Chapter three

Strategy and Productivity

Mohamud Mohamed Farah
 Understanding Strategy and
Productivity
Strategy in production and service
management involves the long-term
planning, decision-making, and actions taken
by an organization to achieve its competitive
objectives and maintain its market position.
These strategic plans are designed to meet
the business’s overarching goals, which
might include increasing profitability,
improving market share, enhancing
customer satisfaction, and sustaining long-
term growth.
 Understanding Strategy and
Productivity
In this sense, strategy is a
framework that guides the
business to adapt to changes in the
environment, technological
advancements, and market
dynamics. According to Michael
Porter strategic positioning in the
marketplace is fundamental to
achieving sustained competitive
advantage, which in turn drives
long-term profitability.
Strategy and Organizational
Framework
Organizations develop strategies based on
their mission, goals, and tactics.
Mission: The mission defines an
organization's core purpose and guides its
strategic decisions. It answers the question,
"What business are we in?" A clear mission
aligns efforts across the company and ensures
that all actions are focused on common
objectives. For example, Toyota’s mission to
produce safe and high-quality vehicles shapes
its strategic direction towards innovation and
safety.
 Strategy and Organizational
Framework
Goals: Detailed Scope of the
Mission: Goals are specific,
measurable targets that break down the
mission into actionable steps. They help
clarify what must be achieved to fulfill
the mission, such as increasing market
share or reducing production costs.
For example, a goal might be to
increase production capacity by 20%
while cutting operational costs by 10%.
Strategy and Organizational
Framework
 Tactics: Methods and Actions to
Accomplish Strategies
Tactics are the specific actions and
decisions taken to implement strategies.
These may include marketing campaigns,
process optimizations, or employee
training programs. For instance,
improving customer satisfaction might
involve tactics like using customer
feedback systems, training staff, or
integrating self-service kiosks.
 Levels of Strategy
Strategy within an organization is
generally structured at three main
levels: corporate, business, and
operational or functional.
Corporate Level Strategy: At the
highest level, corporate strategy
sets the long-term direction for the
entire organization. It typically
includes broad decisions about what
markets the company should
operate in, what types of products or
 Corporate Level Strategy
The corporate strategy is often
articulated in the mission statement,
which defines the organization's core
purpose, values, and overarching
goals. For instance, a corporate
strategy could involve diversification
into new industries or global
expansion.
Example: A company like Apple may
have a corporate strategy of becoming a
global leader in innovative technology
 Business Level Strategy
Business Level Strategy: The
second level of strategy, known as
business strategy, focuses on how
to compete within specific market
segments. For companies with
multiple divisions or strategic
business units (SBUs), the business
strategy addresses the competitive
approach each unit should take
within its respective market.
Business strategies define the
Operational or Functional
Strategy
Operational or Functional
Strategy: The third level of
strategy focuses on the day-to-day
operations that support business-
level strategies. Functional
strategies are developed by key
functions such as operations,
marketing, finance, and human
resources. For example,
operations management plays a
critical role in the formulation of
Operational or Functional
Strategy
These operational strategies ensure
that functional areas align with broader
business objectives and support the
company's competitive goals.
 Example: If Toyota's business
strategy focuses on fuel efficiency, its
operational strategy may involve
adopting lean manufacturing
techniques and investing in high-tech,
energy-efficient production equipment.
Operational or Functional
Strategy
companies make decisions on
product offerings, market
positioning, customer
segmentation, and pricing
strategies.
Example: Toyota's business
strategy could involve producing
fuel-efficient, reliable cars for
global markets, which would
shape their product design,
Relationship between Operations
and Organizational Strategy
Operations strategy – may be defined as
the approach, consistent with organizational
strategy that is used to guide the operations
function.
We first study strategy design process with
example for manufacturing and services.
Organizational strategy is
An overall big picture for the whole
organization.
longer in time horizon
Less detailed and broader in scope.
Relationship between Operations
and Organizational Strategy
Operational Strategy is
Narrower in scope and in more detail
Prepared by middle management.
Should be in line with the
Organization strategy
Operational Strategy if
Designed and implemented
successfully can make an
organization more successful.
Dimensions of Operational
strategy
Operational strategies mostly function on
two dimensions of quality management
and service/manufacturing strategy.
An operations manager should avoid sub
optimization i.e. his operational strategy
for the department and divisions goals
should not harm the overall organizational
strategy. He should opt for systems
approach or a big picture approach or
strictly base his operations strategy on
organizational strategy.
How Operations Support
Strategy
Meeting Market Demands: In today’s markets,
companies need to deliver products and services not
just at low cost, but with good quality and fast
delivery. Operations are responsible for making sure
this happens efficiently.
Adapting to Change: Markets change quickly. A
company’s ability to compete can shift as customer
preferences, technology, or global conditions change.
Traditional Strategy Development: Traditionally,
a company’s senior management sets overall goals
and plans, then allocates resources to achieve those
goals. This strategy relies on forecasting future
market conditions and making plans accordingly.
How Operations Support
Strategy
Challenges in Traditional Strategy: The
problem with this approach is that it’s hard to
predict future market conditions, especially when
things change quickly. This can lead to a focus on
short-term objectives instead of long-term growth,
and ignore important factors like employee skills
and performance.
Modern Strategy: In today’s fast-moving markets,
strategies need to be more flexible. Instead of rigid,
long-term plans, companies should focus on a
general direction for the future and adjust as
needed. Operations play a major role in this by
ensuring resources and processes are adaptable.
Operations Competitive
Priorities
To stay ahead in business, operations should
focus on four key areas, called competitive
priorities. These are essential capabilities that
help a company compete effectively. The four
main competitive priorities are cost, time,
quality, and flexibility.
 1. Cost
If a company competes based on price, it needs
to keep costs lower than competitors. By doing
so, the company can either make more profit if
the prices are the same or sell more products at
a lower price.
Operations Competitive
Priorities
Cost is especially important if the
company offers a unique product or
service that competitors can't easily
copy.
There are three major costs to manage:
1. Material costs
2. Facility costs
3. Labor costs
Operations Competitive
Priorities
 2. Time
Time refers to how quickly a company can
deliver products or services after a customer
makes a request. Speed is a key factor when
customers choose where to buy from.
P:D ratio helps measure time efficiency:
D (demand time): The time it takes from when a
customer orders to when they get the product.
P (throughput time): The total time it takes to
purchase, make, and deliver the product.
  3. Quality
Quality is about how good the product/service is
and how well the process delivers it. There are two
types of quality costs:
Costs of good quality: The cost of ensuring
products meet high standards (e.g., quality control).
Costs of poor quality: The cost of mistakes, like
defects or returns.
Good quality offers several benefits:
Reliable products: Customers can depend on it.
Lower costs: Fewer returns and fixes.
Better service: Higher customer satisfaction.
  4. Flexibility
Flexibility is about being able to adapt to changes
in the market or customer needs. It’s important for
companies to respond quickly to changes, like
demand spikes or customer preferences.
Types of flexibility include:
Product flexibility: The ability to offer new or
different products based on customer needs.
Volume flexibility: The ability to increase or
decrease production quickly based on demand.
Mix flexibility: The ability to change the mix of
products or services offered.