Nigel S., Chambers S., Johnson R. Operations Management
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operation, but they are important and have real value. It is these intangible resources, as well
as its tangible resources, that an operation needs to deploy in order to satisfy its markets. The
central issue for operations management, therefore, is to ensure that its pattern of strategic
decisions really does develop appropriate capabilities within its resources and processes.
Structural and infrastructural decisions
A distinction is often drawn between the strategic decisions which determine an operation’s
structure and those which determine its infrastructure. An operation’s structural decisions
are those which we have classed as primarily influencing design activities, while infrastruc-
tural decisions are those which influence the workforce organization and the planning and
control, and improvement activities. This distinction in operations strategy has been com-
pared to that between ‘hardware’ and ‘software’ in computer systems. The hardware of a
computer sets limits to what it can do. In a similar way, investing in advanced technology
and building more or better facilities can raise the potential of any type of operation. Within
the limits which are imposed by the hardware of a computer, the software governs how
effective the computer actually is in practice. The most powerful computer can only work
to its full potential if its software is capable of exploiting its potential. The same principle
applies with operations. The best and most costly facilities and technology will only be
effective if the operation also has an appropriate infrastructure which governs the way it
will work on a day-to-day basis. Table 3.3 illustrates both structural and infrastructural
decision areas, arranged to correspond approximately to the chapter headings used in this
book. The table also shows some typical questions which each strategic decision area should
be addressing.
Structure
Infrastructure
Part One Introduction
74
The founder and boss of Amazon, Jeff Bezos, was at
a conference speaking about the company’s plans.
Although Amazon was generally seen as an Internet
book retailer and then a more general Internet retailer,
Jeff Bezos was actually pushing three of Amazon’s
‘utility computing’ services. These were: a company
that provides cheap access to online computer storage,
a company that allows program developers to rent
computing capacity on Amazon systems, and a service
that connects firms with other firms that perform
specialist tasks that are difficult to automate. The problem
with online retailing, said Bezos, is its seasonality. At
peak times, such as Christmas, Amazon has far more
computing capacity than it needs for the rest of the year.
At low points it may be using as little as 10 per cent of its
total capacity. Hiring out that spare capacity is an obvious
way to bring in extra revenue. In addition, Amazon had
developed a search engine, a video download business,
a service (Fulfilment By Amazon) that allowed other
companies to use Amazon’s logistics capability including
the handling of returned items, and a service that
provided access to Amazon’s ‘back-end’ technology.
Amazon’s apparent redefinition of its strategy was
immediately criticized by some observers. ‘Why not’,
they said, ‘stick to what you know, focus on your core
Short case
Amazon, what exactly is your
cor
e competence?
8
competence of Internet retailing?’ Bezos’s response
was clear. ‘We are sticking to our core competence;
this is what we’ve been doing for the last 11 years. The
only thing that’s changed is that we are exposing it for
[the benefit of] others.’ At least for Jeff Bezos, Amazon
is not so much an Internet retailer as a provider of
Internet-based technology and logistics services.
Source: Alamy Images
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Chapter 3 Operations strategy
75
Table 3.3 Structural and infrastructural strategic decision areas
Structural strategic decisions
New product/service design
Supply network design
Process technology
Infrastructural strategic decisions
Job design and organization
Planning and control
Inventory
Supplier development
Improvement
Failure prevention, risk and recovery
Typical questions which the strategy should help to answer
How should the operation decide which products or services to develop and how
to manage the development process?
Should the operation expand by acquiring its suppliers or its customers? If so,
what customers and suppliers should it acquire?
How should it develop the capabilities of its customers and suppliers?
What capacity should each operation in the network have?
What number of geographically separate sites should the operation have and
where should they be located?
What activities and capacity should be allocated to each plant?
What types of process technology should the operation be using?
Should it be at the leading edge of technology or wait until the technology is
established?
Typical questions which the strategy should help to answer
What role should the people who staff the operation play in its management?
How should responsibility for the activities of the operations function be allocated
between different groups in the operation?
What skills should be developed in the staff of the operation?
