Operation Strategies

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CHAPTER

Operations Strategy and Competitiveness
Before studying this chapter you should know or, if necessary, review 1. 2. The role of the OM function in organizations, Chapter 1, pp. 3–4. Differences between strategic and tactical decisions, Chapter 1, 9–10.

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LEARNING OBJECTIVES After studying this chapter you should be able to 1
2 3 4 5 6 7 8 9

Define the role of business strategy. Explain how a business strategy is developed. Explain the role of operations strategy in the organization. Explain the relationship between business strategy and operations strategy. Describe how an operations strategy is developed. Identify competitive priorities of the operations function. Explain the strategic role of technology. Define productivity and identify productivity measures. Compute productivity measures.

CHAPTER OUTLINE

The Role of Operations Strategy 28 Developing a Business Strategy 29 Links to Practice: Dell Computer Corporation 34 Developing an Operations Strategy 34 Links to Practice: Southwest Airlines Company 36 Links to Practice: FedEx Corporation 37

Strategic Role of Technology 40 Productivity 41 OM Across the Organization 46 Inside OM 47 Case: Prime Bank of Massachusetts 49 Case: Boseman Oil and Petroleum (BOP) 50

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OPERATIONS STRATEGY AND COMPETITIVENESS • 27

o maintain a competitive position in the marketplace, a company must have a long-range plan. This plan needs to include the company’s long-term goals, an understanding of the marketplace, and a way to differentiate itself from its competitors. All other decisions made by the company must support this long-range plan. Otherwise, each person in the company would pursue goals that he or she considered important, and the company would quickly fall apart. The functioning of a football team on the field is similar to the functioning of a business and provides a good example of the importance of a plan or vision. Before the plays are made, the team prepares a game strategy. Each player on the team must perform a particular role to support this strategy. The strategy is a “game plan” designed so that the team can win. Imagine what would occur if individual players decided to do plays that they thought were appropriate. Certainly the team’s chance of winning would not be very high. A successful football team is a unified group of players using their individual skills in support of a winning strategy. The same is true of a business. The long-range plan of a business, designed to provide and sustain shareholder value, is called the business strategy. For a company to succeed, the business strategy must be supported by each of the individual business functions, such as operations, finance, and marketing. Operations strategy is a long-range plan for the operations function that specifies the design and use of resources to support the business strategy. Just as the players on a football team support the team’s strategy, the role of everyone in the company is to do his or her job in a way that supports the business strategy. Let’s look at two companies operating in the same industry, but with very different business strategies. The first is Southwest Airlines, which has a strategy to compete on cost. Southwest offers low-cost services aimed at price-sensitive customers. To support this strategy, every aspect of Southwest’s operation is focused on cutting costs out of the system. Later in this chapter we will look at specific operations decisions that Southwest has made to achieve this. The second company is Singapore Airlines, which has a strategy to compete on service. To support this strategy the airline offers free drinks, complimentary headsets, meals prepared by gourmet chefs, comfortable cabins, and even the biggest bed in business class called the “spacebed.” Both airlines began as regional carriers and each has grown to be a highly successful major airline. Although they are in the same industry, their operations decisions are different because...
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