Operations Strategy and Productivity

The bottom level strategy is called functional level strategy and it is primarily concerned with the individual functions like operations, marketing, finance, etc. This strategy is developed to support the business strategy, to define the strategic objectives of each function, and the allocation of resources in order to achieve those objectives (Barnes, 2008, p. 23).

The second vital factor for business strategy is environmental scanning. Environ-mental scanning could be defined as the process of monitoring the environment in which the company operates (Reid & Sanders, 2012, p.33). This environment changes continually and the company has to adapt to the changes as quick as possible. In the process of scanning the external environment, managers are monitoring the trends in the market, industry, and society for opportunities and threats.

Political trends are related to the changes in local, national, and international relations that affect the business. For example, as a result of globalization companies seek customers and suppliers all over the world. Many of them form partnerships with international companies which are called strategic alliances in order to take the advantage of being global.

Social trends include changes in society. An example of this trend could be the awareness of the danger of smoking, which affects the tobacco industry. In order to survive companies in tobacco industry change their strategy and seek customers from different countries where smoking is still socially acceptable and they diversified their product lines (Reid & Sanders, 2012, pp.34-35).

Core Competencies are the unique strengths of a business. They include :

1. Workers: Skilled, responsive, creative and flexible workers with strong technical capability allow organizations to respond to the needs and expectations of the customers on time.                                                                           

2. Facilities: The location of the facilities could be an advantage because of building new facilities need a long lead time.                                                 

3. Market & financial know-how: Companies those can easily attract and raise capital from stock sales, market and distribute its service or products, or differ-entiate their products from similar services and products will gain/sustain a competitive advantage.                                                                           

4. Systems & technology: An organization that has expertise in information systems, internet technologies and applications; latest production technology and quality control techniques will also have a big competitive advantage (Krajewski, Ritzman, & Malhotra, 2015, p. 30; Reid & Sanders, 2012, p.35).

Business strategy provides a broad scope for the entire organization which provides an overall direction for the organization. Operations strategy has a narrow scope since it relates primarily to the operations of an organization (Stevenson, 2014, p.51). Once a business strategy has been developed, an operations strategy must be formulated. Operations strategy could be defined as a plan that is designed for operations function that supports the business strategy (Reid & Sanders, 2012, p.31).

The main and the basic role of operations function is to implement the business strategy. You know there is a strategy, but you cannot touch it and you cannot even see it; all you can see is how the operation behaves in practice. For instance, just think an insurance company whose business strategy is moving to an entirely online service; the operations function of this company will have to support the design of all the processes which allow customers to access online information, issue quotations, request further information, check credit details. Send out documentation etc. 

The third and the most difficult strategy is driving business strategy. In this strategy, the role of operations is to drive strategy by giving it a unique and long-term advantage. For example, if a specialist food service company supplies restaurants frozen fish and fish products, it has to build up close relations with the customers and suppliers around the world.

The four stage models for evaluating the role and the contribution of the opera- tions to business strategy are as follows:

Stage 1: Internal Neutrality - In this stage, the contribution of operations function is at the poorest level.

Stage 2: External Neutrality - In this stage, the operations function begins comparing itself with similar organizations in the outside market.

Stage 3: Internally Supportive - However the operations are of the best among the others in the market in Stage 3, they are not the very best.

Stage 4: Externally Supportive - In stage 4, operations are seen as the source of the company’s competitive success. Operations look to the long term, they forecast the changes in the market and supply, and based upon these future conditions they develop operations-based capabilities.

According to this perspective, operations strategy is developed with regard to the company and its competitive strategy (Gupta & Starr, 2014, p. 44). This approach supports the organization’s business strategy; in other words, the operations strategy is used for realizing the business strategy. This perspective is in line with Stage 3: internally supportive.

In the ‘bottom-up’ perspective, the organization learns from its experiences, develop and enhance its operational capabilities (Barnes, 2008, p.32). The organization may also incorporate the ideas which come from daily operations (Slack, Chambers, & Johnston, 2013, p. 74).

In this perspective, operations strategy is developed for responding to the market requirements in which the organization operates. Understanding the market requirements makes it possible to achieve the right priority between the operational performance objectives such as cost, quality, time, flexibility. These objectives are defined as competitive factors or competitive priorities (Slack, Chambers, & Johnston, 2013, p. 77).

In this perspective, operations strategy fits with the resource-based view (RBV) of the organization and it is in line with Stage 4: externally supportive (Barnes, 2008 p. 33). In RBV, it is believed that firms with an ‘above average’ performance gain competitive advantage from their resources. In other words, the operations resources are effective on the organization’s strategic success so understanding the importance of developing the capabilities of operations resources will be an important perspective on operations strategy (Slack, Chambers, & Johnston,
2013, p. 82).

Skinner (1969) identified four main competitive priorities. These are cost, quality, delivery, and flexibility.

1. Cost: Competing on cost means delivering a service as a product at the lowest cost when compared with competitors’ services or products (Krajewski, Ritzman, & Malhotra, 2015, p. 32; Reid & Sanders, 2012, p. 37).

2. Quality: As a precondition of competitiveness in global markets, quality can be generally defined as satisfying the requirements of the customers with the launched product, conformance to specifications and being free of error (Li,  2000; Forker et al., 1996; Krajewski & Ritzman, 2005; Akal, 1998).

3. Time: The ability to provide high-quality products in a short time as possible. Time is one of the most important competitive priorities today since today’s customers can’t wait.

4. Flexibility: Flexibility is defined as adapting to the changes occurred in the preferences of the customers easily and quickly (Amoako-Gyompah, 2003). There are two dimensions of flexibility. One is product flexibility which is defined as the ability to offer a wide variety of goods or services and customization of them to the requirements of the customers. Another one is called volume flexibility which means the ability to change the amount of production according to demand changes.

As a basic measure, productivity is used in evaluating economies, industries, firms and processes. If a company wants to improve its processes and supply chain in order to compete against their competitors, operations managers have to consider improving the productivity (Krajewski, Ritzman, & Malhotra, 2015,
p.36). 

Partial productivity is called as single factor productivity. The main aim of measuring the productivity of a single input is identifying how efficient this factor is being used. Partial productivity is called according to the single factor that is calculated.

When we calculate productivity for all inputs such as labor, machines, and capital, it means we are measuring total productivity.  For example, let’s say that the weekly dollar value of a company’s output is $10,200, and the value of all inputs such as labor, materials, and capital is $8,600 then the total productivity of the company is computed as follows (Reid & Sanders, 2012, pp. 44-45).

Multifactor productivity is a measure of the ratio of output divided into a group of inputs, such as labor and materials. For example let’s say output worth $382 and labor and materials costs are $168, and $98 respectively. Multifactor productivity is calculated by (Reid & Sanders, 2012, p. 34):

Interpreting the productivity measure means comparing it with a similar productivity measure. For example, if we think of a pizza shop and we know that one worker can produce 17 pizzas in two hours. We can calculate the workers productivity as 8.5 pizzas per hour. This number by itself would not tell us very much. But if we can compare the productivity ratios of this worker with two other workers, let’s say one is producing 7.2 pizzas per hour and another 6.8 pizzas per hour, it would be more meaningful. In this case we can say the first worker is much more productive than the other two workers.

Productivity is a measure used by individuals, department or organizations. Similarly, it can be measured for an entire industry and even a country. The economic success of a nation and the quality of life of its citizens are related to its competitiveness in the global markets. Increase in productivity brings increase in a nation’s standard of living. Therefore, business and government leaders always monitor the productivity at the national level and by industry sectors.