How should the operation forecast and monitor the demand for its products and
services?
How should the operation adjust its activity levels in response to demand
fluctuations?
What systems should the operation use to plan and control its activities?
How should the operation decide the resources to be allocated to its various
activities?
How should the operation decide how much inventory to have and where it is to
be located?
How should the operation control the size and composition of its inventories?
How should the operation choose its suppliers?
How should it develop its relationship with its suppliers?
How should it monitor its suppliers’ performance?
How should the operation’s performance be measured?
How should the operation decide whether its performance is satisfactory?
How should the operation ensure that its performance is reflected in its
improvement priorities?
Who should be involved in the improvement process?
How fast should the operation expect improvement in performance to be?
How should the improvement process be managed?
How should the operation maintain its resources so as to prevent failure?
How should the operation plan to cope with a failure if one occurs?
The process of operations strategy
The process of strategy formulation is concerned with ‘how’ operations strategies are put
together. It is important because, although strategies will vary from organization to organ-
ization, they are usually trying to achieve some kind of alignment, or ‘fit’, between what the
market wants, and what the operation can deliver, and how that ‘alignment’ can be sustained
over time. So the process of operations strategy should both satisfy market requirements through
appropriate operations resources, and also develop those resources in the long term so that
they can provide competitive capabilities in the longer term that are sufficiently powerful to
achieve sustainable competitive advantage.
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There are many ‘formulation processes’ which are, or can be, used to formulate operations
strategies. Most consultancy companies have developed their own frameworks, as have several
academics. Typically, these formulation processes include the following elements:
● A process which formally links the total organization strategic objectives (usually a business
strategy) to resource-level objectives.
● The use of competitive factors (called various things such as order winners, critical
success factors, etc.) as the translation device between business strategy and operations
strategy.
● A step which involves judging the relative importance of the various competitive factors
in terms of customers’ preferences.
● A step which includes assessing current achieved performance, usually as compared against
competitor performance levels.
● An emphasis on operations strategy formulation as an iterative process.
● The concept of an ‘ideal’ or ‘greenfield’ operation against which to compare current
operations. Very often the question asked is: ‘If you were starting from scratch on a green-
field site, how, ideally, would you design your operation to meet the needs of the market?’
This can then be used to identify the differences between current operations and this
ideal state.
● A ‘gap-based’ approach. This is a well-tried approach in all strategy formulation which
involves comparing what is required of the operation by the marketplace against the levels
of performance the operation is currently achieving.
What should the formulation process be trying to achieve?
So what should any operations strategy be trying to achieve? Clearly, it should provide a set
of actions that, with hindsight, have provided the ‘best’ outcome for the organization. But
that really does not help us. What do we mean by ‘the best’, and what good is a judgement that
can only be applied in hindsight? Yet, even if we cannot assess the ‘goodness’ of a strategy for
certain in advance, we can check it out for some attributes that could stop it being a success.
First, is the operations strategy comprehensive? Second, is there is internal coherence between
the various actions it is proposing? Third, do the actions being proposed as part of the
operations strategy correspond to the appropriate priority for each performance objective?
Fourth, does the strategy prioritize the most critical activities or decisions?
Comprehensive
The notion of ‘comprehensiveness’ is a critical first step in seeking to achieve an effective
operations strategy. Business history is littered with world-class companies that simply failed
to notice the potential impact of, for instance, new process technology or emerging changes
in their supply network. Also, many strategies have failed because operations have paid undue
attention to only one key decision area.
Coherence
As a comprehensive strategy evolves over time, different tensions will emerge that threaten
to pull the overall strategy in different directions. This can result in a loss of coherence.
Coherence is when the choices made in each decision area do not pull the operation in
different directions. For example, if new flexible technology is introduced which allows
products or services to be customized to individual clients’ needs, it would be ‘incoherent’
to devise an organization structure which did not enable the relevant staff to exploit the
technology because it would limit the effective flexibility of the operation. For the investment
in flexible technology to be effective, it must be accompanied by an organizational structure
which deploys the organization’s skills appropriately, a performance measurement system
which acknowledges that flexibility must be promoted, a new product/service development
Part One Introduction
76
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policy which stresses appropriate types of customization, a supply network strategy which
develops suppliers and customers to understand the needs of high-variety customization, a
capacity strategy which deploys capacity where the customization is needed, and so on. In
other words, all the decision areas complement and reinforce each other in the promotion of
that particular performance objective.
