Organizations rely upon different strategies to achieve their business goals and survive in today’s competitive business environment. These strategies are planned for the long-term and carry a broad range of activities. Generally, an organization develops three different strategies i.e. Corporate Strategy, Business strategy, and Operations or Functional strategy.
The corporate strategy revolves around the objectives of the organization, core competence, and gaining competitive advantage in terms of products and/or services. On the other hand, market segmentation and priorities that are based on a competitive market scenario for products/services come under the preview of business strategy. Operations related activities fall under functional strategy as it includes operational tasks to develop products such as effective management of productivity, capability, flexibility, quality, production cost, delivery, etc.
Authors Slack and Lewis have defined Operations strategy as the whole system of decisions that are aimed at shaping both the long-term capabilities of operations irrespective of their type and their contribution to the overall strategy achievement.
In other words, operations strategy consists of a series of decisions that organizations take in order to implement competitive business strategies. Operations strategy supports in linking operational-level decisions i.e. both short-term and long-term, to corporate strategy. This is also considered a process of making key operations decisions by maintaining consistency with the overall objectives of the organization from a strategic point of view.
In the above diagram of operations strategy, there are two main elements i.e. Market requirements and Operations resources. Market requirements consist of performance-related goals such as quality, flexibility, time, cost, and dependability. Addressing the appropriate needs of customers through offerings and attracting customers as compared to the competitors; are the main concepts that influence performance objectives. Wherein, Operations resources cover an organization’s assets, processes, and capabilities.
In between these two, operations strategy lies that reconcile the available resources of an organization with the pre-determined performance objectives.
Competitive Capabilities and Core Competencies
The main focus of operations strategy is on specific capabilities related to the operation that facilitates an organization in gaining a competitive advantage. These capabilities are termed as competitive capabilities or priorities. An organization can get success in the market by getting excellence in such capabilities. In other words, competitive capabilities are those capabilities that are developed by operations function to provide a competitive advantage to an organization in its industry or market.
Business strategies act as a foundation for developing operations strategies. Few business strategies have a direct hold on manufacturing such as:
- Serving a defined product or service in a stable market
- Providing the high variety of a product and design customization to fulfill the particular requirement
- Use of in-built flexibility to offer quick market response and manufacturing of different products to maintain the level with the environmental changes
In order to obtain the above business strategies, an organization needs to focus on gaining productivity, low-cost advantage, quality, design-related constant innovation, and development of new products through the reduced development cycle.
Achieving a competitive market advantage and making core competencies are considered effective strategies. The strengths and unique resources of an organization are its core competencies that the organization should develop, practice, and improve constantly. Competence transforms into capability once the strategy is implemented successfully and pre-defined objectives related to competing are achieved.
Competitive advantage can be achieved by understanding the needs and desires of customers and providing the offerings accordingly. This includes finding out their preferred quality and cost of products, serving customers in a more effective way than competitors.
Operations Strategy- Competitive Priorities or Competitive Weapon
The main objective of any business is to secure a position through which it can attract more customers as compared to its competitors. To achieve this, Operations managers are supposed to work in close conjunction with marketing to understand the market’s competitive situation in which an organization is operating and identify the unique competencies in order to determine the important competitive priorities.
In making decisions related to the growth and survival of an organization, competitiveness plays a crucial role as it is related to the effectiveness of the organization in meeting customer requirements over its competitors, and hence, considered an important factor. For this, organizations depend upon their operational strengths and use them along with opportunities as their competitive weapons or Competitive priorities.
We’ve thoroughly explained the above competitive priorities with examples in a separate article here:
Relationship between Corporate, Operations and Business Strategy
In every organization, there is a unique mission statement that includes a range of long-term goals. This is termed as a corporate strategy as it contains the detailed description of the type of business that an organization desires to be in, the different type of customers that the organization will serve, the basic values and belief system of its business, and the goals and profitability, that are expected to be achieved.
Another long-term business plan similar to the corporate strategy is a business strategy that acts as a roadmap in order to achieve of fulfill the above-mentioned mission of corporate strategy. These long-term plans have to undergo different functions such as marketing, HR, production, finance, etc. Here the role of operations strategy comes in as its main function is to translate whole decision-related processes that facilitate business strategy.
It’s the responsibility of operations function to manage the resources required to produce products/services of the organization. To support the business strategy, operations strategy acts like a plan to specify the structure and usage of resources. This consists of required skills and talents of the workforce, technology usage; size, location and type of available facilities, special equipment and processes required, and methods of quality control. So, operations strategy enables the organization to fulfill its long-term plan and for this, it must be aligned with the business strategy of the company.
