Operations strategy must fit in with overall enterprise strategy. Indeed, past practice in many organizations has assumed that this interlocking would take place without consciously making operations strategy a part of the enterprise strategy formulation, with disappointing results. Whether or not a strategy formulation exercises has taken place as a conscious effort, a strategy exists even if by default.
Usually, some internal or external event triggers a re-evaluation of the enterprise strategy; a loss of market share, degenerating cost or quality position, changes in the operating environment, new product or process technologies, deregulation, substantial price changes of raw materials or energy, and so on. Note that some of the triggering events are operations oriented, such as cost and quality position, technological changes, and price changes of ingredients.
A through strategic analysis involves an examination of the major competitors in the industry and its markets, revealing the structural strengths and weaknesses of the participants. Following such an analysis, there are usually only a few viable strategies available. Analysts and consultants can be very useful in this process, but they cannot formulate the strategies for a company, nor can they implement them. The value trade offs and the assumption of risk is managerial function.
Making Operations Strategy Internally Consistent:
A useful approach for formulating a consistent strategy is to involve different managerial groups in prioritizing the four operations criteria: cost, quality, dependability, and flexibility. For the specific situation of a particular firm, these criteria should be defined precisely. For example, for one firm quality may be indicated by the failure arte of the product whereas for another it may be indicated by fine workmanship.
Based on the competitive analysis and the strengths of the firm, each managerial group is asked to provide relative weights for the four criteria. A sample of these weights for a hypothetical firm, assigned by the production and marketing groups, is given in Table below. Note that the sum of the weights is 100.
It is clear from Table below that the production group puts more emphasis on cost and quality, whereas the marketing group considers that the firm should emphasize flexibility. If these differences persist, then the two groups will not be coordinating their efforts and decisions toward a common mission for the form. An acrimonious relationship between the two groups may develop. Further, the company may lose its competitive advantages as the production group may fail to satisfy marketing’s requirements of customization, an element that they feel is important in accessing the market niche the firm occupies.
An open and full discussion between the two groups must take place. The consensus weights are shown in the last row of Table below. What is important is not agreement on numbers but agreement on the common mission of the enterprise. The process of assigning numbers merely forces a harder examination of the trade offs and the priorities for different criteria. In our example, the consensus emerges toward emphasizing flexibility and quality. Assigning a higher importance weight to the flexibility criterion means that the company would prefer to have a wider variety of product features and designs even though the cost per unit may be higher than that of competitors.
Priority weights for operations criteria
Cost Quality Dependability Flexibility
Operations Group 50 20 20 10
Marketing group 20 30 10 40
Consensus 25 30 10 35
A significant advantage of assigning importance weights to the appropriate operations criteria is that the managers are given an opportunity to reveal their assumptions about the product’s market environment and the company’s relative strength within this environment. Further, they are forced to provide a rationale for their viewpoints. What emerges is a deeper understanding of the other views and an appreciation of the trade offs and compromises that must be made.
In our example, the marketing group will have to realize that in order to provide flexibility in product designs and features, the operations function will have to compromise on unit production cost and may incur higher labor and capital costs. Similarly, the production group will have to realize that their emphasis on reducing costs at the expense of reducing flexibility is not in the interest of the firm. This convergence of viewpoints and the internalization of the common values should help in designing a coherent strategy.