Correspondence
Equally, an operation has to achieve a correspondence between the choices made against each
of the decision areas and the relative priority attached to each of the performance objectives.
In other words, the strategies pursued in each decision area should reflect the true priority
of each performance objective. So, for example, if cost reduction is the main organizational
objective for an operation, then its process technology investment decisions might err
towards the purchase of ‘off-the-shelf’ equipment from a third-party supplier. This would
reduce the capital cost of the technology and may also imply lower maintenance and running
costs. Remember, however, that making such a decision will also have an impact on other
performance objectives. An off-the-shelf piece of equipment may not, for example, have the
flexibility that more ‘made-to-order’ equipment has. Also, the other decision areas must
correspond with the same prioritization of objectives. If low cost is really important then
one would expect to see capacity strategies which exploit natural economies of scale, supply
network strategies which reduce purchasing costs, performance measurement systems which
stress efficiency and productivity, continuous improvement strategies which emphasize con-
tinual cost reduction, and so on.
Criticality
In addition to the difficulties of ensuring coherence between decision areas, there is also
a need to include financial and competitive priorities. Although all decisions are important
and a comprehensive perspective should be maintained, in practical terms some resource
or requirement intersections will be more critical than others. The judgement over exactly
which intersections are particularly critical is very much a pragmatic one which must be
based on the particular circumstances of an individual firm’s operations strategy. It is there-
fore difficult to generalize as to the likelihood of any particular intersections being critical.
However, in practice, one can ask revealing questions such as, ‘If flexibility is important, of
all the decisions we make in terms of our capacity, supply networks, process technology,
or development and organization, which will have the most impact on flexibility?’ This can
be done for all performance objectives, with more emphasis being placed on those having
the highest priority. Generally, when presented with a framework such as the operations
strategy matrix, executives can identify those intersections which are particularly significant
in achieving alignment.
Chapter 3 Operations strategy
77
There is a famous story that illustrates the importance of
having some kind of plan, even if hindsight proves it to
be the wrong plan. During manoeuvres in the Alps, a
detachment of Hungarian soldiers got lost. The weather
was severe and the snow was deep. In these freezing
conditions, after two days of wandering, the soldiers
Short case
Sometimes any plan is better
than no plan
9
gave up hope and became reconciled to a frozen death
on the mountains. Then, to their delight, one of the
soldiers discovered a map in his pocket. Much cheered
by this discovery, the soldiers were able to escape
from the mountains. When they were safe back at their
headquarters, they discovered that the map was not of
the Alps at all, but of the Pyrenees. The moral of the
story? A plan (or a map) may not be perfect but it gives a
sense of purpose and a sense of direction. If the soldiers
had waited for the right map they would have frozen to
death. Yet their renewed confidence motivated them
to get up and create opportunities.
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Implementation
A large number of authors, writing about all forms of strategy, have discussed the importance
of effective implementation. This reflects an acceptance that no matter how sophisticated the
intellectual and analytical underpinnings of a strategy, it remains only a document until it
has been implemented. Ken Platts of Cambridge University has written about the nature of
the operations strategy formulation process. His generic description of the process is referred
to as the five Ps.
1 Purpose. As with any form of project management, the more clarity that exists around the
ultimate goal, the more likely it is that the goal will be achieved. In this context, a shared
understanding of the motivation, boundaries and context for developing the operations
strategy is crucial.
2 Point of entry. Linked with the above point, any analysis, formulation and implementation
process is potentially politically sensitive and the support that the process has from within
the hierarchy of the organization is central to the implementation success.
3 Process. Any formulation process must be explicit. It is important that the managers who
are engaged in putting operations strategies together actively think about the process in
which they are participating.