Operations Strategy Development
Developing an operations strategy under the corporate strategy is explained through the above diagram. It indicates different factors that are included in operations strategy and the connection between the corporate strategy, business strategy, and Competitive priorities of operations strategy. In this, there is a direct connection of long-term strategic decisions of operations with new product development, facility establishment, introducing new technologies, determining product capacity, and suitable decision-making on developing and maintaining the quality of products.
With the help of operations strategy, an organization can translate its competitive priorities and product plans into processes related to decision-making. Decisions related to operations help in determining different processes for producing variety and volume of products.
Components of Operations Strategy
Operations strategy consists of six main components or elements i.e.:
We’ve thoroughly explained the Components of Operations Strategy with examples in a separate article here:
Example of Operations Strategy
McDonald’s Operations Strategy based on Competitive Priorities
Fast-food giant McDonald’s business strategy is aimed at preparing food for its customers on the fast track and comparatively low competitive cost. It also includes earning profit by cost reduction of its products and expansion of its business across the world.
To meet the above organizational goals, the Operations strategies of McDonald’s play a vital role. The company is able to maintain and control all of its operational activities. Top management of the company develops its operations management strategies and the same are implemented by different branches of McDonald’s. Also, these operations strategies are circulated to other franchisee branches in a written format. Different operations managers allocated at different branches oversees the monitoring and controlling part of all operational activities.
Through the increased use of information technology, McDonald’s is able to introduce new ideas and ways to enhance its operational activities. Through its stock control database system, it is possible to avoid unnecessary ordering, and also, stock can be maintained up to date in the store. It has become easy to order the stock in less time.
-Competitive priorities (operations strategy) of McDonald’s
McDonald’s operations strategies are based on its competitive priorities that include the affordable and friendly cost of products, quality of products by offering many healthy meal options and superior quality services, speediness of services, flexibility, etc.
Speed or less service time
By considering the fact that customers seek fast delivery services as their top priority, McDonald’s started providing fast, accurate and friendly services to meet the demand of its customers. This enables the selling of the products at a reduced cost. Moreover, one of the reasons for the fast delivery of orders is that most of the products of McDonald’s are in the form of ready to serve as these have to put in the ovens of superior quality and usually, the order is ready within very few minutes.
McDonald’s has adopted different operations strategies to provide products to customers at a discounted price and to reduce the cost of its operations.
The company is using efficient equipment to enhance the speed of producing its products. McDonald’s uses fluorescent low consumption lighting that plays a crucial role in the cost reduction of operations. The use of cooking oil by the company in transport operations also contributes to reducing operations costs.
McDonald’s has also reduced operational costs by purchasing most of the vegetables (especially potatoes) directly from the farmers. This facilitated the company to reduce the cost associated with the production of chips.
Apart from the above, McDonald also has a low-cost supply chain system and they have incorporated a just-in-time strategy to reduce the cost related to wastage and unnecessary storage.
The service quality of McDonald’s can be measured through the time invested in processing orders and customer products. The policy of five Ps i.e. product, price, people, promotion, and the place has been applied by McDonald’s to enhance the quality of its services.
The product consists of quality, taste, and price of products of the company. To maintain food quality is always considered McDonald’s top preference.
McDonald’s staff (people) are well trained to serve customers in an efficient way. The company always takes the necessary steps to reduce its operation cost.
Place includes relevant, clean, surrounding areas with modern amities of McDonald’s such as restaurants, restrooms, or kitchen, etc. It aims at comfort level and safety for the customers.
Promotion is related to marketing and trust-building activities.
Moreover, there are three quality centers of McDonald’s in Asia, Europe, and North America. These quality centers ensure that different famous dishes of McDonald’s like French Fries, Big Macs, and Chicken McNuggets, etc. always meet their standards and a great level of taste. These centers are used by the company to provide training for suppliers and examine the quality of products for taste and consistency.
There are three forms of flexibility in McDonald’s i.e.
Mix flexibility: This includes producing a wide range of products through an operation so that customers can select from them.
Product or service flexibility: This consists of generating new ideas or ways to incorporate in producing food items or services so that customers can find them more attractive.
Volume flexibility: In this, the adjustments are being made in the output level of McDonald’s in order to tackle the unexpected changes that occur in demand for products.
Manufacturing Strategies with Examples
To manufacture products, various types of competitive priorities are being used. Demand is the main criteria to choose or adopt systems in a manufacturing concern. Different production systems that are in current practice include:
- Batch production
- Customized production
- Mass production
- Assembling the products, testing, and supply.
