focusing on segments – Distinct customer groups – Groups with similar needs • BUT, assumes operations excellence is not a source of competitive advantage
7 Competitive Strategy: The Resource-Based View • Competitive advantage is derived from the firm’s development of unique bundles of resources and capabilities that are: – Inimitable: are difficult or costly to imitate or replicate – Valuable: allow the firm to improve its market position relative to competitors – Rare: in relatively short supply
8 Competitive Strategy: The Resource-Based View • Resource: an observable, but not necessarily tangible, asset that can be valued and traded – e.g., brand, patent, parcel of land, license – Asset or input to production than an organization owns, controls or has access to on a semi-permanent basis • Capability: not observable, and hence necessarily intangible, cannot be valued and changes hands only as part of an entire unit – Processes, activities or functions performed within a system – Utilize the organization's resources – Example: How a company innovates
9 Competitive Strategy: The Resource-Based View • Types of capabilities – Process-based • e.g., McDonald’s – Systems- or coordination-based • e.g., Ritz-Carlton • e.g., Southwest Airlines – Organization-based • e.g., Toyota – Network-based • e.g., Dell and the fulfillment supply chain • e.g., Cisco and the technology suppliers
10 Competitive Strategy: Integrating the Positioning and Resource-Based Views
Capabilities Positioning
Process Cost Coordination Leadership Organization Differentiation Network Focus
11 The process must then involve three levels:
• Corporate • Business Unit • Function
12 …as well as customer goals • Cost • Quality • Availability • Features/Innovativeness • Environmental Performance
Finance and Operations Accounting Time Delay Marketing Human Resources Research and Development
Functional Strategies 14 The essence is internal/external and functional fit External Industry Forces Internal Influences Influences - Industry attractiveness - Competitive structure: opportunities and threats
Strategic Plan: Goals Organization’s Gaining and Maintaining Objectives “Culture” Competitive Advantage - Capabilities: Sources of - Competitive strengths/weaknesses priorities
Functional Strategies Mktg. Ops.
Finance R&D
15 But there is a fourth level! Fourth level: Decision Category Approach • The decision category approach examines manufacturing decision categories for consistency with strategic vision – Structural decisions • Bricks and mortar • Machinery – Infrastructure • People • Systems • Procedures – Fit with business, corporation, and other functions
16 Companies vary considerably on this ideal approach • Use of both capabilities and positioning • Formality of process • Type of formal method • Input of operations • Focus on all decision categories
17 Major Manufacturing Decision Categories 1. FACILITIES 6. INFORMATION TECHNOLOGIES • size • use and level of investment • location • parity or differentiation • focus 7. SUPPLY CHAIN AND MATERIALS (The fulfillment supply chain) 2. CAPACITY • logistics facilities and methods • amount • inventory policies • timing • vendor relations • type • production planning 3. VERTICAL INTEGRATION AND SUPPLIER MANAGEMENT (The technology supply chain) 8. ORGANIZATION AND INCENTIVES • direction • structure • extent • reporting levels • interfaces • degree of centralization • collaboration • role of staff 4. PRODUCTION TECHNOLOGIES AND PROCESSES • control/reward systems • equipment • costing systems • automation 9. BUSINESS PROCESSES • product generation • interconnectedness • interfaces • scale • responsibilities • flexibility • vendor development 5. WORK FORCE AND MANAGEMENT • order fulfillment • RFI? • service and support • Policies (wages, security, etc.) • quality and CI, flexibility, and • skill levels other cross-cutting capabilities
18 IT decisions • How much to invest • Where to focus investment • Standardized or customized applications • Should IT be standardized within the company – Standardization allows common learning and implementation advantages – But there is less flexibility for local needs • Organization, implementation and measurement • Parity or competitive advantage
19 Measures of Performance The strategic mission matches the organization’s strengths to a limited set of external measures of performance • Operations Costs • Quality – Unit costs – Return rate – Total (volume) costs – Product reliability and durability – Lifetime costs – Cost and rate of field repairs • Availability • Innovativeness and Features – Percentage of on-time – Product innovativeness shipments – Time to market and – Response to results for info development cycle or changes • Environmental Performance – Product and volume flexibility – Ease of disassembly and – Delivery time recycling – Use of resources
20 Decision Categories map to 3D concurrent engineering
Product Process Supply Chain
Process technology Fulfillment SC Capacity Materials mgmt Facilities Supplier mgmt IT Vertical integration Business Processes- PG
Infrastructure – HR, organization, IT infrastructure, other business processes
• Low unit cost • Specialized equipment and control • Price
• High service level • Reserve capacity • Inventory • Dependability
• Wide line custom • Flexible machines • Customer needs
• Worker skills products • Reserve capacity and scheduling
• Development • Market leadership
• Product innovation • General purpose • Team skills • New segments
23 Present Operations Policies Operations Unit
Decision Description of Past Policy Strengths Weaknesses Category Production technologies & processes
Capacity
Workforce & management
24 Summary of decision category framework • Understanding of external (value chain, dynamics, competitors, etc.) and internal (capabilities) • Consistency at four levels (corporation, business, function, and decision category) • Strategy is pattern of decisions within the nine categories • Strategy is the identification of the competitive priorities from the five means of competition
25 MIT OpenCourseWare http://ocw.mit.edu
15.769 Operations Strategy
Fall 2010
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