Saturday, December 24, 2011

Tradeoffs and Targeting in Operations Strategy - Revision Notes

Revision notes for Chapter 3 of Nigel Slack and Michael Lewis

Operations strategy takes place in a dynamic environment. As markets change, the type of things operations is called upon to do will also change. The operations strategy has to change. At any point in this dynamic development of operations strategy, the resources of operations are all interrelated and any change will have different effects on them. In the short term, the resources of an organization cannot be exceptionally good at everything the market requires and may have to optimize its output and performance measures by accepting lower performance in one area for excellence in another. This idea of sacrificing one thing for great performance in another area can be taken to its logical conclusion by focusing or targeting operations on a very narrow set of tasks and objectives from the available opportunities that the market provides.

Operations strategy changes over time
• The chapter utilized the example of Volkswagen Motor Company it show how the balance between operations resources and market requirements has changed over time. One of the illustration in the VW story is the announcement of 11 joint production systems among all modes from four platform systems at the time in use

• The importance of attention to operations strategy changes over time. Three areas are seen by some authorities see as the major pillars for the foundation of competition.
• The product or service specification (product strategy).
• The way the company markets its products and services (marketing strategy).
• The way in which it manages its operations which create products and services (operations strategy).
• The idea is illustrated in the change in importance given to product/service strategy, marketing strategy and operations strategy in the pharmaceutical industry over a period.
• Initially large pharmaceutical companies devoted their attention to almost exclusively to applied research and development and saw themselves as companies whose future depended on the development of new drugs. Huge amounts were invested in developing the drugs. But as some new drugs were discovered, marketing the products became important, and in the 1970s and 1980s, the amount of money that pharmaceutical companies spent on marketing their products started to equal and then exceed their expenditure on developing new drugs. In subsequent periods, competition becomes fiercer and generic drug manufacturers with lower prices appeared, the large pharmaceutical companies have turned their attention to increasing the efficiency of their operations strategy, most especially their supply chain strategies. Interestingly, it is pointed out that many people in the industry now believe that opportunity of exploring the human genome may result in a swing back to an increased emphasis on new product (that is drug) development as the basis for competitive advantage in the future periods to come.
• The chapter also points out that the idea of the “emergent strategy” is important when considering the dynamics of operations strategy. This point is important in operations strategy theory. Emergent strategies emerge from the organization resources, and large amount of resources of an organization are employed in operations function.

• The issue of trade-offs has been positioned as a closely fought debate in operations strategy.
• In its history of development, three schools can be identified in the thought regarding trade-offs. The original school of thought was started by Wickham Skinner who first pointed out that trade-offs were an important issue in operations strategy. He emphasized the point that trade-offs should be determined to reflect the company’s overall strategy or alignment with the overall strategy. Achieving the right balance or positioning between various performance objectives in alignment with the overall strategy is fundamental in developing operations strategy. The second school of thought of improvement in performance capabilities over time was positioned as an criticism of this idea. It emerged in the early 1980s in movement of understanding the Japanese manufacturing principles and the concept of continuous improvement. Put simply, it claimed that trade-offs were largely imagined and unnecessarily highlightd. It advocated that the main objective of operations management was to be good at everything. Merely accepting that one aspect of performance must be designed at lower level or forced to deteriorate if another is to be improved was, they claimed, at best unimaginative and at worst irresponsible. The third (and now largely accepted) school of thought is that yes, trade-offs do exist in the short term, but over time they can be overcome and operations strategy needs to include programs to improve performance capabilities. The chapter promotes the third school.

Targeting and operations focus
• The idea of targeting operations or parts of operations on a relatively narrow set of tasks or markets is not a new one. It was first written about in the 1960s and 70s but was in practice must before. It is one of the most important “solutions” to managing the complexity present in most operations.
• Put simply, focused operations facilities are given a narrow set of objectives, technologies, products or services, markets, or activities on which to concentrate.
• There are a number of advantages to focusing operations.
• The overall managerial targets for operations management can be made more focused and clear. For example keeping costs to a minimum on a small set of standard products is one target statement while provide customization service to the customer and the customers will pay on cost basis is another target statement.
• Resources appropriate for those narrower set of objectives can be allocated to this focused operation. For example, if cost is the main objective then high volume, low variable cost technology could be used. If customization is particularly important then more flexible technology could be used.
• Focused operations can take a more appropriate improvement trajectory. For example the operations that concentrate on cost can become particularly experienced in shaving every cent off operations costs and employ people well trained in smaller set of skills, whereas those specializing in customization can develop skills of understanding and interpreting customers’ needs and employ people with multi-skilling into the delivered service.
• When operations are set up as independent units with particular focus, each facility with a high degree of focus has to make a success of its business or fold. There is no option to continue with the strategic decision if it is not contributing to profits.
Nigel Slack and Michael Lewis, Operations Strategy
2nd Ed. 2009
Pearson Prentice Hall
Textbook and Student Guide

Powerpoint slides of the chapter from the first edition

Originally posted at

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