4 Project management. There is a cost associated with any strategy process. Indeed one of the
reasons why operations have traditionally not had explicit strategies relates to the diffi-
culty of releasing sufficient managerial time. The basic disciplines of project management
such as resource and time planning, controls, communication mechanisms, reviews and
so on, should be in place.
5 Participation. Intimately linked with the above points, the selection of staff to participate
in the implementation process is also critical. So, for instance, the use of external con-
sultants can provide additional specialist expertise, the use of line managers (and indeed
staff ) can provide ‘real-world’ experience and the inclusion of cross-functional managers
(and suppliers etc.) can help to integrate the finished strategy.
The five Ps of operations
strategy formulation
Part One Introduction
78
The argument has been put forward that strategy does not lend itself to a simple
‘stage model’ analysis that guides managers in a step-by-step manner through to the
eventual ‘answer’ that is a final strategy. Therefore, the models put forward by consultants
and academics are of very limited value. In reality, strategies (even those that are made
deliberately, as opposed to those that simply ‘emerge’) are the result of very complex
organizational forces. Even descriptive models such as the five Ps described above can
do little more than sensitize managers to some of the key issues that they should be
taking into account when devising strategies. In fact, it is argued that articulating the
‘content’ of operation strategy that is more useful than adhering to some over-simplistic
description of a strategy process.
Critical commentary
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Chapter 3 Operations strategy
79
Summary answers to key questions
Check and improve your understanding of this chapter using self assessment questions
and a personalised study plan, audio and video downloads, and an eBook – all at
www.myomlab.com.
➤ What is strategy and what is operations strategy?
■ Strategy is the total pattern of decisions and actions that position the organization in its
environment and that are intended to achieve its long-term goals.
■ Operations strategy concerns the pattern of strategic decisions and actions which set the role,
objectives and activities of the operation.
■ Operations strategy has content and process. The content concerns the specific decisions
which are taken to achieve specific objectives. The process is the procedure which is used
within a business to formulate its strategy.
➤ What is the difference between a ‘top-down’ and a ‘bottom-up’ view of
operations strategy?
■ The ‘top-down’ perspective views strategic decisions at a number of levels. Corporate
strategy sets the objectives for the different businesses which make up a group of businesses.
Business strategy sets the objectives for each individual business and how it positions itself in
its marketplace. Functional strategies set the objectives for each function’s contribution to its
business strategy.
■ The ‘bottom-up’ view of operations strategy sees overall strategy as emerging from day-to-day
operational experience.
➤ What is the difference between a ‘market requirements’ and an ‘operations
resource’ view of operations strategy?
■ A ‘market requirements’ perspective of operations strategy sees the main role of operations
as satisfying markets. Operations performance objectives and operations decisions should be
primarily influenced by a combination of customers’ needs and competitors’ actions. Both of
these may be summarized in terms of the product/service life cycle.
■ The ‘operations resource’ perspective of operations strategy is based on the resource-based
view (RBV) of the firm and sees the operation’s core competences (or capabilities) as being the
main influence on operations strategy. Operations capabilities are developed partly through the
strategic decisions taken by the operation. Strategic decision areas in operations are usually
divided into structural and infrastructural decisions. Structural decisions are those which define
an operation’s shape and form. Infrastructural decisions are those which influence the systems
and procedures that determine how the operation will work in practice.
➤ How can an operations strategy be put together?
■ There are many different procedures which are used by companies, consultancies and academics
to formulate operations strategies. Although differing in the stages that they recommend, many
of these models have similarities.
■ Any operations strategy process should result in strategies that are comprehensive and coherent,
provide correspondence, and prioritize the most critical activities or decisions.
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Part One Introduction
80
Long Ridge Gliding Club is a not-for-profit organization
run by its members. The large grass airfield is located on
the crest of a ridge about 400 metres above sea level. It is
an ideal place to practise ridge soaring and cross-country
flying. The gliders are launched using a winch machine
which can propel them from a standing start to around
110 kilometres per hour (70 mph), 300 metres above the
airfield, in just five seconds. The club is housed in a set
of old farm buildings with simple but comfortable facili-
ties for members. A bar and basic catering services are
provided by the club steward and inexpensive bunk-
rooms are available for club members wishing to stay
overnight.