For the above, the operations manager takes decisions related to which manufacturing strategies will be adopted as these strategies vary from industry to industry. The three main manufacturing strategies are as under:
This is a conventional production strategy in which commodities or goods are produced on a large scale to meet the anticipated customer demand. In other words, Make-to-stock termed as producing goods for inventory according to demand forecasts. In this, organizations are required to keep a stock of finished products in order to deliver them to the customers on-demand or at the time of purchasing.
So, by adopting this manufacturing strategy, manufacturing organizations are able to deliver products on an immediate basis whenever the demand arises and this helps in minimizing the delivery time. This strategy is more suitable for standardized products that are produced in bulk and the forecast is also accurate at a reasonable level.
For example, different products such as electronics, groceries, medicines, chemicals, etc. have demand in high volume. So, a Make-to-stock strategy is feasible in producing such products.
In this manufacturing strategy, sub-assembly parts and components are kept as stock by manufacturers and parts are assembled into final customized goods or products according to the order placed by customers. The Assemble-to-order strategy depends on the organization’s ability to assemble and deliver products in a fast manner.
Different processes include in this strategy as fabrication processes, assembly processes, cleaning, painting, etc. To ensure the smooth functioning of these processes, a suitable inventory of sub-assembly parts is created.
For example, Dell Computer Company works on an assemble-to-order manufacturing strategy for its products such as laptops, personal computers (PCs). In this, customers are allowed to choose options from various available options for different parts of laptops or PC such as monitors, hardware, software, CPUs, processors, etc. as per their suitability. The system is assembled after receiving orders from customers and further delivery of the system is ensured.
The manufacturing strategy using which organizations produce products or offer services as per the specifications given by each customer; is termed as make-to-order strategy. This includes different processes according to customer requirements. Using this strategy, a high level of customization can be achieved which is considered one of the main competitive priorities. Both variety and flexibility can be offered by the company.
For example, some special medical equipment is manufactured as per the special demand from customers like hospitals, doctors, etc. Similarly, the construction of a house is based on customer demand.
One more example is the manufacturing of special theme-based cakes that are customized to the specific demand of customers such as a birthday party theme, an anniversary celebration, an organization’s annual day or special event, etc.
This includes producing less variety using processes that result in high volumes and customized forms. These are more customer-focused. For example, Both Apple and Dell companies are into offering products and services to their customers. Both companies provide IT-based products and also offer an after-sales service facility.
Global Strategies and Role of Operations Strategy
Organizations may adopt a global strategy of importing parts or services from abroad and counter domestic competitions at the corporate level. A global perspective is required to identify external environment threats and opportunities and evolve operations strategy. Analyzing different other factors are also required such as market segmentation that includes psychological, demographic, and industry factors; also, the identification of different needs of goods, volume, delivery, etc.
Drafting a business strategy from a global point of view requires considering the global conditions and existing competencies, strengths, and weaknesses. Different factors such as existing competition, market potential, developmental factors i.e. social, political, economic, technological, etc. are part of global conditions and are considered at the time of defining the business strategy.
There are two main strategies that organizations adopt as a part of their global strategy i.e. strategic alliance and placing operations in a foreign market and after-sales service.
When two parties or organizations enter into an agreement for promoting their products or services then it is considered as a strategic alliance and partners act as joint partners. Different main forms of the strategic alliance are:
Two companies are said to be into collaboration agreement when one company holds core competency in a specific product, joints with the other company that wants to promote the product in its country. So, rather than designing their own duplicate product, both companies collaborate for promoting the product based on their mutual interest. Also, to keep the product’s reputation, the local company follows the operations strategy of a collaborated company. A few examples of such companies are IBM, HP, etc.
This is considered as an agreement between two companies to produce products in joint form. Joint venture strategy supports in gaining foreign market access. In this, technology and expertise are supplied by an external company and required resources such as processing, operations, infrastructure, manpower, etc. are provided by the local company. Different car manufacturing companies like Honda, Maruti Suzuki, etc. have adopted this strategy.
Transfer of Technology and Licensing
Transfer of technology describes different processes using which movement of technological knowledge is possible between or within organizations. This knowledge can be in different forms such as services and people, design and technical documents, etc. Wherein, licensing is related to a business agreement that allows an organization to grant permission to another organization for the manufacturing of its product on defined payment terms.
Placing Operations in Foreign Market and After Sales Service
In order to penetrate the new markets, organizations locate their manufacturing operation abroad. For this, companies are supposed to do a techno-economic survey in a detailed way before entering into foreign countries because of the political and economical environment, customer needs may be different and vary. Operations strategy may also be different than the current operations strategy of the company. If the product is a standardized one, then its methodology and operations strategy can be similar. Domino’s Pizza, McDonald’s are a few examples of this.