Discussion
Chapter 2
Niccole Hyatt, PhD
objectives
Explain the role of operations strategy in the organization.
Explain how a business strategy is developed.
Describe how an operations strategy is developed.
Explain the strategic role of technology.
Define productivity and identify productivity measures.
This chapter explains the role and development of a business strategy. It also explains the role and development of operations strategy, and how the operations and business strategies are interrelated. The chapter also describes the competitive priorities of the operations function, the strategic role of technology, and finally, productivity measures.
Why is a business strategy important?
It is important for a company to have a clear plan of action since we are in a highly competitive, global environment.
A clear strategy allows the company to work toward common goals.
How is a business strategy developed?
A business strategy is developed after the company’s mission, an understanding of the market (environmental scanning), and the core competencies of the company have been identified.
The mission involves the determination of what business to be in, who the customers will be, and how the company’s beliefs will define the business.
Environmental scanning includes an examination of the current trends in the market, economy, political environment, and society, resulting in an identification of opportunities and threats.
Finally, core competencies are the strengths of the company. The company should match its strengths to its business strategy.
How is an operations strategy developed?
The operations strategy is formulated by first determining the competitive priorities of the firm.
Then, these priorities are translated into production requirements related to the structure and infrastructure of the firm.
The structure involves the decisions related to the design of the production process, while the infrastructure involves decisions related to the planning and control of the operation.
What are competitive priorities?
Competitive priorities are capabilities that the operations function can develop in order to give a company a competitive advantage in its market.
The categories of competitive priorities are cost, quality, time, and flexibility.
Cost involves a focus on keeping costs low.
Quality focuses on the ability of the product or service to meet the specifications or requirements of the customer.
Time focuses on speed of delivery and on-time delivery performance.
Flexibility relates to the ability to offer a wide variety of goods or services.
What are the primary technology types?
The three primary types of technologies are: product technology, process technology, and information technology.
Product technology is any new technology developed by a firm, which allows the firm to offer improved products. New generations of cellular telephones are a current example.
Process technology allows a firm to create goods and services more effectively. Cash register scanners are an example where supermarkets can process customers through the checkout line faster and keep better records of items sold.
Information technology impacts communication, processing, and storage of information. An example of improved operations through this technology would be cross docking.
Does Productivity = profitability?
Productivity is a measure of output vs. input, not price vs. cost. Dollar values are used so that we can weigh the impact of changes in the amount used of several inputs. So long as prices are stable, this works. If prices and quantities change at the same time, we will run into trouble.
If productivity is up then so is profitability, right? No. The airline industry is a good example. Once airlines were deregulated, the switch to a “hub-and-spoke” operation allowed many airlines to increase outputs (revenue passenger miles) while maintaining inputs (crew, aircraft, fuel) at or near the previous levels.
However, around the same time the airlines entered a price war. The result was that, while they were more productive, they were charging much less per revenue passenger and, therefore, were also much less profitable.
What are the primary productivity types?
The three types of productivity measures are total productivity, partial productivity, and multifactor productivity.
Total productivity utilizes all inputs and outputs in the calculation. Therefore, we are calculating the entire organization’s productivity.
Partial productivity involves calculating the productivity for only one type of input, such as machines, labor, or materials.
Finally, multifactor productivity is the ratio of outputs to several, but not all inputs.
Questions?
Niccole Hyatt, PhD