The club has a current membership of nearly 150 pilots
who range in ability from novice to expert. While some mem-
bers have their own gliders, the club has a fleet of three
single-seater and three twin-seater gliders available to its
members. The club also offers trial flights to members of the
public. (In order to provide insurance cover they actually sell
a three-month membership with a ‘free’ flight at the start.)
These ‘casual flyers’ can book flights in advance or just
turn up and fly on a first-come, first-served basis. The club
sells trial-flight gift vouchers which are popular as birthday
and Christmas presents. The club’s brochure and web site
encourage people to:
‘Experience the friendly atmosphere and excellent facil-
ities and enjoy the thrill of soaring above Long Ridge’s
dramatic scenery. For just £70 you could soon be in the
air. Phone now or just turn up and our knowledgeable
staff will be happy to advise you. We have a team of
professional instructors dedicated to make this a really
memorable experience.’
The average flight for a trial lesson is around 10 minutes. If
the conditions are right the customer may be lucky and get
a longer flight although at busy times the instructors may
feel under pressure to return to the ground to give another
lesson. Sometimes when the weather is poor, low cloud and
Case study
Long Ridge Gliding Club
10
wind in the wrong direction, almost not fit for flying at all,
the instructors still do their best to get people airborne but
they are restricted to a ‘circuit’: a takeoff, immediate circle
and land. This only takes two minutes. Circuits are also used
to help novice pilots practise landings and takeoffs. At
the other end of the scale many of the club’s experienced
pilots can travel long distances and fly back to the airfield.
The club’s record for the longest flight is 755 kilometres,
taking off from the club’s airfield and landing back on the
same airfield eight hours later, never having touched the
ground. (They take sandwiches and drinks and a bottle they
can use to relieve themselves!)
The club has three part-time employees: a club steward,
an office administrator and a mechanic. In the summer
months the club also employs a winch driver (for launching
the gliders) and two qualified flying instructors. Throughout
the whole year essential tasks such as maintaining the
gliders, getting them out of the hangar and towing them
to the launch point, staffing the winches, keeping the flying
log, bringing back gliders, and providing look-out cover
is undertaken on a voluntary basis by club members. It
takes a minimum of five experienced people (club mem-
bers) to be able to launch one glider. The club’s member-
ship includes ten qualified instructors who, together with
the two paid summer instructors, provide instruction in
two-seater gliders for the club’s members and the casual
flyers.
When club members come to fly they are expected
to arrive by 9.30 am and be prepared to stay all day to
help each other and any casual flyers get airborne while
they wait their turn to fly. On a typical summer’s day there
might be ten club members requiring instruction plus four
casual flyers and also six members with their own gliders
who have to queue up with the others for a launch hoping
for a single long-distance flight. In the winter months there
would typically be six members, one casual flyer and six
experienced pilots. Club members would hope to have
three flights on a good day, with durations of between two
and forty (average ten) minutes per flight depending on
conditions. However, if the weather conditions change they
may not get a flight. Last year there were 180 days when
flying took place, 140 in the ‘summer’ season and 40 in the
‘winter’. Club members are charged an £8.00 winch fee
each time they take to the air. In addition, if they are using
one of the club’s gliders, they are charged 50p per minute
that they are in the air.
Bookings for trial flights and general administration
are dealt with by the club’s administrator who is based
in a cabin close to the car park and works most weekday
mornings from 9.00 am to 1.00 pm. An answerphone takes
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Chapter 3 Operations strategy
81
messages at other times. The launch point is out of sight
and 1.5 km from the cabin but a safe walking route is
signposted. Club members can let themselves onto the
airfield and drive to the launch point. At the launch point the
casual flyers might have to stand and wait for some time
until a club member has time to find out what they want.
