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CHAPTER 7 DESIGNING AN OPERATIONS STRATEGY

By Cheryl Armstrong,2014-05-16 20:04
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SWOT analyses bring together the two types of analysis emphasised in the chapter How would you start a SWOT analysis for a public company?

CHAPTER 7 ANALYSES FOR STRATEGY DESIGN

AIMS OF THE CHAPTER

    The last chapter discussed the way that managers can approach the design of

    an operations strategy. The main requirement for this is a detailed knowledge

    of higher strategies, operations and the environment. This chapter looks at

    some analyses that give this knowledge. In particular, it considers an

    environmental scan to collect information about the operations environment,

    and an operations audit to show the details of operations. Then it outlines

    some further analyses that can help with strategic design.

The aim of the chapter is to review some tools for collecting and analysing

    information that can help design an operations strategy. More specific aims

    are to:

    ? Discuss the types of analyses needed to design an operations strategy There are three main areas for analyses. Firstly, the higher strategies

    particularly the business strategy which have to be analysed from an

    operations perspective. Secondly, the operations environment which is

    analysed using an environmental scan. Thirdly, internal operations are

    analysed using an operations audit.

    ? Describe the types of information needed about the environment

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Any information about the environment might be useful for designing an

    operations strategy. The three most common areas of concern are:

    1. the industry that the operations work in, which is defined by organisations

    that use or might start using in the future similar resources to make

    equivalent products to satisfy the same customer demand

    2. the market for the operations’ products, which is defined by the customers

    who buy or might buy a particular type of product

    3. any other relevant external factors, including economic conditions, legal

    requirements, market conditions, etc.

? Collect data through an environmental scan

    An operations environmental scan collects all relevant information about the

    environment that might be useful for designing an operations strategy. It

    generally focuses on the three areas of industry, market, and any other

    relevant external factors (including economic conditions, legal requirements,

    market conditions, etc). We do not want to go into the details of data

    collection, but common methods include observation, interviews, market

    surveys, literature searches, Web searches, data sampling, questionnaires,

    and so on.

? Outline a number of analyses for environmental factors

    There are many possible analyses of environmental factors. The chapter

    described industry and market analysis followed by PEST, industry

    attractiveness, market attractiveness, key success factors, competitor analysis,

    competitor profiling, group map, driving force analysis, and any other

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appropriate analysis. Within each of these, managers can do many other

    detailed analyses.

? Discuss the type of information needed about internal operations

    Any internal information might be useful in designing an operations strategy.

    The most useful types concern:

    o Products, and the complete packages that are passed to customers

    o Process, including details of operations, their performance,

    structure of the supply chain, types of raw materials, financial

    support, skills of employees, etc

    o Resources, which are found from a resources audit

    o Management, and the skills with which they control operations.

? Collect data through an operations audit

    An operations audit collects all relevant information about the internal

    operations of an organisation and gives a detailed view of the activities,

    process, resources, management and generally the way that things

    work.

? Use a number of analyses for internal operations

    There are many possible analyses for internal operations. Those mentioned

    in the chapter are financial analysis, performance analysis, performance-

    importance, balanced scorecard, benchmarking, value-chain analysis and

    cost analysis.

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? Do a SWOT analysis

    SWOT analyses bring together the two types of analysis emphasised in the chapter environmental scans and operations audits. In particular, they list

    the strengths (what the operations do well and can be built into distinctive capabilities), weaknesses (problems within the operations that need improvement), opportunities (that can help the organisation) and threats (that can cause damage). The basic analysis is to lay out these factors, and use a structured format to develop ideas for a strategy. In practice, the identification and discussions of factors are the most important part of the analysis, rather than the presentation of summarised results.

DISCUSSION QUESTIONS

    1. Is management more of an art or a science?

    Over the years there has been a lot of discussion about this question. One view says that it is an art, as no formal methods can predict future conditions or performance with certainty. Science assumes that when an experiment is repeated it gives the same results again but when management decisions

    are repeated they often give completely different results. As management decisions rely on judgement, intuition and experience there can be no scientific footing.

    The opposing view says that decisions should be made rationally, and based on the logical foundations of science. If we look at any management problem we can do formal analyses of circumstances, compare alternatives and use

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rational analyses to make the best decisions. A scientific approach is the only

    reasonable way of making decisions and any problems with decisions

    suggest failings in managers’ analyses and implementation rather than the

    methods themselves.

A reasonable view says that managers can use scientific methods to collect

    and analyse information, but conditions are so complex and uncertain that

    they need ‘art’ skills for the actual decisions.

2. What do managers need to analyse when they design an operations

    strategy?

    The three areas of higher strategies (particularly analysing the business

    strategy from an operations perspective), the operations environment (using

    an environmental scan) and internal operations (using an operations audit).

    Each of these gives a complex and changing picture that contains many

    different features to be analysed.

3. An operations environmental scan describes the main features of the

    related industry and market. Is this true?

    Yes but this is only part of its job, as it collects all relevant information about the operations environment. Essentially, an environmental scan

    collects everything about the environment that might be useful in

    designing an operations strategy. It allows managers to analyse the

    effects of the environment on current and proposed operations.