Even when a flight has been pre-booked casual flyers may
then be kept waiting, on the exposed and often windy air-
field, for up to two hours before their flight, depending on
how many club members are present. Occasionally they
will turn up for a pre-booked trial flight and will be turned
away because either the weather is unsuitable or there are
not enough club members to get a glider into the air. The
casual flyers are encouraged to help out with the routine
tasks but often seem reluctant to do so. After their flight
they are left to find their own way back to their cars.
Income from the casual flyers is seen to be small com-
pared to membership income and launch fees but the club’s
management committee views casual flying as a ‘loss leader’
to generate club memberships which are £350 per annum.
The club used to generate a regular surplus of around
£10,000 per year which is used to upgrade the gliders
and other facilities. However, insurance costs have risen
dramatically due to their crashing and severely damaging
four gliders during the last two years. Two of the accidents
resulted in the deaths of one member and one casual flyer
and serious injuries to three other members.
The club’s committee is under some pressure from
members to end trial flights because they reduce the num-
ber of flights members can have in a day. Some members
have complained that they sometimes spend most of
their day working to get casual flyers into the air and miss
out on flying themselves. Although they provide a useful
source of income for the hard-pressed club (around 700
were sold in the previous year), only a handful have been
converted into club memberships.
Questions
1 Evaluate the service to club members and casual flyers
by completing a table similar to Table 3.1.
2 Chart the five performance objectives to show the
differing expectations of club members and casual
flyers and compare these with the actual service
delivered.
3 What advice would you give to the chairman?
These problems and applications will help to improve your analysis of operations. You
can find more practice problems as well as worked examples and guided solutions on
MyOMLab at
www.myomlab.com.
Explain how the four perspectives of operations strategy would apply to Ryanair and Flextronics.
Compare the operations strategies of Ryanair and a full-service airline such as British Airways or KLM.
What do you think are the qualifying and order-winning factors for (a) a top of the range Ferrari, and (b) a
Renault Clio?
What do you think are the qualifying or order-winning factors for IKEA described in Chapter 1?
Search the Internet site of Intel, the best-known microchip manufacturer, and identify what appear to be its
main structural and infrastructural decisions in its operations strategy.
(Advanced) McDonald’s has come to epitomize the ‘fast-food’ industry. When the company started in the
1950s it was the first to establish itself in the market. Now there are hundreds of ‘fast-food’ brands in the
market competing in different ways. Some of the differences between these fast-food chains are obvious.
For example, some specialize in chicken products, others in pizza, and so on. However, some differences are
less obvious. Originally, McDonald’s competed on low price, fast service and a totally standardized service
offering. They also offered a very narrow range of items on their menu. Visit a McDonald’s restaurant and
deduce what you believe to be its most important performance objectives. Then try and identify two other
chains which appear to compete in a slightly different way. Then try to identify how these differences in the
relative importance of competitive objectives must influence the structural and infrastructural decisions of
each chain’s operations strategy.
6
5
4
3
2
1
Problems and applications
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Boyer, K.K., Swink, M. and Rosenzweig, E.D. (2006)
Operations strategy research in the POMS Journal,
Production and Operations Management, vol. 14, issue 4.
A survey of recent research in the area.
Hayes, R.H., Pisano, G.P., Upton, D.M. and Wheelwright,
S.C. (2005) Operations, Strategy, and Technology: Pursuing
the Competitive Edge, Wiley. The gospel according to the
Harvard school of operations strategy. Articulate, interest-
ing and informative.
Slack, N. and Lewis, M. (2008) Operations Strategy, 2nd edn,
Financial Times Prentice Hall, Harlow. What can we say –
just brilliant!
Selected further reading
www.aom.pac.edu/bps/ General strategy site of the
American Academy of Management.
www.cranfield,ac.uk/som Look for the ‘Best factory awards’
link. Manufacturing, but interesting.
www.opsman.org Lots of useful stuff.
www.worldbank.org Global issues. Useful for international
operations strategy research.
www.weforum.org Global issues, including some operations
strategy ones.
www.ft.com Great for industry and company examples.
Useful web sites
Now that you have finished reading this chapter, why not visit MyOMLab at
www.myomlab.com where you’ll find more learning resources to help you
make the most of your studies and get a better grade?
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