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    4. The operations environment is too complicated for any managers to

    understand properly and they probably cannot even identify the most

    important features. So what is the point of trying to use simple, standard

    analyses of the environment?

    The first part of the question is generally true, that the operations environment is too complicated for any managers to understand properly and it is also

    true that most managers would have difficulty in identifying all of the most important features. But this does not mean that they should simply give up and not try to understand anything at all. Some knowledge is almost invariably better than complete ignorance. Managers might not have complete mastery of, say, economics but they can understand enough to use the rule that higher prices generally mean lower demand. Simple analyses and models might not describe all the details of the environment, but they can certainly help with decisions.

    5. What are the most widely used analyses for internal operations? Analyses of internal operations are generally included in an operations audit, which gives a detailed description of the operations used by an organisation. Many analyses can contribute to this, with those mentioned in the chapter being financial analysis, performance analysis, performance-importance, balanced scorecard, benchmarking, value-chain analysis and cost analysis.

    6. Balanced scorecards have become increasingly popular in the past few

    years. Why?

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    They give a way of looking at four important factors for the design of an operations or any other strategy, but this is not new. Many alternatives

    have been suggested, often using the same format and with slightly different names. Perhaps it unfair to suggest that balanced scorecards have become popular because of good marketing. Managers are particularly susceptible to using the latest idea or gimmick to try and get an advantage, so it is uncertain whether this interest will be sustained or whether it will die away.

    7. SWOT and similar analyses only describe present conditions. They do not

    show whether this is good or bad, and they do not show how to improve

    things. What, then, is their purpose? Their purpose is exactly as stated in the question which is to describe

    present conditions. They give a structure for presenting current circumstances, and this allows managers to consider the ways to move forward from the current position to a desired future one. Realistically, no analysis can either determine the best future position, or the best way of achieving this. In practice, collecting, analysing, reviewing and discussing the information for a SWOT analysis gives the most useful part of the analysis.

    8. How would you start a SWOT analysis for a public company? What type

    of factors would you include?

    By definition, you would start by colleting information about strengths (that the operations do well), weaknesses (where there are problems within the operations),opportunities (that can help the organisation) and threats (that can cause damage). Details of the factors to consider depend on the type of

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company.

IDEAS IN PRACTICE

    Ratner Group

    Aim: to show how a sudden environmental change can harm an organisation

    The operations environment is often stable for long periods, but it can also change very quickly. This case shows a classic example where the environment changed almost overnight, and there was little that Ratner could do to adapt. It is particularly interesting as the company (or its dominant manager) brought much of the change upon themselves.

    Managers had spent years building Ratner into a highly successful jewellery retailer. Customers appreciated the new methods introduced by Ratner and it had a good overall image. Then overnight its fortunes changed. Some misguided comments by its dominant manager completely changed its image. He seemed to suggest that the company viewed its own products as rubbish that was not worth buying. The implication was that customers would be foolish to buy them so not surprisingly, they immediately stopped. The fact

    that many of Ratner’s products were of high quality and gave very good value

    mattered little in a newly hostile market.

Polish television

    Aim: to show an outline structure for a PEST analysis

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    Conditions in Poland changed dramatically after 1989 when it moved from a centrally planned economy based on government ownership to a market economy based on private ownership. These changes continued after the country joined the European Union in 2004. A sign of these changes is the growth of television channels. There are obvious attractions for new companies in a large and rapidly growing market but there are also

    problems in an outward looking country that has a distinctive culture. This case outlines some concerns raised by a PEST analysis. This distinguishes a series of opportunities and threats that can also be used as part of a SWOT analysis.

    mmO2 Aim: to suggest the scale of intangible assets in a mobile telephone company

    Many companies have intangible assets that have far greater values than their tangible assets. These are very difficult to value. Most people recognise names of companies like McDonald’s and Coca Cola – but how much is this

    recognition really worth. Most people also recognise names like Hitler and Stalin, but this recognition would not necessarily increase the value of any company associated with them.

    The analysis given for O2 (which in 2006 became a part of Telefonica) shows how share value gives one way of valuing these intangible assets. As the share prices changes quickly, often for no apparent reason, and usually in line

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with changes in the general market, this valuation is at best a guideline.

    Nonetheless, it is often the only reasonable figure that is available.

Scoring models

    Aims: to show how scoring models can compare the performance of different

    operations

Scoring models are widely used for comparing different operations and

    many other things. This case illustrates the use of a simple scoring model,

    and suggests other areas where such models can be useful. These models

    have the advantages of being simple, easy to use, and presenting information

    in a useful format. On the other hand, they rely on subjective opinions about

    important factors, the relative importance of each, and actual performance.

    Supporters say that they combine diverse and often qualitative information

    into a single quantitative measure: critics say that they give a not very

    convincing way of justifying decisions that have already been made.

Synergistic Consultants

    Aim: to show the early stages in a SWOT analysis

This case gives a very brief view of a SWOT analysis for a new firm of

    management consultants. It does little more than list some headings but

    even this can suggest useful directions. For example, weaknesses centre on

    their small size and this is also at the heart of the threats. So an obvious direction for the strategy would call for expansion. They have some gaps in

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